Lloyd's of London

http://en.wikipedia.org/wiki/Lloyd's_of_London

For most of Lloyd's history, rich individuals ("Names") backed policies written at Lloyd's with all of their personal wealth (unlimited liability). The losses in the early 1990s devastated the finances of many Names (upwards of 1,500 out of 34,000 Names were declared bankrupt) and scared away others.

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Names (rich individuals) of Lloyd's of London are not required to put down any money to underwrite the reinsurance policies. While their money earns great returns from stock market or real estates, Names get additional income (insurance premium) at the same time.

This strategy worked great until unexpected huge amount of insurance claims showed up. Those claims squeezed not only the insurance premiums, but also their own capital.

Isn't the index gambling strategy just like that employed by the Names of Lloyd's of London? Selling insurance policies for income can generates decent cash flow, but it is not without risk. The risk can potentially eat up all the working capital.

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