The Legend of Lime Street

A Few Months Ago, in Palm Springs, California, the promoters of a golf tournament offered $50,000 to any player making a hole-in-one, and when a professional named Don January did indeed score a hole-in-one, his feat, in the words of a gentleman from Lloyd's of London, "repercussed." The promoters, it developed, had with some foresight insured themselves against the contingency, and as so often happens when the name Lloyd's turns up in connection with an apparently frolicsome bit of insurance business, a good many people doubtless concluded once again that, given the proper premium, Lloyd's will insure anything.

This is a misconception which Lloyd's finds both widespread and nettlesome. It is admittedly a pretty fine hair to be splitting, but the fact is that in the pure sense, Lloyd's of London will insure nothing. Although it is duly incorporated by Act of Parliament and carries tremendous authority and prestige in the world of insurance, Lloyd's is an extremely loose-jointed corporation as corporations go, and it certainly cannot be described as a company. Probably it is best explained as a simple, clublike society of some 4700 member-underwriters who not only function as individuals but are held individually and personally responsible for the policies they write.

(The term "underwriter" originated at Lloyd's and stems from the practice of a member's signifying his willingness to accept a certain portion of a proposed risk by writing his initials, along with the amount of risk he will take, under the preceding underwriter's initials and his share of the risk, the conditions of the policy having already been set out by the "lead" underwriter. In all Her Majesty's dominions, there is nothing more binding than the initials of a Lloyd's underwriter. Once he has scribbled them on the innocuous slip of paper handed him by a hopeful broker, he is committed, and there is no turning back.)

Since it bears no real corporate responsibility and is consequently shored up by nothing more than its members' fierce integrity, Lloyd's by all rights ought to have foundered and gone under long ago. But if it is a wingless bird, it can also fly when the occasion calls for it. A number of years ago, when a colleague surprisingly defaulted on a series of valid claims, the other underwriters rushed to the aid of both their own fallen angel and the various claimants by immediately putting forward some $1,800,000 in full settlement of the claims, though they were under no legal obligation whatever to do so. Asked why the group had so readily taken on the encumbrance, one of the members stiffened in surprise. "Why," he said, "it was the thing to do! After all, this is Lloyd's and we propose to see that it remains Lloyd's."

Remain Lloyd's it has. The statistics will be dispensed with rapidly, but since its almost accidental beginning in 1689 in the casual atmosphere of one Edward Lloyd's coffee house, a meeting place for merchants anxious not only to exchange shipping news but willing as well to speculate occasionally on the fate of a ship or its cargo, Lloyd's has burgeoned over the years into a vast and many-sided insurance complex with an annual premium income of $750,000,000, payable in more than one hundred and fifty different currencies. The amount of insurance actually in force with underwriters at Lloyd's is not a matter of public record, but it obviously runs well into the billions.

This, for all the magic in its name, is not to say that it is either the largest insurance organization in the world or the only one dealing in unusual policies. The Metropolitan Life Insurance Company in the United States, for example, had a premium income in 1959 of approximately $2,500,000,000. In addition, there are a number of companies, such as the Continental Casualty Company in the U.S., with whom it is possible to dicker for special, offbeat policies. In most instances, however, the amount an American company will take on a nonstandard risk is a comparatively nominal one, and it is more than likely that the company will quietly reinsure in London in any case. The result is that Lloyd's has no very severe competition, and the fact that it has remained largely unchallenged(continued on page 82) Lime Street (continued from page 47) throughout its long history is a source of curiosity even at Lloyd's.

"How long," a Lloyd's underwriter wondered recently during a discussion of its business in America, "are you chaps going to be needing us?"

The answer is probably "Until you pay off claims accruing on the millenium." One reason is that Lloyd's has always found the American market a lucrative one worthy of special attention. In 1939, for example, to allay any fears that British officialdom might somehow interfere with Lloyd's dollar payments to American customers, it created a special fund in the United States to satisfy American claims. The fund now totals some $350,000,000, virtually all of it in cash or United States Government securities.

Moreover, with 272 years of matchless experience behind them, the underwriters at Lloyd's constitute about as knowledgeable a body of men as it is possible to find in the business world, and in view of their unqualified success over the years in dealing with a bewildering variety of risks, it is obvious that they are uncommonly shrewd in evaluating the laws of probability from their wooden pews in the famous underwriting gallery known simply as the Room. It was a matter of some embarrassment a few years ago that Lloyd's was forced to decline insuring a flea circus when no underwriter could be found who was able to calculate the life expectancy of a flea, but aside from that, the underwriters and their actuaries are apt to know almost anything from the odds against the birth of twins (approximately thirty-three to one) to the probable dates next October when the Thames will overflow (Lloyd's thinks between the 24th and 26th).

Lloyd's is run pretty much as an exclusive London club is run. Membership requirements are set by a twelve-man committee which deals with all matters "affecting the general interest" of Lloyd's. The members of the committee are elected from the main body of underwriters and serve four-year terms, after which they must step down for at least a year before standing for re-election. They in turn elect the chairman from one of their own number. The chairman serves a one-year term, is like his colleagues unpaid, and is currently Anthony Charles Grover, a tall, wavyhaired, indisputably handsome, properly reserved gentleman in his late forties who will probably not be amused to know that he was recently described by an associate as "the stenographer's dream of the perfect upper-class English-man."

Despite the fact that the committee is all-powerful in laying down the ground rules, it is interesting that it cannot compel an underwriter to accept or reject a particular risk, nor can it instruct him to write a policy at a particular rate. Every underwriter is on his own. The committee can and does, however, set some formidable entrance requirements, and poor men need not apply.

Once investigated and elected, the fledgling underwriter first has to deposit with the committee an amount determined by the committee according to the volume of business he proposes to do. This is held in permanent reserve. He must then deposit another bundle of money with the Premiums Trust Fund to meet everyday claims and expenses, this sum also being determined by the committee. Finally, he must contribute annually to Lloyd's Central Fund, a trust set up in 1927 to meet the liabilities of any underwriter whose other assets might prove insufficient in an emergency. Everything considered, Lloyd's is no place for a man in a hurry for profits. Every underwriter's premiums have to stay in the Premiums Trust Fund for two years before he can even start thinking about withdrawing any part of them as profits, and even then he has to maintain the liability balance stipulated by the committee.

Because of its high standards, Lloyd's is practically immune from the breath of scandal. No holder of a policy backed by its underwriters has ever lost a penny through a member's insolvency. Nevertheless, it can be a heart-stopping business, and in the past the men in the Room have often been frozen in their tracks by a single, mournful bong from the Lutine Bell, a ship's bell which was recovered from the wreck of a French man-of-war captured by the British at Toulon in 1793 and which, for many years, was rung once at Lloyd's to announce the loss of a ship, twice for its safe arrival. (Now, although the underwriters retain a sentimental attachment to the bell, so many different types of insurance are being written in addition to marine insurance that it is rung only to herald important announcements by the "Caller," a red-coated gentleman whose regular function is to page various brokers and underwriters wanted by other brokers and underwriters in the Room.)

The spotless record enduring at Lloyd's is all the more remarkable when it is considered that virtually every disaster on the face of the earth has its reverberations in Lime Street. This is due not only to Lloyd's predilection for taking on almost any proffered risk but to the fact that it deals heavily in reinsurance, which is to say that it insures other insurance companies against loss.

The great San Francisco fire and earthquake, for example, cost Lloyd's some $50,000,000, and should the present Bay Bridge collapse, it would cost Lloyd's another $40,000,000, or so. The sinking of the Titanic meant a loss to the various underwriters of approximately $5,000,000. Various storms and hurricanes in the U.S. in 1950, and 1954 hit Lloyd's with the same violence they struck in America; in 1950, the total damage at Lloyd's was $53,500,000, of which $28,500,000 was paid out by the underwriters in one week alone. In 1954, an even worse year, Lloyd's paid out a total of $112,000,000 for storm damage in the United States.

None of these payments caused any rejoicing at Lloyd's. Yet it was a catastrophe 181 years ago that probably gave the underwriters at Lloyd's the most anxious moments they have ever experienced.

In the summer of 1780, Lloyd's committed itself heavily by insuring sixtythree ships in two British convoys, one bound for the West Indies and the other for the East Indies. Carrying valuable cargoes, including military stores, they sailed from England together with a strong Royal Navy escort as far as Cape Finisterre, on the western coast of Spain. Off Finisterre, the escort for some reason was reduced to one line vessel and two frigates, and within a matter of hours the hapless convoy had been trapped by the combined fleets of Spain and France.

It was almost certainly the greatest single blow that British commerce ever suffered, and it must be said that Lloyd's acquitted itself a good deal more honorably than many of the belligerents. The three escort vessels fled, and of the sixty-three merchantmen involved in the action, only eight escaped. The loss at Lloyd's was estimated at £1,500,000, and if that is not an especially impressive figure in 1961, it was enough in 1780 to bankrupt many of the underwriters. Nevertheless, Lloyd's paid off to the last cent.

Actually, in achieving its eminence in the exacting science of insurance, Lloyd's suffered a good many vicissitudes, particularly in the beginning when it first began to emerge as an organization of some form and substance.

Like the men who frequented Jonathan's Coffee House or the Baltic Coffee House, the forerunners respectively of the London Stock Exchange and the Shipping Exchange, the merchants who met at Lloyd's each day made up a company of thoroughly reputable gentlemen. But the word, unfortunately, got around. Inevitably, out-and-out gamblers and connivers infiltrated the coffee house to do business. There were few rules and no restrictions as to "mem- (continued on page 130)Lime Street(continued from page 82) bership." Anyone could drop in to take a flier on an insurance risk. Samuel Pepys, for instance, wrote insurance at Lloyd's with considerable success, and may have done as well financially in insurance as he did in writing his Diary. Daniel Defoe, on the other hand, lost his shirt gambling on insurance risks, and his bad luck or faulty judgment, whichever it was, might well have inspired his gloomy couplet, "Wherever God creates a house of prayer, the Devil builds a chapel there."

Certainly the foundations were being laid for a Devil's chapel at Lloyd's. In no time at all the professional sharpers were writing "insurance" against such quixotic possibilities as a criminal's being released from prison "prematurely," war's being declared on a Sunday, or a peer's losing his head. Everything considered, the informal atmosphere at Lloyd's served the gamblers well and they suffered only an occasional setback, one of the more notable ones being scored by a sly foreign ambassador who, with advance information, successfully took out insurance against the capture of Minorca three days after it had already been taken. A bookmaker would call this a gross case of "past posting," or betting after the race has been run.

Because of the legitimate underwriters' overriding preoccupation with marine risks in which the gamblers had little interest, the latter might easily have destroyed Lloyd's if they had not finally been hoist by their own sharpwittedness. As it happened, they had the bad luck to hit on the idea of insuring the lives of distinguished invalids in London, basing their "rates" on the extent and accuracy of the information they were able to wheedle from various sources as to the seriousness of the illnesses.

That did it. Not only were the regular underwriters suddenly aware of the bad taste being exercised in the name of Lloyd's, but the effect on a sick man, when he read in his newspaper that Lloyd's was betting a hundred to one against his lasting out the week, was apt to be cataclysmic. Under the circumstances, the legitimate underwriters abruptly withdrew from the coffee house and set up a new, rival organization from which the gamblers were excluded. For some reason, despite the connotations it had taken on, they retained the name Lloyd's.

It is often assumed that a risk uninsurable at Lloyd's is uninsurable anywhere, and it is certainly true that Lloyd's in its time has taken on a dazzling variety of risks. Needless to say, it was Lloyd's which insured Evelyn West's chest for $50,000, Mistinguette's legs for $1,000,000,Pearl White's dimples for $19,000 and Olivia de Havilland's jaw for $75,000 (after making sure that Ray Milland, who was to slug her in a particular scene, had nothing personal against Miss de Havilland and intended to pull his punch).

Because of the skill of its actuaries in calculating various probabilities and possibilities, Lloyd's makes precious few mistakes, though it is not infallible. Lloyd's had to cough up several thousand dollars to her father when Gertrude Ederle crossed up the underwriters by successfully swimming the English Channel, for example, and several years ago it pulled a notable boo-boo when it agreed to insure American saloonkeepers against the ever-present threat of an inebriated customer's inflicting physical injury on an innocent third party, thus causing the saloonkeeper to be liable for damages.

It was a noble experiment, though, and Lloyd's was doing a brisk business in barroom insurance until the underwriters discovered they were being taken. It was almost too easy. Mr.Smith, encountering Punchy Jones in the neighborhood tavern, simply stood Punchy to a few drinks in return for Punchy's agreeing to assault him with just enough violence to justify a claim against the tavern owner. Although this kind of insurance is still obtainable, it need hardly be added that Lloyd's has made a number of changes in the conditions under which it will pay.

There is no such thing as a rate book or a standard premium at Lloyd's, and because they are in competition not only with one another but with other insurance organizations as well, the underwriters are reluctant for the most part to discuss their business in any detail. However, when Lloyd's agreed to pay £2,500 to any woman giving birth to quintuplets within nine months after seeing the movie The Country Doctor,the theatre chain sponsoring the obvious publicity stunt paid a premium of £50. Similarly, for insuring the owner of a London pet store against the dubious possibility of his having to make good on an offer of £20,000 to anyone delivering the Loch Ness Monster to his shop, Lloyd's charged a premium of £80.

Several years ago, when a London newspaper offered a series of cash prizes for guessing the order of finish of the Derby, plus the number of people getting of the race train at Epsom, Lloyd's felt that a reasonable premium for insuring the paper would be £10 for every £100 paid out. When the redoubtable Mickey Mouse had his eighth birthday, Walt Disney offered a free birthday cake to any child born on the same day in the same year, calculating that he could afford to give away two thousand cakes. For a premium of only £5, Lloyd's confidently offered to pay Disney ten pence for every child over the two-thousand mark who claimed a cake. Disney forfeited his £5.

Some premiums at Lloyd's remain fairly constant. The rate for rain insurance in England, for example, is almost always quoted at a little over seven percent, or roughly seven shillings for each £5 of insurance. The difficulty, obviously, is to establish the proper premium in the first place, and there have been numerous times when the actuaries and underwriters in the Room have been powerless to calculate the odds because of a lack of any prior experience with the situation. There has been simply nothing to go on.

Both the actuaries and the underwriters, however, have always demonstrated a remarkable faculty for playing things by ear when the need arose. Toward the end of the last century, when Cuthbert Heath, a Lloyd's underwriter and the originator of many kinds of insurance, pioneered "all-risks" insurance on jewelry, he could only cross his fingers and arbitrarily set a rate of ten shillings for each £100. It is a tribute to his instinct that the premium for all-risks insurance at Lloyd's remained at ten shillings per £100 for more than fifty years.

Lloyd's underwriters dislike any discussion of war profits, yet while Lloyd's has never set out deliberately to feast on the bones of adversity, the fact remains that it has always found itself heavily involved in wars, and for that matter, not always profitably. In the Boer War, for example, it suffered fairly heavily after insuring many South Africans against property damage.

It was different in World War I when a great many Londoners came unstuck at the sight of the first Zeppelin over the city and rushed to their brokers for insurance. The brokers naturally placed the insurance with Lloyd's, and it is altogether possible that profits were never higher for both brokers and underwriters. Only a few small, powderpuff bombs were dropped by the Germans, and before the war had ended. one broker had paid the government more than $1,500,000 in excess profit taxes.

How much Lloyd's may have profited from World War II is moot. In any event, when Hitler unleashed his aerial offensive against Britain, a good many people were already insured at Lloyd's for the extremely low premium of £1 per £1,000 of insurance. Later in the war, when German buzz bombs suddenly appeared in English skies, Lloyd's wrote $24,000,000 worth of insurance in one day and steadfastly stuck to the old rate. By the time the war was over, it had written more than $120,000,000 worth of buzz-bomb and rocket insurance, all at £1 per £1,000.

Occasionally, one of Lloyd's more conservative underwriters will lament the fact that one of his colleagues once saw fit to insure the breasts of one Baby Scruggs, a London dancer, for $50,000 each, and in a sense he has a point. While the offbeat policy has a place and purpose at Lloyd's, it also tends,unfortunately, to give a false image of Lloyd's that is not justified by its history. Frequently forgotten, for example, is the fact that it was some imaginative underwriter at Lloyd's who originated not only marine insurance but automobile insurance, fire insurance, personal property insurance and burglary insurance, to cite only a few of the now standard types of insurance that had their genesis there.

However, if Lloyd's at times seems to be open to criticism for a certain lack of dignity, a charge which is made from time to time, a ringing defense has already been entered by D.E.W. Gibb, a member of Lloyd's for more than fifty years. Several years ago, in discussing the delicate question of dignity, Gibb readily conceded that there was nothing much wrong in being dignified; however, he also pointed out that being too dignified was apt to be downright paralyzing. "Nothing in this world," he observed, with some asperity, "is more dignified than a mummy."

Most of Lloyd's underwriters share his view, and although it is not the case at all, the widespread notion that freak risks constitute the bulk of Lloyd's business is not entirely discouraged by the members, their feeling being that a certain amount of new business is doubtless generated by the publicity that inevitably attends the insuring of a Baby Scruggs breast or the vocal cords of a tobacco auctioneer. Moreover, since Lloyd's is unquestionably the most flexible insurance market anywhere, it seems only natural to most of the men in the Room that it should be they who are sought out regularly for unusual policies.

It has always been that way. Early in the Nineteenth Century, Lloyd's unhesitatingly issued a policy to one William Dorrington on the life of Napoleon "in case he shall cease to exist or be taken prisoner on or before the 21st June, 1813," the assumption being that Dorrington was engaged in some venture that would be affected by Napoleon's death or capture. Nappy survived the policy, to the further enrichment of Lloyd's. Until the outbreak of World War II, Adolf Hitler was insured against the death in flight of any of the passengers in his private plane, a contingency which fascinated but did not deter the underwriters of Lime Street.

Interestingly enough, Lloyd's does not write ordinary life insurance, but it will insure the beneficiary of a life insurance policy against the policyholder's voiding the policy by committing suicide. As it once did in the case of Sir John Hunt, the noted British explorer, Lloyd's will insure an expedition to the Antarctic with no more fuss than accompanies its annual insuring of the Lord Mayor's coach and horses. The size of the policy is immaterial. Several years ago, Lloyd's incurred a fairly substantial loss when the model whale used in the motion picture Moby Dick was lost at sea; at the same time, one of the underwriters was shelling out £8, plus ten shillings for "salvage" charges, to a small boy whose toy boat had sunk in a pond in London's Kensington Gardens.

In one sense, Lloyd's is like a good many British institutions that somehow manage to keep a cold, calculating eye on the future while maintaining a deathlike grip on the past. Certain vestiges of the coffee house have survived, as in the case of the various runners and diverse attendants at Lloyd's who, to this day, are called "waiters." But what is even more fascinating is the success of Lloyd's in building, over the years and side by side, two seemingly opposite reputations – one for bedrock stability and the other for an almost insouciant willingness to take on any insurable risk.

The key word is "insurable." If a Lloyd's underwriter likes your proposition, it is insurable. If he doesn't like it, you are out of luck. Sometimes, too, the premium quoted by the underwriter is felt by the customer to be out of proportion to the risk involved. The late Mario Lanza, for instance, had an idea that his voice was worth $1,000,000, and he may have been right. However, he changed his mind about insuring it for that amount when Lloyd's quoted him an annual premium of £2,000, or $5,600.

As a general rule, it is a good idea to remember that the underwriters at Lloyd's are not quite soft in their heads. Once they refused to insure the new wing of a hospital in Atlanta unless the nurses agreed not to wear nylon panties, bras or slips, which, because of the static electricity they generate, could cause an explosion in the ether-laden operating room.

There are some other situations Lloyd's does not especially like. Your job, for example, is not insurable. Lloyd's will not insure you against going broke; the temptation to go broke deliberately and retire to an idyllic island on Lloyd's money might prove irresistible. Nor will Lloyd's insure you against divorce or the possibility of your committing a murder, although it did insure a London landlord several years ago against the risk of someone's reducing the value of his property by committing murder or suicide on the premises.

If one feels that permanent bachelorhood is apt to be a desolate state and he wants to protect himself against the contingency, he should not go to Lloyd's; regardless of their own situations, the underwriters in the Room are not noticeably sentimental, and they will not insure a bachelor against his failure to marry unless he is willing to pay a premium which in effect will be so high as to keep him single in any case. Similarly, Lloyd's will not insure the continuity of newspaper circulation or department store sales, nor will it insure a Broadway play against failure.

What of the future of Lloyd's? In exploring its past and contemplating its present, one can only feel confidence in its peculiarly British durability: like many of England's venerable institutions, it seems almost whimsically festooned with the trappings of tradition and with rituals and protocols whose origins have been outgrown. Yet, like similarly burdened vessels of English pomp and circumstance (the Royal Family and Parliament itself), Lloyd's has beneath its antiquarian exterior a very flexible and adventurous tough-minded-ness indeed – which may survive best behind its patinated facade. With the world poised on the threshold of space, it seems quite conceivable that the gentlemen of Lime Street are already drafting a short-form policy – to be presented by one of their impeccably garbed and properly decorous minions, to the first man (American astronaut or Soviet spacenik) to land on the moon, thus providing him the wherewithal to seek interstellar solace should his return voy-age fail.