1. Business Nature of the London Market Flashcards

Explain the concept of a subscription market; examine the international nature of the London Market; explain the parts of the London Market participate in the same risks; and explain the importance of the London Market and why clients may decide to place their business within this market.

1
Q

What is a subscription market?

A

Risks are shared among a number of different insurers, rather than being insured 100% by on insurer.

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2
Q

What are some of the reasons an insurer may not take 100% of a
risk?

A

Capacity
Branch office controls
Broker influence
Licensing
Client influence
Availability of reinsurance
Geographical limitations

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3
Q

What is capacity?

A

Capacity is the limit to the amount of business that an insurer can participate in.

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4
Q

How is capacity measured?

A

Capacity is measured by usually by the total of all premiums written in any period, usually one year. It can also be measured using the limits of the risks being written across a period of time or within a geographical location.

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5
Q

What effect does reinsurance have on capacity?

A

Reinsurance is the transfer of risk to another party (the reinsurer), it frees up capacity for the insurer to write more business. Where no reinsurance is available, then it curtails the insurer’s ability to write further risks.

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6
Q

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

A

Location of insured
Culture, local knowledge & relationships
Experienced insurers from overseas
Claims service

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7
Q

Where within the London Market would you more commonly find a risk to be written 100% by one insurer?

A

Marine liability risks, written by mutual clubs called Protection & Indemnity Associations (P&I Clubs).

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8
Q

The London Market can be divided broadly into three categories of insurers, what are these categories?

A

Insurers operating in Lloyd’s
Insurance companies
Mutual Insurers

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9
Q

There are three main category of insurer in terms of ownership, what are these?

A

Proprietary companies
Mutual companies and mutual indemnity associations
Captive insurance companies

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10
Q

What is a proprietary company?

A

A limited liability company of which is owned by shareholders, who, in buying shares, contribute to the share capital. The shareholder’s liability is limited to the nominal value of the shares they own.

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11
Q

After company names, what do the following abbreviations mean?
‘Ltd’, ‘LLC’, & ‘PLC’

A

‘Ltd’ - Limited, a private limited company
‘LLC’ - Limited liability company
‘PLC’ - Publicly-quoted company

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12
Q

What is a Mutual company?

A

A company owned by it’s policyholders, the policyholders share in the company’s profits is by way of lower premiums. The maximum of a policyholder’s liability is usually limited to their premium.

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13
Q

What is a Captive insurance company?

A

An authorised insurance company that is owned by a non-insurance parent company.

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14
Q

What are the incentives to operating a Captive insurance company?

A

Not being exposed to general premium increases
Not passing funds in the form of premium and adding to the companies profits
Being able to invest and hopefully benefit from premium returns

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15
Q

What is a Mutual indemnity association?

A

Similarly to mutual companies, the association is owned by it’s policyholders, this is a more traditional self-insurance where a group of individuals have come together. Associations employ a professional manager to run the insurer on a day-to-day basis.

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16
Q

What are the disadvantages of operating a Captive insurance company?

A

The need to set up and insurance company with funding and staff
Ensuring premium is appropriate for the risk presented
Not having access to insurer knowledge
Not having external funds to call on should a large claim occur

17
Q

What is a Lloyd’s Service company?

A

A company that solely writes business on behalf of syndicates, their capacity is gained from the syndicate rather than the shareholders.

18
Q

What may Insurers consider when making the decision to operate as an insurance company, a Lloyd’s syndicate or both?

A

Brand - Lloyd’s brand is recognised internationally
Permissions - access to licensing
Capacity - spreading capacity over both an insurance and syndicate platforms
Regulations - whether to be subject to the Lloyd’s internal regulations and rules

19
Q

What is a Managing General Agent (MGA)?

A

An organisation which holds delegated authority from an insurer(s) to undertake certain tasks on their behalf including but not limited to underwriting and claims. MGA’s do not bear any of the risk themselves are only are acting on behalf of an insurer(s).

20
Q

What is the Council of Lloyd’s?

A

The Council was created under the Lloyd’s Act of 1982, it is a group of members who are responsible for the management and supervision of the market.

21
Q

Who makes up the Council of Lloyd’s?

A

3 Working members
3 External members
9 Nominated members

22
Q

What percentage of risks written in the Lloyd’s Market come from within the UK?

A

12%

23
Q

What are international licenses?

A

The permission given from an overseas insurance regulator to insurers, to write direct insurance, excess or surplus lines insurance, or reinsurance within a country or a territory.

24
Q

What are common criteria for a license granted overseas?

A

Regular provision of data concerning risks written in said country and claims attached to those risks
Taxes and/or other charges to be paid on risks
Specific funds held in permitted country

25
Q

What is the name of the organisation/platform/database that provides central data and money movement services to the Lloyd’s market?

A

DXC / Xchanging

26
Q

What qualities attracts clients to the London Market?

A

The quality of the brokers
The long standing and worldwide reputation
Easily identifiable branding
The large capacity for risk
Wide and extensive knowledge
Flexible/Entrepreneurial spirit
Large assortment of licenses
Knowledgeable and proactive claims team