Chapter 5 - Structure of the London Market

Question 1

What do the Council of Lloyds do?

Answer 1

Responsible for management and supervision of the market

Question 2

What makes up the council in terms of members?

Answer 2

• three working
• three external
• nine nominated

working and external elected by Lloyd’s members, all approved by FCA

Question 3

What is a syndicate?

Answer 3

Groups of private individuals or corporate investors who carry the risks

Both types fo investor called Names

Question 4

How long does a syndicate exist?

Answer 4

One year

Question 5

What is a managing agent?

Answer 5

Each syndicate employs a managing agent (company) and they appoint the underwriters who accept risks on behalf of the syndicate
- finds how to source capacity

Question 6

What is capital?

Answer 6

Investment put into the market by investors, known as Names or members

Question 7

How can you become an investor?

Answer 7

Must satisfy Lloyd’s you have the means to pay any claims

Question 8

Why were asbestos claims a problem?

Answer 8

• each syndicate lasts a year and will accept risks for that year
• each syndicate keeps books open for 24 months after closing to allow claims to be notified
• syndicate wants to close books on 3rd year to work out profit/loss, but need to cover unresolved claims
• reinsure with themselves next year (give premium forward) called Reinsurance to Close
• were not anticipating such long-tail claims so did not bring forward sufficient premiums

Question 9

How did the market rebuild after asbestos?

Answer 9

• reconstruction and renewal
• entire london market 1992 year of account reinsured on new vehicle Equitas
• no more unlimited liability names can join, but still allowed if already doing

Question 10

What is corporate capital?

Answer 10

Investors who are commercial organisations by their own right

Question 11

What is the syndicate capacity?

Answer 11

Capital support allocated to each syndicate by members

Question 12

What is a members’ agent?

Answer 12

• advises members where to invest their capital

- choices of syndicates should reflect attitude to risk

Question 13

What is an insurance undertaking?

Answer 13

A company authorised by the PRA to transact insurance in the london market

Question 14

What are the structures of company market insurers?

Answer 14

• limited liability companies
• mutual indemnity associations
• mutual companies (like NFU)
• captive insurers

Question 15

How do LLC and mutual companies source capacity?

Answer 15

Shareholders provide capital

Question 16

Define a broker

Answer 16

Professional intermediaries and act as the agent of the re/insured in both placing and claims process

Question 17

What is a managing general agent?

Answer 17

Organisation which has been given authority on behalf of the insurer to undertake different tasks like accepting risks or handling claims

Question 18

What does the London Market Association (LMA) do?

Answer 18

Provides representation, information and technical services to underwriting businesses (managing agents) in the Lloyd’s Market

• identify and resolve issues of particular interest to Lloyd’s underwriting community

Question 19

What does the International Underwriting Association of London (IUA) do and what are their main priorities?

Answer 19

Exist to protect and strengthen business environment for its member companies operating in or through London

NOTE NO CONTROL OVER MEMBERS

• process efficiency and business attraction to London
• promote expertise and innovation in underwriting and claims
• influence public policy and compliance

Question 20

What does the Association of British Insurers (ABI) do?

Answer 20

• bring right people together to inform public policy debates
• engage with politicians, policymakers and regulators
• public voice for insurance sector
• encourage customer understanding
• support competitive insurance industry in UK and abroad

Question 21

What does the British Insurance Brokers Association (BIBA) do?

Answer 21

Represent and protect the best interests of insurance broker and intermediary members

Question 22

What does the London Market Regional Committee (LMRC) do?

Answer 22

Maintains a lobbying role and represent the sector to UK regulators, Europe, the UK government and other stakeholders

Question 23

What does the Managing General Agents Association do?

Answer 23

Represent MGAs in the insurance market, drive best practice in the industry

Question 24

Why would someone choose the London Market?

Answer 24

• capacity
• risks shared
• entrepreneurial spirit
• good claims service
• history and experience

Question 25

Describe the flow of business through the London Market

Answer 25

• broker presents risk to insurers, if prepared to accept indicate on a slip
• broker receives premium from client and pays to insurers less brokerage
• Xchanging maintains central market database for premiums and claims, moves money through central settlement systems
• claims presented to insurers and if agreed, funds paid via broker