The world famous insurance company Lloyd%u2019s of London got its start in Londo
ID: 1177158 • Letter: T
Question
The world famous insurance company Lloyd%u2019s of London got its start in London in the 1600s. Ship owners would come to Edward Lloyd%u2019s coffeehouse to find someone to insure (or %u201Cunderwrite%u201D) their ships and cargo for a fee. Coffeehouse customers%u2014merchants and ship owners themselves%u2014who agreed to insure ships would make payments from their personal funds if a ship was lost at sea. By the late 1700s, each underwriter would recruit investors known as %u201CNames%u201D and use the funds raised to back insurance policies sold to a wide variety of clients. By the 1980s, 34,000 people around the world had invested in Lloyd%u2019s as Names. A series of disasters in the 1980s and 1990s%u2014such as earthquakes and oil spills%u2014resulted in huge payments made on Lloyd%u2019s insurance policies. It had become clear that Lloyd%u2019s was not a corporation and the Names did not have the limited liability that a corporation%u2019 s stockholders have. Many Names lost far more than they had invested. Some of those who invested in Lloyd%u2019s had the financial resources to absorb their losses, but others did not. Tragically, as many as thirty Names may have committed suicide as a result of their losses. By 2011, only about 700 Names remained invested in Lloyd%u2019s. New rules allow insurance companies to underwrite Lloyd%u2019s policies for the first time and Names now provide less than 15 percent of Lloyd%u2019s funds.
a. What characteristic of Lloyd%u2019s of London%u2019s business organization was responsible for the financial losses suffered by the Names who had invested in Lloyd%u2019s?
b. In the early 2000s, corporations such as Enron and WorldCom suffered severe losses after it was discovered that executives of the firms had falsified financial statements to deceive investors. How were the losses suffered by Enron and WorldCom stockholders different from the losses suffered by Lloyd%u2019s of London%u2019s Names?
Explanation / Answer
ANSWER(a.) earthquakes and oil spills ANSWER(b.) losses suffered by" Enron and WorldCom" stockholders were due to the hippocrate executives which cheated by falsifying financial statements to deceive investors While "Lloyd of London" were suffered loss due to natural calamity.
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