But Lloyd’s didn’t reach its present crisis, where insiders and outsiders talk equally about the possibility of meltdown, merely because it was overstocked with Old Carthusians owning long names and short brain cells. The 1980s were particularly rich in bad things happening throughout the world, with the bill for them ending up at Lloyd’s. Of course, to a certain extent insurers not only like but depend upon catastrophes. The businesswoman recalled to me the quietly sinister professional satisfaction with which an underwriter friend of hers had greeted the Japan Air Lines jumbo-jet crash of 1985. This is, after all, the logic of the business: if there weren’t any burglars, no one would need house insurance against theft. But catastrophes, in a perfect insurance world, should come at the right intervals—just often enough to scare policyholders, harden rates, and make as much profit as possible before the next payout. The European storms of 1987 were said to be the worst for two hundred years; and so they may have been, except that this didn’t prevent Nature’s coming back for a second bite, and with just as much gourmandizing destructiveness, only three years later. Bad for business. Then there were the various hurricanes—notably Alicia, Gilbert, and Hugo; the destruction of the Piper Alpha oil rig in the North Sea; the Exxon Valdez oil spill; and the 1989 San Francisco earthquake.
These well-publicized losses were not in themselves threatening to Lloyd’s; indeed, there is something sexy about being associated with famous disasters. Lloyd’s insured the Titanic, paid out a hundred million dollars for the 1906 San Francisco earthquake, covered Hitler’s private Junkers airplane, made a fortune out of “death and spare parts” policies during the V-1 and V-2 raids on London, underwrote the San Francisco-Oakland Bay Bridge, did well out of the Gulf War. Far less glamorous, and far more damaging to Lloyd’s Names, was the increasing realization through the seventies and eighties of the magnitude of present and future claims in two particular areas: pollution and asbestosis. This was “long-tail” business, in which a policy might be activated many years after it was written. Sometimes the policies had started off at Lloyd’s; sometimes they had started off in the States and been reinsured at Lloyd’s; sometimes they had started off at Lloyd’s, been reinsured in the States, and then reinsured back again at Lloyd’s. Whichever way, once the claims began coming in, once American lawyers started getting busy and American courts generous, the bill became enormous and continuing.
Another, more self-inflicted piece of damage was a practice of reinsurance popular at Lloyd’s in the 1980s. Just as bookmakers faced with money pouring in on the Kentucky Derby favorite minimize their potential losses by laying off the bets elsewhere, so insurers do the same. But whereas among the wise gentlemen of the turf one firm of bookmakers will devolve its liability onto another firm, at Lloyd’s the risk was kept within the same market. The original insurers of a big risk would take out reinsurance in case claims exceeded a certain figure; the reinsurers would then seek to lay off their risk with a new layer of reinsurance, and so on along the chain. The advantage to Lloyd’s was that with each reinsurance the underwriter took a premium and the broker a commission; often the same piece of business might go through the same syndicates and companies several times, to everyone’s short-term advantage. The system became known as London Market Excess, or LMX, and the chain of reinsurance was known colloquially as “the spiral” The thinking behind it was based on the belief—or the hope—that there was little likelihood of a claim going up beyond a certain point: a thousand roofs might blow off in a tempest, but not ten thousand; an oil rig might experience a small explosion but not a big one. Therefore, as you got to the top end of the spiral the premiums got smaller, and the final reinsurers were increasingly ill-equipped to pay a claim when a big disaster occurred. It is like pass the parcel: good fun until the music stops. Then it becomes very expensive. In the case of the Piper Alpha oil rig, for instance, which blew up in July 1988, the basic sum for which it was insured was $700 million. But that amount was reinsured and reinsured—to the great profit of brokers and underwriters—so that by the end of the spiral of reinsurance a total of $15 billion was sloshing through the system: “which means,” as one underwriter commented, “that in some syndicates it must have passed through that syndicate fifty times.” The losers, at the end of the day, were the Lloyd’s Names: in 1989, a mere fourteen LMX syndicates lost £952 million, or nearly half the market’s total losses.
LONDON MARKET EXCESS developed for a series of interlocking reasons: greed, of course; the ease with which it could be done (“Making a turn”—in the spiral—“was the easiest way to make money,” one underwriter said); plus the presence of spare capacity in the market. Unreal business like LMX was written because there wasn’t enough real business out there to write. And the reason for this was that during the 1980s Lloyd’s participating membership—and hence its underwriting capacity—expanded faster than the market did.
It may have been noticed that on the list of high-profile Lloyd’s Names given earlier some were extremely posh, but others were-well, less than extremely posh. Starting in the mid-1970s, the graph of membership went Himalayan. Between 1955 and 1975, the numbers had gently doubled, from 3,917 to 7,710; by 1978, they had virtually doubled again, to 14,134; then they jumped greedily through the eighties to an all-time peak of 34,218 in 1989. In the single year of 1977, 3,636 new Names were admitted; back in 1953, the entire membership had amounted to only 3.399. Both the nature of the members and the nature of the recruitment had changed. No longer was it a case of the tweedy third baronet, having slaughtered a bucketful of grouse, deciding over the crusted port that it was time to put young Marmaduke up for Lloyd’s. Now it was a matter of active recruiters scouring for business: the accountant suggesting to the widow that Lloyd’s was a safe place for her inheritance; the commission tout working the dinner tables; the members’ agent specializing in one particular slice of high earners. In some cases, it was still a matter of the lowered voice and the “I could probably get you into Lloyd’s, old boy;” but often the approach was much more blatant, or, if you prefer, businesslike. In June of 1988, Nicholas Lander sold his successful Soho restaurant L’Escargot, a piece of news that made the papers. Shortly afterward an accountant he had never even met phoned him up and began lauding the tax advantages to be had from joining Lloyd’s. Lander declined the approach partly out of caution—“I don’t understand the world of insurance and reinsurance”—but mainly for a more forthright reason: “I wasn’t going to hand my money over to a bunch of upper-class twits to play with.”
Others were more flattered. A recruiter in Hamilton, Ontario, signed up forty or more Canadian doctors and dentists. In England, a members’ agent named Robin Kingsley, whose father had played Davis Cup tennis for Britain, used the Wimbledon connection to sign up a locker room of Names for his Lime Street Underwriting Agencies: Virginia Wade, Buster Mottram and his father, Mark Cox, and the wife of former British No. 1 Roger Taylor. Mottram was approached by a Kingsley representative in 1983 while he was in the bath after losing a doubles match at Wimbledon. Ten years later, he was talking a much more serious bath: many Lime Street Names had been put on LMX syndicates and were heading toward losses of £2 million each. At the time, the come-on from Lloyd’s to groups like tennis stars was plausible enough: Here you are, still young but quite possibly at the peak of your earning power, why not think about making your pile work for you after your racquet has been laid to rest in its press? Besides, this was the 1980s, Mrs. Thatcher’s eighties; new money was as good as old, and Lloyd’s was in this respect becoming more democratic. The financial conditions for joining were now less stringent and the rules more laxly monitored. (In theory, you were not allowed to put up your principal residence as part of the wealth you showed, but Lloyd’s happily accepted a bank guarantee instead, and since the bank guarantee was based on a charge upon your house the effect was exactly the same.) New money rushed to join Lloyd’s. But one of the differences between old money and new money is that new money tends to be more fr
agile. Old money tends to have more money than new money—an advantage when you come to the concept of unlimited liability. Moreover, old money, having been at Lloyd’s for longer, was more likely to find itself on the safer and more profitable syndicates. New money tended to be less wise, or more easily led. In the early 1980s, during an exchange about moral accountability at Lloyd’s, one underwriter brutally—or realistically—dismissed the new intake in the following way: “If God had not meant them to be sheared, He would not have made them sheep.”
But to most outside observers Lloyd’s in the 1980s looked like a success story: rising membership, continuing profits, an old institution adapting to the modern world, with symbolic proof of that adaptation in the market’s new premises. Richard Rogers’s building, which opened in 1986, is spectacular and luxurious: an elegant financial factory with what was at the time the largest atrium in Europe. Built on principles of high tech, energy saving, and maximum space flexibility, it is—like the Beaubourg—an inside-out construction, with all the ductwork, service piping, and elevators on the outside, allowing a free, uncluttered interior without any central supporting core. It deliberately lacks the Beaubourg’s spirited bursts of color: apart from a dull yellow on the stylish German escalators, a splash of red for the fire bells, and green for the floor numbers, the hues are muted, with a soft light seeming to allow maximum concentration on the business of making money. As one of the Richard Rogers Partnership put it to me, “Basically, they said we could have any color we liked as long as it was gray.” The result led, predictably, to what is called a “row,” which, just as predictably, seemed to consist of a few nonspecialist journalists moaning on about modern architecture and second-guessing the Prince of Wales. It also led to one or two rather good jokes. Lloyd’s, it was said, had started in a Coffee House and ended up in a percolator. Lloyd’s, it was said, was the only building in London that had all the guts on the outside and all the assholes on the inside.
Within the gray money shed sit sober-suited underwriters, who breach the nothing-but-gray rule only with their stripy golf umbrellas. Brokers bustle among the underwriters’ “boxes,” as their desks are known, with fat leather document cases; they loiter attentively, like sixth formers near a schoolmaster, until the underwriter is ready for them. There is none of that yelping and high-fiving which make trading in futures resemble a contact sport. Here there are computer screens, intense but discreet conversation, the penciled exchange of hieroglyphs, and the muted seep of testosterone: out of the 3,593 current “working members”—agents, underwriters, and brokers—only 118 are female. The liveried underlings, known as “waiters,” are male too, and are among the intermittent reminders of the Lloyd’s tradition. The most famous of these is the Lutine Bell, which occupies a central position on the main trading floor, and is housed in a curious mahogany edifice halfway between a cathedral baldachin and the sort of raised desk occupied by Madame in an old-fashioned French restaurant. The Bell was rescued in 1857 from the Lloyd’s-insured HMS Lutine, and has been ritually rung ever since, once for disaster and twice for good news. A dozen yards away, on a broad mahogany lectern, are a pair of marine loss books, displayed side by side. The left-hand one, written out in stately quill pen, shows the week’s disasters from a hundred years ago; the right-hand one, in slightly less stately quilling, shows the current week’s. On July 19, the contemporary loss book revealed a quiet time on the Lloyd’s-protected oceans. Nothing to report for a week, not since Monday the twelfth, when the following events were recorded: “Zam Zam St Vincent and Grenadines motor 1588 tons gross built 1966 abandoned in sinking condition lat 12.00 N., long 49-45 E July 9 Bahrein Radio.” And, beneath it, a less routine anecdote: “Ham 308 Dutch motor suction dredger had explosion in engine room, extensively damaged after picking up bomb near Tsing Yi Island, Hong Kong, Feb 25. Settled as a War constructive total loss. 5613 tons gross, built 1968.”
Upstairs, on the eleventh floor, is another part of the Lloyd’s tradition: the Adam Room, removed from Bowood House, Wiltshire, and installed in successive Lloyd’s buildings as the Committee Room. It comes complete with wall moldings, chandeliers, pictures, committee table, and armchairs, all in a nongray color combination, and is surrounded by a walkway that permits you to stroll round it and peer in. You could make a pretty symbol out of the Adam Room: here the Lloyd’s Committee meets in period surroundings, in an architectural cocoon, shut off from the outside world. To be fair, though, you could just as easily reverse the symbol. Here is a room that appears antique but discloses hidden modernity: the chandeliers, for instance, are controlled by dimmer switches; at one end, the floor disgorges a huge screen, while at the other a painting swivels away to reveal the projection room. Looked at like this, it is less a room mired in the past than one wired for Goldfinger.
I PASSED THE SIGN to Bowood House on my way to visit a widow in the West Country who cannot be named because she is with The Hardship, as the Lloyd’s Members’ Hardship Committee is known, and part of the deal with The Hardship is that you don’t talk about it. Our meeting is initially shadowed by the morning’s news of a fifty-one-year-old North London solicitor who had hanged himself in despair after incurring losses on the Lloyd’s market. His widow gave evidence to the Hornsey Coroner’s Court: “He was told he might have to go bankrupt and would not be able to practice as a solicitor. He said they asked for more and more money.” It is hard to estimate the number of “Lloyd’s suicides,” since troubles always compound one another and are rarely separable out as pure causes. Besides, there is no central clearing house for such statistics. One well-positioned Name gave me the figure of “seven, to my personal knowledge.”
Those not ground down or appallingly depressed by their experiences with Lloyd’s are likely to be feistily skeptical about the whole market. Certainly this is the case with the West Country Widow, now in her seventies, who lives with a vivacious, not to say deeply neurotic, pug dog. Around her village lies flat, rather overmanicured pasturage riddled with bed-and-breakfast cottages; Arabella’s pony frolics in the paddock; the passing double-decker bus has a recruitment ad for the British Army on the back; and every other dwelling is called The Coach House or Ye Olde Forge. The Widow, on the other hand, lives in an undistinguished cul-de-sac, in a modest semidetached house of the sort it would seem pretentious to give a name to. But the Widow has defiantly baptized her house, and the nameplate, in brown wood with sunken black lettering, is the first thing you see as you enter her inside porch. This dwelling, it tells you, is called SDYOLLKCUF, which has a Celtic, perhaps a Cornish, feel to it; though if you read it backward you find it altogether more Anglo-Saxon.
“Have you seen this?” she asks as her pug welcomingly assaults my shoelaces. She hands me a cutting from the Daily Mail women’s page. It shows a photograph of Dr. Mary Archer, head of the Hardship Committee, modeling a cocktail dress by the French designer Nicole Manier: a flouncy, black, above-the-knee number, with diaphanous sleeves and shoulder bits, topped off by a provoking headdress of ostrich feathers, or whatever are used nowadays in their stead. “Probably costs more than she’s going to give me to live on for a year,” grumps the Widow. Across the bottom of the picture she has written, “This woman is unfit to be Chairman of the Hardship Committee.” I do not answer her question as to whether or not I have seen the cutting; in fact, I was shown it only two days earlier, in Chelsea, at the house of the Deficit Millionairess. It is clearly a much-circulated and efficient inducer of rage.
The Widow’s story goes like this. Her husband died in the mid-sixties, at a time when death duties between spouses were heavier than they are now, and the house in which they had lived became harder for her to manage. “My accountant suggested I become a member of Lloyd’s, and, most unfortunately, I had a cousin working at Lloyd’s for Anthony Gooda.” She began underwriting in 1978. Her initial premium limit was £100,000; subsequently, it was raised to £135,000 and then to £188,000, on both occasions, she said, “without explaining.” Over the first
twelve years of membership, she received £39,000 and concluded from the size of her checks that she was on low-risk syndicates. Her accountant agreed, telling her, “Your lot must be safe, because they pay so little.” Then the bills started. The first was for £120,000, of which she managed to pay £80,000. Then more and more. Like Fernanda Herford, she had the hazy illusion that some rough equity guided her dealings at Lloyd’s, and that you wouldn’t—couldn’t, shouldn’t—lose a larger sum than the one you underwrote. But unlimited liability, pedantically, grindingly, means what it says: “They say now I owe them three hundred and fifty thousand pounds.” How did she react? “I walked about shaking and empty. I only got through with gin and arnica—it’s a homeopathic remedy for shock—God, and a lot of friends.”
Rather than face a writ for debt, she went to The Hardship. “It took us three weeks to fill up the form.” She complains of “arrogant letters” from The Hardship and great silences. She feels in limbo, waiting for The Hardship to propose its terms of settlement: “They say, ‘You will exist on our guidelines,’ but they don’t tell you what they are.” She knows the process, however: “They take all the Lloyd’s funds, and this house when I’m dead, and I pay all the capital gains on my funds and they take them as well.” From being someone who worked twelve hours a day with horses and let Lloyd’s quietly make her a little bit extra, she has become someone who spends several hours of most days dealing with forms, demands, action groups, and so on. “The worst part is the post. You literally shake for half an hour when it comes.” From being someone who believed that Lloyd’s was “the highest name of honesty,” she has become someone who views it as “a cesspit of dishonesty.” From being a Lloyd’s investor, she has become a Lloyd’s pensioner.