Lloyd's Rising Risks

For all its benefits, the growth of technology has also heightened man's risks. Today's risky times should be the best of times for Lloyd's of London, which built an international reputation insuring the new, the colossal, and occasionally the preposterous. Yet Lloyd's profits have been slipping since 1963. Last year the world's largest underwriting group for general insurance closed the books on 1965--three years are needed to settle claims--and reported a $91 million loss. Lloyd's last month announced a $44 million loss for 1966, despite a record income of $1.3 billion in premiums.

The losses were due partly to huge damages paid on a rare combination of hurricanes, air crashes, U.S. race riots and oilfield fires. A deeper reason was that in those years, premium rates of much of the insurance business --with the exception of long-term life, which Lloyd's does not carry --were unrealistic. The rates failed to keep pace with soaring repair costs and the proliferation of bigger jet aircraft and giant oil tankers. "Inflation and technological revolutions all caught up with the underwriters," says Lloyd's Chairman Henry S. Mance.

Capital Club. Oddly, Lloyd's greatest strength can also be a weakness. It is more a club than a company--a clearinghouse for individual members, usually old acquaintances who get together in groups to cover risks. Informal transactions involving millions take only minutes and are closed by an underwriter hastily scribbling his initials on a broker's risk slip. This organization has effectively tapped private capital while avoiding the overhead of a ponderous corporation. Yet individual members, who accept unlimited liability for insurance they underwrite, can lose heavily. In the past two underwriting years, Lloyd's 6,000 members were each, on average, $22,800 out of pocket. Recently, Lloyd's revealed that its membership --and source of capital--was noticeably diminishing.

One way out of its difficulties would be for Lloyd's to become an ordinary insurance company and increase its income from outside investments. But members are averse to such change. They prize the clubby atmosphere of the high marble halls where the tie that binds is mostly old school. The membership, at last count, included four former cabinet members (Hogg, Maudling, Sandys and Thorneycroft), more than 50 M.P.s, mainly Tory, Tycoons Charles Clore and Sir Isaac Wolfson, Lord Harlech, five dukes, eight marquesses, 39 earls, 90 knights and 113 baronets.

In hopes of meeting greater risks profitably, Lloyd's underwriters have increased their premiums and are aiming at leadership in new coverage. Underwriters have been meeting with executives from Pan Am, TWA and BOAC, which are seeking insurance for their new jumbo jets. What Lloyd's needs most is rich new members to cover its risks; its scouts are out scouring the golf courses and grouse shoots to get them. This year the governing committee accepted the first 16 underwriters from outside the Commonwealth. Next year the "governors" will bend tradition even more. For the first time in its 282-year history, Lloyd's will admit women--a recognition of the fact of financial life that much of the world's capital is controlled by women.

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