CHAPTER 5: Structure of the London Market

Question 1

What is Lloyd’s?

Answer 1

A marketplace, not an insurer.

Question 2

What is Lloyd’s of London?

Answer 2

A society of members

Question 3

What did the Lloyd’s Act 1982 bring?

Answer 3

The Council of Lloyd’s, responsible for the management and supervision of the market.

The council has six working members, six external members and six nominated members.

A working member is one who is actively working in the Lloyd’s market. Must be members of the society of Lloyd’s
An external member is one who is a member of the society of Lloyd’s but doesn’t meet criteria of working member
A nominated member is not a member of the society of Lloyds but comes from an outside market.

Question 4

What can the Council of Lloyd’s do?

Answer 4

Create byelaws (market laws that managing agents must comply to)

Question 5

Who are the LLoyd’s Franchise Board?

Answer 5

The board that set the market strategy and is responsible for the risk management and profitability targets across the market. Lays down guidelines for all managing agents and other processes.

Question 6

Who are responsible for the management and supervision of the Lloyd’s Market?

Answer 6

The Council of Lloyd’s.

Question 7

What is a syndicate? What are the investors known as?

Answer 7

A group of private individuals or corporate investors who carry the risks (provide the financial backing).
Both types of investors are known as underwriting members or Names.

Question 8

How does liability work for a syndicate?

Answer 8

A syndicate has no separate legal existence and is just the “sum of its parts” (i.e. Members) they have unlimited liability.

Question 9

How long does a syndicate exist for before needing to renew?

Answer 9

A syndicate exists for 1 year before needing to renew. This is called an Annual Venture.

Question 10

What is a managing Agent?

Answer 10

An entity/company employed by a syndicate which appoints underwriters who may accept risks on behalf of the syndicate.

They are an authorised person, regulated by the PRA and the FCA. They also decide how to run the syndicate and are responsible for sourcing capital.

Question 11

What happens after a syndicates year ends?

Answer 11

The book typically remains open for some time (2 years?) to allow premium to come in and claims to be filed or resolved. If after this period some claims are still not resolved or could come in they can look to reinsure the outstanding liabilities (Reinsure to Close - RTC).

Question 12

What is RTC?

Answer 12

Reinsure to Close, done when a syndicate wants to close its books for a year but has outstanding liabilities.

Question 13

What was the Lloyd’s R&R?

Answer 13

Reconstruction and renewal, a dedicated reinsurance vehicle was created called Equitas, this reinsured all firms risks after a

Question 14

What is syndicate capacity?

Answer 14

The amount of capital the members contribute.

Question 15

Can corporate or individual names be members for multiple syndicates?

Answer 15

Yes they can, members’ agents will advise on these investments.

Question 16

What is a members’ agent?

Answer 16

They advise their client on the advantages and disadvantages of investing in the Lloyd’s Market.

They have good relationships with Managing agents who are seeking investment. They communicate with the managing agents of the syndicates their client has invested in.

Question 17

Who authorises a company to transact insurance in the London market?

Answer 17

The PRA, these companies are Insurance Undertakings.

Question 18

Who are the regulators in the Lloyd’s Marketplace?

Answer 18

The PRA regulate levels of capital etc for insurers. The FCA regulates insurers on conduct of business. Managing agents and syndicates are subject to Lloyd’s regulation.

Question 19

What are the possible structures of an insurer?

Answer 19

A limited liability company; a mutual indemnity association; a mutual company; a captive insurer?

Question 20

What is a limited liability company? Who provides the capital?

Answer 20

A company that has its liability limited to the firm. The capital comes from its shareholders.

Question 21

What is a mutual indemnity association? Who provides the capital?

Answer 21

A group of like-minded customers who pool together to create their own insurance pool and organise managers to run the business.

Question 22

What is a mutual company? Who provides the capital?

Answer 22

Company owned by the policyholders and serve a specific interest group.Profits are retained in the company or returned to policyholders as a dividend or reduced future premiums. The capital comes from its shareholders.

Question 23

What is a captive insurer? Who provides the capital?

Answer 23

An insurance company that solely insures the risks from sister companies in the same group.

Question 24

What is a service company?

Answer 24

A company that obtains its capacity from Lloyd’s syndicates. The syndicate authorises the company to underwrite on its behalf. (Delegated underwriting)

Question 25

What is a broker?

Answer 25

A professional intermediary that act as the agent of the (re)/insured in both placing and the claims process. Authorised by the FCA.

Question 26

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

Answer 26

Provides representation, information and technical services to underwriting businesses (managing agents) in the Lloyd’s market. All managing and member’s agents are members of the LMA.
They identify and resolved issues of interest to Lloyd’s underwriting community.
Offer membership to provide information to brokers, lawyers and similar businesses.

Question 27

What is the International Underwriting Association of London (IUA)

Answer 27

A representative organisation for international and wholesale insurance and reinsurance companies.
It is a representative body and does not have control of the actions of its members.

Question 28

What are the priorities of the IUA?

Answer 28

• Process efficiency and business attraction to London
• Promoting expertise and innovation in underwriting and claims
• Influencing public policy and compliance

Question 29

What is the Association of British Insurers (ABI)?

Answer 29

The ABI is the voice of the UK’s insurance, investment and long-term savings industry. Their role is to:

• Bring the right people together to inform public policy debates
• Be the public voice of the sector
• Encourage customer understanding of the sectors products and practices
• Support a competitive insurance industry

Question 30

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

Answer 30

The major trade association for insurance intermediaries. Draw attention to comply with fundamental principles, and rules emphasis the need to conduct business with good faith and represent the best interests of their clients.
Strives to do this by:
- Promoting
- Influencing
- Maintaining and Developing
- Supporting Members

Question 31

What is the London Market Regional Committee (LMRC)?

Answer 31

Have a lobbying role and represent the Lloyd’s Brokers sector to the UK regulators, stakeholders etc…

Question 32

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

Answer 32

Represents the interests of insurance and reinsurance brokers.

Their mission is to ensure London remains the place to do business by transforming business processes and maintaining highest professional standards.

Their key priorities are:

• Representing members’ interests to regulators etc
• To modernise business processes for efficiency
• Support members with legislative and technical support

Question 33

What is Managing General Agents Association (MGAA)?

Answer 33

Represent MGAs in the market.
Key objectives:
- Convey the views of members to regulators, government etc…
- Represent members interests
- Set best practice guidelines
- Assist insurance carriers that support MGAs
- Work proactively to improve MGAs
- Create a technical centre to provide info and guidance
- Promote the UK MGA sector
- Seek opportunities to promote training
- Listen to its members

Question 34

Why is London such a popular market?

Answer 34

• Capacity
• Entrepreneurial Spirit
• Good claims service
• History and experience

Question 35

What is a subscription market?

Answer 35

A market in which a risk is generally shared between two or more insurers.

Question 36

What is contract certainty?

Answer 36

Contract certainty is achieved by the complete and final agreement of all terms between the insured and the insurer by the time that they enter into the contract, with contract documentation provided promptly thereafter.

Question 37

What is the process of placing a risk?

Answer 37

• The full wording must be agreed before any insurer formally commits. Appropriate evidence of cover must be issued within 30 days of inception.
• Broker obtains a quote from a leader (underwriter)
• Underwriter indicate the terms and percentage of the risk they will take
• good broker will seek several quotes from different leaders - broker should advise customer of differences in cover
• customer decides which quote to accept and gives a firm order
• broker fills the remaining percentage of the risk from other underwriters
• Once slip is placed it is submitted centrally on a system called A&S (Accounting and Settlement) which goes to XIS (Xchanging ins-sure services)
• XIS record the risk and premium on the central market database
• confirmation is sent to broker and underwriter

Question 38

What is the process of presenting a claim?

Answer 38

• Once the broker receives a notification, identify the insurers required to see and agree the claim
• The broker presents the claim
• data is circulated of the claim to all insurers involved in the risk
• If any experts are required they are instructed through the broker
• Any settlements to be made, are made
• Messages are sent to both insurers and the broker by the Xchanging systems
• broker receives any claims monies and forward to the client to finalise the claim