Chapter 5 - Structure of the London Market

Question 1

What is the Lloyd’s market?

Answer 1

a society of members, with the corporation of Lloyd’s providing the infrastructure for the marketplace together with a responsibility for international liaison

Question 2

Who regulates the Lloyd’s market?

Answer 2

Society of Lloyd’s and Lloyd’s managing agents are regulated by the FCA and PRA, whereas Lloyd’s brokers and members’ agents are solely regulated by the FCA

Question 3

What is a working member, external member and nominated member of Lloyd’s?

Answer 3

Working member - One who is actively working in the Lloyd’s market either for a broker or for a managing agent, they have to be members of the society of Lloyd’s.
External Member - one who is a member of society of Lloyd’s but does not meet the criteria for a working member
Nominated member - comes from outside the market, similar to a non-executive director of a company who are not involved in day to day running

Question 4

What are Syndicates?

Answer 4

The groups of private individuals or corporate investors who carry the risks. Investors known as underwriting members or names
They have no separate legal existence and are merely a sum of their parts (the members).
They only exist for one year of account, so the membership of the syndicate needs to be renewed for each year of account. They keep its books open for another 24 months after that year, to allow claims to be notified and hopefully resolved.

Question 5

What is a managing agent?

Answer 5

Employed by a syndicate, it is the entity which appoints the underwriters who may accept risks on behalf of the syndicate.

Question 6

What is Reconstruction and Renewal (R&R)?

Answer 6

A process whereby a dedicated reinsurance named Equitas was created. The entire Lloyd’s market for the 1992 year account and prior was reinsured into Equitas and the market started with a ‘clean sheet’ for 1993 year account

Question 7

What is a members’ agent?

Answer 7

The entity which advises members on where to invest based on their portfolio and attitude to level of risk.

Question 8

What are the two main forms private members now use to enter the market through limited liability vehicles?

Answer 8

“Nameco”s which are UK limited companies or a Limited Liability Partnership. In 2022 the minimum capital funding requirement for either structure was GBP 350,000.

Question 9

What does insurance undertakings mean?

Answer 9

It is any company wishing to transact insurance in the London Market that must be authorised to do so by the PRA

Question 10

What are the differences between the company market and Lloyd’s market?

Answer 10

Market participants - company market is very varied in origin of companies, London Market has many large international and UK based insurance and reinsurance companies with branch offices.
Marketplace - there is no equivalent in the company market for Lloyd’s as a provider of a physical marketplace
Regulation - the trade body for the company market (The international UW association of London) has no regulatory power.
International Liaison - Lloyd’s engages with overseas regulators on behalf of the whole of Lloyd’s, but company market have to make contact separately

Structure of the insurer
Non Lloyd’s can be Limited liability companies, Mutual indemnity associations (group of customers who pool together to create their own insurance pool), Mutual companies and Captive insurers (solely insure risks of sister companies from the same group)

Source of capacity

Question 11

What is a broker?

Answer 11

Professional intermediaries and act as the agent of the insured in both the placing and claims process. They must be authorised by the FCA and can apply to Lloyd’s to become a Lloyd’s accredited broker.

Question 12

What is a managing general agent (MGA)?

Answer 12

an organisation which has been given authority on behalf of an insurer to undertake a number of different tasks such as accepting risks, issuing documents or handling claims. The authority is given using a contract called a binding authority

Question 13

What is the Lloyd’s Market Association (LMA)?

Answer 13

Provides representation, information and technical services to underwriting businesses in the Lloyd’s market.
The purpose is to identify and resolve issues which are of particular interest to the Lloyd’s underwriting community.

Question 14

What is the International Underwriting Association of London (IUA)?

Answer 14

The world’s largest representative organisation for international and wholesale insurance and reinsurance companies, existing to protect and strengthen the business environment for its member companies operating in or through London.

The representative body’s 3 main priorities are: Process efficiency and business attraction to London, Promoting expertise and innovation in UW and claims, Influencing public policy and compliance.

Question 15

What is the association of British Insurers (ABI)?

Answer 15

According to their website, they are the voice of UK’s insurance, investment and long-term savings industry with over 250 members, which together account for around 90% of premiums in the UK domestic market

Question 16

What is the British Insurance Brokers’ Association (BIBA)?

Answer 16

the major trade association for insurance intermediaries, seeking to maintain and improve the highest standards of business behaviour and to protect and enhance the interests of its members for the benefit of the general public. Their mission statement is ‘to represent and protect the best interests of our insurance broker and intermediary members’
They strive to achieve this by:
Promoting
Influencing
Maintaining and developing
Supporting members

Question 17

What is the London Market Regional Committee (LMRC)?

Answer 17

it is integrated within BIBA’s wider structure to represent the interest of brokers operating in London and worldwide (re)insurance markets, with the intention being to maintain a lobbying role and to represent the UK sector to other regulators, Europe, the UK government and other stakeholders

Question 18

What is the London and International Insurance Brokers’ Association (LIIBA)?

Answer 18

an independent trade body, representing the interests of insurance and reinsurance brokers operating in the London and international markets, set up in 2009. Their key priorities are:
- Representing members’ interests to the government, regulators, the EU and International bodies
- To modernise the London Market business process to be competitive and efficient
- Supporting members with regarding legislative and technical changes

Question 19

What is the Managing General Agents Association (MGAA)?

Answer 19

Provides specific representation on behalf of MGAs in the insurance market, to be their voice and to drive best practice within the industry.
Key objectives:
Convey views of members
Represent members
Set best practice guidelines
Assist insurance carriers
Work
Create a technical centre
Promote the UK MGA sector
Seek opportunities to promote training and education
Listen to members

Question 20

Why is London Market felt to be a leading world insurance market?

Answer 20

• Capacity - Insurers have the ability to take on large risks, the largest of risks can be underwritten
• Entrepreneurial spirit - being prepared to look at new aspects of risk transfer
• Good claims service using knowledgeable personnel
• History and experience

Question 21

What is a subscription market?

Answer 21

Means that the risk is generally shared between two or more insurers rather than written 100% by one insurer

Question 22

What is contract certainty?

Answer 22

Specific procedures designed to ensure that all parties are fully aware of the coverage and terms of the policy before a risk starts to be covered, available on a Market Reform Contract (MRC aka ‘slip’)

Question 23

How is contract certainty achieved?

Answer 23

By the complete and final agreement of all terms between the insured and the insurer by the time that they enter into the contract, which contract documentation provided promptly thereafter

Question 24

What is the role of a broker during claims and presentation?

Answer 24

The broker presents the risk to insurers who if they are prepared to accept it will indicate their agreement on the slip
The broker will receive the premium from the client and pay to insurers less any brokerage that the insurers allow the broker to keep.
Claims are presented to insurers and if agreed funds will usually be paid via the broker

Question 25

What is the role of the Xchanging/DXC platforms?

Answer 25

Maintain central market databases for both premiums and claims and moves money for the market through central settlement systems.