Chapter 1 Flashcards
Whjy might an insurer not take 100% of a risk?
Capacity, Branch office controls, aggregates, broker influence, Licensing, client influence, availability of reinsurance, geographical limitation
Capacity
The total premiums written in any period (normally a year). Created by investment from members or names or shareholders. Regulator also looks at solvency.
Can also be measured as the limits of the risks written across a period or location (important for property and liability)
Branch office controls
Making sure risks are not written in multiple offices of an insurer across the world, which could lead to large exposure.
A branches capital is influenced by head office, hence capacity
Branches also cannot compete with each other on price
Aggregates
Avoid having too much exposure in one place
Broker Influence
Share out popular risk among insurers to build relationships and leverage premium
Licensing
Risks written in London but are international must be licensed. Lloyds does this on behalf of all syndicates and insurance companies have to do this separately
Availability of Reinsurance
If reinsurance is not available - it curtails the insurers ability to take on risks
Geographical Limitation
An internal control insurers apply to ensure business is well balanced
Why might risks be placed outside the london market
location of the insured, culture/local knowledge/relationships, experienced insurers, claims service
How can the london market be divided?
Lloyds, insurance companies, mutual insurers
Proprietary companies
Registered under the companies act 1985. Owned by shareholders so company profits belong to the shareholders. Also limited liability companies - the shareholders liability for the company debts is limited to the originally stated face value of the shares
PLC vs LTD
plc are publicly quoted companies but sometimes operate under a brand.
ltd are private limited who shares are owned by few shareholders - not available to the public
Mutual companies
owned by the policyholders - share the profits by way of lower premiums - so policyholders in theory are liable for any losses - however this is limited to their premium in reality.
A lot of these companies have demutualised - becoming proprietary companies. Then they are often purchased by another company
LV is the only mutual in the london market today
Captive insurers
Owned by non-insurance parent company - it is tax efficient method to transfer risk and has become more common amongst large companies.
Many captives operate from offshore locations due to better tax regimes
Other incentives include: not being exposed to premium increases, keeping profits in the company, able to invest and benefit from returns
disadvantages of captives
- setting up an insurance company with funding and staff
- ensure premium is appropriate for the risk
- not having access to insurer knowledge
- no external funs if there is a large loss
Mutual Indemnity associations
owned by policyholders but origins in their members grouping together to self insure. Professional managers are hired to run the insurer on the day to day
Company or Syndicate - Brand
Lloyds brand is respected internationally - syndicates benefit from this
Company or Syndicate - Permission
Lloyds obtains permissions for interntional business regulations on behalf of all syndicates - lloyds has good rep
Company or Syndicate - Capacity
spread capacity across insurance company platform and syndicate to obtain more market share
Company or Syndicate - regulation
Lloyds has extra regulation for managing agents so have to weigh up whether this is worth it
