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Liability Crisis, LMX Spiral and Collapse

In: Delusions of Competence

Author

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  • Robin Pearson

    (University of Hull)

Abstract

The largest and more damaging category of scandal at Lloyd’s in the 1980s and early 1990s concerned the negligent or incompetent underwriting of ‘excess of loss’ (XL) reinsurance. XL policies involved the reinsurer agreeing to indemnify the first insurer in the event of the latter sustaining a loss in excess of a pre-determined figure that was the liability to be retained by the first insurer. The rapid expansion of the XL market at Lloyd’s contributed to a growth in negligent or incompetent approaches to risk assessment. At the height of the crisis in 1991, some 20% of all members at Lloyd’s had organised into action groups to sue their syndicates for losses due to poor XL and other forms of underwriting, and to pursue Lloyd’s for compensation because of supervisory failures.

Suggested Citation

  • Robin Pearson, 2022. "Liability Crisis, LMX Spiral and Collapse," Palgrave Studies in Economic History, in: Delusions of Competence, chapter 0, pages 73-89, Palgrave Macmillan.
    • Handle: RePEc:pal:palscp:978-3-030-94088-1_7
    DOI: 10.1007/978-3-030-94088-1_7
    as

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