Answering some of the most frequently asked questions
Lloyd's, located in the heart of the City of London, is a unique and historic marketplace where bespoke insurance and reinsurance solutions are provided to a wide range of clients worldwide. During Lloyd's 330 year history, underwriters at Lloyd's developed the first policies covering: motor (1904), aviation (1911), satellite (1965) and cyber (1999). 3,500 underwriters and brokers come together in the Lloyd's Building to buy and sell (re)insurance. Thanks to this background and culture of expertise, Lloyd's has built a reputation as a global market for specialist insurance and reinsurance. Members of Lloyd's provide the capital required to support Lloyd's £50bn of annual premiums written by 90 separate syndicates. To discover more about Lloyd's history and how the market operates download this Lloyd's pocket-sized guide. To discover how to become a Member of Lloyd's and to participate in Lloyd’s underwriting click here.
Underwriters at Lloyd's have their own specalist classes of business built up over years of experience understanding the various risks that policyholders face wherever they are located in the world. Lloyd's is well-known for its innovation and willingness to insure unusually complex risks. The majority of the business will include the standard risks that physical assets are exposed to such as fire and flood as well as the more severe natural catastrophe perils such as hurricanes and earthquakes. Insurance may also be needed against potential third party liabilities that businesses face. As the increasingly inter-connected world becomes more digital, cyber insurance has grown to become a significant part of Lloyd's income.
An expanded list of classes of business is as follows: Accident & health / Agriculture & hail / Aviation / BBB / Crime / Cargo / Casualty / Contingency / Cyber / Difference in conditions / Directors & officers / Employers liability / Energy / Engineering / Extended warranty / Financial institutions / Fine art / Legal expenses / Livestock & bloodstock / Marine / Medical expenses / Medical malpractice / Motor / General liability / Nuclear / Pecuniary / Personal accident XL / Political risks, credit & financial guarantee / Power generation / Professional indemnity / Property / Space / Specie / Term life / Terrorism / Yacht.
Underwriters are experts in understanding the risk of certain losses occurring, for example fire, wind, theft, cyber, liability, and whether they should provide cover for those risks. If they do provide cover then they receive a premium for doing so which is paid by the client (known as the policyholder) via their broker.
At Lloyd’s, each syndicate (supported by capital providers known as Members) has a team of underwriters, who through their training and experience, are able to set appropriate terms for policies as required by brokers’ clients.
Each syndicate has a different “flavour” of business underwritten; in all, Lloyd’s houses some 90 syndicates which enables the market to offer an unrivalled concentration of specialist underwriting expertise and talent.
A Lloyd's syndicate is the underwriting operation of a Lloyd's managing agent some of which are quoted on the LSE. Each syndicate (which has a number allotted to it for identification purposes) has a designated location in the Lloyd's Underwriting Room called a "box" where the underwriters are seated ready to receive business from brokers who come to the Room to try and obtain cover for their clients. Syndicates have their own capital requirement set by Lloyd's related to the type and amount of premium income written. Members supporting chosen syndicates provide the capital to support the syndicate known as "Funds at Lloyd's". There are 90 syndicates at Lloyd's, writing different classes of business. Each syndicate has an annual Premium Income Limit (i.e. a total amount of premium they can accept, as agreed by Lloyd's) . Members of Lloyd's take an annual share of their chosen syndicate's Premium Income Limit and put up Funds at Lloyd's in proportion. A Member's share on a syndicate is called capacity. A syndicate's result will be profitable when premium received plus investment income exceeds claims and reserves for claims. Syndicates account on an annual basis and where supported by Hampden on a three years of account basis. A syndicate is to all intents and purposes the insurer but in actual fact it is the members of the syndicate who are the true insurers and risk takers.
A Member's share of the capacity on a Lloyd's syndicate is designated as "freehold" if it comes with ownership rights for the Member. The majority of the capacity provided by Hampden's clients is on long-established syndicates at Lloyd's and tends to be freehold and in these cases the Member has "security of tenure" and rights to ownership of their share of the capacity which enables the Member to achieve value by being able to realise value through the Lloyd's capacity auctions. The value of the capacity owned by the Member can be significant but can fluctuate depending upon supply and demand. The Lloyd's capacity auctions also enable existing Members to acquire more capacity on syndicates with freehold capacity. New Members can either construct a portfolio of chosen freehold and leasehold syndicate capacity or delegate the portfolio construction to Hampden Underwriting Research's MAPA .
A Member's share of the capacity on a syndicate can alternatively be leasehold when it has no ownership rights attaching. The Member's share of the syndicate's capacity cannot be traded in Lloyd's capacity auctions and sometimes a Member can only hold this type of capacity for a finite period. However it offers a cost-effective way for Members to increase their capacity and Members opt to do so if they see potential opportunities which will either enhance their portfolio or provide attractive opportunities in a particular class of business.
A MAPA (Members' Agent Pooling Arrangement) is a portfolio of syndicates selected by Hampden and grouped together for their performance record providing a diverse spread of types of business. Hampden is the only Members’ Agent to offer access to MAPAs. Hampden MAPAs contain both freehold and leasehold capacity.
Membership is in effect owning and investing in a corporate member of Lloyd's for potential underwriting returns and capital gains. The actual Member of Lloyd's is the Limited Liability Vehicle ("LLV") which can be either a company or a partnership and set up specifically to just trade at Lloyd's. Each LLV is capitalised by its owner in proportion to the amount of its Premium Income Limit by lodging liquid assets such as shares, gilts, bonds, etc. The LLV will share in the underwriting returns or losses of the syndicates selected. In the case of UK-tax registered clients, the LLV can qualify as a trading entity with Business Relief and Business Asset Disposal Relief.
A limited liability corporate member of Lloyd's that is a UK domiciled company. Many Namecos were formed by “Names” who wished to move from unlimited personal liability to a limited liablity basis of underwriting. A NameCo has the benefit of a straightforward company structure and limited liability. Owners can share their ownership of their NameCo with their family joining as shareholders. The NameCo can also be inherited by the next generation.
A corporate member of Lloyd's that is a UK domiciled Limited Liability Partnership which can have one or more partners sharing in the underwriting. The LLP is a separate entity from its members and so has a different UK tax treatment compared to a NameCo. The LLP can also be inherited by the next generation.
Individual Members of Lloyd's with unlimited personal liability who have not transferred their underwriting into either a company ("NameCo") or a partnership ("LLP"). It is no longer possible to join Lloyd's as unlimited Name. There are still Names at Lloyd's who have been underwriting for 30/40 years and are comfortable with the risks and have built up more than adequate reserves.