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Syndicate in a box

Attributes

Syndicate in a box

What it includes:

  1. A way of entering the market to prove a business proposition over three years – to give applicants the best chance of success
  2. A transparent set of qualifying criteria – so that applicants understand whether they fit
  3. A clear and streamlined entry process – to enable three-month approval after submission of a formal application
  4. Specific rules of participation – to balance opportunities and constraints (see below)
  5. Quarterly review and annual assessment carried out by Lloyd’s – to ensure that the business remains accretive or innovative and profitable
  6. Access to the Lloyd’s services hub and integration with other Future at Lloyd’s solutions – to enable them to operate efficiently

  • Reduced initial capital load proportionate to the risks written. Option for new members to defer enhanced Central Fund contributions until years four to six
  • Option to graduate to a ‘full’ syndicate after three years if success criteria are met, or reapply to continue as a syndicate in a box
  • Proportionate oversight to reduce administration burden through: flexibility in line size; option to use Lloyd’s benchmark model for three years; reduced reporting requirements
  • No requirement to be located in London
  • Business plans for years two and three will be automatically approved if there is no material deviation from the initial three-year plan agreed at the outset
  • Fast approval and lower cost syndicate in a box application fee of £100,000
  • Access to the services hub as well as the claims, risk and capital platforms

  • Restrictions on type of business that can be written through a syndicate in a box
  • Agree exit plan as part of application, to mitigate impact of run-off
  • Success criteria at the end of years one, two and three are agreed with the applicant on entry. Underwriting permissions removed if the criteria are not met.
  • No box space permitted
  • Limit total proportion of market GWP that can be placed through syndicates in a box
  • Supported by a managing agent that will attest that the syndicate in a box meets all minimum standards.
  • Requirement to connect to all relevant platforms (e.g. electronic placement, risk exchange, complex risk platform, capital solution) and adhere to all standards

Life Cycle:

Syndicates in a box can initially only enter the Lloyd’s market for a fixed period of three underwriting years of account, after which they have three options:

  1. Reapply to continue as a syndicate in a box.
  2. Graduate to a “full” syndicate.
  3. Cease trading if annual performance conditions are not met. Syndicates in a box will agree an exit plan as part of the entry process.

Specific rules of participation

The constraints on what business can be written, their smaller scale and the rules surrounding their underwriting permission, will limit the risk that syndicates in a box pose. This means Lloyd’s can disapply some of the capital-setting rules that are applied to new syndicates in their first three years.  Lloyd's can also establish oversight and underwriting rules proportionate to the risk posed. This will reduce the initial capital requirement, administrative burden and operating costs, enhancing their chance of success, without reducing Lloyd’s market standards.

Capital setting

  • The syndicate in a box capital requirement will not include the 20% new entrant uplift. This uplift is applied to the capital new syndicates (members) must hold today for three years to protect the Central Fund from the inherent operational risk of a new business operating at Lloyd’s.
  • No requirement to develop an internal model early on. There will be an option to use the Lloyd’s benchmark model for the entire three years (vs. two years today for a new syndicate ).
  • Option for new members supporting a syndicate in a box to defer enhanced Central Fund contributions from years 1-3 to years 4-6.
  • Permitted to use own performance experience in agreeing business plan and setting capital if an adequate and demonstrable historical track record provided. Where there is none, Lloyd’s will use loss ratios based on market experience.
  • Where a syndicate in a box commences mid year, the capital requirement will be based on the actual premium planned to be written, and not an annualised premium figure. 
  • The practice of capitalising hypothecated reserves that is currently used in the first three years will no longer be applied.
  • Members supporting a syndicate in a box will not be granted tenancy rights; participation will be on a "limited tenancy capacity" basis.

Oversight

  • Flexibility in line size dispensations: Lloyd’s will consider line sizes using a risk-based approach commensurate with their lower premium size.
  • Optimised reporting proportionate to risk: Syndicates in a box will be restricted by what they can write, meaning that Lloyd’s can take a more proportionate view of their reporting. Ultimately, the aim is to make it possible for Lloyd’s to access the data it requires directly from all syndicates, rather than requesting reporting.
  • More streamlined annual business plan submission: If there is no material deviation from the initial three-year plan in year one, business plans for years two and three will be agreed without further challenge.

Underwriting

  • Syndicates in a box will operate without box space in the Lloyd’s building. This will allow syndicates in a box to access diverse underwriting talent, get closer to their customers and reduce operating costs

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