What is Lloyds of London, an institution started in the latter part of the seventeenth century? Most people would answer, “It’s an insurance company.” This is a common misconception. Lloyds is not an insurance company, it’s an insurance marketplace. Lloyds is to insurance much like the New York Stock Exchange is for stocks and bonds. Lloyds provides the premises, administrative staff, and support services for the insurance market; it also issues rules and regulations and monitors transactions.
Individual investors can participate in the Lloyds marketplace. The investors, through a process, are assigned to a syndicate. Each syndicate has an underwriter (a person responsible for determining the level of risk) which provides the agreement to accept the risk, sets the premium, negotiates coverage, and determines the proportion of risk that his or her syndicate will assume.
Typically, each policy of insurance is issued by a number of syndicates, which allows the risk to be spread across multiple people. The syndicate is then entitled to a specified share of the profits and potential losses.
Lloyds primary business is insuring insurance companies, also known as reinsurance, but also insures a number of other risks.