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135-497: The term "underwriting" derives from the Lloyd's of London insurance market. Financial backers (or risk takers), who would accept some of the risk on a given venture (historically a sea voyage with associated risks of shipwreck) in exchange for a premium , would literally write their names under the risk information that was written on a Lloyd's slip created for this purpose. In the financial primary market , securities underwriting

270-432: A label to instances, and models are trained to correctly predict the preassigned labels of a set of examples). Characterizing the generalization of various learning algorithms is an active topic of current research, especially for deep learning algorithms. Machine learning and statistics are closely related fields in terms of methods, but distinct in their principal goal: statistics draws population inferences from

405-421: A sample , while machine learning finds generalizable predictive patterns. According to Michael I. Jordan , the ideas of machine learning, from methodological principles to theoretical tools, have had a long pre-history in statistics. He also suggested the term data science as a placeholder to call the overall field. Conventional statistical analyses require the a priori selection of a model most suitable for

540-480: A theoretical neural structure formed by certain interactions among nerve cells . Hebb's model of neurons interacting with one another set a groundwork for how AIs and machine learning algorithms work under nodes, or artificial neurons used by computers to communicate data. Other researchers who have studied human cognitive systems contributed to the modern machine learning technologies as well, including logician Walter Pitts and Warren McCulloch , who proposed

675-557: A "mini-Name"). The report also drew attention to the danger of conflicts of interest . The liability of the individual Names was unlimited, and thus all their personal wealth and assets were at risk. During the 1970s, a number of issues arose which were to have significant influence on the course of the Society. The first was the tax structure in the UK: for a time, capital gains were taxed at up to 40 per cent (nil on gilts ); earned income

810-439: A computation is considered feasible if it can be done in polynomial time . There are two kinds of time complexity results: Positive results show that a certain class of functions can be learned in polynomial time. Negative results show that certain classes cannot be learned in polynomial time. Machine learning approaches are traditionally divided into three broad categories, which correspond to learning paradigms, depending on

945-444: A considerable improvement in learning accuracy. In weakly supervised learning , the training labels are noisy, limited, or imprecise; however, these labels are often cheaper to obtain, resulting in larger effective training sets. Reinforcement learning is an area of machine learning concerned with how software agents ought to take actions in an environment so as to maximize some notion of cumulative reward. Due to its generality,

1080-445: A corporation raise funds from the public. The underwriter is obligated to purchase the entire issue at a predetermined price before reselling the securities in the market. Should they not be able to find buyers, they will have to hold some securities themselves. To reduce the risk, they may form a syndicate with other investment banks. Each bank will buy a portion of the security issue, and typically resell securities from that portion to

1215-414: A hierarchy of features, with higher-level, more abstract features defined in terms of (or generating) lower-level features. It has been argued that an intelligent machine is one that learns a representation that disentangles the underlying factors of variation that explain the observed data. Feature learning is motivated by the fact that machine learning tasks such as classification often require input that

1350-772: A highly capable marine underwriter, to assume approximately 80 per cent of the market's asbestos exposure on his well-supported syndicates 317/661 in 1982. In 1985, under Lloyd's three-year accounting rule, auditors kept Outhwaite's 1982 year open, citing concerns over asbestos and pollution liability losses. These eventually ran into the hundreds of millions of dollars. After many years of litigation, Outhwaite retired to Guernsey and died on 20 November 2021. Another asbestosis-hit operation, Pulbrook syndicates 90/334, had taken out reinsurance in 1981 on its general liability business with Merrett syndicate 418; however, in 1990 Stephen Merrett (who by now controlled Pulbrook) won an arbitration ruling to void that arrangement due to non-disclosure of

1485-578: A huge hole in Lloyd's loss-payment reserves, which was initially not recognised and then not acknowledged. Second, by the end of the decade, almost all of the market agreements, such as the Joint Hull Agreement, which were effectively cartels mandating minimum terms, had been abandoned under pressure of competition. Third, new specialised policies had arisen which had the effect of concentrating risk: these included "run-off" policies, under which

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1620-424: A human operator/teacher to recognize patterns and equipped with a " goof " button to cause it to reevaluate incorrect decisions. A representative book on research into machine learning during the 1960s was Nilsson's book on Learning Machines, dealing mostly with machine learning for pattern classification. Interest related to pattern recognition continued into the 1970s, as described by Duda and Hart in 1973. In 1981

1755-420: A limited set of values, and regression algorithms are used when the outputs may have any numerical value within a range. As an example, for a classification algorithm that filters emails, the input would be an incoming email, and the output would be the name of the folder in which to file the email. Examples of regression would be predicting the height of a person, or the future temperature. Similarity learning

1890-617: A machine to both learn the features and use them to perform a specific task. Feature learning can be either supervised or unsupervised. In supervised feature learning, features are learned using labeled input data. Examples include artificial neural networks , multilayer perceptrons , and supervised dictionary learning . In unsupervised feature learning, features are learned with unlabeled input data. Examples include dictionary learning, independent component analysis , autoencoders , matrix factorization and various forms of clustering . Manifold learning algorithms attempt to do so under

2025-442: A major exception) comes from the basic assumptions they work with: in machine learning, performance is usually evaluated with respect to the ability to reproduce known knowledge, while in knowledge discovery and data mining (KDD) the key task is the discovery of previously unknown knowledge. Evaluated with respect to known knowledge, an uninformed (unsupervised) method will easily be outperformed by other supervised methods, while in

2160-497: A meeting place for people of all types of maritime occupations, who would make bets on which ships would make it back to port. Soon, the captains of ships that were suggested to fail to return were betting against the return of other ships. It was the start of Lloyd's insurance. During this time, the coffee house was also frequented by mariners involved in the slave trade . Historian Eric Williams noted that "Lloyd's, like other insurance companies, insured slaves and slave ships , and

2295-409: A moral hazard, the consequences of the customer's actions are insured, making the customer more likely to take costly actions. For example, bedbugs are typically excluded from homeowners' insurance to avoid paying for the consequence of recklessly bringing in a used mattress. Insured events are generally those outside the control of the customer, for example in life insurance, death by automobile accident

2430-526: A new building at 1 Lime Street (where it remains today), the British government commissioned Sir Patrick Neill to report on the standard of investor protection available at Lloyd's. His report was produced in 1987 and made a large number of recommendations, but was never implemented in full. It has long been normal for one Lloyd's syndicate to reinsure another, but when Piper Alpha , a North Sea oil rig, exploded on 6 July 1988 causing an initial $ 1.4bn loss,

2565-430: A partially-mutualised marketplace within which multiple financial backers, grouped in syndicates , come together to pool and spread risk . These underwriters , or "members", are a collection of both corporations and private individuals, the latter being traditionally known as "Names". The business underwritten at Lloyd's is predominantly general insurance and reinsurance, although a small amount of term life insurance

2700-463: A person's popularity / likability and so on, with the premise being that people scoring high on these parameters are less likely to default on a loan. However, this area is still vastly subjective. Insurance underwriters evaluate the risk and exposures of potential clients. They decide how much coverage the client should receive, how much they should pay for it, and whether to accept the risk. Underwriting involves measuring risk exposure and determining

2835-434: A practical nature. It shifted focus away from the symbolic approaches it had inherited from AI, and toward methods and models borrowed from statistics, fuzzy logic , and probability theory . There is a close connection between machine learning and compression. A system that predicts the posterior probabilities of a sequence given its entire history can be used for optimal data compression (by using arithmetic coding on

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2970-412: A profit from the markup, plus the possibility of an exclusive sales agreement. Also, if the securities are priced significantly below market price (as is often the custom), the underwriter also curries favor with powerful customers by granting them an immediate profit (see flipping ), perhaps in a quid pro quo . This practice, which is typically justified as the reward for the underwriter for taking on

3105-553: A report was given on using teaching strategies so that an artificial neural network learns to recognize 40 characters (26 letters, 10 digits, and 4 special symbols) from a computer terminal. Tom M. Mitchell provided a widely quoted, more formal definition of the algorithms studied in the machine learning field: "A computer program is said to learn from experience E with respect to some class of tasks T and performance measure P if its performance at tasks in T , as measured by P , improves with experience E ." This definition of

3240-441: A result, a great many Names whose syndicates wrote long-tail liability at Lloyd's faced significant financial loss or ruin by the late 1980s to mid-1990s. It was alleged that in the early 1980s some Lloyd's officials began a recruitment programme to enroll new Names to help capitalise Lloyd's prior to the expected onslaught of APH claims. This allegation became known as "recruit to dilute": in other words, recruit more Names to dilute

3375-438: A scientific endeavor, machine learning grew out of the quest for artificial intelligence (AI). In the early days of AI as an academic discipline , some researchers were interested in having machines learn from data. They attempted to approach the problem with various symbolic methods, as well as what were then termed " neural networks "; these were mostly perceptrons and other models that were later found to be reinventions of

3510-443: A typical KDD task, supervised methods cannot be used due to the unavailability of training data. Machine learning also has intimate ties to optimization : Many learning problems are formulated as minimization of some loss function on a training set of examples. Loss functions express the discrepancy between the predictions of the model being trained and the actual problem instances (for example, in classification, one wants to assign

3645-772: A zip file's compressed size includes both the zip file and the unzipping software, since you can not unzip it without both, but there may be an even smaller combined form. Examples of AI-powered audio/video compression software include NVIDIA Maxine , AIVC. Examples of software that can perform AI-powered image compression include OpenCV , TensorFlow , MATLAB 's Image Processing Toolbox (IPT) and High-Fidelity Generative Image Compression. In unsupervised machine learning , k-means clustering can be utilized to compress data by grouping similar data points into clusters. This technique simplifies handling extensive datasets that lack predefined labels and finds widespread use in fields such as image compression . Data compression aims to reduce

3780-509: Is a system with only one input, situation, and only one output, action (or behavior) a. There is neither a separate reinforcement input nor an advice input from the environment. The backpropagated value (secondary reinforcement) is the emotion toward the consequence situation. The CAA exists in two environments, one is the behavioral environment where it behaves, and the other is the genetic environment, wherefrom it initially and only once receives initial emotions about situations to be encountered in

3915-467: Is also credited for introducing the now widely used "excess of loss" reinsurance protection for insurers following the San Francisco quake. Heath had become an underwriting member of Lloyd's in 1880, upon reaching the minimum age of 21, on J. S. Burrows' syndicate. Within a year he was underwriting for himself on a three-man syndicate; in 1883 he also opened a brokerage business. In 1885, he wrote

4050-550: Is an area of supervised machine learning closely related to regression and classification, but the goal is to learn from examples using a similarity function that measures how similar or related two objects are. It has applications in ranking , recommendation systems , visual identity tracking, face verification, and speaker verification. Unsupervised learning algorithms find structures in data that has not been labeled, classified or categorized. Instead of responding to feedback, unsupervised learning algorithms identify commonalities in

4185-419: Is asbestosis/ mesothelioma claims under employers' liability or workers' compensation policies. An employee at an industrial plant may have been exposed to asbestos in the 1960s, fallen ill 20 years later and claimed compensation from his former employer in the 1990s. The employer would report a claim to the insurance company that wrote the policy in the 1960s. However, because the insurer did not fully understand

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4320-437: Is carried out through separate holding-company affiliates, called securities affiliates or Section 20 affiliates. Of late, the discourse on underwriting has been dominated by the advent of machine learning in this space. These profound technological innovations are altering the way traditional underwriting scorecards have been built, and are displacing human underwriters with automation. Natural language understanding allows

4455-429: Is credited for first identifying this issue and creating the first "large syndicate", initially of 12 capacity providers. By the 1880s Marten's syndicate had outgrown many of the major insurance companies outside Lloyd's. On 18 April 1906, a major earthquake and resulting fires destroyed over 80 per cent of the city of San Francisco . This event was to have a profound influence on building practices, risk modelling and

4590-437: Is learning with no external rewards and no external teacher advice. The CAA self-learning algorithm computes, in a crossbar fashion, both decisions about actions and emotions (feelings) about consequence situations. The system is driven by the interaction between cognition and emotion. The self-learning algorithm updates a memory matrix W =||w(a,s)|| such that in each iteration executes the following machine learning routine: It

4725-407: Is often provided by reinsurers , who of course have an interest in accepting risks on appropriate terms. Continuous underwriting is the process in which the risks involved in insuring people or assets are being evaluated and analyzed on a continuous basis. It evolved from the traditional underwriting, in which the risks only get assessed before the policy is signed or renewed. Continuous underwriting

4860-544: Is reported in the Thomson Financial league tables . Lloyd%27s of London Lloyd's of London , generally known simply as Lloyd's , is an insurance and reinsurance market located in London , England. Unlike most of its competitors in the industry, it is not an insurance company; rather, Lloyd's is a corporate body governed by the Lloyd's Act 1871 and subsequent Acts of Parliament . It operates as

4995-432: Is the analysis step of knowledge discovery in databases). Data mining uses many machine learning methods, but with different goals; on the other hand, machine learning also employs data mining methods as " unsupervised learning " or as a preprocessing step to improve learner accuracy. Much of the confusion between these two research communities (which do often have separate conferences and separate journals, ECML PKDD being

5130-444: Is the detailed credit analysis preceding the granting of a loan , based on credit information furnished by the borrower; such underwriting falls into several areas: Underwriting can also refer to the purchase of corporate bonds , commercial paper , government securities, municipal general-obligation bonds by a commercial bank or dealer bank for its own account or for resale to investors. Bank underwriting of corporate securities

5265-478: Is the process by which investment banks raise investment capital from buyers on behalf of corporations and governments by issuing securities (such as stocks or bonds ). As an underwriter, the investment bank guarantees a price for these securities, facilitates the issuance of the securities, and then sells them to the public (or retains them for their own proprietary account). This process is often seen in initial public offerings (IPOs), where investment banks help

5400-415: Is thus finding applications in the area of medical diagnostics . A core objective of a learner is to generalize from its experience. Generalization in this context is the ability of a learning machine to perform accurately on new, unseen examples/tasks after having experienced a learning data set. The training examples come from some generally unknown probability distribution (considered representative of

5535-428: Is to classify data based on models which have been developed; the other purpose is to make predictions for future outcomes based on these models. A hypothetical algorithm specific to classifying data may use computer vision of moles coupled with supervised learning in order to train it to classify the cancerous moles. A machine learning algorithm for stock trading may inform the trader of future potential predictions. As

Underwriting - Misplaced Pages Continue

5670-473: Is typically covered, but death by suicide is typically not covered. Correlated losses are those that can affect a large number of customers at the same time, thus potentially bankrupting the insurance company. This is why typical homeowner's policies cover damage from fire or falling trees (usually affecting an individual house), but not floods or earthquakes (which affect many houses at the same time). For all types of insurance underwriting, advice and assistance

5805-493: Is under the control of the Council of Lloyd's. In 2023 there were 78 syndicates managed by 51 "managing agencies" that collectively wrote £52.1bn of gross premiums on risks placed by 381 registered brokers. Around half of Lloyd's premiums emanate from North America and around one quarter from Europe. Direct insurance represents roughly two-thirds of the premiums written, mostly covering property and casualty ( liability ), while

5940-404: Is written. The market has its roots in marine insurance and was founded by Edward Lloyd at his coffee-house on Tower Street in c. 1689. It is thus one of the oldest insurance companies in the world. Today, it has a dedicated building on Lime Street which is Grade I listed . Traditionally business is transacted at each syndicate's "box" in the underwriting room within the building, with

6075-578: The Exxon Valdez oil spill in 1989, also went into the spiral. Some of the leading LMX reinsurers at the time that suffered serious spiral losses included the numerous syndicates managed by the Gooda Walker agency, Devonshire syndicate 216, Rose Thomson Young 255, R. J. Bromley 475, and Patrick Fagan's already challenged Feltrim syndicates 540 and 542. Gooda Walker syndicate 298 became the first fatal casualty, with 13,500 policies being exposed to

6210-530: The Equitas arrangement in the late 1990s and transferred to National Indemnity Company in two stages in 2007 and 2009. Residual funds in Lioncover were later distributed to surviving PCW Names or donated to the Lloyd's Charities Trust. Lioncover was voluntarily dissolved in 2014. Lloyd's also faced action from Names on C. J. Warrilow's syndicate 553, which had chronically exceeded its underwriting capacity in

6345-468: The Gulf of Mexico coastlines, costing the market over £50 million. The catastrophe halted the capital that hitherto had been pouring into Lloyd's, and twice as many members left between 1965 and 1968 as had left over the prior eight years. It was soon realised that the membership of the Society, which had been largely made up of market participants, was too small in relation to the market's capitalisation and

6480-444: The generalized linear models of statistics. Probabilistic reasoning was also employed, especially in automated medical diagnosis . However, an increasing emphasis on the logical, knowledge-based approach caused a rift between AI and machine learning. Probabilistic systems were plagued by theoretical and practical problems of data acquisition and representation. By 1980, expert systems had come to dominate AI, and statistics

6615-400: The premium that needs to be charged to insure that risk. The function of the underwriter is to protect the company's book of business from risks that they feel will make a loss and issue insurance policies at a premium that is commensurate with the exposure presented by a risk. Each insurance company has its own set of underwriting guidelines to help the underwriter determine whether or not

6750-506: The "number of features". Most of the dimensionality reduction techniques can be considered as either feature elimination or extraction . One of the popular methods of dimensionality reduction is principal component analysis (PCA). PCA involves changing higher-dimensional data (e.g., 3D) to a smaller space (e.g., 2D). The manifold hypothesis proposes that high-dimensional data sets lie along low-dimensional manifolds , and many dimensionality reduction techniques make this assumption, leading to

6885-470: The 1912 "Loss Book" is on display in the Lloyd's building. The society moved into its first owned, dedicated building in 1928. It was located at 12 Leadenhall Street and had been designed by Sir Edwin Cooper . In 1965 Lloyd's wrote the first satellite insurance policy, covering Intelsat I in pre-launch. Later that year, when Lloyd's had around 6,000 members on 300 syndicates, Hurricane Betsy struck

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7020-400: The 1970s, the number of passive investors dwarfed the number of underwriters working in the market. The third issue related to a serious of losses as a result of scandal. During the decade a number of scandals had come to light, including the collapse of F. H. "Tim" Sasse's non-marine syndicate 762, which had issued large fire insurance claims that had highlighted both the lack of regulation and

7155-486: The AI/CS field, as " connectionism ", by researchers from other disciplines including John Hopfield , David Rumelhart , and Geoffrey Hinton . Their main success came in the mid-1980s with the reinvention of backpropagation . Machine learning (ML), reorganized and recognized as its own field, started to flourish in the 1990s. The field changed its goal from achieving artificial intelligence to tackling solvable problems of

7290-506: The Lloyd's Act of 1982 which further redefined the structure of the business and was designed to give external Names, introduced in response to the Cromer report, a say in the running of the business through a new governing Council. The main purpose of the 1982 Act was to separate the ownership of the managing agents of the underwriting syndicates from the ownership of the brokering houses (which acted as intermediaries, not as underwriters), with

7425-427: The Lloyd's marine market, was expelled under suspicions but later acquitted of criminal charges. His name remained tarnished and he did not return to the market, retiring to run his Oxfordshire farm until his death in 2017 aged 87. A greater debacle arose when Peter Cameron-Webb and Peter Dixon, of PCW Underwriting Agencies, allegedly defrauded their business of some $ 60m through rigged reinsurance transactions and fled to

7560-466: The MDP and are used when exact models are infeasible. Reinforcement learning algorithms are used in autonomous vehicles or in learning to play a game against a human opponent. Dimensionality reduction is a process of reducing the number of random variables under consideration by obtaining a set of principal variables. In other words, it is a process of reducing the dimension of the feature set, also called

7695-514: The Piper Alpha disaster alone and its 1989 account producing a 650 per cent loss on capacity; Feltrim followed with a 550 per cent loss on capacity. Roy Bromley, underwriter of syndicate 475, later committed suicide after being dismissed by his Board and reportedly becoming distressed at his operation's mounting losses. Not all excess of loss writers succumbed to the LMX spiral; in fact the spiral

7830-483: The United States, never to return. The emergence of fraud at PCW was the first in a series of events that led to the resignation of Lloyd's chairman Sir Peter Green in 1983. Lloyd's was later forced to make a settlement with the roughly 3,000 Names on the various PCW syndicates involved and to reinsure their liabilities into a new syndicate, number 9001, in turn reinsured by a unique vehicle named Lioncover, which

7965-403: The algorithm to correctly determine the output for inputs that were not a part of the training data. An algorithm that improves the accuracy of its outputs or predictions over time is said to have learned to perform that task. Types of supervised-learning algorithms include active learning , classification and regression . Classification algorithms are used when the outputs are restricted to

8100-486: The amount of manual work in processing quotations and policy issuance. This is especially the case for certain simpler life or personal lines (auto, homeowners) insurance. Some insurance companies, however, rely on agents to underwrite for them. This arrangement allows an insurer to operate in a market closer to its clients without having to establish a physical presence. Two major categories of exclusion in insurance underwriting are moral hazard and correlated losses. With

8235-422: The applicant's health status (other factors may be considered as well, such as occupation and risky pursuits) and decide whether the policy can be issued on the standard terms applicable to the customer's age. The factors that insurers use to classify risks are generally objective, clearly related to the likely cost of providing coverage, practical to administer, consistent with applicable law, and designed to protect

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8370-452: The area of manifold learning and manifold regularization . Other approaches have been developed which do not fit neatly into this three-fold categorization, and sometimes more than one is used by the same machine learning system. For example, topic modeling , meta-learning . Self-learning, as a machine learning paradigm was introduced in 1982 along with a neural network capable of self-learning, named crossbar adaptive array (CAA). It

8505-501: The beginning of the year in which the business was written) before "closing" the year for accounting purposes and declaring a result. To calculate the profit or loss, reserves were set aside for future claims payments, for claims that had already been notified but not yet paid, as well as estimated amounts for claims that had been incurred but not reported (IBNR). This estimation is difficult and can be inaccurate; in particular, long-tail liability policies tend to produce claims long after

8640-560: The behavioral environment. After receiving the genome (species) vector from the genetic environment, the CAA learns a goal-seeking behavior, in an environment that contains both desirable and undesirable situations. Several learning algorithms aim at discovering better representations of the inputs provided during training. Classic examples include principal component analysis and cluster analysis. Feature learning algorithms, also called representation learning algorithms, often attempt to preserve

8775-426: The company should accept the risk. The information used to evaluate the risk of an applicant for insurance will depend on the type of coverage involved. For example, in underwriting automobile coverage, an individual's driving record is critical. However, the type of automobile is actually far more critical. As part of the underwriting process for life or health insurance , medical underwriting may be used to examine

8910-439: The consideration of more sources of information to assess risk than used previously. These algorithms typically use modern data sources such as SMS / Email for banking information, location data to verify addresses, and so on. Several firms are trying to build models that can gauge a customer's willingness to pay using social media data by applying natural language understanding algorithms which essentially try to analyse and quantify

9045-511: The constraint that the learned representation is low-dimensional. Sparse coding algorithms attempt to do so under the constraint that the learned representation is sparse, meaning that the mathematical model has many zeros. Multilinear subspace learning algorithms aim to learn low-dimensional representations directly from tensor representations for multidimensional data, without reshaping them into higher-dimensional vectors. Deep learning algorithms discover multiple levels of representation, or

9180-399: The core information of the original data while significantly decreasing the required storage space. Machine learning and data mining often employ the same methods and overlap significantly, but while machine learning focuses on prediction, based on known properties learned from the training data, data mining focuses on the discovery of (previously) unknown properties in the data (this

9315-401: The cost of holding them on its books until such time in the future that they may be favorably sold. If the instrument is desirable, the underwriter and the securities issuer may choose to enter into an exclusivity agreement. In exchange for a higher price paid upfront to the issuer, or other favorable terms, the issuer may agree to make the underwriter the exclusive agent for the initial sale of

9450-558: The data and react based on the presence or absence of such commonalities in each new piece of data. Central applications of unsupervised machine learning include clustering, dimensionality reduction , and density estimation . Cluster analysis is the assignment of a set of observations into subsets (called clusters ) so that observations within the same cluster are similar according to one or more predesignated criteria, while observations drawn from different clusters are dissimilar. Different clustering techniques make different assumptions on

9585-458: The data. If the hypothesis is less complex than the function, then the model has under fitted the data. If the complexity of the model is increased in response, then the training error decreases. But if the hypothesis is too complex, then the model is subject to overfitting and generalization will be poorer. In addition to performance bounds, learning theorists study the time complexity and feasibility of learning. In computational learning theory,

9720-616: The death of Edward Lloyd in 1713, when the participating members of the insurance arrangement formed a committee and underwriter John Julius Angerstein acquired two rooms at the Royal Exchange in Cornhill for "The Society of Lloyd's". In July 1803, the Lloyd's Patriotic Fund was established by a group of Lloyd's underwriters. The Royal Exchange was destroyed by fire in 1838, forcing Lloyd's into temporary offices at South Sea House , Threadneedle Street . The Royal Exchange

9855-437: The desired output, also known as a supervisory signal. In the mathematical model, each training example is represented by an array or vector, sometimes called a feature vector , and the training data is represented by a matrix . Through iterative optimization of an objective function , supervised learning algorithms learn a function that can be used to predict the output associated with new inputs. An optimal function allows

9990-687: The early 1980s and failed to adequately reinsure the huge quantity of risks it was taking on. The solution was to create a new company in 1990 into which these liabilities could be reinsured in order to relieve the Warrilow Names. This entity was named Centrewrite Ltd and in 1993 it assumed Warrilow's 1985 and prior years' liabilities, separately also offering "estate protection plans" (EPPs) for resigned Names. Tens of thousands of Lloyd's Names bought these reinsurance policies. Centrewrite still exists today but has not written any EPPs since 2011 and conducts little other business; its most recent transaction

10125-406: The early mathematical models of neural networks to come up with algorithms that mirror human thought processes. By the early 1960s, an experimental "learning machine" with punched tape memory, called Cybertron, had been developed by Raytheon Company to analyze sonar signals, electrocardiograms , and speech patterns using rudimentary reinforcement learning . It was repetitively "trained" by

10260-518: The explosion on Piper Alpha. Unexpectedly large legal awards in US courts for punitive damages led to substantial claims on asbestos , pollution and health hazard (APH) policies, some dating as far back as the 1940s. Many of these policies were open-peril policies, meaning that they covered any claim not specifically excluded. Other policies (called standard, or broad) only cover stated perils, such as fire. The classic example of "long-tail" insurance risks

10395-522: The extent of asbestos exposure, leaving the Pulbrook Names without cover for their losses of £100,000 each on average. Even earlier, in 1974, the underwriter of R. W. Sturge syndicate 210, Ralph Rokeby-Johnson, who specialised in American industrial risks, bought "stop-loss" reinsurance from Fireman's Fund and Kemper Insurance in the US on Sturge's pre-1969 exposures that were accumulating into

10530-527: The field is studied in many other disciplines, such as game theory , control theory , operations research , information theory , simulation-based optimization , multi-agent systems , swarm intelligence , statistics and genetic algorithms . In reinforcement learning, the environment is typically represented as a Markov decision process (MDP). Many reinforcements learning algorithms use dynamic programming techniques. Reinforcement learning algorithms do not assume knowledge of an exact mathematical model of

10665-455: The field of deep learning have allowed neural networks to surpass many previous approaches in performance. ML finds application in many fields, including natural language processing , computer vision , speech recognition , email filtering , agriculture , and medicine . The application of ML to business problems is known as predictive analytics . Statistics and mathematical optimization (mathematical programming) methods comprise

10800-629: The first fire reinsurance contract, reinsuring the Hand in Hand Insurance Company and marking the start of Heath's push to diversify the market into "non-marine" business. He also wrote Lloyd's first burglary insurance policy, its first "all risks" jewellery policy and invented "jewellers' block" cover. Later, during World War I he offered air-raid insurance, protecting against the risk of German strategic bombing . The subsequent Lloyd's Act 1911 ( 1 & 2 Geo. 5 . c. lxii) set out

10935-494: The foundations of machine learning. Data mining is a related field of study, focusing on exploratory data analysis (EDA) via unsupervised learning . From a theoretical viewpoint, probably approximately correct (PAC) learning provides a framework for describing machine learning. The term machine learning was coined in 1959 by Arthur Samuel , an IBM employee and pioneer in the field of computer gaming and artificial intelligence . The synonym self-teaching computers

11070-549: The fraudulent losses. The Names (few in number for such large losses) took legal action and ultimately paid only £6.25m of c. £15m of Den-Har claims under the 1976 year, leaving the Corporation of Lloyd's to pay the remainder. The Corporation also paid the near £7m loss for 1977. Lloyd's banned Sasse from the market for life in 1985; he died on 28 February 1987. Sasse had also been one of 57 underwriters on other syndicates that wrote loss-making "computer leasing" policies in

11205-405: The future is uncertain, learning theory usually does not yield guarantees of the performance of algorithms. Instead, probabilistic bounds on the performance are quite common. The bias–variance decomposition is one way to quantify generalization error . For the best performance in the context of generalization, the complexity of the hypothesis should match the complexity of the function underlying

11340-406: The gilt or other bond cum dividend and buying it back ex-dividend , thus forfeiting the interest income in exchange for a tax-free capital gain. Syndicate funds were also moved offshore (which later created problems through fraud and self-dealing). Because Lloyd's was a tax shelter as well as an insurance market, the second issue affecting it was an increase in its external membership: by the end of

11475-424: The information in their input but also transform it in a way that makes it useful, often as a pre-processing step before performing classification or predictions. This technique allows reconstruction of the inputs coming from the unknown data-generating distribution, while not being necessarily faithful to configurations that are implausible under that distribution. This replaces manual feature engineering , and allows

11610-460: The insurance industry. Lloyd's losses from the earthquake and fires were substantial, even though the writing of insurance business overseas was viewed with some wariness at the time. While some insurance companies were denying claims for fire damage under their earthquake policies or vice versa , one of Lloyd's leading underwriters, Cuthbert Heath , famously instructed his San Francisco agent to "pay all of our policy-holders in full, irrespective of

11745-624: The lack of legal powers of the Committee of Lloyd's (as it was then) to manage the Society. The collapse of the Sasse syndicate came after it wrote a "binding authority" in 1975 that delegated underwriting authority to Florida-based expatriate Dennis Harrison to write property and fire risks through his Den-Har Underwriters agency, even though Den-Har was not an approved Lloyd's coverholder (a fact noticed neither by Sasse nor Lloyd's Non-Marine Association). Den-Har had suspected Mafia links and many of

11880-481: The late 1970s. These claims ultimately ran above $ 450m, wiping out more than half the entire market's profit in a single year. Problems also developed out of the Oakley Vaughan agency run by brothers Edward and Charles St George, which had written far more business than its capacity allowed in order to invest premium to take advantage of high interest rates. By writing swathes of business regardless of whether

12015-467: The liability of previous underwriting years would be transferred to the current year, and "time and distance" policies, whereby reserves would be used to buy a guarantee of future income. In 1980, Sir Henry Fisher was commissioned by the Council of Lloyd's to produce the foundation for a new Lloyd's Act. The recommendations of his report addressed the "democratic deficit" and the lack of regulatory muscle. Fisher, working with Richard Southwell QC, drafted

12150-427: The liability that they personally and their syndicates had subscribed to. Also, numerous underwriters of long-tail non-marine business, concerned at their exposures to the impending asbestosis crisis, had sought to reinsure their liabilities with other carriers. Approximately 20 syndicates, including Lloyd's deputy chairman Murray Lawrence's, paid millions of pounds in premiums to Richard H. M. Outhwaite, then considered

12285-459: The local market, supply and demand, and risks such as the physical state of the property, environmental or geotechnical risks, zoning, taxes, and insurance. In the evaluation of a real estate loan, lenders assess both the risk of lending to a specific borrower as well as the risk of the underlying real estate. Loan underwriters use various metrics including debt service coverage ratio , loan-to-value ratio , and debt yield ratio to assess out whether

12420-514: The long-term viability of the insurance program. The underwriters may decline the risk, or may provide a quotation in which the premiums have been loaded (including the amount needed to generate a profit, in addition to covering expenses) or in which various exclusions have been stipulated, which restrict the circumstances under which a claim would be paid. Depending on the type of insurance product (line of business), insurance companies use automated underwriting systems to encode these rules, and reduce

12555-412: The losses. When the huge extent of asbestosis losses came to light in the early 1990s, for the first time in Lloyd's history large numbers of members either were unable to pay the claims or refused, many alleging that they were the victims of fraud, misrepresentation, and/or negligence. The opaque system of accounting at Lloyd's made it difficult, if not impossible, for many Names to understand the extent of

12690-434: The machine learning algorithms like Random Forest . Some statisticians have adopted methods from machine learning, leading to a combined field that they call statistical learning . Analytical and computational techniques derived from deep-rooted physics of disordered systems can be extended to large-scale problems, including machine learning, e.g., to analyze the weight space of deep neural networks . Statistical physics

12825-428: The market risk, is occasionally criticized as unethical, such as the allegations that investment banker Frank Quattrone acted improperly in doling out hot IPO stock during the dot-com bubble . In an attempt to capture more of the value of their securities for themselves, issuing companies are increasingly turning to alternative vehicles for going public, such as direct listings and SPACs . In banking , underwriting

12960-468: The members of syndicate '1' in 1985 reinsured the future claim liabilities for members of syndicate '1' in 1984. The membership might be the same, or it might have changed. In this manner, liability for past losses could be transferred year after year until it reached the current syndicate. A member joining a syndicate with a long history of such transactions could – and often did – pick up liability for losses on policies written decades previously. As long as

13095-437: The nature of the "signal" or "feedback" available to the learning system: Although each algorithm has advantages and limitations, no single algorithm works for all problems. Supervised learning algorithms build a mathematical model of a set of data that contains both the inputs and the desired outputs. The data, known as training data , consists of a set of training examples. Each training example has one or more inputs and

13230-577: The nature of the future risk back in the 1960s, it and its reinsurers would not have properly priced or reserved for it. In the case of Lloyd's, this resulted in the bankruptcy of thousands of individual investors who indemnified general liability policies written from the 1940s to the mid-1970s for companies with exposure to asbestosis claims. A group of Names mounted a legal case as the Names Against Lloyd's of London, where they attempted to prove fraud among those brokers who had involved them in

13365-467: The objective of removing conflicts of interest. Immediately after the passing of the 1982 Act, evidence came to light and internal disciplinary proceedings were commenced against a number of underwriters who had allegedly siphoned money from their syndicates to their own accounts. These individuals included a deputy chairman of Lloyd's and some of its leading underwriters. Successful marine underwriter Ian Posgate , who at one point had written 20 per cent of

13500-610: The output distribution). Conversely, an optimal compressor can be used for prediction (by finding the symbol that compresses best, given the previous history). This equivalence has been used as a justification for using data compression as a benchmark for "general intelligence". An alternative view can show compression algorithms implicitly map strings into implicit feature space vectors , and compression-based similarity measures compute similarity within these feature spaces. For each compressor C(.) we define an associated vector space ℵ, such that C(.) maps an input string x, corresponding to

13635-412: The policies are written. The reserve for future claims liabilities was set aside in an unusual way. The syndicate bought a RITC policy to pay any future claims; the premium was equal to the amount of the reserve. This transaction allowed the year to be closed, and the syndicate's profit or loss declared. The reinsurer was always another Lloyd's syndicate(s), often the succeeding year of the same syndicate:

13770-501: The policy document being known as a "slip", but in recent years it has become increasingly common for business to be conducted remotely and electronically. The market's motto is Fidentia , Latin for "confidence", and it is closely associated with the Latin phrase uberrima fides , or "utmost good faith", representing the relationship between underwriters and brokers. Having survived multiple scandals and significant challenges through

13905-531: The practice had become so widespread that the underwriters in Lime Street initially had no idea how extensive their exposure was: the loss was passed around in what became known as the London market excess of loss (LMX) "spiral" and claim values escalated out of control. The rig's operator, Occidental Petroleum , bought a direct insurance policy from Lloyd's underwriters, who then passed part of their shares of

14040-555: The premiums were adequate, the St Georges left their Names with serious losses. Lloyd's had commissioned investigations into Oakley Vaughan, but investigators were denied access to the books and relied only on reassurances that the agency was profitable. Arising simultaneously with these developments were wider issues: first, in the US, an ever-widening interpretation by the courts of insurance coverage in relation to workers' compensation for asbestosis -related claims, which created

14175-526: The present. This contract developed so poorly that Fireman's Fund later sought its own stop-loss cover for the losses assumed from Sturge. Rokeby-Johnson later prompted Lloyd's to create a working party on asbestosis. Machine learning Machine learning ( ML ) is a field of study in artificial intelligence concerned with the development and study of statistical algorithms that can learn from data and generalize to unseen data, and thus perform tasks without explicit instructions . Advances in

14310-449: The property is capable of making debt service payments. Forensic underwriting is the "after-the-fact" process used by lenders to determine what went wrong with a mortgage. Forensic underwriting is a borrower's ability to work out a modification scenario with their current lien holder, not to qualify them for a new loan or a refinance. This is typically done by an underwriter staffed with a team of people who are experienced in every aspect of

14445-427: The public. Underwriters make their profit from the price difference (called " underwriting spread ") between the price they pay the issuer and what they collect from buyers or from broker-dealers who buy portions of the offering. The services provided in the process of underwriting include: Once the underwriting agreement is struck, the underwriter bears the risk of being unable to sell the underlying securities, and

14580-512: The real estate field. Underwriting may also refer to financial sponsorship of a venture, and is also used as a term within public broadcasting (both public television and radio ) to describe funding given by a company or organization for the operations of the service, in exchange for a mention of their product or service within the station's programming. Underwriting activity in the mergers and acquisitions , equity issuance , debt issuance, syndicated loans and U.S. municipal bond markets

14715-587: The remaining one-third was reinsurance. The market began in Lloyd's Coffee House , owned by Edward Lloyd, on Tower Street in the City of London . The first reference to it can be traced to the London Gazette in 1688. The establishment was a popular place for sailors, merchants, and ship-owners, and Lloyd catered to them with reliable shipping news. The coffee house soon became recognised as an ideal place for obtaining marine insurance. The shop evolved into

14850-467: The reserves had been accurately estimated, and the appropriate RITC premium paid every year, then all would have been well, but in many cases this had not been possible: no-one could have predicted the surge in APH losses. Therefore, the amounts of money transferred from earlier years by successive RITC premiums to cover these losses were grossly insufficient, and the current members had to pay the shortfall. As

14985-441: The risk on to other syndicates via reinsurance. Those reinsurers then in turn reinsured part of the risk out to other reinsurance underwriters within Lloyd's (known as "retrocessionaires"), and so on. Consequently, many syndicates, especially those writing a large amount of excess of loss reinsurance, became exposed to the same claim multiple times through multiple layers in the spiral. Other catastrophes, including Hurricane Hugo and

15120-450: The risks that it was taking on. Lloyd's response was to commission a secret internal inquiry in 1968, headed by Lord Cromer , a former Governor of the Bank of England . This report advocated the widening of membership to non-market participants, including non-British subjects and then women, and the reduction of the onerous capitalisation requirements (thus creating a minor investor known as

15255-475: The risks written were rigged: typically dilapidated buildings in slums such as New York 's south Bronx , which soon burned down after being insured for large sums. Once the three-year Lloyd's accounting period passed, the 110 Names on syndicate 762 were told they faced substantial losses, from mostly fraudulent claims. Sasse's reinsurer, the Instituto de Resseguros do Brasil (IRB), refused to pay its share of

15390-412: The second half of the 20th century, most notably the asbestosis losses which engulfed the market, Lloyd's today promotes its strong financial "chain of security" available to promptly pay all valid claims. As of 31 December 2022 this chain consists of £72.1 billion of syndicate-level assets, £34.1bn of members' "funds at Lloyd's" and £6.1bn in a third mutual link which includes the "Central Fund" and which

15525-409: The securities instrument. That is, even though third-party buyers might approach the issuer directly to buy, the issuer agrees to sell exclusively through the underwriter. In summary, the securities issuer gets cash up front, access to the contacts and sales channels of the underwriter, and is insulated from the market risk of being unable to sell the securities at a good price. The underwriter receives

15660-546: The size of data files, enhancing storage efficiency and speeding up data transmission. K-means clustering, an unsupervised machine learning algorithm, is employed to partition a dataset into a specified number of clusters, k, each represented by the centroid of its points. This process condenses extensive datasets into a more compact set of representative points. Particularly beneficial in image and signal processing , k-means clustering aids in data reduction by replacing groups of data points with their centroids, thereby preserving

15795-518: The society's objectives, which include the promotion of its members' interests and the collection and dissemination of information. A year later in April 1912 Lloyd's suffered perhaps its most famous loss: the sinking of the Titanic . It was insured for £1 million, which represented 20 per cent of the entire market's capacity, making it the largest marine risk ever insured. The record of its sinking in

15930-527: The space of occurrences) and the learner has to build a general model about this space that enables it to produce sufficiently accurate predictions in new cases. The computational analysis of machine learning algorithms and their performance is a branch of theoretical computer science known as computational learning theory via the Probably Approximately Correct Learning (PAC) model. Because training sets are finite and

16065-419: The structure of the data, often defined by some similarity metric and evaluated, for example, by internal compactness , or the similarity between members of the same cluster, and separation , the difference between clusters. Other methods are based on estimated density and graph connectivity . A special type of unsupervised learning called, self-supervised learning involves training a model by generating

16200-525: The study data set. In addition, only significant or theoretically relevant variables based on previous experience are included for analysis. In contrast, machine learning is not built on a pre-structured model; rather, the data shape the model by detecting underlying patterns. The more variables (input) used to train the model, the more accurate the ultimate model will be. Leo Breiman distinguished two statistical modeling paradigms: data model and algorithmic model, wherein "algorithmic model" means more or less

16335-417: The supervisory signal from the data itself. Semi-supervised learning falls between unsupervised learning (without any labeled training data) and supervised learning (with completely labeled training data). Some of the training examples are missing training labels, yet many machine-learning researchers have found that unlabeled data, when used in conjunction with a small amount of labeled data, can produce

16470-428: The tasks in which machine learning is concerned offers a fundamentally operational definition rather than defining the field in cognitive terms. This follows Alan Turing 's proposal in his paper " Computing Machinery and Intelligence ", in which the question "Can machines think?" is replaced with the question "Can machines do what we (as thinking entities) can do?". Modern-day machine learning has two objectives. One

16605-430: The terms of their policies". The prompt and full payment of all claims helped to cement Lloyd's reputation for reliable claim payments and as an important trading partner for US brokers and policyholders. It was estimated that around 90 per cent of the damage to the city was caused by the resultant fires and as such, since 1906 "fire following earthquake" has generally been a specified insured peril under most policies. Heath

16740-406: The underwriting syndicates. It may not be immediately clear how current members of current Lloyd's syndicates, which accept business one year at a time, could be liable to pay historical claims. This came about as a result of the Lloyd's accounting practice known as reinsurance to close (RITC). A member "joined" a syndicate for one calendar year only, known as the "annual venture". At the end of

16875-509: The vector norm ||~x||. An exhaustive examination of the feature spaces underlying all compression algorithms is precluded by space; instead, feature vectors chooses to examine three representative lossless compression methods, LZW, LZ77, and PPM. According to AIXI theory, a connection more directly explained in Hutter Prize , the best possible compression of x is the smallest possible software that generates x. For example, in that model,

17010-408: The year, the syndicate as an ongoing trading entity was effectively disbanded. However, usually the syndicate re-formed for the next calendar year with the same identifying number and more or less the same membership. Since claims can take time to be reported and then paid, the profit or loss for each syndicate took time to realise. The practice at Lloyd's was to wait three years (that is, 36 months from

17145-456: Was also used in this time period. Although the earliest machine learning model was introduced in the 1950s when Arthur Samuel invented a program that calculated the winning chance in checkers for each side, the history of machine learning roots back to decades of human desire and effort to study human cognitive processes. In 1949, Canadian psychologist Donald Hebb published the book The Organization of Behavior , in which he introduced

17280-416: Was first used in workers' compensation , where the premium of the insurance was updated monthly, based on the insured's submitted payroll. It is also used in life insurance and cyber insurance . Real estate underwriting is the evaluation of a real estate investment, either of equity ownership or of a real estate loan. The underwriting process generally involves a detailed analysis of expected cash flows,

17415-527: Was in 2013 when it assumed the 2001 liabilities of the life syndicate 1171. It also reinsured the 1997–1999 years of Crowe syndicate 1204 and the 1999–2001 years of Cotesworth syndicate 535. In 2012 the Crowe and Cotesworth liabilities (then valued at just over £17m) were novated to Riverstone (a Fairfax company) meaning minimal liabilities remain in Centrewrite today. In 1986, the year Lloyd's moved into

17550-450: Was out of favor. Work on symbolic/knowledge-based learning did continue within AI, leading to inductive logic programming (ILP), but the more statistical line of research was now outside the field of AI proper, in pattern recognition and information retrieval . Neural networks research had been abandoned by AI and computer science around the same time. This line, too, was continued outside

17685-496: Was rebuilt by 1844, but many of Lloyd's early records were lost in the blaze. In 1871, the first Lloyd's Act was passed in Parliament which gave the business a sound legal footing. Around that time, it was unusual for a Lloyd's syndicate to have more than five or six backers; this lack of underwriting capacity meant Lloyd's was losing many of the larger risks to rival insurance companies. A marine underwriter named Frederick Marten

17820-427: Was relatively confined to a minority of such syndicates. Among the prominent reinsurers that remained profitable throughout the spiral were C. F. Palmer syndicate 314, M. H. Cockell 269/570 and D. P. Mann 435, while G. S. Christensen 958 reported only a slight loss in 1989 but healthy profits in 1990 and 1991. The early to mid-1990s saw the continuation of Lloyd's most traumatic period in its history that had begun with

17955-608: Was set up as a Lloyd's subsidiary insurance company. Lioncover assumed the liabilities of PCW as well as the associated WMD and Richard Beckett underwriting agencies in 1987. In 1988 it also assumed the 1967–1969 liabilities of syndicates 2 and 49. Dixon and Cameron-Webb remained at large in the US; Cameron-Webb reportedly died in 2004 in a nursing home in California and Dixon became a real estate agent in Florida; he died in 2017. Lioncover's PCW liabilities were reinsured as part of

18090-447: Was taxed in the top bracket at 83 per cent, and investment income in the top bracket at 98 per cent. Lloyd's income counted as earned income, even for Names who did not work at Lloyd's, and this heavily influenced the direction of underwriting: in short, it was desirable for syndicates to make a (small) underwriting loss but a (larger) investment gain. The investment gain was typically achieved by " bond washing" or "gilt stripping": selling

18225-466: Was vitally interested in legal decisions as to what constituted 'natural death' and 'perils of the sea'". Lloyd's obtained a monopoly on maritime insurance related to the slave trade and maintained it until the abolition of the slave trade in 1807. Just after Christmas 1691, the small club of marine insurance underwriters relocated to No. 16 Lombard Street ; a blue plaque on the site commemorates this. This arrangement carried on until 1773, long after

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