Editing Lloyd's of London (section)

==History==

===17th–19th centuries: Formation and first Lloyd's Act===
[[File:Microcosm of London Plate 049 - Lloyd's Subscription Room edited.jpg|thumb|The Subscription Room in the early 19th century]]

The market began in [[Lloyd's Coffee House]], owned by Edward Lloyd, on [[Great Tower Street|Tower Street]] in the [[City of London]].<ref>{{cite book|last=Marcus|first=G. J.|title=Heart of Oak: A Survey of British Sea Power in the Georgian Era|year=1975|page=[https://archive.org/details/heartofoaksurvey0000marc/page/192 192]|publisher=Oxford University Press|isbn=0192158120|url=https://archive.org/details/heartofoaksurvey0000marc/page/192}}</ref> The first reference to it can be traced to the ''[[London Gazette]]'' in 1688.<ref>{{Cite web |title=Coffee and commerce 1652–1803 |url=https://www.lloyds.com/about-lloyds/history/coffee-and-commerce |access-date=27 January 2024 |website=Lloyd's}}</ref> The establishment was a popular place for sailors, merchants, and ship-owners, and Lloyd catered to them with reliable shipping news. The coffee house soon became recognised as an ideal place for obtaining marine insurance. The shop evolved into a meeting place for people of all types of maritime occupations, who would make bets on which ships would make it back to port. Soon, the captains of ships that were suggested to fail to return were betting against the return of other ships.{{Citation needed|date=January 2024}} It was the start of Lloyd's insurance. During this time, the coffee house was also frequented by mariners involved in the [[Atlantic slave trade|slave trade]].<ref>{{Cite book |last=schivelbusch |first=wolfgang |title=tastes of paradise}}</ref> Historian [[Eric Williams]] noted that "Lloyd's, like other insurance companies, insured slaves and [[slave ship]]s, and was vitally interested in legal decisions as to what constituted 'natural death' and 'perils of the sea'".<ref name="Williams1994">{{cite book |last1=Williams|first1=Eric |title=Capitalism and Slavery|date=1994 |publisher=University of North Carolina Press|location=Chapel Hill |pages=104–105 |isbn=9780807844885 |url=https://archive.org/details/capitalismandsla033027mbp|access-date=25 September 2017|url-status=dead}}</ref> Lloyd's obtained a monopoly on maritime insurance related to the slave trade and maintained it until the [[Slave Trade Act 1807|abolition of the slave trade]] in 1807.<ref name="Williams1994"/>

Just after Christmas 1691, the small club of marine insurance underwriters relocated to No. 16 [[Lombard Street, London|Lombard Street]]; a [[blue plaque]] on the site commemorates this. This arrangement carried on until 1773, long after the death of Edward Lloyd in 1713, when the participating members of the insurance arrangement formed a committee and underwriter John Julius Angerstein acquired two rooms at the [[Royal Exchange, London|Royal Exchange]] in [[Cornhill, London|Cornhill]] for "The Society of Lloyd's".<ref name=Brown>{{cite book|last=Brown|first=Antony|title=Cuthbert Heath: Maker of the Modern Lloyd's of London|year=1980|publisher=George Rainbird Ltd|location=London, W1|isbn=0-7153-7942-9|url-access=registration|url=https://archive.org/details/cuthbertheathmak0000brow}}</ref> In July 1803, the [[Lloyd's Patriotic Fund]] was established by a group of Lloyd's underwriters.<ref name="c376">{{cite book | last=Barton | first=Mark | last2=McGrath | first2=John | title=British Naval Swords and Swordsmanship | publisher=Pen and Sword | date=2013-07-03 | isbn=978-1-4738-2221-4}}</ref><ref name="v937">{{cite book | last=Glover | first=Gareth | title=Nelson's Navy in 100 Objects | publisher=Frontline Books | date=2021-07-30 | isbn=978-1-5267-3135-7 | page=277-279}}</ref><ref name="z281">{{cite book | last=Martin | first=Frederick | title=The History of Lloyd's and of Marine Insurance in Great Britain | publisher=The Lawbook Exchange, Ltd. | date=2004 | isbn=978-1-58477-451-8 | page=217}}</ref>

{{Infobox UK legislation
| short_title           = Lloyd's Act 1871
| type                  = Act
| parliament            = Parliament of the United Kingdom
| long_title            = An Act for incorporation the members of the Establishment or Society formerly held at Lloyd's Coffee House in the Royal Exchange in the city of London, for the effecting of Marine Insurance, and generally known as Lloyd's; and for other purposes.
| year                  = 1871
| citation              = [[34 & 35 Vict.]] c. xxi
| introduced_commons    = 
| introduced_lords      = 
| territorial_extent    = 
| royal_assent          = 25 May 1871
| commencement          = 
| expiry_date           = 
| repeal_date           = 
| amends                = 
| replaces              = 
| amendments            = 
| repealing_legislation = 
| related_legislation   = 
| status                = 
| legislation_history   = 
| theyworkforyou        = 
| millbankhansard       = 
| original_text         = https://www.legislation.gov.uk/ukla/Vict/34-35/21/contents/enacted
| revised_text          = 
| collapsed             = yes
}}
The [[Royal Exchange, London|Royal Exchange]] was destroyed by fire in 1838, forcing Lloyd's into temporary offices at [[South Sea Company|South Sea House]], [[Threadneedle Street]]. The Royal Exchange was rebuilt by 1844, but many of Lloyd's early records were lost in the blaze. The '''{{visible anchor|Lloyd's Act 1871}}''' ([[34 & 35 Vict.]] c. xxi), the first Lloyd's Act, was passed in [[Parliament of the United Kingdom|Parliament]] which gave the business a sound legal footing. Around that time, it was unusual for a Lloyd's syndicate to have more than five or six backers; this lack of underwriting capacity meant Lloyd's was losing many of the larger risks to rival insurance companies. A marine underwriter named Frederick Marten is credited for first identifying this issue and creating the first "large syndicate", initially of 12 capacity providers. By the 1880s Marten's syndicate had outgrown many of the major insurance companies outside Lloyd's.<ref name=Brown/>

===Early 20th century: San Francisco earthquake and first Lloyd's building===
On 18 April 1906, [[1906 San Francisco earthquake|a major earthquake]] and resulting fires destroyed over 80 per cent of the city of [[San Francisco]]. This event was to have a profound influence on building practices, risk modelling and the insurance industry.

[[File:Post-and-Grant-Avenue-Look.jpg|thumb|left|The [[1906 San Francisco earthquake]] caused substantial losses for Lloyd's underwriters.]]

Lloyd's losses from the earthquake and fires were substantial, even though the writing of insurance business overseas was viewed with some wariness at the time. While some insurance companies were denying claims for fire damage under their earthquake policies or ''vice versa'', one of Lloyd's leading underwriters, [[Cuthbert Heath]], famously instructed his San Francisco agent to "pay all of our policy-holders in full, irrespective of the terms of their policies". The prompt and full payment of all claims helped to cement Lloyd's reputation for reliable claim payments and as an important trading partner for US brokers and policyholders. It was estimated that around 90 per cent of the damage to the city was caused by the resultant fires and as such, since 1906 "fire following earthquake" has generally been a specified insured peril under most policies. Heath is also credited for introducing the now widely used "excess of loss" reinsurance protection for insurers following the San Francisco quake.<ref>{{Cite web|url=https://www.lloyds.com/about-lloyds/history/catastrophes-and-claims/san-francisco-1906-earthquake|title=San Francisco earthquake|website=Lloyd's|access-date=29 June 2019}}</ref>

Heath had become an underwriting member of Lloyd's in 1880, upon reaching the minimum age of 21, on J. S. Burrows' syndicate. Within a year he was underwriting for himself on a three-man syndicate; in 1883 he also opened a brokerage business. In 1885, he wrote the first fire reinsurance contract, reinsuring the [[Hand in Hand Fire & Life Insurance Society|Hand in Hand Insurance Company]] and marking the start of Heath's push to diversify the market into "non-marine" business. He also wrote Lloyd's first [[burglary]] insurance policy, its first "all risks" jewellery policy and invented "jewellers' block" cover. Later, during [[World War I]] he offered air-raid insurance, protecting against the risk of [[German strategic bombing during World War I|German strategic bombing]].<ref name=Brown/>

{{Infobox UK legislation
| short_title           = Lloyd's Act 1911
| type                  = Act
| parliament            = Parliament of the United Kingdom
| long_title            = An Act to extend the objects of and confer further powers on Lloyd's and to amend the Lloyd's Act 1871.
| year                  = 1911
| citation              = [[1 & 2 Geo. 5]]. c. lxii
| introduced_commons    = 
| introduced_lords      = 
| territorial_extent    = 
| royal_assent          = 18 August 1911
| commencement          = 
| expiry_date           = 
| repeal_date           = 
| amends                = 
| replaces              = 
| amendments            = 
| repealing_legislation = 
| related_legislation   = 
| status                = 
| legislation_history   = 
| theyworkforyou        = 
| millbankhansard       = 
| original_text         = https://www.legislation.gov.uk/ukla/Geo5/1-2/62/contents/enacted
| revised_text          = 
| collapsed             = yes
}}
The subsequent '''{{visible anchor|Lloyd's Act 1911}}''' ([[1 & 2 Geo. 5]]. c. lxii) set out the society's objectives, which include the promotion of its members' interests and the collection and dissemination of information.<ref>{{cite web|url=http://www.lloyds.com/The-Market/Operating-at-Lloyds/Regulation/Acts-and-Byelaws/~/media/Files/The%20Market/Operating%20at%20Lloyds/Regulation/Acts%20and%20byelaws/Acts/Mar07LloydsAct1911.pdf|title=Lloyd's Act 1911|access-date=26 February 2011|archive-date=28 September 2011|archive-url=https://web.archive.org/web/20110928121010/http://www.lloyds.com/The-Market/Operating-at-Lloyds/Regulation/Acts-and-Byelaws/~/media/Files/The%20Market/Operating%20at%20Lloyds/Regulation/Acts%20and%20byelaws/Acts/Mar07LloydsAct1911.pdf|url-status=dead}}</ref>

A year later in April 1912 Lloyd's suffered perhaps its most famous loss: the sinking of the ''[[Titanic]]''. It was insured for £1 million, which represented 20 per cent of the entire market's capacity, making it the largest marine risk ever insured.  The record of its sinking in the 1912 "Loss Book" is on display in the Lloyd's building.<ref>{{cite web | url=https://www.lloyds.com/about-lloyds/history/sweeping-change-new-standards | title=Sweeping change, new standards 1827-1945 }}</ref>

The society moved into its first owned, dedicated building in 1928. It was located at 12 [[Leadenhall Street]] and had been designed by [[Edwin Cooper (architect)|Sir Edwin Cooper]].

===1960s: Hurricane Betsy and the Cromer report===
In 1965 Lloyd's wrote the first satellite insurance policy, covering [[Intelsat I]] in pre-launch.<ref>{{cite web | url=https://www.lloyds.com/about-lloyds/history/new-frontiers-and-greater-risk | title=The age of new frontiers 1965-2014 }}</ref>

Later that year, when Lloyd's had around 6,000 members on 300 syndicates, [[Hurricane Betsy]] struck the [[Gulf of Mexico]] coastlines, costing the market over £50 million. The catastrophe halted the capital that hitherto had been pouring into Lloyd's, and twice as many members left between 1965 and 1968 as had left over the prior eight years.<ref name=Mantle/> It was soon realised that the membership of the Society, which had been largely made up of market participants, was too small in relation to the [[Market capitalization|market's capitalisation]] and the risks that it was taking on.

Lloyd's response was to commission a secret internal inquiry in 1968, headed by [[Rowland Baring, 3rd Earl of Cromer|Lord Cromer]], a former [[Governor of the Bank of England]]. This report advocated the widening of membership to non-market participants, including non-British subjects and then women, and the reduction of the onerous capitalisation requirements (thus creating a minor investor known as a "mini-Name"). The report also drew attention to the danger of [[conflict of interest|conflicts of interest]]. The liability of the individual Names was unlimited, and thus all their personal wealth and assets were at risk.

===1970s: Changes in the financial markets===
{{more citations needed|section|date=January 2025}}
During the 1970s, a number of issues arose which were to have significant influence on the course of the Society. The first was the tax structure in the UK: for a time, [[capital gain]]s were [[Capital gains tax|taxed]] at up to 40 per cent (nil on [[Gilt-edged securities|gilt]]s); earned income was taxed in the top bracket at 83 per cent, and investment income in the top bracket at 98 per cent. Lloyd's income counted as earned income, even for Names who did not work at Lloyd's, and this heavily influenced the direction of underwriting: in short, it was desirable for syndicates to make a (small) underwriting loss but a (larger) investment gain. The investment gain was typically achieved by "[[Bond (finance)|bond]] washing" or "gilt stripping": selling the gilt or other bond cum dividend and buying it back [[Ex-dividend date|ex-dividend]], thus forfeiting the interest income in exchange for a tax-free capital gain. Syndicate funds were also moved offshore (which later created problems through fraud and self-dealing).

Because Lloyd's was a tax shelter as well as an insurance market, the second issue affecting it was an increase in its external membership: by the end of the 1970s, the number of passive investors dwarfed the number of underwriters working in the market. The third issue related to a series of losses as a result of scandal.<ref name="e130">{{cite web | title=Business: Lloyd's Losses | website=[[Time (magazine)|Time]] | date=1980-03-03 | url=https://content.time.com/time/subscriber/article/0%2C33009%2C950302-2%2C00.html | access-date=2024-10-05}}</ref> During the decade a number of scandals had come to light, including the collapse of F. H. "Tim" Sasse's non-marine syndicate 762, which had issued large fire insurance claims that had highlighted both the lack of regulation and the lack of legal powers of the Committee of Lloyd's (as it was then) to manage the Society.<ref name="e130"/>

===Late 1970s: Sasse scandal and other issues===
The collapse of the Sasse syndicate came after it wrote a "binding authority" in 1975 that delegated underwriting authority to Florida-based expatriate Dennis Harrison to write property and fire risks through his Den-Har Underwriters agency, even though Den-Har was not an approved Lloyd's coverholder (a fact noticed neither by Sasse nor Lloyd's Non-Marine Association). Den-Har had suspected [[American Mafia|Mafia]] links and many of the risks written were rigged: typically dilapidated buildings in slums such as [[New York City|New York]]'s [[south Bronx]], which soon burned down after being insured for large sums.

Once the three-year Lloyd's accounting period passed, the 110 Names on syndicate 762 were told they faced substantial losses, from mostly fraudulent claims. Sasse's reinsurer, the [[Instituto de Resseguros do Brasil]] (IRB), refused to pay its share of the fraudulent losses. The Names (few in number for such large losses) took legal action and ultimately paid only £6.25m of {{circa}} £15m of Den-Har claims under the 1976 year, leaving the Corporation of Lloyd's to pay the remainder. The Corporation also paid the near £7m loss for 1977.<ref name=Hodgson/> Lloyd's banned Sasse from the market for life in 1985; he died on 28 February 1987.

Sasse had also been one of 57 underwriters on other syndicates that wrote loss-making "computer leasing" policies in the late 1970s. These claims ultimately ran above $450m, wiping out more than half the entire market's profit in a single year.<ref name=Mantle/>

Problems also developed out of the Oakley Vaughan agency run by brothers Edward and Charles St George, which had written far more business than its capacity allowed in order to invest premium to take advantage of high interest rates. By writing swathes of business regardless of whether the premiums were adequate, the St Georges left their Names with serious losses. Lloyd's had commissioned investigations into Oakley Vaughan, but investigators were denied access to the books and relied only on reassurances that the agency was profitable.<ref name=Luessenhop>{{cite book|last=Luessenhop|first=Elizabeth|title=Risky Business|year=1995|publisher=Scribner|location=New York|isbn=0-684-19739-1|url=https://archive.org/details/riskybusinessins00lues}}</ref>

Arising simultaneously with these developments were wider issues: first, in the US, an ever-widening interpretation by the courts of insurance coverage in relation to [[workers' compensation]] for [[asbestosis]]-related claims, which created a huge hole in Lloyd's loss-payment reserves, which was initially not recognised and then not acknowledged. Second, by the end of the decade, almost all of the market agreements, such as the Joint Hull Agreement, which were effectively [[cartel]]s mandating minimum terms, had been abandoned under pressure of competition. Third, new specialised policies had arisen which had the effect of concentrating risk: these included "run-off" policies, under which the liability of previous underwriting years would be transferred to the current year, and "time and distance" policies, whereby reserves would be used to buy a guarantee of future income.

===Early 1980s: New Lloyd's Act, Lioncover and Centrewrite===

;Fisher report
In 1980, [[Henry Arthur Pears Fisher|Sir Henry Fisher]] was commissioned by the Council of Lloyd's to produce the foundation for a new Lloyd's Act. The recommendations of his report addressed the "democratic deficit" and the lack of regulatory muscle.

Fisher, working with Richard Southwell QC, drafted the '''{{visible anchor|Lloyd's Act 1982}}''' (c. xiv) which further redefined the structure of the business and was designed to give external Names, introduced in response to the Cromer report, a say in the running of the business through a new governing Council.<ref>{{cite web|url=http://www.lloyds.com/The-Market/Operating-at-Lloyds/Regulation/Acts-and-Byelaws/~/media/Files/The%20Market/Operating%20at%20Lloyds/Regulation/Acts%20and%20byelaws/Acts/Dec08LloydsAct%201982_2008.pdf|title=Lloyd's Act 1982|access-date=26 February 2011|archive-date=28 September 2011|archive-url=https://web.archive.org/web/20110928121032/http://www.lloyds.com/The-Market/Operating-at-Lloyds/Regulation/Acts-and-Byelaws/~/media/Files/The%20Market/Operating%20at%20Lloyds/Regulation/Acts%20and%20byelaws/Acts/Dec08LloydsAct%201982_2008.pdf|url-status=dead}}</ref> The main purpose of the 1982 Act was to separate the ownership of the managing agents of the underwriting syndicates from the ownership of the brokering houses (which acted as intermediaries, not as underwriters), with the objective of removing conflicts of interest.

;PCW scam and Lioncover
Immediately after the passing of the 1982 act, evidence came to light and internal disciplinary proceedings were commenced against a number of underwriters who had allegedly siphoned money from their syndicates to their own accounts. These individuals included a deputy chairman of Lloyd's and some of its leading underwriters. Successful marine underwriter [[Ian Posgate]], who at one point had written 20 per cent of the Lloyd's marine market, was expelled under suspicions but later acquitted of criminal charges. His name remained tarnished and he did not return to the market, retiring to run his Oxfordshire farm until his death in 2017 aged 87. A greater debacle arose when Peter Cameron-Webb and Peter Dixon, of PCW Underwriting Agencies, allegedly defrauded their business of some $60m through rigged reinsurance transactions and fled to the United States, never to return.

The emergence of fraud at PCW was the first in a series of events that led to the resignation of Lloyd's chairman Sir Peter Green in 1983. Lloyd's was later forced to make a settlement with the roughly 3,000 Names on the various PCW syndicates involved and to reinsure their liabilities into a new syndicate, number 9001, in turn reinsured by a unique vehicle named Lioncover, which was set up as a Lloyd's subsidiary insurance company. Lioncover assumed the liabilities of PCW as well as the associated WMD and Richard Beckett underwriting agencies in 1987. In 1988 it also assumed the 1967–1969 liabilities of syndicates 2 and 49. Dixon and Cameron-Webb remained at large in the US; Cameron-Webb reportedly died in 2004 in a nursing home in California<ref>{{Cite web|url=https://www.i-law.com/ilaw/doc/view.htm?id=117791|title=Peter Cameron-Webb dies in California|website=i-law.com|date=February 2023 |last1=Faulkner |first1=Michael }}</ref> and Dixon became a real estate agent in Florida; he died in 2017.{{Citation needed|date=February 2024}}

Lioncover's PCW liabilities were reinsured as part of the [[Equitas]] arrangement in the late 1990s and transferred to [[National Indemnity Company]] in two stages in 2007 and 2009. Residual funds in Lioncover were later distributed to surviving PCW Names or donated to the Lloyd's Charities Trust. Lioncover was voluntarily dissolved in 2014.

;Warrilow syndicate and Centrewrite
Lloyd's also faced action from Names on C. J. Warrilow's syndicate 553, which had chronically exceeded its underwriting capacity in the early 1980s and failed to adequately reinsure the huge quantity of risks it was taking on. The solution was to create a new company in 1990 into which these liabilities could be reinsured in order to relieve the Warrilow Names. This entity was named Centrewrite Ltd and in 1993 it assumed Warrilow's 1985 and prior years' liabilities, separately also offering "estate protection plans" (EPPs) for resigned Names. Tens of thousands of Lloyd's Names bought these reinsurance policies.

Centrewrite still exists today but has not written any EPPs since 2011 and conducts little other business; its most recent transaction was in 2013 when it assumed the 2001 liabilities of the life syndicate 1171. It also reinsured the 1997–1999 years of Crowe syndicate 1204 and the 1999–2001 years of Cotesworth syndicate 535. In 2012 the Crowe and Cotesworth liabilities (then valued at just over £17m) were [[Novation|novated]] to Riverstone (a [[Fairfax Financial|Fairfax]] company) meaning minimal liabilities remain in Centrewrite today.

In 1986, the year Lloyd's moved into a new building at 1 Lime Street (where it remains today), the British government commissioned [[Patrick Neill, Baron Neill of Bladen|Sir Patrick Neill]] to report on the standard of investor protection available at Lloyd's. His report was produced in 1987 and made a large number of recommendations, but was never implemented in full.

===Late 1980s: Piper Alpha and the LMX spiral===
It has long been normal for one Lloyd's syndicate to reinsure another, but when [[Piper Alpha]], a [[North Sea oil]] rig, exploded on 6 July 1988 causing an initial $1.4bn loss, the practice had become so widespread that the underwriters in Lime Street initially had no idea how extensive their exposure was: the loss was passed around in what became known as the London market excess of loss (LMX) "spiral" and claim values escalated out of control.

The rig's operator, [[Occidental Petroleum]], bought a direct insurance policy from Lloyd's underwriters, who then passed part of their shares of the risk on to other syndicates via reinsurance. Those reinsurers then in turn reinsured part of the risk out to other reinsurance underwriters within Lloyd's (known as "retrocessionaires"), and so on. Consequently, many syndicates, especially those writing a large amount of excess of loss reinsurance, became exposed to the same claim multiple times through multiple layers in the spiral. Other catastrophes, including [[Hurricane Hugo]] and the [[Exxon Valdez oil spill|''Exxon Valdez'' oil spill]] in 1989, also went into the spiral.

Some of the leading LMX reinsurers at the time that suffered serious spiral losses included the numerous syndicates managed by the Gooda Walker agency, Devonshire syndicate 216, Rose Thomson Young 255, R. J. Bromley 475, and Patrick Fagan's already challenged Feltrim syndicates 540 and 542. Gooda Walker syndicate 298 became the first fatal casualty, with 13,500 policies being exposed to the Piper Alpha disaster alone and its 1989 account producing a 650 per cent loss on capacity; Feltrim followed with a 550 per cent loss on capacity.<ref name=Mantle/> Roy Bromley, underwriter of syndicate 475, later committed suicide after being dismissed by his Board and reportedly becoming distressed at his operation's mounting losses.<ref>{{Cite news|url=https://www.independent.co.uk/news/lloyds-underwriter-commits-suicide-1480134.html|title=Lloyd's underwriter commits suicide|last=Moore|first=John|date=23 January 1993|work=[[The Independent]]|access-date=28 June 2019}}</ref>

Not all excess of loss writers succumbed to the LMX spiral; in fact the spiral was relatively confined to a minority of such syndicates. Among the prominent reinsurers that remained profitable throughout the spiral were C. F. Palmer syndicate 314, M. H. Cockell 269/570 and D. P. Mann 435, while G. S. Christensen 958 reported only a slight loss in 1989 but healthy profits in 1990 and 1991.<ref name=Luessenhop/>

===1990s: Fallout of the asbestosis affair===
{{More citations needed|section|date=May 2022}}

====Emergence of claims====
The early to mid-1990s saw the continuation of Lloyd's most traumatic period in its history that had begun with the explosion on Piper Alpha. Unexpectedly large legal awards in US courts for [[punitive damages]] led to substantial claims on [[Asbestos and the law|asbestos]], pollution and [[Diethylstilbestrol|health hazard]] (APH) policies, some dating as far back as the 1940s. Many of these policies were open-peril policies, meaning that they covered any claim not specifically excluded. Other policies (called standard, or broad) only cover stated perils, such as fire.

The classic example of "long-tail" insurance risks is asbestosis/[[mesothelioma]] claims under employers' liability or workers' compensation policies. An employee at an industrial plant may have been exposed to asbestos in the 1960s, fallen ill 20 years later and claimed compensation from his former employer in the 1990s. The employer would report a claim to the insurance company that wrote the policy in the 1960s. However, because the insurer did not fully understand the nature of the future risk back in the 1960s, it and its reinsurers would not have properly priced or reserved for it. In the case of Lloyd's, this resulted in the bankruptcy of thousands of individual investors who indemnified general liability policies written from the 1940s to the mid-1970s for companies with exposure to asbestosis claims. A group of Names mounted a legal case as the Names Against Lloyd's of London, where they attempted to prove fraud among those brokers who had involved them in the underwriting syndicates.<ref>{{cite news | url=https://www.theguardian.com/money/2000/nov/04/business.personalfinancenews1 | title=How the Names lost their shirts | newspaper=The Guardian | date=4 November 2000 | last1=Griffin | first1=Rob | last2=Inman | first2=Phillip }}</ref>

====Reinsurance to close====
It may not be immediately clear how current members of current Lloyd's syndicates, which accept business one year at a time, could be liable to pay historical claims. This came about as a result of the Lloyd's accounting practice known as [[reinsurance to close]] (RITC).

A member "joined" a syndicate for one calendar year only, known as the "annual venture". At the end of the year, the syndicate as an ongoing trading entity was effectively disbanded. However, usually the syndicate re-formed for the next calendar year with the same identifying number and more or less the same membership. Since claims can take time to be reported and then paid, the profit or loss for each syndicate took time to realise. The practice at Lloyd's was to wait three years (that is, 36 months from the beginning of the year in which the business was written) before "closing" the year for accounting purposes and declaring a result.

To calculate the profit or loss, reserves were set aside for future claims payments, for claims that had already been notified but not yet paid, as well as estimated amounts for claims that had been [[incurred but not reported]] (IBNR). This estimation is difficult and can be inaccurate; in particular, long-tail liability policies tend to produce claims long after the policies are written.

The reserve for future claims liabilities was set aside in an unusual way. The syndicate bought a RITC policy to pay any future claims; the premium was equal to the amount of the reserve. This transaction allowed the year to be closed, and the syndicate's profit or loss declared. The reinsurer was always another Lloyd's syndicate(s), often the succeeding year of the same syndicate: the members of syndicate '1' in 1985 reinsured the future claim liabilities for members of syndicate '1' in 1984. The membership might be the same, or it might have changed.

In this manner, liability for past losses could be transferred year after year until it reached the current syndicate. A member joining a syndicate with a long history of such transactions could – and often did – pick up liability for losses on policies written decades previously. As long as the reserves had been accurately estimated, and the appropriate RITC premium paid every year, then all would have been well, but in many cases this had not been possible: no-one could have predicted the surge in APH losses. Therefore, the amounts of money transferred from earlier years by successive RITC premiums to cover these losses were grossly insufficient, and the current members had to pay the shortfall.

As a result, a great many Names whose syndicates wrote long-tail liability at Lloyd's faced significant financial loss or ruin by the late 1980s to mid-1990s.

====Dilution of liabilities and the consequences====
It was alleged that in the early 1980s some Lloyd's officials began a recruitment programme to enroll new Names to help capitalise Lloyd's prior to the expected onslaught of APH claims. This allegation became known as "recruit to dilute": in other words, recruit more Names to dilute the losses. When the huge extent of asbestosis losses came to light in the early 1990s, for the first time in Lloyd's history large numbers of members either were unable to pay the claims or refused, many alleging that they were the victims of fraud, misrepresentation, and/or negligence. The opaque system of accounting at Lloyd's made it difficult, if not impossible, for many Names to understand the extent of the liability that they personally and their syndicates had subscribed to.

Also, numerous underwriters of long-tail non-marine business, concerned at their exposures to the impending asbestosis crisis, had sought to reinsure their liabilities with other carriers. Approximately 20 syndicates, including Lloyd's deputy chairman Murray Lawrence's, paid millions of pounds in premiums to Richard H. M. Outhwaite, then considered a highly capable marine underwriter, to assume approximately 80 per cent of the market's asbestos exposure on his well-supported syndicates 317/661 in 1982.<ref name=Hodgson/> In 1985, under Lloyd's three-year accounting rule, auditors kept Outhwaite's 1982 year open, citing concerns over asbestos and pollution liability losses. These eventually ran into the hundreds of millions of dollars. After many years of litigation, Outhwaite retired to [[Guernsey]] and died on 20 November 2021.<ref>{{Cite web |title=Richard Henry Moffitt OUTHWAITE {{!}} Family Notices from the Guernsey Press |url=https://www.familynotices.gg/moreinfo/78770/outhwaite |access-date=2024-01-25 |website=www.familynotices.gg |language=en}}</ref>

Another asbestosis-hit operation, Pulbrook syndicates 90/334, had taken out reinsurance in 1981 on its general liability business with Merrett syndicate 418; however, in 1990 Stephen Merrett (who by now controlled Pulbrook) won an arbitration ruling to void that arrangement due to non-disclosure of the extent of asbestos exposure, leaving the Pulbrook Names without cover for their losses of £100,000 each on average. Even earlier, in 1974, the underwriter of R. W. Sturge syndicate 210, Ralph Rokeby-Johnson, who specialised in American industrial risks, bought "stop-loss" reinsurance from [[Fireman's Fund Insurance Company|Fireman's Fund]] and [[Kemper Corporation|Kemper Insurance]] in the US on Sturge's pre-1969 exposures that were accumulating into the present. This contract developed so poorly that Fireman's Fund later sought its own stop-loss cover for the losses assumed from Sturge. Rokeby-Johnson later prompted Lloyd's to create a [[working group|working party]] on asbestosis.<ref name=Luessenhop/>

====Reconstruction and Renewal====
During the mid-1990s the market was forced to restructure. Under the chairmanship of Sir David Rowland and chief executive Peter Middleton, an ambitious plan entitled "Reconstruction and Renewal" (R&R) was produced in 1995, with proposals for separating the ongoing Lloyd's from its past losses. Liabilities for all pre-1993 business (other than life assurance) were to be compulsorily transferred (by RITC) into a special vehicle named [[Equitas]] (which would require the approval of the UK's [[Department of Trade and Industry (United Kingdom)|Department of Trade and Industry]]) at a cost of around $21bn.<ref>{{cite news |last=Eisenhammer |first=John |date=23 October 2011 |title=Equitas day: final act in the Lloyd's nightmare |url=https://www.independent.co.uk/news/business/equitas-day-final-act-in-the-lloyd-s-nightmare-1341264.html |work=The Independent |location= |access-date=28 March 2021}}</ref> 

Many Names faced large bills, but the plan also provided for a settlement of their disputes, a tax on recent profits, and the write-off of nearly $5bn owed in the form of "debt credits", skewed towards those with the worst losses. The plan was debated at length, modified, and eventually strongly supported by the Association of Lloyd's Members (ALM) and most leaders of Names' action groups. New CEO [[Ron Sandler]] was instrumental in its implementation. Money was raised in many ways, including the sale and leaseback of the Lloyd's building, and a tax on future business. Individual offers of settlement were accepted by 95 per cent of Names. The past liabilities on the 1992 and prior years were transferred to Equitas in September 1996, including those under Lioncover and Centrewrite.{{cn|date=September 2023}}

The "recruit to dilute" fraud allegations were heard in an eight-month trial in 2000 in the case ''Sir William Jaffray & Ors v. The Society of Lloyd's'' and were rejected by the judge; an appeal was heard in 2002 and unanimously rejected. On each occasion the allegation that there had been a policy to recruit to dilute was dismissed and Names were urged to settle; however, at first instance the judge described the Names as "the innocent victims [...] of staggering incompetence" and the appeal court found that representations that Lloyd's had a rigorous auditing system were false and strongly hinted that one of Lloyd's main witnesses, former chairman Murray Lawrence, had lied in his testimony.<ref>[https://www.bailii.org/ew/cases/EWCA/Civ/2002/1101.html ''Jaffray v. Soc'y of Lloyds''] [2002] EWCA Civ 1101.</ref>

Lloyd's then instituted some major structural changes: corporate members with limited liability were permitted to join and underwrite insurance; no new unlimited-liability Names were allowed to join (although a few hundred existing ones remained); financial requirements for underwriting were changed, to prevent excess underwriting that was not backed by liquid assets; and market oversight significantly increased. Lloyd's rebounded and started to thrive again after the catastrophic losses arising out of the [[September 11 attacks|World Trade Center attack]], but it faced increased competition from newly-created companies in [[Bermuda]] and other markets.

In 2006 the [[Berkshire Hathaway]] subsidiary [[National Indemnity Company]] (NICO) agreed to assume all of Equitas' assets and liabilities, providing $7bn of new reinsurance cover for future claims payments in addition to the $8.7bn of existing reserves within Equitas.<ref>{{Cite web|url=http://www.equitas.co.uk/files/Names_Info_Doc_1206.pdf|title=EQUITAS LIMITED AGREEMENT WITH NATIONAL INDEMNITY COMPANY|archive-url=https://web.archive.org/web/20190215050413/http://www.equitas.co.uk/files/Names_Info_Doc_1206.pdf|archive-date=15 February 2019}}</ref> The transfer (in two phases between 2007 and 2009) represented "finality" under English law for all affected Names, who now faced "no further liability whatsoever" to the pre-1993 losses.<ref>{{cite web|url=http://www.equitas.co.uk/files/Equitas-LetterToNames1July2009.pdf|title=Finality under English Law|author=HA Stevenson |date=1 July 2009|website=Equitas}}</ref>

In 2020, following the [[George Floyd protests]], Lloyd's issued a statement, apologising "for the role played by the Lloyd's market in the 18th and 19th century slave trade – an appalling and shameful period of English history, as well as our own".<ref>{{Cite web |date=10 June 2020 |title=Building an inclusive Lloyd's marketplace |url=https://www.lloyds.com/news-and-risk-insight/news/lloyds-news/2020/06/building-an-inclusive-lloyds-marketplace |archive-url=https://web.archive.org/web/20200707193204/https://www.lloyds.com/news-and-risk-insight/news/lloyds-news/2020/06/building-an-inclusive-lloyds-marketplace |url-status=dead |archive-date=7 July 2020 |access-date=29 October 2020 |website=www.lloyds.com}}</ref><ref name="KahnJ">{{Cite news |last=Kahn |first=Jeremy |date=18 June 2020 |title=George Floyd protests force Britain to reckon with its role in slavery, leading some companies to pay reparations |language=en |work=Fortune |url=https://fortune.com/2020/06/18/george-floyd-protests-uk-slavery-reparations/ |access-date=29 October 2020}}</ref><ref name=HoltonK>{{Cite news |last1=Faulconbridge |first1=Guy  |last2=Holton |first2=Kate |date=18 June 2020 |title=Lloyd's of London to pay for 'shameful' Atlantic slave trade role |language=en |work=Reuters |url=https://www.reuters.com/article/us-minneapolis-police-protests-lloydsofl-idUSKBN23P0SM |access-date=29 October 2020}}</ref><ref>{{Cite news |last=Faulconbridge |first=Guy |date=18 June 2020 |title=Explainer: London faces up to former role insuring Atlantic slave trade |language=en |work=Reuters |url=https://www.reuters.com/article/us-minneapolis-police-protests-lloydsofl-idUSKBN23P2US |access-date=29 October 2020}}</ref>