Page 35 - M97TB9_2018-19_[low-res]_F2F_Neat2

Chapter 1 Purpose of and the parties involved in reinsurance 1/17 Chapter

Table 1.1: How brokers service clients’ business 1
Check security offered by Most clients expect their broker to monitor the performance and suitability of the
reinsurers markets that are available to write their reinsurances, although many of the larger buyers
do this monitoring themselves. While the viability of security cannot be guaranteed,
brokers are expected to inform clients of potential problems, where appropriate utilising
information from internationally recognised financial rating agencies.
Provide documentary and Brokers advise on the preparation of any contract wording for the reinsurance
analytical services arrangement and obtain the agreement of all the parties concerned. The larger brokers
including contract can also provide actuarial analysis and market benchmarking data.
wordings
Provide risk management In addition to basic risk transfer services, brokers offer assistance to large insurers to
control the total cost of risk by developing bespoke strategic risk management
programmes. These understand business needs and make informed decisions about
risks which go beyond simple identification and evaluation.

Be aware
There are various reinsurance rating agencies that a broker might choose to consult in order to check on the financial
health of a reinsurer to which it intends to offer business on behalf of its client. Its choice of rating agency will
depend on the depth of financial information required and the size of the reinsurer.

F6 Managing general agent (MGA)
Reinsurance has become an increasingly important business component within the broker’s role as a
managing general agent (MGA). MGAs also write insurance business as well as reinsurance.
MGAs perform certain functions ordinarily handled only by insurers/reinsurers, such as:
• binding coverage;
• underwriting and pricing;
• appointing agents within a particular area; and Reference copy for CII Face to Face Training
• adjusting and settling claims.
Be aware
It is important to note that an MGA can be asked to do all of these services or specified to complete just some
of them.

The security of the MGA is the insurer/reinsurer sitting behind them as the MGA itself is just providing a
service and is not taking any risk itself.

MGAs can place cover in any market. They also work alongside insurers/reinsurers in developing
programmes. For example, the MGA may identify a market gap where there are few or no carriers
interested in writing a specific line of business. The MGA will structure an insurance/reinsurance
programme aimed at generating an underwriting profit. The MGA will then offer the programme to
potential issuing insurers/reinsurers.
From an underwriter’s perspective dealing with an MGA lightens their burden; however, it also means
that they have to place a large amount of trust in the MGA to act on their behalf. This should be carefully
considered and a lot of research completed before entering into these contracts.

F7 Lloyd’s brokers

Brokers registered by the Council of Lloyd’s are known as Lloyd’s brokers and are permitted to place
reinsurance business at Lloyd’s. To be registered they must satisfy the Council as to their expertise,
integrity and financial standing. Once appointed, the words ‘at Lloyd’s’ can be used on letterheads and
name plates.

The requirements of Lloyd’s are in addition to authorisation by the FCA. Lloyd’s no longer has its own
separate code of conduct for Lloyd’s brokers.

Be aware
Those brokers wishing to place reinsurance business in Lloyd’s markets but who are not registered to do so may
negotiate placing arrangements with those that are registered.