Chapter 8 Glossary

Question 1

Agents balances

Answer 1

Moneys (typically premiums) that belong to an insurer but are held by an agent.

Question 2

Binding authorities

Answer 2

Contractual agreements setting out the scope of delegated authority, allowing cover holders to enter into contracts of insurance and to issue insurance documents on behalf of Lloyd’s managing agents.

Question 3

Central fund(Lloyd’s)

Answer 3

A contingency reserve built up from contributions by Lloyd’s Names and held by Lloyd’s as a layer of protection for policyholders. A central fund held by Lloyd’s to demonstrate overall solvency to the regulator. This capital is in addition to members’ capital resources held as Funds at Lloyd’s.

Question 4

Committee of Lloyd’s

Answer 4

A committee that is responsible for administrative matters within Lloyd’s under delegation from the Council of Lloyd’s. Prior to the establishment of the Council of Lloyd’s by the Lloyd’s Act 1982., the Committee had sole responsibility for the overall direction of Lloyd;s.

Question 5

Excess and surplus lines insurance

Answer 5

Excess and surplus lines insurance is a segment of the insurance market that allows consumers to buy property and casualty insurance through the state regulated insurance market, where policyholders, agents, brokers and insurance companies all have the ability to design specific insurance coverages and negotiate pricing based on the risks to be secured.

Question 6

Funds at Lloyd’s

Answer 6

Each member of Lloyd’s is required to provide capital as security to support their total Lloyd’s underwriting business. This is known as Funds at Lloyd’s. The level of Funds at Lloyd’s determines the amount of insurance business that a member can underwrite.

Question 7

Integrated Lloyd’s Vehicles (ILVs)

Answer 7

Syndicates in which the entire participation has been brought by insurance groups.

Question 8

Lead underwriter

Answer 8

An underwriter who takes the lead in setting the premium rates and agreeing policy conditions under a system of coinsurance (for example in the Lloyd’s market). A lead underwriter may, or may not, be the lead claims handler depending on market practice and agreements for the class of business

Question 9

Line slip

Answer 9

A facility under which the underwriters delegate authority to accept a pre-determined share of certain coinsured risks on the companies’ behalf. The authority may be exercised by the leading underwriter on behalf of the following underwriters; or it may extend to the broker or some other agent authorised to act for all the underwriters.

Question 10

Lloyd’s

Answer 10

A society incorporated by the Lloyd’s Act 1871, that provides a market place and regulatory framework within which individual and corporate members may participate in the underwriting of insurance risks o their own account.

Question 11

Lloyd’s broker

Answer 11

An agent approved by the Committee of Lloyd’s to place business with Lloyd’s underwriters. There are Lloyd’s brokers in many countries around the world to facilitate the process of individuals, companies and insurers insuring risk through Lloyd’s.

Question 12

Lloyd’s deposit

Answer 12

Wholly owned, non-assigned assets that must be lodged in trust with the Committee of Lloyd’s before a member can write any business. The amount of the Lloyd’s deposit, together with the Names’ deposit, when added to individual Names’ deposits or to incorporated Names’ capital, determines the maximum limit of premium income that may be written on their behalf.

Question 13

Lloyd’s managing agent

Answer 13

A company appointed to manage the affairs of an underwriting syndicate, appoint an underwriter, and provide technical and administrative services.

Question 14

Lloyd’s members’ agent

Answer 14

A company that looks after the interest of individual Lloyd’s Names. The members’ agent will introduce Names to syndicates, and advise Names on how to spend their capital between different syndicates. The member’s agent will also be responsible for the regular audit of a Name’s wealth, and for submitting all financial statements to Lloyd’s

Question 15

Lloyd’s special reserve fund

Answer 15

A contingency reserve of limited size that may be built up by individual Lloyd’s Names out of pre-tax income.

Question 16

London Market

Answer 16

The part of the insurance market in which insurance and reinsurance business is carried out on a face-to-face basis in the City of London. Sometimes known as the London Reinsurance Market although not all business transacted is reinsurance.

Question 17

Mutual insurer

Answer 17

Owned by policyholders to whom all profits belong.

Question 18

Names (Lloyd’s)

Answer 18

The members of Lloyd’s who accept the liability for (and profits from) the risks underwritten in their name. Names may be individuals or corporate entities.

Question 19

Pooling

Answer 19

Arrangements where parties agree to share premiums and losses for specific types of class or cover in agreed proportion. To some extent all insurance is pooling but specific pooling arrangements often apply particularly where the risks have very large unit size or via mutual association, such as P&I clubs, catering for an industry.

Question 20

Premium income limit

Answer 20

The amount of premium that a Lloyd’s Name may write in a given year, determined by the size of the Name’s wealth, the Name’s Lloyd’s deposit and whether or not incorporated.

Question 21

Premiums trust fund

Answer 21

A fund into which all premiums for a Lloyd’s syndicate in a given underwriting year are paid. No moneys may be released from the fund other than any profit on closure and on-going claims and expenses.

Question 22

Proprietary insurer

Answer 22

An insurance company owned by shareholders, that is, not a mutual insurer.

Question 23

Protection and Indemnity Clubs

Answer 23

Mutual insurers of marine risks

Question 24

Realistic disaster scenarios

Answer 24

Lloyd’s maintains a set of mandatory Realistic Disaster Scenarios to stress test both individual syndicates and the market as a whole. The event scenarios are regularly reviewed to ensure they represent material catastrophe risks.

Question 25

Reinsurance to close (RITC)

Answer 25

An agreement under the the Lloyd’s system of three-year accounting. Underwriting members (the reinsured members) for one year of account (the closing year) of a syndicate agree with another party (the reinsuring party) that the reinsuring party will assume responsibility for handling and paying all known and unknown liabilities of the reinsured members arising out of insurance business underwritten by the syndicate and allocated to the closing year.

The reinsuring party will usually be the subsequent open year of the same syndicate but could also be a later open year, an open year of another syndicate or a reinsurer outside Lloyd’s.

The term is also sometimes used to refer to the premium paid to the reinsuring party by the reinsured members for the above-mentioned transfer.

Question 26

Risk-based capital

Answer 26

The assessment of the capital requirement for a general insurer by considering the risk profile of the insurance business written and of any other operations. Regulation around the world, including SAM in South Africa and Solvency II in the EU, are moving toward a risk-based option, where insurers’ capital requirements are dependent on the risk inherent in their business operation.

Question 27

Self insurance

Answer 27

The retention of risk by an individual or organisation, as distinct from obtaining insurance cover.

Question 28

Signing down

Answer 28

The process of reducing the proportion of risk that each coinsurer has accepted for a given risk where the slip has been more than 100% subscribed.

Question 29

Slip system

Answer 29

The face-to-face system used within the London Market to coinsure risks. Proposed risks are described by a broker on a standard form (slip); terms and the premium rate are added after negotiation with a lead underwriter (who also signs for a certain proportion of the risk), before the slip is circulated by the broker amongst other underwriters who sign the slip to confirm the proportion of risk that they will accept.

Question 30

Surplus lines insurance

Answer 30

Specialised property or liability coverage in the USA provided by an unlicensed insurer in instances where it is unavailable from insurers licensed in the state in question.

Question 31

Syndicates (Lloyd’s)

Answer 31

A group of Lloyd’s Names who collectively coinsure risks. The syndicate often specialise in particular types of insurance.

Question 32

Underwriting agent

Answer 32

An organisation of Lloyd’s providing management services for syndicates and/or advice for Names.