Customer Reviews

Ultimate Risk: The Inside Story of the Lloyd's Catastrophe

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Excellent introduction to Lloyds, the incestuous relationship among the insiders, and how the insiders used their superior knowledge coupled with the myths surrounding historic Lloyds to dupe individuals into becomming Names. If you're in the business, this book has a lot of dirt about a lot of folks. A good read

Adam Raphael delved deeply into the Lloyd's insurance catastrophe, where individuals (the `Names') guaranteed with their personal wealth unlimited financial risks: `Thousands of individuals with moderate means were encouraged to gamble their home away.'
The losses were staggering: `To chalk up losses of more than ' 8 billion in five years (1988-1992) and pauperize, if not bankrupt, as many as two in five of those who provided the market's capital, is an achievement unmatched since the South Sea Bubble.'

Risk, no disclosure, fraud
The losses were provoked by underestimating the risks involved (asbestos, environmental pollution), insufficient reserves for long-tail contracts (contracts were closed after three years and risk covered by `bad' new ones), spiral losses through `reinvestments' and blatant fraud (`some underwriters cheated the `Names' by diverting funds to their own benefit, others defrauded them by funneling the best risks into baby syndicates for their families and friends').

Ultimate winners
The financial catastrophe became a real goldmine for the lawyers. The insurance knots proved to be incestuous. Some `Names' sued themselves because they had stakes in antagonistic syndicates. A brand new job, insurance archaeologist, had to be invented to dig up old liability policies.

An omen
This capital evaporation was the first financial scandal that broke out in the 1990-2010 period. It contained the ingredients of the global banking crisis: pumping up revenues (trying to make money by moving money around), hiding and piling risk upon risk, speculating against the company's own products (baby syndicates) and cheating the capital providers (the `Names').

Adam Raphael wrote an ultimate verdict on corporate greed, blatant misconduct and total neglect of the ultimate investors.
This book is a must read for all those interested in Western financial history.

Americans looking for an incisive understanding of the every day business of Lloyd's may be disappointed by this book. The author doesn't do a good job of explaining technical terms, like "unlimited liability" or "capacity." I found myself re-reading certain chapters three or four times to fully comprehend some of the technical terminology. I don't believe the subject is too technical to undersand- it seems the author simply glossed over significant details and didn't invest the time to lay out his descriptions in an orderly manner (maybe in Britain these things are generally understood). I selected this book in the hope of finding a book with a good historical overview and top notch technical business descriptions (like "Barbarians at the Gate"). This book doesn't come close.

With the above said, the author did do a good job describing the problems of asbestos insurance liability, and CERCLA liability. And, he does an excellent job of outlining the financial ruin heaped on "Names" who didn't have an insider advantage to the Lloyd's market in the '80s and '90s. If you are more interested in these aspects, the book may be for you.

If you work in the liability insurance industry, this book provides an interesting history of lessons (to put it mildly) that industry learned not too long ago.

This British author organized his account well. The introduction makes the reader care about this exclusive and centuries old world of wealth that went terribly wrong. The chapters on the history of Lloyds should intrigue fans of history, economics, business and the like. The reader has good reason to feel confidence almost pride about the human achievement Lloyd's has come to stand for.

Then Lloyd's players push the envelope with under the table practices a la Enron. Risks are transferred, reinsured, sent offshore, and so on until *cue Jaws music* Lloyd's develops cracks.

Then the asbestos liability debacle happens, which the author describes well. This ancient material, asbestos, suddenly began killing and injuring masses of people who turned to the Brits for help. Mass asbestos liability caught Lloyd's by surprise during a time of Enron-flavored vulnerabilities.

Then the environmental liability debacle happens. Suddenly companies were ordered to clean up America in the amount of billions. This too caught Lloyd's by surprise on its "lunch breaks" from dealing with the other problems.

Lloyd's somehow kept itself intact, though many of its individual financers were not so lucky. A weakness of the book is that it causes the reader to want a solution to the desperate failures of Lloyd's. Ultimately, Lloyd's solved its problems. The author provides some remakrs about this solution, but with less clarity and depth than the rest of the book. The author seems to believe that after describing the problems and consequences, his work is done. Although the problems that plagued Lloyd's and the consequences are the real story, I was hungry for an explanation of how Lloyd's has changed for the better and instilled confidence in the insurance markets.

Risky Business is a similar book on this topic. Risky Business did a better job of placing the reader into the luxury and pomp of being a Name, that is, an individual who actually provides the money to back Lloyd's insurance products. Risky Business also provided a better moment by moment account of some of the major legal battles involving Lloyd's, impoverished Names and others. This book was better organized than Risky Business. Start with this book, then read Risky Business.

I have not yet read the book, 5 years after it was published. It predicts the doom of Lloyd's of London, which still has not occurred. They've been able to sort out their problems.

There is an important misconception in the reviews and sinopsys on this website: Lloyd's is not an insurance company; it is an insurance market formed by syndicates providing insurance and reinsurance coverage. Some of these syndicates have been very profitable, others have not.