Chapter 5 - Structure Of The London Market Flashcards Preview

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Flashcards in Chapter 5 - Structure Of The London Market Deck (29)
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1

Main providers of London Market

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

2

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

3

Lloyd’s dual regulated by...

FCA and PRA

4

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.

5

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

6

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

7

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

8

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)

9

Managing agents

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

10

Capital and Names

Capital = investment put into market by names
Usually corporate names rather than individuals

11

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

12

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

13

Syndicate capacity

Members govern amount of business each syndicate can underwrite each year

14

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

15

Insurance undertakings

Companies wishing to transact insurance in LM authorised by PRA.

Applicant must comply with conditions of UK legislation and EU directives

16

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

17

Non Lloyd’s insurers

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

18

Source of capacity

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

Shareholders provide capital

19

Brokers

Professional intermediary
Act as agent of the reinsured
Authorised by FCA

20

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

21

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)

22

Priorities of the IUA

- Process efficiency and business attraction to London

- Promoting expertise and innovation in UW and claims

- Influencing public policy and compliance

23

Association of British insurers (ABI)

Not a LM body.

Four main departments:
- General insurance
- Life and Pensions
- Financial Regulation
- Taxation and Investment Affairs

24

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

25

LMRC

Represents London market brokers

Formed by BIBA in 2009

Represents sector to UK regulators

26

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

27

Why business comes to LM

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

28

Placing Risk

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

29

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