The regulation of the insurer is being scrutinised
The move is the first stage in a procedure that could determine certain European laws on insurance cover were violated.
"The Commission is examining the compatibility of the current regulatory and supervisory arrangements for Lloyd's, and on the basis of the information received from the UK, the Commission will decide whether or not it considers there is a violation of Community law," the commission said.
If it is found that laws were broken, it could open the way for a number of multi-million pound lawsuits against the UK government from Lloyd's Names - the wealthy individuals who back the insurance market.
Many of these Names lost millions of pounds in the late 80s and early 90s following a series of huge disasters and a wave of asbestos-related claims.
Past losses
Under a 1973 European insurance directive, national regulators must ensure that insurance companies and markets have sufficient funds to meet liabilities.
The Lloyd's insurance market made losses of about £8bn in the five underwriting years between 1988 and 1992.
A number of disasters, such as the Piper Alpha oil rig fire, together with a wave of claims over asbestos, left the insurance market in deep trouble.
After losing many millions of pounds some of the Lloyd's Names took legal action against Lloyd's, and in an attempt to stem the flood of lawsuits a compromise deal was offered, with a one-off payment of £3.2bn being agreed in 1996.
But not all Names signed up to the settlement and have continued legal action.
They claim the UK government failed to regulate the Lloyd's market properly, and if the EU agrees with them it could lead to yet more legal action.
New worries
The huge insurance claims expected in the aftermath of the 11 September terror attacks have also raised concerns about the global insurance industry.
Lloyd's has already said its exposure to the strikes will be at least £1.9bn, but says its solvency is not in question.
Regarding the latest move by the EC, Lloyd's of London said as it was "not the subject of the European Commission's letter it would be inappropriate for Lloyd's to comment on the matter".
The UK Treasury said: "With regard to Lloyd's, the UK is confident that the relevant EC Directive was and is properly applied. We will study the Commission's letter and respond accordingly."