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

Summary

Podcast Summary: "Sinking the Global Economy: The Lloyd’s of London Story Part II"

Podcast: Business History
Hosts: Jacob Goldstein & Robert Smith (Pushkin Industries)
Episode Date: April 15, 2026

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Overview

This episode continues the tale of Lloyd’s of London, examining how the world’s most renowned insurance market reached a dramatic crisis in the late 20th century—threatening the global economy and exposing the risks and consequences of unlimited liability. The story blends historical color, financial insight, and memorable personalities, breaking down the systemic failures, cascading losses, and hard-won reforms that redefined Lloyd’s and the very nature of risk in modern business.

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Key Discussion Points and Insights

1. Titanic Metaphor & Lloyd’s Reputation (03:07–04:41)

• The hosts kick things off with a famous satirical Onion headline: “World’s Largest Metaphor Hits Iceberg,” referencing the Titanic’s 1912 sinking.
• Lloyd’s insured the Titanic, which was viewed as “unsinkable,” but paid out claims in full after its sinking—a testament to Lloyd’s reputation for reliability.

Jacob Goldstein: “Yes, the Titanic is a metaphor for Lloyd's. In the 20th century, Lloyd's was the finest insurance market on the seas. Seemed unsinkable until it hit an iceberg. An iceberg made of hubris and lined with asbestos.” (04:03)

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2. 1980s Lloyd’s: Glamour, Growth, and Culture (04:44−11:02)

• Lloyd’s in the 1980s was at its cultural and financial peak, with star underwriters like Ian Posgate (“Goldfinger”), known for insuring high-risk ventures and displaying flamboyant style.
• The “Room” at Lloyd’s is described as a buzzing financial bazaar where brokers and underwriters negotiate bespoke policies across a dizzying range of risks—from oil platforms to racehorses.

Robert Smith (reading from Godfrey Hodgson): “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 stagey flourish.” (05:19)

• Structure shifts: Lloyd’s evolves from lone underwriters to managing agents overseeing massive syndicates, using other people's capital to underwrite risk.

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3. The Lure (and Trap) of “Names” and Unlimited Liability (12:37−19:57)

• Wealthy individuals, called “names,” provided capital with the full risk of unlimited liability. For decades, being a “name” at Lloyd’s was an exclusive, lucrative status symbol.
• Tax advantages and the perception of steady profits attracted more people, resulting in rapid expansion from roughly 7,000 names in the 1970s to over 30,000 by the late 1980s—including celebrities, professionals, and even Pink Floyd members.
• The underlying peril: Losses weren’t limited to the initial investment; names’ entire fortunes—homes, cars, assets—were at risk.

Jacob Goldstein: “Your liability when you signed up to be a name was not limited to the money you put up. It was unlimited.” (14:19)

• The sales pitch downplays the risk: Unlimited liability described as “just a gin and tonic,” with some recruiters using luxury (and misdirection) to woo new participants.

Robert Smith: “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.” (19:38)

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4. The Unraveling: Asbestos and the Reinsurance Spiral (25:24−34:27)

Asbestos Crisis (25:24–28:33)

• The rise of asbestos lawsuits in the 1970s–80s leads to huge payouts—mass torts multiply as health risks become public, and Lloyd’s syndicates owe immense sums to claimants.
• Insurance’s basic logic—spreading “uncorrelated” risk—is upended, as asbestos exposure affects diverse clients all at once.

Reinsurance and “Retrocession” Fiasco (28:33–34:02)

• The insurance industry's safety net, reinsurance, fails in tandem—the “spiral” effect emerges as syndicates insure each other’s risks round-robin, rather than through a clean upward “ladder.”
• Financial products become so convoluted (with layers like “retrocessionnaires” selling reinsurance-on-reinsurance) that no one is sure where the risk ultimately lands.
• This complexity, paired with repeated underpricing of risk and overconfidence, directly echoes later financial crises (e.g., 2008 housing crisis).

Jacob Goldstein: “It actually reminds me of that line from Nassim Taleb … picking up pennies in front of a steamroller … you’re just like, oh, free money. … Then you look over your shoulder, here comes the steamroller.” (30:43)

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5. Crisis Hits: The Reckoning for “Names” (34:27−36:06)

• Cascading losses mean many Lloyd’s syndicates cannot pay their claims; unlimited liability clauses are triggered, sending shockwaves through thousands of names.
• Ordinary rich and even some ordinary individuals face ruin—homes sold, bankruptcy, even suicides.
• Global financial stability is threatened: Lloyd’s centrality to insurance markets means that its collapse could trigger a worldwide crisis.

Jacob Goldstein: “You know that hundred thousand pounds that you put up, that's gone. But it's not enough. …Sell your house, sell your car. You signed up for unlimited liability. It's happening now. This is what it means.” (34:34–34:58)

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6. The Rescue Mission: Leadership, Reforms, and Fallout (39:26−46:21)

Crisis Leadership (39:26–40:53)

• Two figures attempt to save Lloyd’s:
  • David Roland: Lloyd’s insider, chairing the organization.
  • Peter Middleton: Outsider CEO, tasked with navigating political minefields and orchestrating reform despite lacking direct authority.

The Three-Point Plan (41:32–46:21)

1. Settle with the names: Limit their liability, write off some debt, and offer settlements in exchange for ending lawsuits.
2. Spin off toxic liabilities: Move old asbestos (and similar) obligations into a “bad bank” (ultimately named Equitas) to make a clean break for the remaining syndicates.
3. Modernize capital: Transition from individual names to corporate, limited-liability capital to prevent a repeat crisis.

Robert Smith (on the legal findings): “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.” (47:49)

• The transition is messy: Emotional mass meetings, accusations of fraud, but ultimately 95% of names accept the settlement.

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7. Aftermath and Lloyd’s Today (48:09–49:44)

• Lloyd’s survives, becoming more like a modern insurance market backed by corporate capital; its old flamboyance gives way to a more structured, cautious approach.
• Lloyd’s remains central in insuring major commercial risks. For instance, amid the 2026 Iran War, they insured tankers navigating the Strait of Hormuz—showing their ongoing global significance.

Robert Smith: “If there's no insurance, the ships won't go. …That's something like 20% of the world's supply of oil. This is huge.” (49:01)

Jacob Goldstein: “Any risk is insurable at the right price.” (49:30)

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Notable Quotes & Memorable Moments

• Jacob Goldstein (on the Titanic as metaphor): “An iceberg made of hubris and lined with asbestos.” (04:03)
• Robert Smith (summarizing Lloyd’s glamor and absurdity): “Lloyd’s was one of those jokes that everyone could make ... it was also a huge status thing to be insured by Lloyd’s.” (09:47)
• Jacob Goldstein (on the reinsurance spiral): “At Lloyd’s, it was a spiral.” (33:07)
• Jacob Goldstein (on the blank check of unlimited liability): “Becoming a name means I can cash this check for any amount, anytime I need to.” (16:10)
• On the cultural vibe shift: “When you know that something works and you're like, well, let's let a few dentists in ... This is the moment at which you're taking more risk.” (19:38)
• On saving Lloyd’s: “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.” (44:32)
• Legal judgment: “…brought disgrace on one of the city’s great markets.” (47:49)
• On Lloyd’s global role today: “Any risk is insurable at the right price.” (49:30)

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Important Timestamps

• 03:14–04:41: Titanic, metaphor for Lloyd’s, early 20th-century reputation
• 05:19–05:59: Describing Lloyd’s underwriter flamboyance
• 12:37–15:14: The “names” and unlimited liability explained
• 19:38–20:56: Surge of new names, rising risk
• 25:24–28:33: Asbestos lawsuits and the insurance industry’s Achilles' heel
• 28:33–34:02: Reinsurance spiral—retrocession and systemic risk
• 34:27–36:06: Lloyd’s calls in unlimited liability, personal ruin for many names
• 39:26–41:32: Two men attempt to save Lloyd’s: Roland (insider), Middleton (outsider)
• 41:32–46:21: The three-step rescue plan: settle, spin off liabilities, corporatize capital
• 47:49: Quote from judicial verdict on incompetence and disgrace
• 48:40–49:44: Lloyd’s modern role—insuring tankers during the 2026 Iran War

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Final Thoughts

The episode masterfully weaves history and humor with the drama of financial disaster and rescue. It illustrates how Lloyd’s century-old traditions enabled both greatness and hubris, and how unchecked systemic risks, once unleashed, can threaten the foundation of the global economy. It closes with Lloyd’s resilience—and a reminder: “Any risk is insurable at the right price.”

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For further resources and future episodes, visit Pushkin’s Business History podcast page or tune into their YouTube channel.

Transcript

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[Jacob Goldstein]

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[Robert Smith]

Pushkin Too quick?

[Jacob Goldstein]

No, it was perfect. Push kit Stop. You got it. Starting this one with a headline from

[Robert Smith]

the Onion, I'm surprised it's taken us this long to start with An Onion headline.

[Jacob Goldstein]

It's supposedly from the day after the Titanic sank.

[Robert Smith]

And the headline is World's Largest Metaphor hits iceberg.

[Jacob Goldstein]

Always loved 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 Lloyd's 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.

[Robert Smith]

Of course it was.

[Jacob Goldstein]

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 Lloyd's. In the 20th century, Lloyd's 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.

[Robert Smith]

I'm Robert Smith. And this is Business History, a show

[Jacob Goldstein]

about the history of business and the history of insurance. We're starting with Lloyd's at the top of its game. It's 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 Lloyd's. Lloyds is a marketplace. They work at Lloyd's. They write insurance policies, they collect premiums, they pay claims. But at Lloyd's, they do it with style. There is this description of underwriters at Lloyd's from around this time that I love and that I want you to read.

[Robert Smith]

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 stagey flourish.

[Jacob Goldstein]

That scribble, by the way, that is the actual underwriting that has been going on at Lloyd's for about 300 years at this point. And that description comes from a book Called Lloyd's 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.

[Robert Smith]

There are plenty of these leading men at Lloyd's, 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.

[Jacob Goldstein]

Goldfinger. Goldfinger apparently got his start writing insurance on ships going up the Mekong during the Vietnam War.

[Robert Smith]

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.

[Jacob Goldstein]

I mean, he is also one of the highest paid men in England at this point. So, you know.

[Robert Smith]

Yes, because he uses his finger to sign a name which is worth its weight in gold.

[Jacob Goldstein]

And so still, at this point, Lloyd's 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 Lloyd's. And they love to capitalize things. And I should say, just structurally at this point, that underwriters aren't like lone 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.

[Robert Smith]

Goat cheese guy in the corner.

[Jacob Goldstein]

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 Posgate's box at Goldfinger's, you know, box in the room.

[Robert Smith]

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.

[Jacob Goldstein]

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, racehorses in Tennessee.

[Robert Smith]

It's almost starting to seem a little dodgy. Some of these things they're insuring, shell companies are involved.

[Jacob Goldstein]

Yeah. Well, I will say it came out later that Posgate 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.

[Robert Smith]

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, Lloyds has ensured my dulcet tones. And everyone would laugh because. Ha ha ha. Because it was both a joke, but it was also a huge status thing to be insured by Lloyds as you were at the top of your game.

[Jacob Goldstein]

Yes. Lloyd's in fact insured Bruce Springsteen's voice. And they insured racehorses 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.

[Robert Smith]

Yeah, I love that a satellite is the modern day ship, but of course it is, it is a spaceship.

[Jacob Goldstein]

So in fact, in the 80s, Lloyds paid for astronauts on the space shuttle to go collect a couple satellites that Lloyds had insured and that like didn't make it to the correct. And in fact, when the astronauts came back, President Reagan gave the astronauts medals that Lloyds had paid to print up incredible publicity. I'd say you can't buy it, but Lloyd's kind of did buy it.

[Robert Smith]

Yes.

[Jacob Goldstein]

And there's a moment that I'm gonna Call the peak for Lloyds. Right in here. It's 1986, when Queen Elizabeth opened Lloyd's big new fancy headquarters.

[Robert Smith]

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 big ribbon and being like Lord Scissors Open.

[Jacob Goldstein]

One lesson that I think is emerging on the show is if a company opens a beautiful fancy new building.

[Robert Smith]

Especially with the Queen.

[Jacob Goldstein]

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 Lloyds needed that new headquarters, because they'd outgrown the old one. And that growth was part of this much bigger transformation in how Lloyds 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 underwriter's policy. 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.

[Robert Smith]

Ordinary people with money.

[Jacob Goldstein]

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. 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 Atom Room, with the furniture from some 18th century country house.

[Robert Smith]

Capital A, capital R. Indeed.

[Jacob Goldstein]

And in this room, a senior person from Lloyd's told you what you were signing up for by becoming a name.

[Robert Smith]

I assume you're sitting on leather.

[Jacob Goldstein]

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.

[Robert Smith]

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.

[Jacob Goldstein]

Exactly. And when the syndicate makes a profit, as it usually does, you get to share in that profit. 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%.

[Robert Smith]

98%. It's like, why even go to work at 98%?

[Jacob Goldstein]

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. 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.

[Robert Smith]

Limited liability as in limited liability corporations.

[Jacob Goldstein]

Llc.

[Robert Smith]

Yeah. Aaron and Sons Limited.

[Jacob Goldstein]

Every corporation, every big publicly traded corporation is a limited liability corporation.

[Robert Smith]

It was an innovation a couple 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.

[Sponsor/Ad Voice]

Right.

[Robert Smith]

It's limited. You have limited liability. That's what allowed commerce to boom. Really?

[Jacob Goldstein]

Right. Because you can take a risk starting a company, getting investment, immeasurable risk. You put $10,000 into Enron stock.

[Robert Smith]

Yeah.

[Jacob Goldstein]

Enron goes bust, you lose that $10,000. But nobody calls you up and is like, by the way, you got to sell your car and your house because Enron still owes money. That's unlimited liability.

[Robert Smith]

And at Lloyd's, that's what we're talking about.

[Jacob Goldstein]

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 syndicate, 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.

[Robert Smith]

It's funny, right? Everything Lloyd's does has, has two sides to it. It has the pure math 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.

[Jacob Goldstein]

Yes. So things are going to go bad at Lloyd's.

[Robert Smith]

Yes.

[Jacob Goldstein]

And when 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. And he'd take it and he'd put it in his pocket and he'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 it means.

[Robert Smith]

That's scary. Yes.

[Jacob Goldstein]

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 the vibe.

[Robert Smith]

But it's so English, common and chill as a gin and tonic.

[Jacob Goldstein]

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 that 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. So it's more of kind of a like sleazy, multi level marketing vibe to me than like a high class thing. But I guess it works.

[Robert Smith]

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?

[Jacob Goldstein]

There was another guy who, like, golfed his way through the Midwest in the United States that feels more on brand, 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 brokerage was a name. Was a name. He was indeed. A couple guys from Pink Floyd, by the way, which one's Pink? But also, 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.

[Robert Smith]

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.

[Jacob Goldstein]

And, 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. And between the early 70s and the late 80s, the number of names, capital N goes from 7,000 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 you're a name. You get to watch the Queen open your new office. And then around 1990, after 300 years of Lloyd's glory, things get gory.

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[Jacob Goldstein]

We're back from the ads. And this is the moment when things are going to start going wrong at Lloyd's. And 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

[Robert Smith]

that it was naturally occurring, 100% organic,

[Jacob Goldstein]

as it says on the T. That's right. Asbestos became wildly popular in the 20th century for things like insulation and building materials.

[Robert Smith]

So common. 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.

[Jacob Goldstein]

And it's still there.

[Robert Smith]

It's still there. They're like, do not touch it, do not remove it. Don't do anything.

[Jacob Goldstein]

Good to know. That's kind of shocking. No, it is ubiquitous. Certainly by the late 20th century, it was ubiquitous.

[Robert Smith]

And old buildings in New York. Yeah.

[Jacob Goldstein]

And 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. Cause 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. 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 won. The jury awarded Borrell's widow damages of $79,436, a modest sum. But this was just the beginning. Asbestos 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?

[Robert Smith]

Lloyds. Lloyds.

[Jacob Goldstein]

Lloyds.

[Robert Smith]

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 even though we live close to each other, the odds of my house and your house burning 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. And all at once.

[Jacob Goldstein]

Now, there is a kind of safety net for insurance companies in this situation, which is reinsurance.

[Robert Smith]

Reinsurance. I love reinsurance. Reinsurance is the insurance company for insurance companies.

[Jacob Goldstein]

Yes.

[Robert Smith]

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.

[Jacob Goldstein]

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 reinsurance business.

[Robert Smith]

There is re reinsurance. I did not know that.

[Jacob Goldstein]

I feel like we've talked about. 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 retrocessionnaires. Side note, I feel like another risk sign. But besides dentists and fancy new buildings is fancy French terms for financial products. Tranche, I'm looking at you.

[Robert Smith]

Unbelievable. Retrocessionnaires. 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.

[Jacob Goldstein]

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 on reinsurance, were 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.

[Robert Smith]

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.

[Jacob Goldstein]

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 Nassim Taleb. He used it in a different context. But picking up pennies in front of a steamroller, right? It's this idea of tail risk, really. Right. This 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 shoulder, here comes the steamroller. This starts to become a problem for Lloyds 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.

[Robert Smith]

So the insurance syndicates at Lloyd's go to the 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 reinsurancer, the retrocessionaires.

[Jacob Goldstein]

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.

[Robert Smith]

Happy to do it. I don't want to lose my home, so I'm going to lay off my reinsurance. To our producer, Gabriel.

[Jacob Goldstein]

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. Yeah. At Lloyd's, it was a spiral.

[Robert Smith]

Is this a problem? Because there wasn't central control of the syndicate?

[Jacob Goldstein]

It's partly that. It's partly like every time somebody sold another policy, they got another commission. Right. So 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.

[Robert Smith]

And every 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.

[Jacob Goldstein]

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 syndicates just didn't have enough money to pay their claims. And this is when we return to unlimited liability.

[Robert Smith]

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

[Jacob Goldstein]

know that hundred thousand 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.

[Robert Smith]

We're cashing the blank check, we're cashing the blank check.

[Jacob Goldstein]

And some people lost everything, some people went bankrupt, some people committed suicide. And still there was this worry that Lloyds might not be able to get enough money to pay the claims it owed. And we've been talking about how the modern world is built on Lloyds to

[Robert Smith]

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.

[Jacob Goldstein]

And so yes, it is a risk to Lloyds reputation. It's also a risk kind of to the global economy. In a similar way to the 2008 financial crisis, Lloyds 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.

[Robert Smith]

If you can't trust Lloyds, who can you trust?

[Jacob Goldstein]

If Lloyds doesn't have the money, what's going to happen? After the break, we tell you what happens.

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This episode is brought to you by Navy Federal Credit Union. At Navy Federal Credit Union, May is their favorite month. Even though they support the military community all year long. Military Appreciation Month is their time to celebrate all those who go above and beyond. Because they know all members of the military community protect our country at home and abroad, take care of their families and volunteer in their communities. That's why it's been their mission to help for over 90 years as a member owned credit union, they invest in their members with lower rates and fewer fees. Navy Federal Credit Union also supports the military community through their partnership with Hire Heroes usa, empowering transitioning service members, veterans and military spouses to succeed in the civilian workforce. And many of their employees are part of the community they serve. So they provide families with personalized financial guidance and award winning 24. 7 support. To learn more, visit navyfederal.org celebrate and from all of us, Happy Military Appreciation Month. Navy Federal Credit Union Navy Federal is insured by NCUA. Running a small business means every hire matters. A bad hire can cost you time, money and momentum. A good hire, they can help grow your business. But finding great talent isn't easy, especially when you don't have the time or resources to sift through piles of resumes to find the right fit. That's why LinkedIn built Hiring Pro, your new hiring partner that screens candidates for you. So instead of sorting through applications, you spend your time talking to candidates who are actually a good fit. You know what? This makes me think of my beloved Boston Celtics. Three years ago, they chose a new coach, Joe Mazzulla, who was like the third or fourth assistant off the bench never had any NBA coaching experience. Everyone was expecting him to fail. And you know what? Turns out he was one of the best coaches in the game. And without him, there's no way the team will would have made the playoffs this year, let alone be contenders for the finals. Sometimes the right hire makes all the difference. With hiring pro, you can hire with confidence, knowing you're getting the best talent for your business. In fact, Those hiring with LinkedIn are 24% less likely to need to reopen a role within 12 months compared to the leading competitor. Join the 2.7 million small businesses using LinkedIn to hire. Get started by posting your job for [e-mail] Pushkin terms and conditions apply.

[Jacob Goldstein]

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[Robert Smith]

We are back from the break and just to remind you that the entire world economy is on the brink because of Lloyds.

[Jacob Goldstein]

We got two guys coming in to try and save Lloyds. One is an insider. Yeah, there's an outsider, conveniently for storytelling purposes. The insider is David Roland. His father worked in insurance in the City of London. He went to Cambridge, got into the insurance business as soon as he graduated.

[Robert Smith]

Of course he knew he wanted to do that his whole life.

[Jacob Goldstein]

Spent 35 years as a broker at the Lloyd's market and 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. And 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 or the underwriters, managing agents, they don't work for Lloyds. They work at Lloyd's. Roland and Middleton are not their bosses. It's more like they run the New York Stock Exchange or something. And so that means that Roland 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.

[Robert Smith]

They're mostly responsible for the paper towels in the kitchen there at Lloyd's, like, just keeping the whole thing running.

[Jacob Goldstein]

I mean, more than that, more than that. They. They do. They do need to transform it. They just need to bring everybody along. And so they start having these meetings with thousands of people with, you know, 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. And at the beginning of the meeting, Roland walks up to the podium and he says, good morning, ladies and gentlemen. And somebody from the audience goes, liar. So, you know, like, it was not

[Robert Smith]

going to go well.

[Jacob Goldstein]

It wasn't going well. Nobody trusts them, right? Nobody trusts Lloyds. Nobody trusts these guys, you know, who are trying to change it. But they know they do have to change Lloyds or it's just gonna fail. In fact, Roland later said he knew either he would solve the crisis at Lloyd's or he would be the last chairman at Lloyd's because Lloyds would cease to exist. And so they come up with a plan with three key steps, really, to try and save Lloyds. Step one, settle with the names. Make a deal with the names. Offer to write off a bunch of the money that the names owed, offer to cap their liabilities at £100,000 each instead of being unlimited, and in exchange have the names promise to stop suing. Basically.

[Robert Smith]

Well, these are the richest and most powerful people in the nation and around the world.

[Jacob Goldstein]

Yes. And also some not so rich and powerful people who are truly in extremely bad situations because of their joining Lloyds, and who, by the way, are alleging fraud. They're not just like sour grapes.

[Robert Smith]

They're saying, you didn't tell me the risk.

[Jacob Goldstein]

Yeah. And you knew or should have known about this risk. There was this allegation that Lloyds was doing this thing. Recruit to dilute was a phrase. The allegation was Lloyds 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.

[Robert Smith]

Finance evil Lloyds.

[Jacob Goldstein]

Yes. 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

[Robert Smith]

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.

[Jacob Goldstein]

Yes. And step three, step three for getting Lloyds out of this crisis is stop relying on capital from individuals with unlimited liability. This central thing of Lloyds, they decide, isn't going to work anymore. And instead they want to start letting corporations, regular limited liability corporations, provide the capital for underwriting at Lloyd's.

[Robert Smith]

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.

[Jacob Goldstein]

That's why you want to spin off the bad liabilities into the bad bank, so new capital will come in.

[Robert Smith]

I trusted you on the mouth here.

[Jacob Goldstein]

So Roland and 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 a 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.

[Robert Smith]

These are the vibes, yeah. Not good.

[Jacob Goldstein]

Not long after that, Middleton actually left Lloyd's to go run the UK office for Salomon 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, capped their liabilities, agreed not to sue. Lloyds did create a bad bank, a giant reinsurer called not evil Lloyds, but Equitas.

[Robert Smith]

Oh, that sounds so mild. Equitas.

[Jacob Goldstein]

Equitas. It does sound villainous in a. In a, like, backwards view from this.

[Robert Smith]

Yeah, but Equitas, yeah, sure.

[Jacob Goldstein]

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 pre93 liabilities into Equitas. Now, step three, they're ready to have that sweet, sweet limited liability capital flow into the Lloyd syndicate.

[Robert Smith]

And this is the 1990s. So. So the economy's growing. Money is around.

[Jacob Goldstein]

Money is around. And 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

[Robert Smith]

guy who screamed liar, probably, presumably.

[Jacob Goldstein]

Presumably that guy did not take the deal. And several hundred of those holdouts did sue Lloyds. Right, and. And their core allegation was fraud. Right? Lloyds knew about this. They should have known about this. They basically lied to us and got us to take this. This risk. And it is clear that there were at least some underwriters at Lloyds 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 Lloyds, found that the behavior of the Lloyds underwriters syndicates managing age 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?

[Robert Smith]

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.

[Jacob Goldstein]

Disgrace.

[Robert Smith]

Disgrace.

[Jacob Goldstein]

Shame, he's saying, you shame.

[Robert Smith]

He's saying, I'm not angry, I'm just disappointed.

[Jacob Goldstein]

And yet Lloyd survived. Lloyd still exists today. They do still sell weird insurance policies, insured David Beckham's legs before he retired. And more importantly than that, you know, we hear about, like, the weird kind of funny claims, but Lloyd still really matters, still is central to. 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.

[Robert Smith]

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 in London.

[Jacob Goldstein]

In part, yes. Because if. If there's no insurance, the ships won't go.

[Robert Smith]

And if the ships don't go. That's something like 20% of the world's supply of oil. This is huge.

[Jacob Goldstein]

And so the British finance minister went to talk about this with the chairman of Lloyds. And the chairman of Lloyds told the British finance minister, yes, ships can still be insured through the London marine war insurance market at Lloyds.

[Robert Smith]

But it will be expensive, it will be extraordinarily expensive to get this insurance.

[Jacob Goldstein]

Any risk is insurable at the right price. Today's show was produced by Gabriel Hunter. Chang was engineered by Sarah Bruguerre. Ryan Dilley is our showrunner and editor. Matt Nielsen is our video editor. Cause we're on YouTube.

[Robert Smith]

Check it out if you want more shows about insurance. And we know you do, write us Business HistoryUshkin FM Jacob I'm Robert Smith.

[Jacob Goldstein]

And I'm Jacob Goldstein. Thanks for listening. I'm U.S. transportation Secretary Sean Duffy. The sound of a seatbelt it's one of the most important sounds in our car.

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