The failure of the Lloyd’s of London insurance market will overshadow the collapse of Barings and may rival the U.S. savings and loan debacle as an example of the fragility of complex financial markets. Here are two highly readable accounts. The first has the charm of a highly personalized account by a ‘Name,’ one of those whose money is at risk through Lloyd’s, written in the skilled pen of Martin Mayer, and full of interesting but not always easy to follow detail. The second, by a journalist, offers deeper context and broader perspective. During the 1980s both the amount of insurance and the number and diversity of the players writing and underwriting it through Lloyd’s grew rapidly. They were all caught by some bad storms, but above all by liability law in the United States, especially as it pertained to asbestos and other forms of pollution. There were many failures of judgment, as well as some bad luck, with no one taking an overview of what developed the strong flavor of a Ponzi scheme, until things went badly wrong. In the end, hallowed British institutions were unable to cope with the radical development of U.S. liability law. And unsupervised ‘self-regulation’ had become untenable in a world where foreign (including American) players entered a system that had a finely honed code of ethics, and that even on its own terms permitted extensive self-dealing at the expense of the Names, provided they did not lose money.
