Lloyd's Of London

MR. LAWSON: The name "Lloyd's of London" is redolent with mystery and adventure. It suggests the tang of the sea and the aroma of coffee and tobacco. It denotes a fabulous phantom organization that has no corporate existence but pervades every sphere of life where risk is involved. It wagers with the whole world against every conceivable contingency from the vagaries of the elements to the Queen's pleasure.

No one is better qualified to draw back the veil from this mystery than our guest of honour today. Sir Walter Barrie has been a member of Lloyd's since 1926. He is a marine underwriter and was first elected to the Committee of Lloyd's in 1946. Since then he has served two years as a Deputy-Chairman and four years as Chairman.

Sir Walter was born in the year 1901 at Coleraine, the youngest son of the Rt. Hon. Hugh T. Barrie who was member of Parliament for North Londonderry from 1906 to 1922. He was educated at Coleraine Academical Institution and Merchiston Castle, Edinburgh, and later graduated from Gonville and Caius College, Cambridge. He received his knighthood in the 1958 New Year's Honours List.

Going back briefly to Sir Walter's business career, he was elected a member of the Committee of Management of Lloyd's Register of Shipping in 1949. He is a Trustee of

Lloyd's Patriotic Fund and in 1957 was awarded Gold Medal for services to Lloyd's. He has been President of the Insurance Institute of London and is now Vice-President of the Chartered Insurance Institute. He is also a Director of the Westminster Bank, Limited.

It is a pleasure to present to you Sir Walter Barrie.

SIR WALTER BARRIE: This assignment, if I may use the term, has for me two particular attractions. Firstly, there is something of a novelty in talking about Lloyd's to an audience other than from the insurance community at home. I have read a great deal of what is said about Lloyd's Underwriters sometimes with mixed feelings, not always with approval, and perhaps I can take this opportunity of correcting some of the prevalent misapprehensions which seem to be held about Lloyd's.

Secondly, you have provided me with an excellent reason, I was tempted to say excuse, to visit your great country; not that this is my first visit. I was in Canada during World War II, but I must admit that it was a visit restricted to a matter of seconds as I stepped off the "Maid of the Mist", on the Canadian side of Niagara, with my passport alas franked for one entry only into the United States. I dared not risk incurring the attention of any zealous immigration officer and the complications which might follow, and in consequence my stay lasted merely as long as it took Canadian passengers to disembark.

There is a third reason, important to me but which may seem less so to you, and that is my visit has the full approval of my wife, largely, I think, because she is accompanying me and we are able to enjoy together this opportunity of seeing something of your country and couple with it a short visit to the United States. Though not as brief as on the earlier occasion I was in Canada, my visit is nevertheless limited, and I hope that I may be able to return in the future for another more leisurely trip from coast to coast.

Canada today is a great nation and has a wonderful and assured future. It possesses mineral resources, the surface of which has as yet merely been scratched, and it seems to me that there is a tremendous potential and opportunity for the development of Anglo-Canadian trade. A year or two ago a most important delegation of Canadian business men led by the Hon. Gordon Churchill, your Minister of Trade and Commerce, spent the best part of a month touring Britain seeing for themselves how our industry and commerce function, and talking to their British counterparts with, I hope, reciprocal benefit and interest. We were privileged to entertain at Lloyd's representatives of this delegation led by Mr. J. S. Duncan and their visit was for us a memorable occasion.

Trade and exchange between our two countries is not restricted to the normal channels of goods and finance; for there is also an exchange of ideas, skill and intellect: more nebulous, perhaps, than manufactured goods, but equally if not more important. I have only to mention names like Beaverbrook, Peacock and Weston to realize that Canadians can make their mark at home as well as in their native Canada. The exploitation of your natural resources has been greatly accelerated by the benefits of modern Science; I think immediately of Aircraft, Electronics and last but not least the magnificent new Seaway to the Lakes--these and other symbols of the twentieth century have helped in surmounting the particular problems presented by the severity of your winter, and brought the outlying but important posts of your vast country within relatively easy reach of each other, whether by air, water or land.

It is perhaps desirable to preface my remarks about Lloyd's with a reference to history, for it provides the background to our development over 272 years, and in many ways illustrates clearly why we remain a Society of individuals, in the main as free in our choice of business as were the customers to the Coffee House of Edward Lloyd at the close of the 17th Century. The first known reference to Lloyd's Coffee House in Great Tower Street appeared in the London Gazette in 1688, although it is likely that the Coffee House was established and flourishing before that time.

Edward Lloyd was an astute man, and perhaps something of an opportunist, but he was not, as some believe, the founder of Lloyd's the insurance market. His primary interest was in selling coffee and the profit therefrom, and `he applied himself energetically to that business pursuit. Lloyd's Coffee House, being situated near the River Thames, attracted a clientele of mariners and seafaring men in general. Among them were those prepared to accept Marine insurance risks for the payment of a premium; in doing so they were merely customers of Lloyd who was not, of course, liable for their business activities, or indeed concerned in them. Nevertheless his Coffee House was the embryo of the international insurance market to which Lloyd's has developed. As time passed, prospective insurers realised that the most likely place to find underwriters for their business was Lloyd's and the Coffee House and its proprietor flourished accordingly through the regular and increased patronage this reputation attracted. The circumstances were not, however, entirely fortuitous, for Lloyd was quick to appreciate the potential benefit from the specialised character his Coffee House was acquiring. He actively encouraged the business trend by providing his customers with pen, ink and paper, shipping information obtained from the docks by runners, and later by the publication of a news sheet called "Lloyd's News".

The success of this last enterprise was thwarted by the inclusion in the 76th edition of a paragraph that offended the House of Lords. For inexplicably Lloyd ceased publication rather than apologise, and thus came to an end a sheet which can, nevertheless, be regarded as the forerunner of "Lloyd's List", Lloyd's own daily newspaper first published in 1734 and which is, with the solitary exception of the official "London Gazette", London's oldest daily newspaper.

In 1713 Lloyd died and left a flourishing coffee shop, but no indication that his name was destined for international fame. Under successive masters the Coffee House carried on under his name much as before. The clay of Lloyd's as an insurance market was, however, in the process of being moulded, for in 1720 King George I granted a marine insurance monopoly to two companies, the Royal Exchange Assurance and the London Assurance. Fortunately for Lloyd's the drafters of the statute were not as efficient as they might have been, for the charter omitted to preclude individuals from transacting insurance. In consequence, the gentlemen at Lloyd's went merrily on their way, and an event at first opposed by them proved very much to their advantage. But for that ministerial slip, Gentlemen, I might not be addressing you today. Undoubtedly this 1720 Act was a stimulus rather than a deterrent to the business at the Coffee House, whose customers opposed the abolition of the Act in 1820 as actively as they had its introduction a century earlier. There must, I feel sure, be a moral here somewhere! The years of this Act were eventful for Lloyd's. In 1734 Lloyd's List was published and in 1760 Lloyd's Register of Shipping, from which the famous symbol "A1" is derived, made its appearance at Lloyd's Coffee House. Lloyd's Register will therefore be celebrating its bicentenary this year.

In 1764 customers at the Coffee House acted for the first time in unison and showed some evidence of the existence of a communal spirit. Two years later the customers at Lloyd's Coffee House agreed to pay a subscription of £ 100 each into a fund held in the names of a committee elected by ballot, for the purpose of acquiring new and bigger premises; in this way the first Committee of Lloyd's came into being.

Unfortunately, the Committee was not over-enterprising in its search for a home, and it was left to John Julius Angerstein to provide the necessary initiative and energy. On his own and without even being a Member of the Committee he negotiated rooms for Lloyd's in the Royal Exchange. Here the market was to move in 1774 and remain for 154 years, with the exception of a break between 1838 and 1844, when the rooms had to be re-built following a devastating fire. It is perhaps appropriate that Angerstein, who is known as the "Father of Lloyd's", should have come to the fore with a display of enthusiastic drive, for it was typical of his character. Angerstein was a combination of successful businessman, philanthropist and patron of the arts. He died in 1823, having dominated the Lloyd's scene for half a century, and his art collection became the nucleus of our National Gallery.

The move to the Royal Exchange brought about an essential and important change at Lloyd's. For the first time the premises came under the control of the subscribers, and the Master of the Coffee House became their tenant. Not until 1796, however, was admission to Lloyd's restricted to selected subscribers whose election had to be supported by six others, which was a most important stage in the metamorphosis from Coffee House to a fully mature society.

In the next 75 years great developments took place. The private character of Lloyd's was consolidated by restricting Membership and increasing Subscriptions, by giving the elected Committee increased authority, and by regulating the basis on which Committee members serve.

An appointment of a secretary was made in 1804, though it was an appointment of expedience, and had about it something of the flavour of the Gilbertian. To that date correspondence from Lloyd's had been signed by the head waiter at the Coffee House, and about that time a Lord Camden took up a position at the War Office. As a past Viceroy of Ireland, a Member of the House of Lords, and His Majesty's Minister for War, he "graciously consented to correspond with Lloyd's. It was, however, a distinct shock to his pride to discover he was receiving replies from a head waiter--albeit a Lloyd's waiter. His Lordship's reaction was immediate and emphatic; he wrote "declining to enter into epistolatory communication with Waiters at Lloyd's Coffee House". In the circumstances was there any alternative for the Committee other than to appoint the waiter to be secretary?

John Bennett, Junior, on whom the distinction fell, proved an able administrator to whom, more than any other, Lloyd's owes the existence of its international system of marine intelligence. This information is collected from all over the world and the Intelligence Department is open day and night throughout the year for the purpose of receiving and distributing the details to subscribers throughout the world to meet their particular requirements.

In 1871 an Act of Parliament granted Lloyd's incorporation. Then, as now, the Corporation of Lloyd's did not itself transact insurance business, but supplied facilities and premises enabling its Members to do so for their own profit or loss, or, as it is termed at Lloyd's, "each for his own part and not one for another."

I have dealt with Lloyd's genesis in some length, albeit at random, because I feel that there, in its infancy, can be found the influence which has moulded the features of the modern Lloyd's. And it is with the operations of the Lloyd's market of the present that I now wish to deal.

The first point I must stress particularly is that Lloyd's is not an Insurance Company; we are a market composed of individuals operating each for himself and not one for another. In fact it may surprise you to know that Underwriters at Lloyd's are in keen competition with one another. Allowing for the evident outward development since the Coffee House days, the same fundamental principles of underwriting then are still followed at Lloyd's. Over a long period of growth we have voluntarily taken steps to improve the security behind our Policies--the first Members' deposits were made before there was any legal obligation to do so, and the Annual Audit was introduced in 1908 before there were any statutory requirements for Underwriters' accounts to be examined by independent Accountants. At the same time a meeting of Members decided that all premiums must be held in trust.

Lloyd's originally was a Marine insurance centre. However, 60 years ago, Non-Marine insurance was underwritten at Lloyd's by a very great insurance man, Cuthbert Heath, although he was at the outset a Marine Underwriter; indeed he continued to write Marine business until his retirement, but his skill as a pioneer of new types of insurance led to his becoming a Non-Marine Underwriter writing a small Marine account. Cuthbert Heath was a genius and, like Angerstein, a man of tremendous foresight and great courage, with a mind remarkably open and receptive to new ideas. New types of insurance were to him a challenge to be accepted rather than a novelty to be avoided. He pioneered many classes of insurance which are today household words--among them Earthquake, Burglary and Theft, Householders' Comprehensive policies, Jewellers' Block policies and All Risks insurance on private jewellery. The development of Aviation insurance also owed much to him. There was one other of Mr. Heath's innovations which sent cold shivers down the spines of Lloyd's competitors in those days. That was the insurance of Loss of Profits--or, as you know it here, Use and Occupancy or Business Interruption insurance. The orthodox market said it would ruin the moral hazard. Mr. Heath replied that he would not grant such a policy to any Assured where there was any moral hazard at all. Loss of Profits insurance is now so generally accepted as an essential business precaution, that the gloomy forebodings of Mr. Heath's critics seem to have been rather exaggerated.

Today quite half the Underwriting Room at Lloyd's is occupied by Underwriters doing only Non-Marine business (whereas there was scarcely one such Underwriter in 1900). Last year the Committee of Lloyd's commemorated the centenary of Mr. Heath's birth by a fund with education as its prime object, and to which the Lloyd's market contributed generously. I have interjected this picture of a great Lloyd's man into my narrative because in the late nineteenth and the early part of the twentieth centuries he left an indelible mark in the history of the development of insurance.

The Lloyd's Act of 1871 was modified by the Act of 1911, which recognised the existence of Non-Marine business at Lloyd's and today the Non-Marine premium income exceeds by a considerable margin the combined Marine and Aviation premium income.

Our first records of premium income date from 1913, when 624 members wrote almost £ 13,000,000 sterling, 70% of which was marine; in 1929, after we had moved from the Royal Exchange, 1412 members wrote a total of £24,000,000 sterling, and after we had moved into our present Building the total premium income of some 4,700 members had reached £233,000,000 sterling, or, in your currency, approximately 625 million dollars.

Over these years large reserves have been built up individually and the Audit test required by the Board of Trade has been constantly reviewed to meet changing conditions. I think it might be appropriate now to give you a short resume of the Security behind a Lloyd's Policy: 1. Premiums Trust Funds, 2. Underwriting Reserves, 3. Each Underwriting Member is liable to the full extent of his private fortune to meet his insurance obligations, 4. Deposit lodged with the Committee of Lloyd's, and 5. Central Fund. Perhaps I should explain Numbers 1 and 5. All premiums received by the Underwriter must be placed in Trust to be used exclusively for the payment of his underwriting liabilities and expenses. In due course each year's account is closed, and only after adequate provision has been made for all outstanding liabilities as required by the Audit Regulations which must be approved by the Board of Trade, and only then, is any profit released to the Underwriter. Every Lloyd's Underwriter is required to contribute annually to the Central Fund, which presently amounts to several million pounds. It is held in trust to meet the underwriting liabilities of any member whose assets, which I have just mentioned, prove to be insufficient to meet his liabilities.

Early in the 1920s the problem of accommodation became acute with the expansion both of Membership and business. In 1923 we acquired the freehold site of East India House in Leadenhall Street, and later became the proud owners of a new building which was opened by, King George the Fifth in 1928. Less than twenty years afterwards we were again seeking room to expand and eventually we secured possession of an adjoining site, where our present building stands. We were honoured by the presence of Her Majesty The Queen to lay the Foundation Stone in 1952, and five years later Her Majesty Queen Elizabeth, the Queen Mother, opened the building, which should be our home for many years, with the old Lloyd's available close at hand if future expansion becomes necessary.

Lloyd's Brokers provide the only channel through which insurance business can reach the Underwriters at Lloyd's. There is no contact between Underwriter and assured except through a Lloyd's Broker. The term "Lloyd's Broker" is loosely used and the real definition is "An Insurance Broker who is entitled to place his business at Lloyd's." In fact he can and does use all markets, and in the absence of specific instructions from his client it is his duty to find the market which will give his client the best terms consistent with good service. Within Lloyd's itself the Broker well knows that individual Underwriters are in competition with one another, and if he fails to find the best market there is every likelihood that another Broker will improve on the quotation.

I cannot stress too strongly that we at Lloyd's have no connection whatsoever with any Insurance Company--we are a free and competitive market. The Corporation of Lloyd's does not engage in insurance business at all, and the duty of the Committee today is in many ways not unlike that of Edward Lloyd, the original proprietor of the Coffee House. He provided his clients with a meeting place, pen and ink and shipping information. The Committee today does all these things and in addition has the policies signed for Underwriters and controls the volume of premium income which each individual Underwriter can subscribe in his own name. With few exceptions the Committee does not dictate the type of risks accepted by individual Members. It is only concerned with ensuring that they are able to meet the liabilities attaching thereto and that they conform to the basic regulations of Lloyd's.

For two and a half centuries successive generations of Lloyd's Marine Underwriters have been a force in the international insurance market, and I suggest our contribution has provided healthy competition which has inured to the benefit of ship owners and all those concerned with marine transportation.

Over a much shorter period, the Non-Marine market has developed to make its important contribution in the direct field of insurance, in addition to providing reinsurance facilities for other insurers throughout the world.

Lloyd's has the reputation of being a place where anybody can insure anything, and from time to time there appear in the press reports of individuals who, it would seem, have gone to the utmost lengths of ingenuity to find contingencies against which to insure. Literally, of course, Lloyd's Underwriters will not accept anything and everything, but the reputation does, I feel, reflect a genuine confidence widely felt in the flexibility of the Lloyd's market.

Looking to the future, which seems full of opportunity, I confidently believe that insurance has a great deal to offer by its ability to turn the wheels of Commerce and encourage development throughout the world. The special contribution of Lloyd's to the insurance industry is flexibility and adaptability. The Lloyd's Brokers, always in touch with correspondents at home and abroad, are sensitive to every new demand of commerce and every change in the requirements of Assureds, while the Underwriters, so organised as to combine the maximum of enterprise with the highest degree of financial security, are receptive of and responsive to the suggestions brought to them by the Brokers.

In our lifetime the insurance industry as a whole has grown greatly in size and importance. The Members of any successful organization often imagine with complacency, frequently with justification, that as they have been able to grow by the methods used in the past, those same methods must be best and therefore must still be followed. If this attitude were allowed to develop in our business, the result could be disastrous, leading to the abandonment of enterprise and the outlook which says, this is what we have to sell, take it or leave it, instead of an approach which asks, what type of insurance do you require, we will try to meet your wishes.

Cuthbert Heath pursued this latter policy 60 years ago, and whereas no doubt he made the occasional mistake, he did perhaps more than any other of his day to help to build a structure for insurance equal to the task of meeting the ever-growing demands of commerce and trade throughout the world.

In my opinion, Lloyd's today can set itself no higher aim than to follow that same principle, and confidently hope future historians may be able to say we too made a contribution to insurance in the widest sense of the word. At the same time we might be permitted to hope that our mistakes will be few and far between.

THANKS OF THE MEETING were expressed by Mr. A. E. Inwood.