Everything you need to know to get started.
- There are now three different models of syndicate that can underwrite business at Lloyd’s.
- Different business strategies will suit different models. Lloyd’s New Entrant team will help inform applicants on their choice of model.
- Being part of the Lloyd’s market provides access to world-class underwriting capability, a global licence network and the best-known brand in the insurance world.
- A traditional Syndicate can be supported by a single or multiple capital providers (members).
- A Special Purpose Arrangement is a quota share treaty of an existing syndicate (either whole account or specific class of business). SPA can be used to introduce new capital support or to allow certain classes to develop.
- A Syndicate in a Box is a new model for smaller innovative businesses to benefit from the Lloyd’s platform with a faster set up time, lower reporting burden and certain capital benefits.
- All three models are regarded as syndicates and will still be subject to UK solvency regulations and other Lloyd’s regulatory requirements.
- Each syndicate is given a syndicate number to identify them.
- Every syndicate needs to be managed by an approved Lloyd’s MA.
- There are nearly 50 MAs operating in the Lloyd’s market – some manage only one syndicate; some manage multiple syndicates.
- MAs are responsible for all aspects of operating the syndicate at Lloyd’s, carrying on the underwriting on behalf of the members of the syndicate.
- All MAs are UK-registered companies that are regulated by the UK’s Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA), as well as by Lloyd’s.
- Each member of the syndicate participates as the insurer for its share of each risk and members are not liable for other members’ share. Syndicates are not a separate legal entity.
- Members enter into a standard agreement with the MA where members delegate to the MA full authority to manage all underwriting and related matters (risk acceptance, reinsurance purchasing, claims agreement/denial, reserving, regulatory reporting etc).
- MAs will employ /second the Active Underwriter who is responsible to Lloyd’s and the MA for the delivery of the business plan.
- New applicants often use some of their existing group resources (including underwriting teams) to operate the syndicate within the oversight of the Managing Agent.
- MAs will charge a fee to Members for the services they provide that the agent cannot recharge to the syndicate and they may also include a profit commission paid by the members to the agent, based on the performance of the syndicate.
- New syndicate entrants should find an MA to partner with to develop their plan, to help support their business and to manage all aspects of their syndicate (financial reporting, performance management, oversight, regulatory compliance, exposure management etc.). It is important to find an MA who is supportive of the new business proposal and can fully engage with the new entrant.
More information on Managing Agents can be found in the New Entrants guide, Section 7.
- As the risk carriers, it is the members that provide the underwriting capital. This capital is held at member level and is referred to as Funds at Lloyd’s (FAL).
- Lloyd’s unique capital structure, often referred to as the Chain of Security, provides excellent financial security to policyholders and capital efficiency to members. There are three links in the Chain of Security: Syndicate level assets e.g. Premium Trust Funds, Members’ FALs, Central assets. The Central assets are mutual. They are held by the Corporation and are available, subject to Council approval, to meet any member’s insurance liabilities.
- The level of capital required to be lodged by each member will be determined by a number of factors including the amount of premium and type of business a member underwrites, and the spread of syndicates on which the member underwrites.
- The regulatory capital is firstly established at syndicate level. Each syndicate assesses the core capital requirement (the Solvency Capital Requirement, or SCR) for the proposed year’s underwriting and development of past years’ reserves, through application of its own approved Solvency II model. The SCR puts a financial value to a range of risks (underwriting, reserving, counterparty credit, operational, market etc).
- For new syndicates that don’t yet have an approved Solvency II model, for the first 2 years Lloyd’s will apply its own Syndicate Benchmark model, which uses historic market performance for each class of business/risk code, to generate the SCR.
- A new syndicate load of 20% for operational, governance and execution risk is applied for the first 3 years.
- Once agreed, the SCR is uplifted by 35% to reach the syndicate’s Economic Capital Assessment (ECA).
- The ECA is then applied proportionately to a member’s share of the syndicate. Where a syndicate is only supported by a single, dedicated member (on all open years), that member will provide FAL at 100% of the agreed ECA. Lloyd’s will calculate a diversified capital requirement where a member’s underwriting is spread across a number of syndicates (to reflect lower correlation of underwriting exposures). This is done via the Member Modeller.
- The ECA is supported by FAL, which are deposits made into Lloyd’s accounts and held and managed by Lloyd’s. FAL can either be cash or equities or letters of credit (to a lesser degree). FAL are the property of the member, however FAL assets are held under a strict trust deed that gives Lloyd’s free, unencumbered and first line access in order to ensure that in the event the member’s share of syndicate premiums is insufficient to meet policyholder obligations, the FAL is accessible to meet those obligations.
- Capital is required to support the syndicate before it can be given Permission to Underwrite.
- A syndicate, and hence member, is assessed annually for the next underwriting year of account. For each new underwriting year, the capital for each syndicate must be fully in place for ‘Coming into Line (CIL)’ date (normally 30 November). There is currently a further CIL exercise as at the end of June, during the underwriting year, for members to make good any material shortfalls in capital.
For more information on Funds at Lloyd’s see market bulletin Y5033 “Membership and UW requirements/ FAL” issued Nov 2016, Y5177 ‘Provision of capital to support ECA’ issued April 2018, Capital Guidance 2020 here and Chain of Security see here
- Only persons admitted to be a Member of Lloyd's can underwrite at Lloyd's. Members underwrite by participating in one or more syndicates.
- Members can be companies or Limited Liability Partnerships. Individuals can no longer join Lloyd's as members (although some Members who are individuals do still remain ('Names’).
- Members at Lloyd's do not require authorisation by the PRA or FCA.
- Members must have a Member’s Agent or an adviser (unless granted an exemption). The Member’s Agent/ advisers assist Members in selecting which syndicates to support each year and to manage their interactions.
- Lloyd’s operates auctions that allow members to buy and sell their right to participate on different syndicates (known as Capacity).
- Lloyd’s application process validates the Fitness & Propriety of the Member, its directors and controllers (including directors of the controllers). We also undertake extensive anti-money laundering and Know Your Customer due diligence on those entities.
- Recognising the key role of the Members, the application process is rigorous and will normally take between 6 and 8 weeks depending on the complexity of the Controller structure and the quality of documentation provided to support the application.
- New Members must have lodged Capital (Funds at Lloyd’s) in advance of commencing to underwrite, whether on existing or new syndicates. The FAL will be determined by Lloyd’s as part of the capital setting process for each syndicate. The FAL will reflect the perceived level of risk in the business which they underwrite.
- Where the Managing Agent and the Member(s) of the syndicate are part of the same corporate group, they are referred to as ‘aligned’. So called ‘traditional’ or ‘mixed’ syndicates will have several Members (sometimes several hundred) where most or all of the Members have no corporate connection to the Managing Agent.
- Members who support multiple syndicates will calculate their capital requirement using the Member Modeller via their Members’ Agents or via Lloyd’s website.
- There are 3 Members’ Agents currently in the Lloyd’s market: Hampden, Argenta and Alpha and one adviser: Callidus.
- Lloyd’s is committed to protecting the best interests of customers at all times. Culture and strategy are central to this commitment and Lloyd’s expects market firms to instil a corporate culture which pays due regard to the best interests of customers and treats them fairly at all times. This approach must be led from the top.
- To effectively manage conduct risk it is necessary to understand the level and type of conduct risk exposure of each product and the overall portfolio of business. A core Lloyd’s expectation is therefore that all products are subject to a product risk assessment. The product risk assessment must have careful regard to: customer risk, product complexity, sales risk and service risk.
- Meaningful objectives and key performance indicators, supported by robust reporting, are critical to the effective oversight and monitoring of customer outcomes and conduct risk management. Alongside internal reporting Lloyd’s requires the submission of biannual eligible complainant returns and may request sight of other MI as part of oversight activities
Minimum Standards: MS 9 is Lloyd’s customer-focussed minimum standard. It brings together Lloyd’s requirements for the management of claims, DA, conduct risk and complaints. Topics covered include:
- That a customer focussed culture and strategy must be led from and overseen at Board level;
- That effective conduct reporting and monitoring must be in place;
- That product governance must include a customer-focussed product development, design, approval and review process;
- That the customer experience is fair both pre and post sale;
- That any use of third parties must have no adverse effect on a customer.
- The minimum standards apply to all customers wherever they are located in the world.
Fair Value: Lloyd’s expects all products to provide fair value to customers. Fair value principles have been developed, through which we share what Lloyd’s considers to be value in consumer business and how we expect Lloyd’s policyholders to be treated.
Role of the Customer Standards Oversight (CSO) team
Lloyd’s CSO team is responsible for oversight of the market’s compliance with MS9 and thematic work. Every MA has regular touchpoints with a member of CSO, the frequency and scope of which varies depending on the MA’s conduct risk exposure and performance. Products that meet certain criteria must also be referred to CSO for fair value approval before they are written.
For more information on conduct please email conduct@Lloyds.com
- Syndicate In a Box (SIAB) was set up to be a fast fail/fast succeed model to allow innovative new businesses into Lloyd’s.
- One of the biggest advantages is the streamlined application process and commitment from Lloyd’s to review and set up a syndicate within 90 days of full submission.
- Syndicates in a Box are still subject to the same regulatory and oversight framework as traditional syndicates and this means we still need to collect Lloyd’s Returns from all syndicates.
- We have made some reductions to the reporting burden for Syndicates in a Box: We have reduced the frequency of major returns from quarterly to half yearly for PMDr and QMB and QMA.
- As SIAB do not focus on LCM5 cat exposures they will have reduced catastrophe exposure reporting requirements for LCM and RDS returns.
- SIAB will not have to complete Lloyd’s Capital Return (LCR) or model validation returns as their capital will be set using the Lloyd’s Benchmark model for the first three years.
- Minimum Standards compliance – Rather than request a full Min Standards review prior to commencement, Lloyd’s will rely on the Managing Agent’s existing Min Standards Attestation. This is a substantial reduction in workload for the start up SIAB syndicate.
- Lloyd’s is continuing to review the reporting framework with the medium and long terms aim of further reducing the reporting burden by linking it with the Future at Lloyd’s platform / data workstreams.
- SIAB will still be required to provide key performance metrics from their syndicate board packs. This will allow Lloyd’s to monitor performance without additional reporting requirements upon the SIAB.
For more information see New Entrants Guide page 12.
- New and existing syndicates’ expenses will include managing agent charges, Lloyd’s Corporation central charges and their own administrative costs allocated to running the syndicate.
- Lloyd’s central charges are to cover the Corporation’s costs and are reviewed annually and notified via a Market Bulletin.
- Each member pays a Lloyd’s Members Subscription charge currently set at 0.36% GWP where the GWP is the approved Syndicate Business Forecast (SBF) premium for that underwriting year.
- Lloyd’s central charges include a Central Fund contribution of 0.35% GWP for each member based on the GWP from the SBF for that underwriting year.
- For new members supporting a new syndicate this Central Fund contribution will be 1.4% for 3 years but these will be deferred in part for new members supporting a Syndicate in a Box.
- There is an Overseas Operating Charge for all business written outside the UK set at 0.49% GWP for Direct business, 0.17% for Reinsurance and 0.73% for Coverholders.
- There will be various charges from DXC for handling central settlement costs etc.
- The managing agent fee will be agreed between the syndicate and the managing agent and depend upon the services provided by the Managing Agent (approx. range is 1% to 3%).
- When developing a new syndicate, Lloyd’s and Managing Agent costs, operating/ admin costs and acquisition expenses will all need to be included within the plan.
For full details on Lloyd’s fees see our latestmarket bulletin.