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.
What is a subscription market?
Risks are shared among a number of different insurers, rather than being insured 100% by on insurer.
What are some of the reasons an insurer may not take 100% of a
risk?
Capacity
Branch office controls
Broker influence
Licensing
Client influence
Availability of reinsurance
Geographical limitations
What is capacity?
Capacity is the limit to the amount of business that an insurer can participate in.
How is capacity measured?
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.
What effect does reinsurance have on capacity?
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.
What are some of the reasons why risks may be placed partly outside of the London Market?
Location of insured
Culture, local knowledge & relationships
Experienced insurers from overseas
Claims service
Where within the London Market would you more commonly find a risk to be written 100% by one insurer?
Marine liability risks, written by mutual clubs called Protection & Indemnity Associations (P&I Clubs).
The London Market can be divided broadly into three categories of insurers, what are these categories?
Insurers operating in Lloyd’s
Insurance companies
Mutual Insurers
There are three main category of insurer in terms of ownership, what are these?
Proprietary companies
Mutual companies and mutual indemnity associations
Captive insurance companies
What is a proprietary company?
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.
After company names, what do the following abbreviations mean?
‘Ltd’, ‘LLC’, & ‘PLC’
‘Ltd’ - Limited, a private limited company
‘LLC’ - Limited liability company
‘PLC’ - Publicly-quoted company
What is a Mutual company?
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.
What is a Captive insurance company?
An authorised insurance company that is owned by a non-insurance parent company.
What are the incentives to operating a Captive insurance company?
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
What is a Mutual indemnity association?
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.
