BSB: A Brief History of a Soviet-British Insurance Experiment

The Black Sea and Baltic General Insurance Company was funded with Soviet capital, and relied on a market structure that saw it reinsured by British aristocrats.

Ninety-eight years ago the Soviet Union established the Black Sea and Baltic General Insurance company, known in Russian by the portmanteau Блекбалси (Blekbalsi). It was commonly known abroad as BSB.

Company formation at the time was very much not in vogue in the USSR, in fact it was illegal for individuals to do so – but that was no obstacle. More remarkable still was that the company was set up far afield, in the City of London, the very ancestral home of the capitalism that the Soviet leaders so abhorred.

Its offices were located on 65 Fenchurch Street, right next to a pub named the East India Arms, which still exists today – and where insurance brokers and underwriters still often gather for a post-work pint (picture above).

Leon Trotsky, then very much still a rising star in the USSR, had not long before specifically denounced it’s economic and geopolitical role, declaring at the Communist International in 1920 that “The financial oligarchy, the City, reigns supreme over the disfranchised human ocean of Asia and Africa through the medium of the ‘democratically’ enslaved people of the home country”.

In 1924 the United Kingdom became the first major Western country to recognize the USSR and as Lenin’s New Economic Policy (NEP) was opening up some springs of trade in the aftermath of the devastating Russian Civil War, the Soviet Union needed to be practical.

But in 1924 the United Kingdom had become the first major Western country to recognize the USSR and as Lenin’s New Economic Policy (NEP) was opening up some springs of trade in the aftermath of the devastating Russian Civil War, the Soviet Union needed to be practical. More specifically, it needed to facilitate international shipping – and no foreign company was going to underwrite Soviet shipping in a legal system that they did not recognize and which lacked the market functions to underpin such services

The story of the Soviet Union and wider Communist block’s experience with the global shipping industry is a fascinating one – and perhaps my favourite aspects of it are told in the book A History of the Czechoslovak Ocean Shipping Company, 1948–1989: How a Small, Landlocked Country Ran Maritime Business During the Cold War, which I strongly recommend. But even today the City of London’s Lloyd’s insurance market (not to be confused with the Lloyds Banking Group) remains the pre-eminent hub of maritime and shipping insurance.

The Black Sea and Baltic General Insurance Company was financed with Soviet capital exported to England, although millions of bondholders across Europe jilted by the Soviet Union’s decision to default on Tsarist Russia’s debts were still angrily seeking compensation. It survived a trial by far at the beginning, coming under early Parliamentary scrutiny and then the UK's decision to withdraw diplomatic relations with Russia in May 1927 following the infamous raid on the Soviet trade delegation and the All Russian Co-operative Society (ARCOS) that found the first evidence of major Soviet economic and political espionage.

I only learned about the company recently, so I think there is much still to research – what interests me far more is that by the 1980s the firm was reportedly writing not just maritime insurance but classes of insurance, including trade credit and political risk to facilitate exports to the Soviet Union. This is in itself a fascinating lesson in the importance of the legal environment in which a company operates – the trade credit insurance would have been for the benefit of Soviet state companies, which like BSB were ultimately also all owned by the Soviet government. But because BSB had capital and assets in the far more trusted London market, and was writing on Lloyd’s paper, meaning that its risks were effectively re-insured by the so-called ‘names’ of Lloyd’s of London, which for almost all of its existence was a class of individuals rather than companies representing the wealthy and more often than not the aristocratic elite.

In short, Soviet shipping insurance was backed up by the British nobility and banking class!

BSB’s staff in the 1980s (source)

But the most remarkable fact about BSB is that it survived the Soviet Union’s collapse. And through the early and mid 1990s it continued to write insurance, including fire and motor vehicle insurance as well as personal accident insurance, although the latter I believe to largely have been for Soviet personnel abroad), which it had already begun to write in the 1960s according to a since de-classified CIA report.

The most remarkable fact about BSB is that it survived the Soviet Union’s collapse.

In other words there were some people puttering around London in the 1990s whose insurance was directly or indirectly backed up by a remnant of Soviet power, despite the disappearance of the country that had funded the company.

What finally took down BSB –  it filed for insolvency in 1998 – was not the Soviet demise, but rather the greatest crisis to rock the Lloyd’s of London market in its nearly 335 year history – namely the asbestosis claims crisis, whose first claims emerged in 1988 just as the Soviet Union began its spiral into collapse with the Sumgait pogrom and Armenian-Azeri intercommunal violence in the Caucasus the first major failing of Soviet power domestically, and the beginning of the withdrawal from Afghanistan.

Lloyd’s had historically written insurance on annual years of account and then put those past years into separate reinsurance agreements, with the aforementioned names ultimately having unlimited liability. But the market had not foreseen that various forms of home and building insurance faced a deadly risk from asbestosis, a chronic long condition caused by prolonged exposure to asbestos fibers - which were the most commonly used form of insulation in construction for decades prior. Many of the names that stood behind Lloyd’s found themselves owing vast sums for insurance policies written decades prior, in some cases even before they were alive. Companies underwriting on the Lloyd’s market were similarly affected, and many collapsed - BSB among them.

The same crisis that brought down BSB saw many aristocrats and members of the wealthy British elite file for bankruptcy.

The same crisis that brought down BSB saw many aristocrats and members of the wealthy British elite file for bankruptcy. Perhaps the true communist believers who led the Soviet Union at the time of BSB’s establishment would appreciate the irony that though their corporate creation survived the political one, both BSB and the capitalist elite individuals backing Lloyd’s were devastated by the same crisis.

However, Lloyd's was ultimately saved when the market came together to restructure contracts and increase reserving for past years of account (the full story of the crisis is entreatingly told in the book On the Brink: How a Crisis Transformed Lloyd's of London). Individual ‘names’ were displaced by companies to the point that they have become a rarity in Lloyd’s today. The benefits of corporate structure and strong contractual agreements won the day.