Lloyd's trading revolution

17th Century engraving by J Faber of person thought to be Edward Lloyd.This 17th Century engraving by J. Faber is thought to be of Edward Lloyd.

In a series marking our 325 anniversary we look at the powerful forces that created Lloyd’s.

1688 – Glorious Revolution

The first mention of Edward Lloyd’s coffee house was in the London Gazette in February 1688. Six months later William of Orange and a party of Dutch troops invaded England in the glorious or “bloodless” revolution. London benefited from increased access to Europe’s other trade superpower - the Netherlands.

This era was not about what a man inherited, or how many acres he farmed, it was about commerce. Humble men became rich trading goods – sugar, spice, coffee and tea – imported from new colonies.

The coffee houses were places for these entrepreneurs to find business, pick up news and - in Lloyd‘s at least - protect their investments. There were lots of coffee houses, so what made Edward Lloyd‘s so special that it would last another 325 years, becoming the most famous name in insurance?

Peter Bernstein in his book “Against the Gods” argues that Lloyd’s USP was information. The self-made men in the coffee houses swapped gossip and news and, in that simple act, made themselves powerful. The diarist Samuel Pepys said that the news in the coffeehouses was more accurate than at the Admiralty.  In a time when information was carefully contained by the elite, this was revolutionary in itself and King Charles II tried (unsuccessfully) to supress the coffee houses.

Edward Lloyd had the insight to see that whoever had the best information, would have the greatest clientele. The coffee became secondary to the information and he set up various newspapers charting information about ships, and eventually other news. He was ambitious.

This wasn‘t just about watching Thames docks for new arrivals. He provided intelligence on foreign events, and had a network of correspondents in ports across Europe. Bernstein paints Lloyd’s as the spiritual ancestor of the Bloomberg business news network.

The Science of Risk

In his book “Europe”, Norman Davies argues that the growth of Lloyd‘s was a feature – and product - of the Enlightenment. Davies argues that insurance grew in the 18th century because security was growing in other spheres. Medieval Europe had been chronically insecure and, as such, belief in superstition and magic was high.

As security grew, so did scientific inquiry – during this period Edmund Halley (of comet fame) established the first mortality tables which formed the basis of all actuarial work. Nor is it a coincidence that 30 years after Lloyd’s, the first two insurance companies were founded in the UK.

Revolution, Science and Gambling

Lloyd’s coffee house bore the hallmarks of its age. It enabled trade, just as the colonies were providing Europe with new goods, it was part of a social revolution – a place where men made, rather than inherited their own money – and it was part of a scientific revolution – probability could be established, risk could be observed and therefore priced.

The formal business with parties famously writing their name under marine insurance contracts sat side by side a gambling den, with the underwriters willing to put their name to any kind of risk. Bernstein cites house-breaking, highway robbery, death by gin drinking and “assurance of female chastity”. This was an unregulated era and the wild spirit of the coffee house eventually propelled 79 underwriters, led by a Dutchman, to breakaway a hundred years later and form the first Society of Lloyd’s – sober, self-regulating and secure.

Today, we can trace aspects of the coffee house in the modern market.  The information in the shipping news sheets foreshadows Lloyd‘s Agency, Colonel Hozier’s wireless stations and the latest innovations to move around data. Actuarial pioneering is alive and well in the models used by market firms to establish probability and exposure. 

Most of all, the market remains a meeting place for syndicates to trade with brokers, continuing an tradition of exchanging information that was born in Edward Lloyd’s coffee house 325 years ago.

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