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Lloyd's Insurance Market > Module 7: Lloyd's - Governance and Operation > Flashcards

Module 7: Lloyd's - Governance and Operation Flashcards

1
Q

What is the Lloyd’s Act 1871?

A
  1. United the members of Lloyd’s into a “Society and Corporation”, incorporated by the name of Lloyd’s. This allowed Lloyd’s to own property and to sue and be sued in its own name.
  2. Gave Lloyd’s powers to put in place byelaws under the Act, governing the conduct of business at Lloyd’s.
  3. Remains in force. It has been amended by subsequent Lloyd’s Acts, to meet Lloyd’s changing needs.
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2
Q

What is the Lloyd’s Act 1982?

A
  1. The most recent Lloyd’s Act.
  2. Updated Lloyd’s governance and legal structure, repealing and amending some of the provisions of earlier Acts.
  3. Established the Council of Lloyd’s, responsible for management and superintendence of the affairs of the Society and with power to regulate and direct the business of insurance at Lloyd’s.
  4. Was amended by the Legislative Reform (Lloyd’s) Order 2008 (“the LRO”), agreed by Parliament in November 2008. The LRO updated the Act to reflect changes in the regulatory environment and to remove restriction which could hinder development of Lloyd’s business.
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3
Q

What are the eight amendments of the LRO (first four)?

A
  1. Removing prohibitions on the election of working members.
  2. Removing the requirement for the Governor of the Bank of England to approve the appointments of nominated members.
  3. Removing the rule requiring Lloyd’s Chairman and Deputy Chairmen to be working members.
  4. Removing provisions relating to the Committee of Lloyd’s.
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4
Q

What are the eight amendments of the LRO (last four)?

A
  1. Modernising and streamlining the Council’s powers of delegation.
  2. Changing requirements on the composition of Lloyd’s Disciplinary Committee.
  3. Removing the requirement that members accept or place business only from or through a Lloyd’s broker.
  4. Removing prohibitions on the ownership of managing agents by Lloyd’s brokers and vice versa.
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5
Q

What are the two key bodies in Lloyd’s corporate governance?

A
  1. The Council of Lloyd’s

2. The Lloyd’s Franchise Board

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6
Q

What is the Corporation of Lloyd’s?

A

A collective term for the employees of Lloyd’s.

It is an informal term with no legal significance.

The “Society of Lloyd’s” and the “Corporation of Lloyd’s are the same entity.

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7
Q

What does the Corporation of Lloyd’s do?

A
  1. Is responsible for the day to day running of the Lloyd’s market.
  2. Provides the premises and services required by market participants to carry on insurance business.
  3. Carries out the functions necessary for the Council of Lloyd’s to discharge it responsibilities for managing and supervising Lloyd’s and for directing business of insurance there.
  4. Exercises oversight and control over the Lloyd’s market.
  5. Provides a range of central services to market firms. Some central services are outsourced to other companies.
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8
Q

What is the Council of Lloyd’s?

A

The governing body of the Society of Lloyd’s (established by the Lloyd’s Act 1982) which has the power to make, amend or revoke byelaws governing the operation of the Society.

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9
Q

What are the three types of Council members?

A
  1. Working members
  2. External members
  3. Nominated members
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10
Q

What are the Council of Lloyd’s functions?

A
  1. The making and amending of byelaws.
  2. Responsibility for assessing the long-term strategic development of Lloyd’s.
  3. Setting the level of contributions to Lloyd’s Central Fund.
  4. Setting the amount of members’ annual subscription.
  5. Appointing the members of the Franchise Board and other committees of Council.
  6. Reviewing the budget and the Franchise Board’s three-year and annual plans.
    The Council must also approve expenditure above a certain amount.
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11
Q

What is the Franchise Board?

A

Established by the Council of Lloyd’s in January 2003. Its goal is:

“To create and maintain a commercial environment in which the long-term return to all capital providers is maximised”.

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12
Q

What are the main areas of the Franchise Board’s responsibilities?

A
  1. The overriding principles - legal, regulatory and corporate governance.
  2. The capital principles - emphasising equity between capital providers and prudence in capital setting.
  3. The operating principles - include setting the market supervision framework in accordance with FSA requirements.
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13
Q

What are the three main committees of the Franchise Board?

A
  1. Market Supervision and Review Committee - makes decisions regarding the exercise of Lloyd’s enforcement powers. Also acts as a review body, which can amend, modify or withdraw decisions affecting managing agents.
  2. Capacity Transfer Panel - exercises Council of Lloyd’s powers relating to minority buy-outs and mergers.
  3. Investment Committee - reviews and approves investment objectives and parameters for assets managed by Lloyd’s centrally.
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14
Q

What are the Lloyd’s Governance Policies?

A

Agreed in April 2006 by the Council of Lloyd’s.

They are intended to improve the clarity of Lloyd’s Council’s role and to establish a structured relationship with the Franchise Board.

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15
Q

What is the criteria for “primary rules” under the Lloyd’s Act?

A

Byelaws may:

  1. Cover matters of principle which are fundamental to Lloyd’s.
  2. Set the framework for rules that relate to the market.
  3. Establish the constitutional rules for the Society.
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16
Q

What are “secondary rules”?

A

Known as “requirements”, they are designed to back up or fill in the detail of primary rules and to be capable of speedy amendment.

17
Q

If Lloyd’s discovers that someone working in the market has engaged in behaviour which is to the detriment of the market, what can be done?

A

Lloyd’s has the right to investigate and if required impose a range of penalties including exclusion and fines.

18
Q

What are the three types of members at Lloyd’s?

A
  1. Private individuals - before 1994 all members were private. They carried out business on an unlimited liability basis. AKA “Names”.
  2. Bodies corporate - from 1994 limited liability companies were permitted to become members. AKA “corporate members”.
  3. Limited partnerships and limited liability partnerships - a partnerships is an arrangement between two or more persons to carry on business in common with a view to making profit. English limited liability partnerships and Scottish limited partnerships can become members.
19
Q

How can a firm or partnership become members of Lloyd’s?

A

A firm or partnership requires the Council of Lloyd’s permission to become a member and is then subject to rules laid down by the Council.

A member can carry on insurance business only through its membership of Lloyd’s and only by joining a syndicate managed by an approved managing agent.

A corporate member cannot carry on any business other than acting as a member of Lloyd’s.

Since 2003, all new members of Lloyd’s must be corporate members.

20
Q

What is a premium income limit?

A

The extent of a member of Lloyd’s investment which can be allocated to one or more syndicates.

21
Q

What is a Lloyd’s syndicate?

A
  1. One or more Lloyd’s members, associated together to carry on business at Lloyd’s.
  2. Managed by a managing agent.
  3. Identified by a number.
  4. An “annual venture” - formed at the beginning of a year, accepts business for that year an no other and disbands once the result of the year is determined, usually three years after its commencement.

It is often succeeded by a new syndicate with the same number, active underwriter and managing agent and sometimes the same members, creating the impression of continuity.

22
Q

What are Integrated Lloyd’s Vehicles (ILVs)?

A

A group of companies that combines a corporate member, a managing agent, and a syndicate under common ownership.

23
Q

How does Lloyd’s determine the amount of capital required by a member?

A

Using the Economic Capital Assessment (ECA) model.

24
Q

What is the Individual Capital Assessment (ICA)?

A

A regular assessment of the amount of capital that the syndicate needs.

25
Q

What is the Economic Capital Requirement (ECR)?

A

A benchmark for deciding whether or not an ICA is adequate.

26
Q

What potential risks do syndicates face?

A
  1. Insurance risk
  2. Credit risk
  3. Market risk
  4. Liquidity risk
  5. Group risk
  6. Operational risk
27
Q

What are the three links of Lloyd’s chain of security?

A
  1. The first link - syndicate level assets
  2. The second link - members funds at Lloyd’s (FAL)
  3. The third link - central assets

Lloyd's Insurance Market (12 decks)

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