1. Business nature of the London Market

Question 1

What is a Subscription Market?

Answer 1

All this means is that risks are shared among a number of different insurers, rather than being insured 100% by
one insurer.

Question 2

What are the reasons Insurers may not take on 100% of the risk? List all answers

Answer 2

1. Capacity
2. Branch Office Controls
3. Aggregates.
4. Broker Influence
5. Licensing
6. Client Influence
7. Availability of reinsurance
8. Geographical limitations

Question 3

Can a broker operating in London approach other markets in the world?

Answer 3

Yes

Question 4

What are the reasons risks may be placed partly outside the London Market?

Answer 4

1. Location of Insured
2. Culture, local knowledge and relationships
3. Experienced Insurers.
4. Claims Service

Question 5

The market can be broadly divided into 3 categories, what are they?

Answer 5

1. Those operating in Lloyds.
2. Insurance Companies
3. Mutual insurers

Question 6

What are the three types of companies of insurers in terms of ownership?

Answer 6

1. Proprietary companies
2. Mutual companies and mutual indemnity associations
3. Captive Insurers

Question 7

Who owns proprietary companies (Limited liability companies)?

Answer 7

Shareholders

Question 8

Who owns Mutual Companies?

Answer 8

Policyholders

Question 9

who owns Captive Insurance Companies?

Answer 9

A captive insurer or ‘captive’ is an authorised insurance company that is owned by a noninsurance
parent company.

Question 10

Where do captives operate from mostly?

Answer 10

1. Ireland
2. Channel Islands
3. Bermuda
4. Isle of Man

Question 11

What are the main incentives to operating a captive?

Answer 11

1. Tax Efficiency
2. Not being exposed to general premium increases in the market
3. Not passing funds in the form of premiums to a commercial insurer and adding to their profits
4. Being able to invest, and hopefully benefit from returns from, premium-related funds

Question 12

What are the main disadvantages of operating a captive?

Answer 12

1. The need to set up an insurance organisation with funding and staff
2. The need to ensure that a premium appropriate for the risk is being charged to the subsidiary company which is transferring its risk to the captive insurer
3. Not having access to insurer knowledge
4. Not having any external funds to call on should a large loss occur

Question 13

What is a captive insurer?

a. An insurer that can only write risks from one territory.

b. An insurer which is wholly owned by another insurer.

c. An insurer which is wholly owned by its non insurance parent company.

d. An insurer that has authority to write business on behalf of a Lloyd’s syndicate.

Answer 13

c. An insurer which is wholly owned by its non insurance parent company.

Question 14

Why might an insurance company want to have a Lloyd’s syndicate as well?

a. Access to Lloyd’s brokers.

b. Access to Lloyd’s licences.

c. Access to the Lloyd’s building.

d. Access to the Lloyd’s market to buy reinsurance.

Answer 14

b. Access to Lloyd’s licences.

Question 15

What is meant by an ‘admitted’ insurer?
a. An insurer that has an office in a particular country.

b. An insurer who has permission to operate as a domestic insurer in a particular country.

c. An insurer who has permission to access a country’s legal system.

d. An insurer who has been accepted into the Lloyd’s market.

Answer 15

b. An insurer who has permission to operate as a domestic insurer in a particular
country.

Question 16

What is unusual about the way in which the USA grants permission for insurers to
operate?

a. Permission is granted at state level, not at federal/country level.

b. The permission system is managed through the courts.

c. Permission is only granted to US based insurers.

d. The US is the most expensive country in which to obtain permission.

Answer 16

a. Permission is granted at state level, not at federal/country level.