Lloyd's, the fabled exchange for insurance brokers and underwriters, is in the thick of the most serious scandal in its history -- or at least, local historians report -- since a terrible incident in the 18th Century when gambling was uncovered and it was temporarily shut.

Sir Peter Green, Lloyd's chairman, described the situation succinctly:

"Horrifying," he exclaimed.

As befits an establishment with revenues of more than $5 billion a year, the stakes are high and the names illustrious.

The accuser is the American firm of Alexander and Alexander Services, the world's second-largest insurance broker.

The alleged culprit is Ian Posgate, Lloyd's most successful underwriter and a member of Lloyd's management committee. He has been suspended following assertions that he and four associates misappropriated about $55 million of their clients' money through shadowy companies in Panama and Lichtenstein -- charges that Posgate vehemently denies.

Leading accountants and lawyers have been called in by all sides. The U.S. Securities and Exchange Commission has been formally notified. And several probes just getting under way here could widen the affair.

"Lloyd's . . . will never be quite the same again," observed the Financial Times, Britain's leading business journal. "Other financial markets have their problems from time to time, but they have rarely penetrated so deeply as this scandal has."

At issue is Lloyd's whole manner of doing business, its time-honored practices of self-regulation in which, as in any good club, the members are expected to follow the rules. Lesser troubles over the past decade recently led to the first major reforms of Lloyd's procedures in a century. But specialists here say that further changes may be neccessary as Lloyd's is forced to compete in the increasingly complex and competitive insurance market.

Lloyd's is a consortium with about 21,000 members, at last count, whose personal resources or professional skills have earned it accolades as well as money down through the ages, both of which it still is amassing. Profits in the most recent reporting period topped $300 million, despite the adverse economic climate. In the 340-foot curved green-and-white marble hall known as The Room are gathered what the Times of London the other day called "the most original and entepreneurial brains in the insurance world."

One of the more prominent of these was Posgate, 50, who in 18 years as an underwriter had earned the nickname "Goldfinger" because of his talents. His premium take in the past year was estimated last August at about $175 million, making his syndicate by the far the largest in Lloyd's. The Financial Times placed his personal annual income at more than $600,000, one of the highest in Britain.

But among the insiders at Lloyd's, Posgate always had been regarded as something of a renegade. Legend has it that he once was told by a fellow underwiter, "Ian, you're not a Lloyd's man." Members resented his willingness to undersell the agreed insurance premium rates and his readiness to stretch the limits of his financial backers in taking on commitments. As The Economist put it, Posgate's detractors have long "been praying for him to step on a banana skin."

But with time, however, Posgate did acquire all the trappings of Lloyd's stature. In the late 1960s, he associated with the firm of Alexander Howden Group and built up the syndicates, which accounted for 10 percent of all the business placed at Lloyd's and nearly 40 percent of all the lucrative shipping insurance that was his speciality. Finally, in January, he was elected to the prestigious l6-member Committee of Lloyd's, which supervises the exchange's operations.

Only two months later, though, his problems began. The Howden Group was taken over by Alexander and Alexander Services in an almost-$300-million deal. Its auditors soon discovered what the company claims in allegations filed with the SEC was a shortfall in assets of about $25 million. Later, the sum of misappropriated funds was placed at as much as $55 million, the documents say.

Alexander and Alexander maintains that Posgate and four former directors of the Howden Group -- Kenneth Grob, the chairman; Allan Page; Ronald Comery; and Jack Carpenter -- had controlled the Panama and Lichtenstein companies secretly as long ago as 1975. "The money taken in by these entities were used in part for the personal benefit of the four individuals and Mr. Posgate," say SEC documents quoted by John Moore, the Lloyd's specialist of the Financial Times. "The benefits included works of art received by Mr. Posgate."

Much of the money was said to be for so-called "reinsurance" premiums, a virtually unregulated device in which the major underwriters spread the risks against possible claims. Although Howden's insurance business was profitable through all the years of the alleged diversion of funds, Alexander and Alexander contends that its assets now fall short of its liabilities.

It has not been suggested so far that there is recent precedent at Lloyd's for the exchange paying out of "emergency funds" to cover losses by members that they refuse to pay for one reason or another. The most famous case involved a disastrous insurance policy for buildings in the South Bronx that were destroyed by suspicious fires. The syndicate defaulted, and the exchange eventually put out $50 million.

That incident, among others, led to a major review of Lloyd's procedures, culminating in 1980 in legislation designed to bring in tighter controls, while not fundamentally altering Lloyd's traditional self-regulation.

One of the related changes was to allow foreign firms such as Alexander and Alexander to invest in Lloyd's syndicates, opening them to the sort of scrutiny that Americans take for granted but that is a far cry from the private understandings that have been part of the British way.

What worries the Lloyd's community is that, just as its new procedures take effect -- broadening, for instance, the management committee -- a widening scandal will show that the abuses are even more serious than those alleged by Alexander and Alexander. Among the questions to be resolved is how British auditors failed to discover that funds were siphoned away from Howden if, in fact, they were.

The moral of the story is that "benign neglect" is an inadequate way to supervise a market as fiercely contested as insurance has become, said one specialist. This is a serious matter for the strapped British economy because Lloyd's is a major earner of foreign money. More than half of its premium income last year came from the United States, according to published reports.

"If these charges are substantiated and, worse, if this is found not to be an isolated case, the credit of the market would be seriously damaged which would grossly hamper Lloyd's ability to compete and remain a force in the world market."

Up to now, Posgate has mounted a vigorous defense. "I don't feel guilty at all," he commented to interviewers. Alexander and Alexander has brought suit in Britain's High Court, claiming damages for "breach of fiduciary duty and misrepresentations" by Posgate and the four former Howden executives. Posgate has countered by threatening the American company with a suit for his wrongful dismissal as a director. The others have remained silent.

But no matter what happens, the controversy is unwelcome. In the plush suite of panelled offices where the exchange is run and on the floor of The Room, where it conducts its time-honored trade, the loyalists of Lloyd's are shaking their heads with dismay.