Chapter 5 - Structure Of The London Market Flashcards
Main providers of London Market
Insurance and reinsurance companies
Lloyd’s syndicates
Protection and indemnity clubs (marine liability)
Lloyd’s market structure
- Society of members
- Provides infrastructure for the marketplace with responsibilities for international liaison
- The Lloyd’s acts define management structure and rules under which Lloyd’s operates
Lloyd’s dual regulated by…
FCA and PRA
Council of Lloyd’s has how many working, external, and nominated members?
Six of each.
Working and external selected by Lloyd’s members.
Chairman and Deputy elected annually by the council.
All approved by the FCA.
What are the definitions of the different types of members?
Working member = actively working in Lloyd’s market for a broker/managing agent. Member of society of Lloyd’s. (Providing capital)
External member = member of society of Lloyd’s but not a working member
Nominated member = not member of society and a capital provider but comes from outside the market
What does the council of Lloyd’s do?
Make decisions
Issue resolutions, requirements, rules, bylaws. 38 bylaws.
Responsible for management and supervision of Lloyd’s market
Lloyd’s Franchise Board
Decisions deflated from council
Sets market strategy
Responsible for risk management and profitability targets
Lays down guidelines for managing agents
Operates business planning and monitoring process to safeguard high standards
What are syndicates?
Groups of private individuals or corporate investors who carry the risks. Both are underwriting members (Names).
Number of syndicates has fallen from 400 in 1990s to 83. They now have larger capacity for risks.
No separate legal existence from its shareholders.
Are annual ventures (only exist for 1 year)
Managing agents
Employed by syndicate
Appoints underwriters
An authorised person regulated by PRA for prudential and by FCA for conduct
Capital and Names
Capital = investment put into market by names
Usually corporate names rather than individuals
Annual life of a syndicate
- Accepts risks during the year
- keeps its books open for 24 months after to let premium finish coming in and allow claims to be resolved
- might reinsure any outstanding liabilities with the syndicates next year of account (Reinsurance to Close)
- if cannot agree to reinsure that year is left open until clarity given
Reconstruction and Renewal
Rebuilt market after individual investors were bankrupted by huge claims
Dedicated reinsurance vehicle called Equitas created
Lloyd’s market for 1992 and prior reinsures into Equitas
New market clean sheet from 1993
Syndicate capacity
Members govern amount of business each syndicate can underwrite each year
Members supporting syndicates
Some corporate members only exist to support one syndicate
Other corporate and individual names can focus on one or spread their investment
Names advised by Members Agents
Insurance undertakings
Companies wishing to transact insurance in LM authorised by PRA.
Applicant must comply with conditions of UK legislation and EU directives
Company market
No equivalent to Lloyd’s as provider of physical marketplace
Trade body - International Underwriting Association of London - no regulatory power
Contact regulators overseas separately as no Lloyd’s to do this for them
Non Lloyd’s insurers
- limited liability companies
- mutual indemnity associations
- mutual companies
- captive insurers
Source of capacity
In mutual organisations the only risk comes from the members of the group who will pay the premiums
Shareholders provide capital
Brokers
Professional intermediary
Act as agent of the reinsured
Authorised by FCA
Lloyd’s Market Association (LMA)
Provides representation information and technical services to UW businesses (managing agents)
Five separate organisations were merged into one
All managing agents and members agents are members of LMA
Identifies and resolves issues
International Underwriting Association of London (IUA)
Worlds largest representative organisation for international and wholesale insurance and reinsurance companies.
Protects and strengthens business environment for members
Came into effect 1 January 1999
Merged from ILU (marine) and LIRMA (non marine)
Priorities of the IUA
- Process efficiency and business attraction to London
- Promoting expertise and innovation in UW and claims
- Influencing public policy and compliance
Association of British insurers (ABI)
Not a LM body.
Four main departments:
- General insurance
- Life and Pensions
- Financial Regulation
- Taxation and Investment Affairs
BIBA
Major trade association for intermediaries
Non statutory trade body
Rules emphasise conducting business with good faith, representing best interests of customers
- Promoting
- Influencing
- Maintaining and developing
- Supporting members
LMRC
Represents London market brokers
Formed by BIBA in 2009
Represents sector to UK regulators
LIIBA
London and international insurance brokers association
Independent body represents brokers in London and international markets
Key priorities:
- representing members interests
- modernise LM business processes to be competitive and efficient
- supporting members with legislative changes
- strengthening relationships with Lloyd’s etc
Why business comes to LM
- Capacity
- Entrepreneurship
- Good claims service
- History and experience
Placing Risk
- MRC (Slip) containing terms and summary of risk
Contract certainty means all parties fully aware of terms and coverage before risk covered
- Evidence of cover issued within 30 days of incrption
Flow of business with a broker
- broker presents risk to insurers
- insurer indicates agreement on slip
- broker receives premium from client to pay insurer less brokerage
- Xchanging or DXC maintains central market databases for premium and claims. Moves money
- claims presented to insurers, funds paid via broker
