RISKS WIDELY SPREAD

Nelson Evening Mail, Volume LXVI, 9 April 1934, Page 9

RISKS WIDELY SPREAD

BASIS OF INSURANCE VIEWS OF FORMER CHAIRMAN OF LLOYD’S Some of the ramifications of Lloyd’s, London, one of the greatest firms of insurance underwriters in the world, were described by Sir Percy G. MacKinnon, a former chairman of the company, in an interview with the Christchurch “Press” from the Hermitage, Mount Cook. Sir Percy is on a holiday trip round tlie world with his daughter, Miss Aline MacKinnon, and has been staying at the Hermitage for a few days. When speaking of insurance generally he emphasised that the spreading of risks, to minimise the liability, was the basis of underwriting. Just as the great insurance companies of the world owed their strength to the wonderful system of reinsuring, by which risks were spread over an enormously wide area, so were the risks accepted by Lloyd’s divided up among the 1500 members comprising that institution. The whole basis of insurance was the spreading of risks, and so great was the care taken by the great companies of the world, that even a catastrophe of major dimensions would he unable to ruin them. Tlie firm of Lloyd’s began in meetings between captains, merchants, and underwriters in a little coffee house in London in 1688, Sir Percy said. Underwriters carried on their business as separate individuals, “each for his own part,” as the policy stated, and this principle of individual liability and independence of action had continued until the present day. SECURING GUARANTEES

In 1858, with a view to providing proper security behind every Lloyd’s policy, members of Lloyd’s commenced a system of guarantees which provided that each underwriter’s solvency up to a fixed amount should be guaranteed by another person of substance. In 1866 this system was extended by the requirement of cash deposits with the committee of Lloyd’s, as well as guarantees. This continued until 1877, when it became compulsory that before any underwriter could carry on business at Lloyd’s, not less than £SOOO should be deposited with the committee as security for his underwriting liabilities. The liability of Lloyd’s underwriters was unlimited, and each member was liable to the full extent of his private fortune. Every member before election had to satisfy the committee that lie possessed means adequate for the underwriting business in which he proposed to engage. Every new member must undertake to limit his underwriting each year to a named figure, which was determined by his deposits. At regular intervals throughout the year steps were taken by the committee to make certain that the limits so imposed were not being exceeded. MEMBERS FULLY LIABLE

The procedure by which individual members of Lloyd’s accepted risks on their own behalf, and were liable, if called upon, to the full extent of their private fortunes, was a curious survival of the time when separate individuals transacted business on their own behalf in Lloyd’s coffee house. It was unique among institutions, and its members had never been known to dishonour their liabilities. The spreading of risks by underwriters, Sir Percy said, meant that as losses were borne by a large number of companies, insurance profits were more or less constant. It was different in the old days, when it might happen that out of a fleet of, shy, 12 ships from Australia and New Zealand, only half of that number would make port safely. Then that almost meant disaster, but with iinpVovements in sea transport, risks were greatly minimised, and it was rarely that disasters occurred.