Page 240 - M97TB9_2018-19_[low-res]_F2F_Neat2

9/8 M97/February 2018 Reinsurance

Useful website
The Lloyd’s capital base remains diverse and is currently capitalised at about £28.6bn. See on page 24 of Lloyd’s
Annual Report 2016, which shows the sources of capital for 2016 by the type of source and location:
www.lloyds.com/annualreport2016/assets/pdf/lloyds_annual_report.pdf.

Chain of security
A unique feature of the Lloyd’s market is its capital structure, usually referred to as its chain of security.
Three links in the
chain of security There are three links in the chain:
• The syndicates’ assets, namely the premium held in trusts.
• Members’ funds at Lloyd’s, namely additional capital held in trust for the benefit of policyholders in
support the member’s underwriting at Lloyd’s. Each member, whether corporate or individual, must
provide capital to cover its underlying business risks at a 99.5% confidence level.
• Lloyd’s central assets are available, at the discretion of the Council of Lloyd’s, to meet any valid claim
that cannot be met from the resources of any member further up the chain and include: the Central
Fund (to which each member makes annual contributions of either 0.35% or 1.4% depending on length
of membership), the Corporation’s assets, subordinated debt and securities issued by the Corporation
in 2004, 2007 and 2014, and a ‘callable layer’ (that is, up to 3% of a member’s overall calendar
premium limits).
Through detailed analysis, the Corporation determines the optimum level of central assets, seeking to
balance the need for robust financial security against the members’ desire for cost-effective mutuality of
capital.
Lloyd’s brokers
Although Lloyd’s brokers were previously regulated directly by Lloyd’s, they are now regulated by the
FCA. However, Lloyd’s still controls the accreditation of Lloyd’s brokers centrally, with applicants being
required to meet certain criteria set by Lloyd’s. Additionally, managing agents may now accept or place
business from or through entities other than a Lloyd’s broker. As at January 2017, there are 258
registered Lloyd’s brokers.
The role of a Lloyd’s broker is as follows: Reference copy for CII Face to Face Training
• Advising the clients on insurance types, wordings and market. This role is often extended to include
wider advice on risk management and risk financing, including self-insurance, alternative risk
financing, and the formation and operation of captive insurance companies.

Question 9.3

A broker’s remuneration has traditionally been derived from commissions and brokerages based on cover
placements. How can a broker obtain adequate remuneration for non-insurance services it offers to its clients?

• Placing the client’s insurance with suitable markets, in Lloyd’s and with London and overseas
companies. Although brokers do not take responsibility for insurance security, they are expected to
exercise great care in selecting markets that are solvent and secure.
• Preparing appropriate documentation including cover notes and, in some cases, policies.
• Assisting in, advising on and in many cases arranging the payment of claims.
• Brokers are usually well versed in legal and other cover requirements and may supply confirmation of
cover where required to third parties.
9 B1B International Underwriting Association of London (IUA)
Chapter The IUA is the representative organisation for international and wholesale insurance and reinsurance

IUA is both a trade
association and a companies trading through London. It is both a trade association, representing its members’ interests
market association internationally and a market association supporting the business environment in London. The IUA’s key
priorities are to:

• improve the efficiency of doing business in London;
• advance the development of market expertise and innovation; and
• influence public policy and compliance developments.