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  #1  
Old 07-19-2019, 08:51 AM
Noonien Soong Noonien Soong is offline
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Default Some very simple questions about Lloyds

So...there's a Lloyds, it's old, it's a marketplace, and it's one of kind. I'm still trying to wrap my head around Lloyds and how it functions. So i thought I'd start with some very simple questions

First, say you're a private individual or a corporation and you've made the decision to seek risk transfer on...something. Doesn't matter, you want insurance. Why would you go to Lloyds instead of purchasing through traditional channels?

Second, and somewhat the opposite. Say you are a risk assuming entity, a mid-sized to large primary insurer offering just about all manner of insurance products under the sun. Your current distribution is a combination of agents and direct. Why would you want to use Lloyds to acquire business? How does this benefit you? Are there risks who only shop through Lloyds? Don't you all the sudden get pooled with other "capital providers?"

What would help me understand eventually is a start to finish example from both the perspective of one looking to purchase risk transfer for the process of how the insurance is ultimately placed, how a sample claim could be paid, and how the entity purchasing risk transfer is protected from insolvency of the risk assumer.

Then the opposite, from start to finish, say you're an insurance carrier, how do you go from start to finish finding say, one new customer, and paying a claim for this customer?

Humanly,

Noonien Soong.
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Old 07-19-2019, 10:42 AM
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Vorian Atreides Vorian Atreides is offline
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Are you referencing Lloyd's of London company? Or the general "Lloyds Plan" that is provided for in TX law?
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Old 07-19-2019, 02:40 PM
Noonien Soong Noonien Soong is offline
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Are you referencing Lloyd's of London company? Or the general "Lloyds Plan" that is provided for in TX law?
Across the pond Lloyd's.
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Old 07-19-2019, 02:59 PM
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#1. Lloyd's "Across the Pond" will pretty much underwrite anything . . . for a corresponding cost.

#2. They're also pretty well capitalized and with a long history of honoring their contracts; so you have a high degree of confidence that they'll both be able to pay out and will pay out if you end up with a claim.
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Old 07-20-2019, 03:30 AM
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Very simply, at Lloyds the customer goes to the market saying "here's a risk I want covered, what'll it cost?". The members respond with the cost/terms/share they're willing to take and, hopefully, the customer gets all the cover they want.

The non-lloyds market involves the customer choosing which off the shelf cover they want.

There are exceptions, some non-lloyds covers look a lot like lloyds covers, but lloyds is typically first on your list if you have a big strange risk.
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Old 07-20-2019, 06:57 AM
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Also, Lloyd's will get you through to many different names, which then diversifies the risk exposure (assuming they add their name to the line).

With a stand alone company, you would need to contact them individually, and get them all to agree on the how much of the risk they are willing to insure.
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Old 07-21-2019, 01:06 PM
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Very simply, at Lloyds the customer goes to the market saying "here's a risk I want covered, what'll it cost?". The members respond with the cost/terms/share they're willing to take and, hopefully, the customer gets all the cover they want.

The non-lloyds market involves the customer choosing which off the shelf cover they want.

There are exceptions, some non-lloyds covers look a lot like lloyds covers, but lloyds is typically first on your list if you have a big strange risk.
So Lloyd's isn't a single company? It is more like a marketplace?
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Old 07-21-2019, 01:09 PM
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So Lloyd's isn't a single company? It is more like a marketplace?
Yes.
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Old 07-21-2019, 07:06 PM
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First of all, "you" wouldn't go to Lloyd's, your broker would. They would typically do so because either the coverage you wanted wasn't available in the standard market, or because they thought you would get better rates and/or terms from Lloyd's.

While Lloyd's of London is an "insurance company" you can't buy insurance directly from them. You (or rather your broker) buys it from one or more (typically multiple) syndicates for whom Lloyd's provides the paper. Each syndicate has to be approved by Lloyd's, and have capacity backers who put funds on deposit with Lloyd's to ensure that the money will be there to pay for claims.

So who would seek insurance from a syndicate at Lloyd's? Many people -- 1. large risks for which no single insurer would be wiling to write the whole thing. For example, the syndicate I worked for had a small (2.5%) line on Costa Concordia. No single carrier would write the $1B policy, so instead a bunch of them agreed to take a piece of it. 2. Obscure coverages that aren't available elsewhere, or at least not broadly available. For example, insuring Tina Turner's legs. 3. Worldwide coverage that is easier for a global organization like Lloyd's to handle, for example, political risk coverage, or equine mortality on horses that compete globally rather than just in one country.

Thinking of Lloyd's as a marketplace is not wrong, but it's also not complete. It's a risk bearing entity, but it tries to ensure that syndicates are capitalized well enough that there is never a risk to the central fund. Their is a chain of security that goes like this -- syndicate assets (from premiums collected, like a regular insurance company), then members Funds at Lloyd's (FAL), which is the money that syndicate backers have to deposit at Lloyd's to cover the risk that syndicate assets are not adequate. Lastly, the Central Fund has about GBP 2B in assets to cover any shortfall from either of the first two items. Also, note that capital backers are at risk for more than their FAL, as a syndicate that loses money can make a cash call on its members. So, in essence, the Central Fund is 4th in line after syndicate assets, members' FAL, then cash calls on members.

Theoretically as a member/name you have unlimited liability, but obviously if you are not solvent, you can owe money that you don't have/can't pay. So that's where the Central Fund takes over. Names are simply people/businesses that have agreed to back the activities of one or more syndicates.

Also, it is not uncommon for a risk to be partially placed in the Lloyd's market, and partially placed in the company market. This could be because they couldn't fully place the risk in one or the other, or they intentionally want to diversify that risk.

As far as companies go, they would use Lloyd's for a couple reasons -- 1. access to a different type of business, 2. an "easy" way to get global business without establishing a legal entity in each country, 3. diversifying their US exposures.

As to being lumped in with other capital providers, that is a risk, but again recognize that most risks are placed with multiple syndicates as the limits are too big for any one syndicate to write the whole limit. If you visit the Lloyd's building what you will see is rows and rows of "boxes" each staffed by underwriters from a different syndicate. Brokers go from box to box trying to get some of the risk placed. Individual syndicates also have multiple boxes, by line of business. So they might have a marine box, a GL box, etc. Over time syndicates establish a reputation for their appetite so brokers will seek them out. Some syndicates are seen as "leading markets" which means they'll take a bigger share, while others are "follower markets" which means they might just take a small share once they see that others are on the slip.

Hopefully this makes some sense. I spent 5 years in London as the CFO of a syndicate so I"m pretty well versed in how it works.
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Old 07-22-2019, 05:13 AM
Kalium Kalium is offline
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It used to be true (25+ years ago?) that all the underwriting capacity came from individual members / names with unlimited liability.

But I think such members now only provide a very small proportion of capacilty. Any new individual names have only limited liability, and by far the majority of capacity now comes from corporate members and the international insurance/reinsurance industry.
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