Chapter 5 - Structure Of The London Market

Question 1

Main providers of London Market

Answer 1

Insurance and reinsurance companies
Lloyd’s syndicates
Protection and indemnity clubs (marine liability)

Question 2

Lloyd’s market structure

Answer 2

• 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

Question 3

Lloyd’s dual regulated by…

Answer 3

FCA and PRA

Question 4

Council of Lloyd’s has how many working, external, and nominated members?

Answer 4

Six of each.
Working and external selected by Lloyd’s members.
Chairman and Deputy elected annually by the council.
All approved by the FCA.

Question 5

What are the definitions of the different types of members?

Answer 5

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

Question 6

What does the council of Lloyd’s do?

Answer 6

Make decisions
Issue resolutions, requirements, rules, bylaws. 38 bylaws.
Responsible for management and supervision of Lloyd’s market

Question 7

Lloyd’s Franchise Board

Answer 7

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

Question 8

What are syndicates?

Answer 8

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)

Question 9

Managing agents

Answer 9

Employed by syndicate
Appoints underwriters
An authorised person regulated by PRA for prudential and by FCA for conduct

Question 10

Capital and Names

Answer 10

Capital = investment put into market by names

Usually corporate names rather than individuals

Question 11

Annual life of a syndicate

Answer 11

• 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

Question 12

Reconstruction and Renewal

Answer 12

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

Question 13

Syndicate capacity

Answer 13

Members govern amount of business each syndicate can underwrite each year

Question 14

Members supporting syndicates

Answer 14

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

Question 15

Insurance undertakings

Answer 15

Companies wishing to transact insurance in LM authorised by PRA.

Applicant must comply with conditions of UK legislation and EU directives

Question 16

Company market

Answer 16

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

Question 17

Non Lloyd’s insurers

Answer 17

• limited liability companies
• mutual indemnity associations
• mutual companies
• captive insurers

Question 18

Source of capacity

Answer 18

In mutual organisations the only risk comes from the members of the group who will pay the premiums

Shareholders provide capital

Question 19

Brokers

Answer 19

Professional intermediary
Act as agent of the reinsured
Authorised by FCA

Question 20

Lloyd’s Market Association (LMA)

Answer 20

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

Question 21

International Underwriting Association of London (IUA)

Answer 21

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)

Question 22

Priorities of the IUA

Answer 22

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

Question 23

Association of British insurers (ABI)

Answer 23

Not a LM body.

Four main departments:

• General insurance
• Life and Pensions
• Financial Regulation
• Taxation and Investment Affairs

Question 24

BIBA

Answer 24

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

Question 25

LMRC

Answer 25

Represents London market brokers

Formed by BIBA in 2009

Represents sector to UK regulators

Question 26

LIIBA

Answer 26

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

Question 27

Why business comes to LM

Answer 27

• Capacity
• Entrepreneurship
• Good claims service
• History and experience

Question 28

Placing Risk

Answer 28

1. MRC (Slip) containing terms and summary of risk

Contract certainty means all parties fully aware of terms and coverage before risk covered

2. Evidence of cover issued within 30 days of incrption

Question 29

Flow of business with a broker

Answer 29

• 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