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Lloyd’s of London Definition

What is Lloyd’s of London?

Lloyd’s of London, often referred to today simply as Lloyd’s, is an insurance and reinsurance marketplace. Its members function as unions to provide insurance coverage to businesses, organizations and individuals. Syndicates specialize in different types of risks and each syndicate decides which risks to insure. The main objective of Lloyd’s is to facilitate transactions between buyers and sellers of insurance.

Key points to remember

  • Lloyd’s of London, or Lloyd’s, is an insurance and reinsurance marketplace.
  • The members, who can be companies or individuals, operate in syndicates, specializing in different types of risks.
  • There are five key players at Lloyd’s: syndicates, insurance buyers, brokers, managing agents and coverholders.

Understanding Lloyd’s of London

Lloyd’s is not a Insurance company. Rather, it is a body corporate governed by the Lloyd’s Act 1871 and subsequent Acts of the UK Parliament. It operates as a partially pooled market place made up of multiple donors, grouped into syndicates, which pool and spread the risks. These Subscribers, or “Members”, include both companies and individuals, the latter being known as “Names”. Essentially, Lloyd’s is a marketplace where insurance buyers and insurance sellers can do business.

The market also includes brokerswho help connect buyers and sellers, and the managing agents who run the syndicates on a day-to-day basis.

Lloyd’s of London Key Players

There are five main groups in the Lloyd’s market. These are syndicates, insurance buyers, brokers, managing agents and coverholders.

Unions. Central players in Lloyd’s, syndicates can be made up of companies or individuals. Unions basically operate like insurance companies that offer a specific type of insurance. More than one syndicate can participate in an insurance contract, thus spreading the risk among several syndicates.

Insurance buyers. These, of course, enough, are the individuals or companies who wish to take out insurance. Often, if a traditional insurance company is unwilling to provide the type or amount of coverage a buyer wants, perhaps for a particularly risky business, it can find willing insurance salespeople among the syndicates of Lloyd’s.

Brokers. As with other types of brokers, Lloyd’s brokers act as intermediaries between insurance buyers and syndicates, helping to match the buyer with the appropriate syndicate. Lloyd’s brokers must be approved by the Corporation of Lloyd’s to be allowed to do business in the market.

Managing Agents. Management officers work for unions and manage their day-to-day operations. For example, they are responsible for hiring and supervising all essential personnel, such as underwriters and accountants.

Coverholders. Coverholders are companies that the managers authorize to enter into insurance contracts to be underwritten by the syndicates. Coverholders allow Lloyd’s to operate globally without having to locate in many locations.

At the start of 2022, Lloyd’s had 76 syndicates, 350 brokers and 4,030 hedging locations. Collectively Lloyd’s had over 200 lines of business and underwrote £35.5 billion in gross premiums.

History of Lloyd’s of London

With its roots in marine insurance, Lloyd’s was founded by Edward Lloyd in his London Tower Street café in 1688. The establishment was popular with sailors, shipowners and merchants, and Lloyd provided them with reliable information on navigation. Lloyd’s Cafe quickly became a good place to take out insurance to cover ships and their cargoes against the perils of the seas.

The shop was also frequented by sailors involved in the slave trade. Lloyd’s obtains the monopoly of maritime insurance linked to the slave trade and maintains it until the beginning of the 19th century. The Lloyd’s website apologizes for this role, saying in part: “We are deeply sorry for Lloyd’s market involvement in the transatlantic slave trade. It is part of our shared history which has caused enormous suffering and continues to have a negative impact on Black and ethnic minority communities today.”

The original Lloyd’s Act gave the company a solid legal footing. Lloyd’s Act 1911 set out the purposes of the organization, which include promoting the interests of its members and collecting and disseminating information. Today Lloyd’s is headquartered on Lime Street in a historic building which opened in 1986.

What is subscription?

Subscription refers to taking risk in exchange for reward. Part of the underwriting process is to assess the risk involved and set the fees accordingly.

What is reinsurance?

Reinsurance is a way for insurance companies to protect themselves against risk, for example by transferring part of their portfolio to other insurers in exchange for a share of the premiums.

What is marine insurance?

One of the oldest forms of insurance, marine insurance can cover ships, their cargoes and related risks. The hull of the Titanic, for example, was insured for a total of £1 million, with several Lloyd’s syndicates taking over some of the policing.

The essential

Lloyd’s of London, commonly referred to as Lloyd’s, is a major market for insurance and reinsurance. Although it is not an insurer per se, it provides insurance buyers and its selling members, known as syndicates, a place to trade.

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