Sinking the Global Economy: The Lloyds of London Story Part II

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It's the difference between being a commodity and being an architect. Creativity is a system, not a spark. Learn it today. Visit creativityforgrowth.com. Pushkit. Too quick? No, it was perfect. Pushkit, stop. You got it. Starting this one with a headline from The Onion. I'm surprised it's taken us this long to start with an onion headline. Supposedly from the day after the Titanic sank, and the headline is, World's Largest Metaphor Hits Iceberg. Always left that one. It's good. It's good. And I thought of it when I was working on this show on part two of our story about Lloyds of London. So I looked it up, and I didn't remember the subhead, which is also genius, which is, Titanic, representation of man's hubris, sinks in North Atlantic. I'm dredging up this bit of Gen X nostalgia, not just because I think it will be red meat for our listeners, though I do, but also because I think it is the perfect place to start the story of Lloyds of London in the 20th century. Because the Titanic sailed in April of 1912. It was insured by multiple Lloyds underwriters. Of course it was. Of course it was. The insurance was cheap because the Titanic was unsinkable. And then, as we all know, the Titanic sank. And the insurers at Lloyds paid up in full within 30 days. And yes, the Titanic is a metaphor for Lloyds in the 20th century. Lloyds was the finest insurance market on the seas, seemed unsinkable, until it hit an iceberg. An iceberg made of hubris and lined with asbestos. Not a great metaphor. No, it's good. But I'm going down with the ship of my metaphor. I'm Jacob Goldstein. I'm Robert Smith, and this is Business History, a show about the history of business. And the history of insurance. Yes, we're starting with Lloyds at the top of its game. To the 1980s. And to be an underwriter at Lloyds is to live the dream. At least to live the insurance underwriting dream. Remember, the underwriters don't work for Lloyds. Lloyds is a marketplace. They work at Lloyds. They write insurance policies. They collect premiums. They pay claims. But at Lloyds, they do it with style. There is this description of underwriters at Lloyds from around this time that I love and that I want you to read. Many leading underwriters have presence. They wear a rose in their buttonhole, make an entrance fashionably late, shoot a couple inches of white poplin cuff, displaying gold links, unscrew the top of a gold fountain pen, and scribble their initials with a stagy flourish. That scribble, by the way, that is the actual underwriting that has been going on at Lloyds for about 300 years at this point. And that description comes from a book called Lloyds, A Reputation at Risk by Godfrey Hodgson, published in 1984. And I want you, Robert, to read just a little more of that passage about underwriters. There are plenty of these leading men at Lloyds, even a few stars. Ian Posgate is the only superstar. They call him Goldfinger in the market. He positively seeks out dangerous business where his competitors are nervous because there have been heavy losses. War, hijacking, political upheaval, catastrophe have been his opportunities. Goldfinger. Goldfinger. Apparently, God has start writing insurance on ships going up the Mekong during the Vietnam War. What I love about this is he does sit at a desk in a room in London, but he's so edgy because of the policies he writes that the other insurance agents are like, that guy? Goldfinger. I mean, he is also one of the highest paid men in England at this point. Okay. So, you know, yes. Because he uses his finger to sign a name which is worth its weight in gold. And so, still at this point, Lloyds is obviously not a coffee house anymore, but there is one room where Posgate, Goldfinger, and the other underwriters work. And it's called The Room with a capital R because it's Lloyds and they love to capitalize things. And I should say just structurally at this point that underwriters aren't like loan guns anymore. You know, it's not just like some guy. There are these companies called managing agents that are kind of doing the insurance business. But star underwriters are still stars. And you can think of The Room as like kind of like a farmer's market, you know, or like a food market. You might visit where there's, you know, different stalls and somebody selling vegetables and somebody selling chicken at one or whatever. Goat cheese guy in the corner. Yeah, there's a goat cheese guy in the corner. But instead of that, it's like there's a guy in this box selling kidnapping insurance and there's a guy in this box selling marine insurance and whatever. And they still have the Lutine Bell that we talked about last time, that bell that got dredged up. That's still in the middle of The Room, mostly ceremonial at this point. And still each underwriter has, you know, a little stall, a bench, a phone. Computers are just starting to get there in the 80s. And the brokers, the people who are there to buy insurance still go from box to box. Just like they used to go from table to table hundreds of years earlier, talking to different underwriters looking for insurance. And in that book you were reading from, there is this amazing scene where the writer describes just a few hours one day at Pawsgate's box, at Goldfinger's, you know, box in the room. I can imagine, you know, when you have a policy, something so strange, so dangerous, you present it to someone in the room and he just points over Goldfinger. So here's a list. It is amazingly heterogeneous, varied. The people are looking for insurance on a Swedish cargo ship, a mansion in London owned by an investment firm in Zurich. Part of the risk on an oil drilling platform in the North Sea, a policy covering a construction company against the risk of confiscation and expropriation of their plant in Indonesia. Race horses in Tennessee. It's almost starting to seem a little dodgy some of these things they're insuring. Shell companies are involved. Yeah, yeah, well, I will say it came out later that Pawsgate himself was at least somewhat corrupt. He was tried for fraud after millions of dollars in premiums that he was responsible for disappeared. He was acquitted. But he did admit to accepting a Pizarro painting in some kind of shady deal and he was pushed out of Lloyd's. And so that really was Lloyd's by the 1980s. Insidery, corrupt, but also still glamorous, weirdly glamorous for insurance. Well, you may remember in the 1980s, like Lloyd's was one of those jokes that everyone could make. You know, if you were good at, say, talking on the radio, you would joke, oh, well, Lloyd's has insured my dulcet tones. And it would laugh because because it was both a joke, but it was also a huge status thing to be insured by Lloyd's as you were at the top of your game. Yes. Lloyd's in fact insured Bruce Springsteen's voice and they insured race horses and they insured satellites. They actually paid for the first ever satellite salvage mission in 1984. They'd been paying for ship salvage missions for hundreds of years. I love that a satellite is the modern day ship, but of course it is. It is a space ship. So in fact, in the 80s, Lloyd's paid for astronauts on the space shuttle to go collect a couple satellites that Lloyd's had insured and that like didn't make it to the correct orbit. And in fact, when when the astronauts came back, President Reagan gave the astronauts metals that Lloyd's had had paid to print up. Incredible publicity. I'd say you can't buy it, but Lloyd's kind of did buy it. Yes. I'm going to call the peak for Lloyd's right in here. It's 1986 when Queen Elizabeth opened Lloyd's big new fancy headquarters. I love this picture of Queen Elizabeth, her technical title by the grace of God of the United Kingdom of Great Britain and Northern Ireland and her of other realms and territories. Queen, head of the Commonwealth, defender of the faith with giant scissors cutting a cutting a big ribbon and being like, Lord, scissors open. One lesson that I think is emerging on the show is if a company opens a beautiful fancy new building, especially with the Queen, yes, especially with the Queen, but I'm also thinking of the Sears Tower when Sears built the biggest tower in the world. Maybe it's the top. Let's talk about why. Lloyd's needed that new headquarters because they'd outgrown the old one and that growth was part of this much bigger transformation in how Lloyd's worked. We started with guys in a coffee shop, merchants agreeing to underwrite the risk of a ship captain who walked in. But of course, that was hundreds of years earlier. The economy has totally transformed. It's become bigger and more complex. And so it just wasn't going to work to have underwriters being solo operators. So these managing agent companies emerged. And more importantly, the underwriters and the managing agents created syndicates, groups of people that started out small and got bigger and bigger over time. By the 80s, some syndicates had thousands of people who all agreed basically to back the underwriters' policies. So if there were profits and you were in the syndicate, you'd make money. And usually there were profits. But if there were losses, you were on the hook to share in the losses. These are just ordinary people. Ordinary people with money. Yeah, ordinary rich people. Not that ordinary rich, but not in the insurance business. And they become known as names. If you get in on this, you're known as a name. Of course, with a capital N. Capital N. And becoming a name at Lloyd's capital N was a big deal. You had to be rich. You had to get invited. And then you had to be accepted. Lloyd's wasn't like begging to take your money. And in fact, after you got invited, you had to go to Lloyd's to London to this special room in their headquarters called the Adam Room with the furniture from some 18th century country house. Capital A, capital R. Indeed. And in this room, a senior person from Lloyd's told you what you were signing up for by becoming a name. I assume you're sitting on leather. So much leather. You're sitting in leather. Here's what it meant. It meant you're putting up your capital, your stocks, your bonds as a guarantee so that the syndicate that you're joining can sell more insurance. And as a rich person, you can still keep your bonds and your stocks. You can still get the dividends and the interest off of those. But it's doing extra work your money because it's also backing up this other thing. Exactly. And when the syndicate makes a profit, as it usually does, you get to share in that profit. And the syndicates are structured in this way that is tax advantaged, which is a huge deal in England because the taxes were so high. Like in the 70s, the highest marginal rates in England were 98%. 98%. It's like, why even go to work at 98%? Yes. Now, it seemed like free money, but there was a catch. There was a catch. Of course, if the syndicate you were joining lost money, you had to share in the losses. But the real catch is you weren't just on the hook for the capital you pledged. So you pledged whatever, 100,000 pounds. Fine. Your liability when you signed up to be a name was not limited to the money you put up. It was unlimited. We're used to talking about limited liability. This was unlimited liability. Limited liability as in limited liability corporations. Yeah, Aaron and sons limited. Every corporation, every big publicly traded corporation is a limited liability corporation. It was an innovation a couple of hundred years ago that said, oh, we can take investors and sure you can lose all your investment money, but we're not going to like take your home and your car and your pool. Right. It's limited. You have a limited liability. That's what allowed commerce to boom really. Right, because you can take a risk starting a company, getting investment. A measurable risk. You put $10,000 into Enron stock. Yeah. Enron goes bust. You lose that $10,000, but nobody calls you up and is like, oh, by the way, you got to sell your car and your house because Enron still owes money. That's unlimited liability. And at Lloyd's, that's what we're talking about. That's what we're talking about. And they liked it. They liked it because they thought it was this pure expression of the free market, a true risk. And they also thought it kept them honest. You know, the underwriters often participated in their own syndicates, so they had their own unlimited liability. And if you're buying insurance, you should like this. The person selling me insurance is saying they will either pay my claim or sell their house, sell their car, sell everything they have to make good on it. It's funny, right? Everything Lloyd's does has two sides to it. It has the pure mathematics, and it has a little bit of the showiness, a little bit of the trust, a little bit of the brand. And this was another one that said the rich and powerful of Britain will give up everything they own for you, Mr. Satellite Owner, if something should go wrong. Yes. So things are going to go bad at Lloyd's. Yes. And then that happens, there is this key question, which is, to what extent did people really explain to the names what unlimited liability meant? And you hear different stories about that. There's one story of a guy at Lloyd's who would tell prospective names, okay, here's what unlimited liability means. Take out your checkbook. People still had checkbooks. Write my name on there. Date it, sign it, and leave the amount blank. Now tear it out and give it to me. Take it and put it in its pocket. And you'd say, becoming a name means I can cash this check for any amount anytime I need to. That's the version of like really telling them what I need. Yeah, that's scary. Yes. Lots of names had different experiences or remembered it differently. They said unlimited liability was presented more as a technicality. Sure, yes, it's technically there, but we have reinsurance. We have insurance that covers us, the insurer. So if anything goes bad, the reinsurance will cover it. It's nothing to worry about. One name said somebody from Lloyd's told him that unlimited liability was just a gin and tonic, which I don't exactly, exactly understand what that means when I get to five minutes. It's so English. Common and chill as a gin and tonic. Most British thing ever. And in fact, up until the 70s, the 1970s, being a name was extremely clubby. You know, it was a very high status thing. Lloyd's was a high class, high status institution. You had to be rich. You had to have a lot of liquid assets to pledge. But in the 70s, the underwriters at Lloyd's realized they needed more names in their syndicate so they could keep growing. They needed to grow beyond the club. And so they lowered the wealth requirements. They made it easier to join and they started sending out agents to recruit new names, not just in England, but around the world. One guy apparently drove a Rolls Royce around New Zealand and Australia. It's just more of kind of a like sleazy, multi-level marketing vibe to me. They're like a high class thing, but I guess it worked. You roll into the outback town of Alice Springs and you're like, good day mate. Would any of you like to have unlimited liability? There was another guy who like golfed his way through the Midwest and the United States. That feels more unbrand, you know. And these new names do still have to fly to London and go to that fancy room and, you know, hear the talk. And they do. And in the meantime, famous people do keep signing up. Camilla Parker-Bowles, who today is the queen consort of England. Charles Schwab, Schwab the guy, not Schwab the broke one. Was a name. Was a name. He was indeed. A couple of guys from Pink Floyd, by the way, which one's pink. But also now names are ordinary people who are not famous names. You know, they're doctors and accountants and I'm sure there were some dentists. There's always some dentists. You talked about giant buildings as the sign of the top of any industry, but I think this is the moment that shows the most risk. When you know that something works and you're like, well, let's let a few dentists in, you know, a few air conditioning repair company owners in. This is the moment at which you're taking more risk, bringing more people onto the line. And I mean, what that makes me think of is what's happening right now with private equity and like normal people retirement accounts. I'm not, this is not investment advice. I don't have a view, but this is that moment for private equity, right today. So this recruiting policy works in between the early seventies and the late eighties. The number of names, capital N goes from 7000 to more than 30,000. And for most of the time, being a name is in fact great. You get the tax benefits, you get steady profits, you get to say your name, you get to watch the queen open your new office. And then around 1990, after 300 years of Lloyd's glory, things get boring. This message is a paid partnership with Apple Card. There's something interesting about how seamlessly certain tools fit into daily life. Apple Card is one of those things. It can be applied for right in the wallet app on iPhone and approval can happen in minutes. So it's ready to use immediately with Apple Pay. 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That's LinkedIn.com slash Pushkin. Terms and conditions apply. We're back from the ads, and this is the moment when things are going to start going wrong at Lloyd's. There's kind of a bunch of bad things that start happening at Lloyd's in the late 80s, but I think you can boil it down to two, mainly. The first one is Asbestos, the naturally occurring fiber that people have used for its flexible fireproof qualities for thousands of years. Didn't know until I wrote this show that it was naturally occurring. 100% organic, as it says on the tin. Asbestos became wildly popular in the 20th century for things like insulation and building materials. So, Clement, it's in my basement. And when we had inspection done, they're like, yeah, there's a lot of Asbestos here. Just don't spend a lot of time down here. And it's still there? It's still there. They're like, do not touch it. Do not remove it. Don't do anything. Good to know. That's kind of shocking. No, it is ubiquitous. Certainly by the late 20th century, it was ubiquitous. And old buildings in New York, yeah. It became clear over the decades of the 20th century that people who were exposed to Asbestos for a prolonged period of time, typically at work because they worked with it, could develop cancer decades later as a result of their exposure. Hundreds of thousands of people wound up dying from Asbestos exposure. Whole towns where Asbestos was mined were contaminated. And in 1969, a former insulation installer named Clarence Burrell was dying of mesothelioma, this kind of cancer you get from Asbestos exposure. And he sued a bunch of Asbestos companies, arguing that they failed to disclose the risks associated with their products. He actually died before the case went to trial, but his widow continued the case. And one, the jury awarded Burrell's widow damages of $79,436, a modest sum. But this was just the beginning. Asbestos was, you know, was everywhere by this point. Millions of people had worked with it. And over the course of the 70s and 80s, it snowballed, you know. First, it was a few cases, then hundreds, then thousands, then tens of thousands, these mass torts. And then school districts started suing Asbestos companies because they had to pay all this money to remove the Asbestos from their buildings. And bigger and bigger and bigger verdicts keep coming in. And you know who insured a lot of the companies that were on the hook to pay out? Lloyds, the syndicates at Lloyds. And we haven't really talked about this, but one of the ways that insurance works is ensuring uncorrelated risks. The business only works if you insure, for instance, your house and my house for fire insurance. But we, even though we live close to each other, the odds of my house and your house burning out at the same time are small. And if you have a lot of uncorrelated risks, things can go bad in one part of the economy, in one part of the country, in one neighborhood. And you don't have to pay out to other parts of the country. But we're talking about something here that is immensely correlated, that was everywhere and all at once. Now, there is a kind of safety net for insurance companies in this situation, which is reinsurance. Reinsurance. I love reinsurance. Reinsurance is the insurance company for insurance companies. Yes. So if you're an insurance company that writes policies in Florida and there's another insurance company that writes policies in California, there's a reinsurance company that might take you both on, thinking, well, Florida may have a huge problem, California may have a huge problem, but probably both companies aren't going to face challenges at the same time. So it's one level up, reinsurance. Insurance for insurance, yes. Now, remember I said there were two problems. One was asbestos. The other one was reinsurance. Lots of the syndicates at Lloyd's were in the reinsurance business as well as the insurance business. And they were in the re-insurance business. There is re- reinsurance. I did not know that. I feel like we've talked about it. I feel like we've just idly wondered, is there reinsurance for reinsurance? There is. I learned working on this show. It's called Retrocession. The people who sell reinsurance for reinsurance are called retrocessionaires. Side note, I feel like another risk sign besides dentists in fancy new buildings is fancy French terms for financial products. Tranche, I'm looking at you. Unbelievable. Retrocessionaires, the reason why we don't know this term is this is so far up the insurance and reinsurance and re- reinsurance ladder that it probably doesn't come up very often. Right. And this is actually part of the reason that the reinsurance business at Lloyd's gets into trouble because the people selling retrocession, selling the reinsurance and reinsurance, we're selling it too cheap, which is a natural thing to do in that business because you don't often have to pay a claim. You only have to pay a claim when like it goes all the way up the chain to you. When there's a huge problem that covers so many different companies and areas of the world and is overwhelming, and that rarely happens. You don't have the data for how often that happens. And so it's natural to sell the policies cheaper and cheaper because you're like, oh, it's just profit. It's just profit. We're not having to pay claims. It actually reminds me of that line from Nasim Talib. He is in a different context, but picking up pennies in front of a steamroller. It's this idea of tail risk really, right? Rare risk that is very hard to calculate, but picking up pennies in front of a steamroller, you're just like, oh, free money. I'm picking up this free money year after year. And then you look over your shoulders. Here comes the steamroller. This starts to become a problem for Lloyd's even before the worst of the asbestos verdicts come in because there are just all of these uncorrelated bad things happen. There's an oil platform that blew up in the North Sea. There's the Exxon Valdez, which I'm sure you remember, hit a reef in Alaska and spilled a bunch of oil. And then Hurricane Hugo swept through the Caribbean and the Southeast US. And so suddenly there are just all of these giant claims, and then you have the asbestos judgments coming in. So the insurance syndicates at Lloyd's go to their reinsurer, who is also reinsuring places like Allstate and Travelers Insurance, who are also seeing a lot of these same claims, especially from like the hurricane that came through. So the reinsurance company is like time to turn to the re-insuranser, the retrocessionaires. Good. And the retrocessionaire does not have enough money. And there is a second problem that is related, also related to reinsurance. And to explain it, let's just do a little toy model, okay? Let's say we're all in the business of selling insurance. So Robert, I come to you and I want to lay off some of my risk. So I buy reinsurance from you. Great. Happy to do it, but I don't want to lose my home. So I'm going to lay off my reinsurance to our producer Gabriel. Good. So he is selling you retrocession. Retrocession. Now he also wants to lay off some of his risk. Here's the crazy part. You know who he goes to for coverage on his retrocession? Me. He goes to me and I sell it to him. It's not exactly this, but this is a basic model of how it worked. The key thing is you want this kind of thing to be a ladder, right? You want it to go up a chain. At Lloyd's, it was a spiral. Is this a problem because there wasn't central control of the syndicates at Lloyd's? It's partly that. It's partly like every time somebody's sold another policy, they got another commission, right? There's some amount of just sort of corruption. I think there's some amount of when you are just making money year after year after year, you underestimate risk, right? It is quite analogous to the financial crisis in a lot of ways, right? This complex system, nobody knows who holds what risk. It's kind of circular. There's French names for things and there's tail risk. It's like, oh, surely not all the house prices in America are going to go down at the same time. So, in the year that the disaster doesn't happen, you're growing and you take on more risk. It's just natural until you wake up one morning and figure out that you are your own insurer and reinsurer and retrocession. Yeah, and there's not enough money in the pot. So we are at this moment now. It's the early 90s. This spiral reinsurance problem combined with the asbestos verdicts meant that lots of Lloyd's syndicates just didn't have enough money to pay their claims. And this is when we return to unlimited liability. So they open their address book. They have famous and rich names all up and down the address book and they say, well, they say, you know, that 100,000 pounds that you put up, that's gone, but it's not enough. You need to chip in. You need to pay whatever share of the additional losses we owe. And in some cases, it was a lot of money. Oh, you don't have that money in the bank? Fine. Sell your house. Sell your car. You signed up for unlimited liability. It's happening now. This is what it means. We're cashing the blank check. We're cashing the blank check. And some people lost everything. Some people went bankrupt. Some people committed suicide. And still, there was this worry that Lloyd's might not be able to get enough money to pay the claims that owed. We've been talking about how the modern world is built on Lloyd's to some significant extent. On their reputation, hundreds of years at this point, they've built up this reputation by paying out when it was painful. And so, yes, it is a risk to Lloyd's reputation. It's also a risk kind of to the global economy in a similar way to the 2008 financial crisis. Lloyd's is this central link in lots of different economic chains. And if suddenly they can't pay, people are worried that there's going to be this chain reaction. If you can't trust Lloyd's, who can you trust? If Lloyd's doesn't have the money, what's going to happen? After the break, we tell you what happens. Every business has an ambition. PayPal Open is the platform designed to help you grow into yours with access to business loans so you can expand and hundreds of millions of PayPal customers worldwide. 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Post your first job and get $100 off towards your job post at linkedin.com. That's linkedin.com slash pushkin. Terms and conditions apply. We are back from the break. Just to remind you, the entire world economy is on the brink because of Lloyd's. We got two guys coming in to try and save Lloyd's. One is an insider. Yeah, there's an outsider, conveniently for storytelling purposes. The insider is David Rowland. His father worked in insurance in the city of London. He went to Cambridge, got into the insurance business as soon as he graduated. Of course, he knew he wanted to do that his whole life. He spent 35 years as a broker at the Lloyd's Market. He became the chairman of Lloyd's. The outsider was a guy named Peter Middleton, son of a laborer. Spent three years at a monastery as a young man, worked as a truck driver and as a British spy in France and Tanzania. He became the CEO of Lloyd's. Being the CEO of Lloyd's or the chairman of Lloyd's is not like being CEO or chairman at a normal company because, again, the brokers are the underwriters, managing agents. They don't work for Lloyd's. They work at Lloyd's. Rowland and Middleton are not their bosses. It's more like they run the New York Stock Exchange or something. That means that Rowland and Middleton can't just make whatever changes they want. They can't just come in and tell people what to do. They have to convince and cajole. They're mostly responsible for the paper towels in the kitchen there at Lloyd's. Just keeping the whole thing running. More than that, more than that, they do need to transform it. They just need to bring everybody along. They start having these meetings with thousands of people, among others, these disgruntled names who are suddenly on the hook for huge amounts of money. They actually have one meeting at the Royal Albert Hall, which I guess is London's version of Carnegie Hall. At the beginning of the meeting, Rowland walks up to the podium and he says, good morning, ladies and gentlemen. Somebody from the audience goes, liar. It was not going to go well. It wasn't going to go well. Nobody trusts them. Nobody trusts Lloyd's. Nobody trusts these guys who are trying to change it. But they know they do have to change Lloyd's or it's just going to fail. In fact, Rowland later said he knew either he would solve the crisis at Lloyd's or he would be the last chairman at Lloyd's because Lloyd's would cease to exist. They come up with a plan with three key steps, really, to try and save Lloyd's. Step one, settle with names. Make a deal with the names. Offer to write off a bunch of the money that the names owed, cap their liabilities at 100,000 pounds each instead of being unlimited. In exchange, have the names promise to stop suing, basically. Well, these are the richest and most powerful people in the nation and around the world. Yes. And also some not so rich and powerful people who are truly in extremely bad situations because of their joining Lloyd's. And who, by the way, are alleging fraud. They're not just like sour grapes. They're saying people- You didn't tell me the risk. Yeah. And you knew or should have known about this risk. There was this allegation that Lloyd's was doing this thing, recruit to dilute, was a phrase. The allegation was Lloyd's knew how bad it was going to be and they brought in names to take the loss. So step one, settle with the names. Step two, spin off all of those pre-1993 liabilities, all those old asbestos policies and put those liabilities into what in finance you would call a bad bank. Evil Lloyd's. Evil Lloyd's. Yes. A spoiler alert. They're not going to call it that. But kind of, yeah. And this is a thing finance does, right? You move off the bad liabilities. And in this case, it would fundamentally be a reinsurer that would have to settle all those old claims. And it allows the company to make new contracts, take new chances and that sort of thing. There is an actual reason to do this because you can take specialists who can deal with the most problematic of policies. Yes. And step three, step three for getting Lloyd's out of this crisis is stop relying on capital from individuals with unlimited liability. This central thing of Lloyd's, they decide isn't going to work anymore. Instead, they want to start letting corporations, regular limited liability corporations, provide the capital for underwriting at Lloyd's. Which I guess means you're going to have to raise more capital in order to make up for that pool of names backing you. That's why you want to spin off the bad liabilities into the bad bank. So new capital will come in. I trust you on the back here. So Roland Middleton come up with this plan and they're trying to sell it to the names. And at a meeting at the Royal Albert Hall, pretty sure it's that same meeting where somebody called Roland the Liar, although I can't confirm that. Middleton is talking, the other guy is talking and he says to the audience, if we don't implement this plan by the end of 1995, then you should fire me. And somebody from the crowd yells, no, we won't, we'll shoot you. These are the vibes. These are the vibes. Yeah, not good. Not long after that Middleton actually left Lloyd's to go run the UK office for Solomon Brothers, got a raise, probably wasn't having people yelling they were going to shoot him. But Lloyd's did manage to implement that plan. Something like 95% of the names accepted that settlement deal, tapped their liabilities, agreed not to sue. Lloyd's did create a bad bank, a giant reinsurer called not evil Lloyd's, but Equitas. Oh, that sounds so mild. Equitas. Equitas, it does sound villainous in a like backwards. We think so, yeah, but Equitas, yeah, sure. And they did need to put a lot of money into it. You can't just say like, oh, here's the bad bank, sorry, it doesn't have any money. They had to put a ton of money into it. They funded it with a special fee they levied on the remaining names and Lloyd sold off that fancy building that the Queen had opened and rented it back to raise money and did in fact get all of its old pre-93 liabilities into Equitas. And now step three, they are ready to have that sweet, sweet, limited liability capital flow into the Lloyd syndicate. This is the 1990s. So the economy is growing, money is around. Money is around. Interestingly, a lot of that money that's now coming in is coming from insurance companies, actually, regular insurance companies. They're like, oh, it's the insurance business. We know about that. And so today, a lot of Lloyd syndicates function largely as arms of regular insurance companies, but they are in this market that is still this weird special Lloyd's market. Now, I said 95% or so of the names accepted the settlement deal. There were those holdout names. Like the guy who screamed liar probably. Presumably. Presumably that guy did not take the deal. And several hundred of those holdouts did sue Lloyd's, right? And their core allegation was fraud, right? Lloyd's knew about this, they should have known about this. They basically lied to us and got us to take this risk. And it is clear that there were at least some underwriters at Lloyd's who did know, who themselves steered clear of writing some of the worst policies. But in the end, the judge in the case found against the names, found in favor of Lloyd's, found that the behavior of the Lloyd's underwriters, syndicates, managing agents did not meet the legal definition of fraud. But he did basically find that the people of Lloyd's were incompetent. Can you read just this little bit from his decision? The catalog of failings and incompetence in the 1980s by underwriters, managing agents, members, agents and others is staggering and brought disgrace on one of the city's great markets. Disgrace. Disgrace. He's saying, shame. He's saying, shame. He's saying, I'm not angry. I'm just disappointed. And yet Lloyd survived. Lloyd's still exists today. They do still sell weird insurance policies. David Beckham's legs before he retired. And more importantly than that, we hear about the weird, funny claims. But Lloyd still really matters. Still is central to a lot of what happens in business in the world. I mean, even in March of 2026, the Iran War broke out and suddenly everybody was worried about the Strait of Hormuz. They were worried about specifically oil tankers coming through the Strait of Hormuz. And it wasn't just a matter of worried about the impacts of a war on the ships. They were worried about who is going to insure these ships during wartime. And it came down to Lloyd's and London in part. Yes, because if there's no insurance, the ships won't go. And if the ships don't go, that's something like 20% of the world's supply of oil. This is huge. And so the British Finance Minister went to talk about this with the chairman of Lloyd's. The chairman of Lloyd's told the British Finance Minister, yes, ships can still be insured through the London Marine War Insurance Market at Lloyd's. But it will be expensive. It will be extraordinarily expensive to get this insurance. Any risk is insurable at the right price. Today's show was produced by Gabriel Hunter Chang, was engineered by Sarah Brugger. Ryan Dilley is our showrunner and editor. Matt Nielsen is our video editor because we're on YouTube. Check it out. If you want more shows about insurance, and we know you do, write us businesshistoryatpushkin.fm. I'm Robert Smith. And I'm Jacob Goldstein. Thanks for listening. This is Malcolm Gladwell from Revisionist History. 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