Chapter 5: Structure of the London Market Flashcards
What is Lloyd’s
- Marketplace
- Society of members
- Regulate by both FCA and PRA (Member agents and brokers are regulated by FCA only)
Lloyd’s Act 1982
- Council of lloyds create
Functions and makeup of the Council of Lloyd’s
3 working, 3 external and 9 nominated members
- Resolve issues
- Make decisions
- Requirements
- Create and manage rules and byelaws
- Responsible for management and supervision of the market
Lloyd’s Syndicate
- Groups of individuals/investors who carry lloyd’s risks (provide financial banking)
- Also referred to as members or Names
- No separate legal existence
- Annual ventures (identified by name, number AND YOA)
- Membership must be renewed each year
- Require another entity to perform day-to-day operations of an insurer (Managing Agent)
Managing agent
Responsible for day to day insurance operations for a syndicate
- Appoints underwriters to accept risks on behalf of the syndicate
- Manage underwriting of one or more syndicates
- Authorised person, regulated by the PRA for prudential requirements and FCA for conduct of business issues
Capital
- Investment put into the market by investors
- Provided by corporate names rather than individuals
- Lloyd’s must be satisfied that the means are adequate before accepted prospective members investment
- Lloyd’s need to feel comfortable prospective investors can afford to pay out claims
Function of Members’ agents
Advise clients on the positives and negatives of investing in the London market
Investment can be spread across several syndicates not necessarily managed by the same managing agent
Communication channel between the member and managing agencies
Advises member as to any changes in investment portfolio for new yoa
Company market vs Lloyd’s
There is no equivalent for lloyd’s as a provider of a physical marketplace
Regulation of london
PRA - regulates insurers operating in London for prudential requirements (solvency and capital)
FCA - Regulates conduct business issues
EU companies are regulated by their own home regulator
International Underwriting Association of London (IUA)
Trade body for company market
No regulatory power
Worlds largest representative org for re/insurance companies
Brexit impact on london market
- UK companies have had to set up EU based operations to continue to write and service EU business
- EU based insurer can benefit from Home State rules
UK regulated insurer would have to obtain regulatory approval in each country
Lloyds international Liaison
Engage with overseas regulators on behalf of whole Lloyd’s market
Types of non-lloyd’s insurers
- Limited Liability Companies (LLC)
- Mutual Indemnity Associations
- Mutual Companies
- Captive insurers
Source of capital for LLC and Mutuals
- Shareholders (investors) provide capital and therefore the capacity for the insurance company to accept/write risks
Fundamentals of a Lloyd’s broker
- Intermediaries that act as the agent of the re/insured for both placing and claims
- Must be authorised by the regulator (FCA)
- Brokers can apply to lloyds to get second accreditation as a Lloyd’s broker (non-lloyds can still place business in london market)
Managing General Agents
Given authority on behalf of an insurer to undertake different tasks:
- Accepting risks
- Issuing documents
- handling claims
Authority held dictated by binding authorities
International aspects of the London Market
US insurers operate in the London Market (either as a company or syndicate)
Only a small portion of business placed in Lloyd’s originates in the UK
Lloyd’s Market Association
- Provides representation
- Provides information
- Provides technical services to managing agents
- Purpose is to identify and resolve issues of interest to the Lloyd’s community
- Works with the Corporation of Lloyd’s to influence course of future market initiatives
Lloyds v IUA
- IUA cannot exercise control over activities of the members
- Lloyd’s does have the ability to control and influence activities of both insurers and brokers within the market
Association of British Insurers
- London market operators can be members
British Insurance Brokers’ Association
- Major trade association for insurance intermediaries (2000 members)
- Seek to maintain and improve standards of business behaviour
- Protect and enchance interest of its members
- “To present and protect the best interests of our insurance broker and intermediary members”
London Market Regional Committee
- Integrated within BIBA to represent the interest of brokers operating in the London and Worldwide re/insurance markets
London and International Insurance Brokers Association (LIIBA)
- Independent trade body
- Represent interests of Re/insurance brokers operating in the london and internal markets
Reasons London is leading world insurance market
- Capacity
- Entrepreneurial spirit
- Good claims service with knowledgeable personnel
- History and experience
