Alex Ferguson is a London-based freelance journalist withmany years of experience covering the insurance industry in generaland Lloyd's in particular.

While everyone in the U.S. insurance space knows the Lloyd's ofLondon name—indeed, it's one of the world's oldest and best-knowncorporate brands—this awareness by no means translates intounderstanding—or business. A large swathe of U.S. producers havenever engaged with Lloyd's on the (often incorrect) assumption thatit's not a good fit for their placements.

Here are five commonly held misperceptions among U.S. producersabout Lloyd's. The reality might not only be surprising—it couldprompt more to look to London as a possible home for their clients'risks.

Myth #1: Lloyd's is an insurancecompany

Reality: “Lloyds is not an insurance company like CNA, Chubbor Travelers,” says Hank Watkins, president of Lloyd's USA.“Lloyd's is a 325-year-old insurance marketplace,comprised today of 57 managing agents running 87 syndicates, whereunderwriters provide a wide range of specialty insurance productsto brokers working on behalf of their clients.”

From its London headquarters, Watkins adds: “Lloyd's offersglobal licenses, A or better ratings, promotional and regulatorysupport and performance oversight, all supported by a $4.8 billionCentral Fund [which] is available to pay the claims of anysyndicate impacted by adverse claim activity.”

This Central Fund, to which every Lloyd's member makes an annualcontribution, is accessed at the discretion of the Council ofLloyd's to meet any valid claim that cannot be met by the resourcesof any member. The fund has played a crucial role in repairingLloyd's reputation, which was severely tarnished following massivelosses in the late 1980s and early 1990s related to asbestos andpollution claims.

Watkins says that while brokers who've done business at Lloyd'sover the years are aware of its unique aspects, those whohaven't—and there are many in the small and midsized segment—oftenincorrectly conceive of as Lloyd's as a classic insurancecarrier.

Misconception No. 2: Lloyd's only handles oversized andextreme risks

Reality: According toMary Hughes, president of construction and energy at Lloyd'sunderwriter ProSight Specialty Insurance, “there is a commonly heldbelief that Lloyd's syndicates only insure very large or highlyunusual types of risks,” such as offshore oil rigs or celebritybody parts.

In fact, notes David Wheal, managing director of North Americafor RFIB, a leading Lloyd's broker: “While Lloyd's can and doeshandle the more specialist risks, there is a strong appetite formainstream business, albeit with an E&S flavor—that is wherewind, quake, flood, hail, etc. are the significant perils. Withoutdoubt, Lloyd's underwriters are way ahead of the curve when itcomes to assessing and managing catastrophe exposures.”

When accessing Lloyd's, Hughes cautions: “From an Excessstandpoint, the U.S. underwriter needs to understand and evaluatehow the definitions, exclusions and conditions [in the Lloyd'sform] will interact with the primary policy form. Areas ofconcern center around: application of limits and any potentialsublimited coverages that could present a drop down exposure;exclusionary language, for example, asbestos or pollution; anddefinitions, for example, 'occurrence,' 'bodily injury' and'pollution.'”

Hughes advises that these concerns can be addressed viautilizing a follow-form policy vs. a true umbrella form (assumingthat the language in the primary policy form isacceptable). She also thinks that it's important to craftlanguage that “either dovetails with the primary policy form oraddresses any areas of concern.”

Misconception No. 3: Lloyd's only handlesreinsurance

Reality: Lloyd's is indeed a major player inreinsurance, but globally, it accounts for only 38 percent of itstotal business, according to Lloyd's 2012 annual report (and just27 percent of its business in the U.S. and Canada).

Misconception No. 4: Lloyd's is a small player in theU.S.

Reality: This is amajor misconception as the U.S. (and Canada) account for theplurality of Lloyd's global business: 41 percent vs. 33 percent forthe U.K. (18 percent) and Europe (15 percent) combined. And Lloyd'sU.S. operation grew by $350 million in 2012, according to Watkins,thanks to both rate increases and an increase in new business. In2012, Lloyd's members wrote $6.27 billion of E&S business inthe U.S. and $4.92 billion of reinsurance business. Its E&Sbusiness alone would make Lloyd's the 14th-largest insurance playerin the U.S. were its syndicates considered a single group, according to PC360's annual ranking of the Top 100Insurers.

Misconception No. 5: Lloyd's will take anyrisk

Reality: “One of themisconceptions about Lloyd's is that it will write anything,” notesRFIB's Wheal. “The specialist nature of the Lloyd's market meansthat, more often than not, cover can be provided, particularly fortypes of risk that others are unwilling or unable to write.However, this does not necessarily mean that every conceivable riskcan be underwritten at Lloyd's.”

Some additional Lowdown on Lloyd's:

• Among industry types that Lloyd's syndicates currently aretargeting, according to Watkins: healthcare, health sciences,traditional and alternative energy, petrochemical andagriculture.
• Pension and hedge funds are gravitating towards Lloyd'ssyndicates in an effort to take advantage of the considerable riskmanagement skills of these underwriters. Watkins saidnon-traditional provision of funds would help to take insurance andreinsurance capacity to a new high of $500 billion by year-end, ifa mega-catastrophe (something far bigger than Hurricane Sandy) doesnot strike.
• The Lloyd's underwriter's knowledge, Watkins says, is the mostimportant part of the Lloyd's package. “By virtue of the fact thata Lloyd's underwriter reviews submissions from every corner of theworld, every day, a unique ability to rapidly assess and apply thesyndicate's capacity toward a wide range of risks is developedearly on one's career,” he says. “While underwriters may movebetween syndicates over the course of a career, they tend to remainunderwriters, often in the class of insurance or reinsurance theywere initially trained in. The outcome is the development ofexpertise and long-term relationships with brokers andpolicyholders that are unmatched in the general insuranceindustry.”