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3rd March 2020 - Alastair Pate

Lloyd's of London

Unfortunately our booked speaker for the meeting on 3rd March was unable to come along due to illness and so President Alastair Pate introduced himself as speaker.

Alastair had spent some 3 years working as an accountant in Lloyd’s of London, well-known in the world of insurance.  He gave us a brief outline of its origins and then went on to describe his involvement and the events in recent history which have shaped its present set-up. Lloyd’s originated in Edward Lloyd’s coffee shop in London in around 1686-8 where merchants, ship owners and others involved in overseas trade would gather to exchange gossip and discuss trade.  In particular they kept track of shipping in an age when ships were often lost, especially on the long journey from the Far East.  In order to mitigate any one person’s loss in such circumstances a group of maybe 20 or 30 would get together and each pledge to cover an amount in the event of such a loss.  They did this be writing their name on a slip of paper – hence Lloyd’s ‘Names’.  Edward Lloyd also started to collect the important bits of gossip, print them and post this newssheet in his coffee shop.  This became known as Lloyd’s list and is still produced today, albeit in digital form.   Also from this came the Lloyd’s Register of shipping which lays down standards of construction and requires regular ‘MOT’s’ for ships to be on it.  These three are separate entities and Lloyd’s of London is not an insurance company, but an insurance market comprising the ‘Names’, underwriters brokers and agents.  Names have to be able to provide considerable sums of liquid assets in order to participate.  Personal property etc. can’t be counted.

The Corporation of Lloyd’s provides the infrastructure for the market (premises, telephones etc.), while not being any part of it.   The business is international, with 50% from North America, 30% from Europe (inc. the UK) and 20% from the rest of the world. The system ran fairly smoothly up until the 1970’s when higher taxation encouraged people to move money off-shore and some underhand practices crept in, resulting in a number of scandals.  A number of sharp underwriting practices also came to light.

A 1982 Act of Parliament sought to regulate things.  The number of Names and underwriters had exploded as the market was seen as a good investment, the number of Names rising from around 5000 to over 30,000.  The structure of the market at the time gave rise to potential conflicts of interest and the Act, among other things, required a clear split between the functions of broker and insurer.  Alastair was among a number of accountants brought in to help Lloyd’s comply with the act within the 5 year term laid down in the Act.  All agents, brokers etc. had to be registered and this reduced the number of agents by some 40% and all staff had to go through courses of professional Education.

At the same time the Inland Revenue started taking an interest in the accounts of syndicates and hence the Names which had huge financial implications, resulting in a £42m settlement with the IR. In the late 80’s and early ‘90’s 2 events happened which nearly brought down the market.  The first was the Piper Alpha disaster in 1987 which cost it £1.5bn and the second was claims from Asbestosis sufferers, mainly from N America, which cost it £55bn.  Many Names were bankrupted.  This changed the market which now mainly comprises large corporate investors.

This was a fascinating talk giving an insight into an aspect of finance which affects us all, but of which many have little or no knowledge.  The Vote of Thanks was given by Jim Watt and members showed a warm appreciation.

Next meeting is on March 17th at 10:00 for 10:30 in Biggar Municipal Hall when the speaker will be Murray Campbell, speaking on the Scientific History of Musical Instruments.  All are welcome.

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