Glossary of insurance related terms used by Lloyd's and market participants. The following definitions are intended for general guidance. They do not override or qualify any definition that appears in any Lloyd’s byelaw or regulation, in any contract or in any other document.
A reinsurance contract which allows the reassured to select which risks of a given type are to be ceded to the reinsurer. The reinsurer is obliged to accept all the cessions made by the reassured provided they fall within the scope of the treaty.
A reinsurance risk that is placed by means of separately negotiated contract as opposed to one that is ceded under a reinsurance treaty.
Fee for service
Where a broker is remunerated on the basis of a fee agreed with its client instead of brokerage. The benefit to the broker is that, subject to the terms of agreement, the fee will be payable whether or not cover is placed whereas brokerage is only payable in respect of the placement of cover.
A type of insurance which is designed to protect a firm from losses caused by the dishonest acts of its employees.
An underwriter of a syndicate or an insurance company that agrees to accept a proportion of a given risk on terms set by another underwriter called the leading underwriter.
The Lloyd’s brand, worldwide trading licences, financial strength rating, mutual security and other support services that enable members to underwrite insurance and reinsurance at Lloyd’s on a global basis.
See Lloyd’s Franchise Board.
The creation and maintenance of a commercial environment at Lloyd’s in which the long term return to all capital providers is maximised.
A managing agent.
Lloyd’s in the form of the Council, Franchise Board and their respective committees and executives.
Freedom of establishment
The right of an insurer located in one European Economic Area (EEA) member state to underwrite a risk located in another EEA member state by establishing a permanent presence in that EEA member state. (Please see the ‘Definition of risk location’ section on Crystal for clarification of the correct location for a risk.) This permanent presence can be in the form of a local branch, agency or subsidiary. At Lloyd’s, a permanent presence in another EEA member state is created by having local coverholders with full binding authority agreements and a local Lloyd’s General Representative. (A full binding authority agreement is one where the coverholder may enter into contracts of insurance without first consulting the syndicate.) Freedom of establishment business is that underwritten under a full binding authority where the coverholder and the risk are located in the same EEA member state outside the UK.
Freedom of services
The right to provide business services on a cross-border basis within the European Economic Area (EEA). For insurance contracts, this means that the contract can be underwritten in an EEA member state that is different from the member state where the risk is located. (Please see the ‘Definition of risk location’ section on Crystal for clarification of the correct location of a risk.) Freedom of services business consists of open market business written from the UK (with or without the involvement of a local intermediary), business written under a full binding authority where the coverholder is located in a different member state from where the risk is located and business that is written under a prior submit binding authority agreement. (A prior submit binding authority agreement is one where the coverholder does not have authority to enter into contracts of insurance without first consulting the syndicate that granted the binding authority).
Funds at Lloyd's
Funds of an approved form that are lodged and held in trust at Lloyd's as security for a member’s underwriting activities. They comprise the members deposit, personal reserve fund and special reserve fund and may be drawn down in the event that the member’s syndicate level premium trust funds are insufficient to cover his liabilities. The amount of the deposit is related to the member's premium income limit and also the nature of the underwriting account. (See risk based capital).