Lloyd's and the London market

The London market is the world's insurance and reinsurance leader. It is a transaction market for big risks and non-life insurance covers. All large insurance and reinsurance companies have recourse to it. It is estimated that approximately 15% of the reinsurance world's large industrial risks go through the London market.

It plays a major role in the placement of aviation, marine, energy and reinsurance risks. It accounts for 40% of the world's aviation written premiums and 60% of oil platforms and 15% of the world's reinsurance premiums. The London market is characterized by a strong concentration of stakeholders.

Brokers, insurance companies, the Lloyd's [4], International Underwriting Association (IUA) and the P&I clubs are sharing this market which, according to the statistics published by the London International Financial Services in November 2008, employs 50 000 people.

The structure of the London market

The London market is basically a brokerage and coinsurance market. The major players are therefore the clients, the brokers, the insurers pooling up within IUA, the P&I clubs and the Lloyd's syndicates.

[6] Source: The London Insurance Market, July 1997, Sigma n° 3/2002

• Clients: they stand for the large firms, British and foreign insurers and reinsurers. The major bulk of the market business comes from the United States. American business accounts for about 40% of the overall transactions. They are well ahead of the British ones 25% and those coming from Europe 20%.
• Brokers: they place insurance and reinsurance risks on the market. Their role is extremely important. The Lloyd's proceed only through brokers. In order to make business with Lloyd's, brokers have to be certified by this institution. There are about 150 brokers certified by Lloyd's.
• IUA: the International Underwriting Association of London was born in 1999 from the merger between ILU (the Institute of London Underwriters) and LIRMA (the London Insurance and Reinsurance Market Association).
  IUA's role is to defend its members' interests on the insurance market and to support due process of underwriting operations.
  By April 20, 2009, IUA has listed 65 members, 41 of which are ordinary members, 5 affiliate members and 19 associate members.
• The P&I clubs: they stand for mutual insurance associations for ship owners and charterers. They are specialized in marine insurance.
  These clubs are organized around the “International Group of P&I Clubs”, the international organisation whose headquarter is in London and which gathers 13 major clubs.

The Lloyd's

The Lloyd's is not an insurance company but rather a market which attracts business and investments worldwide. It provides specialized corporate services for companies in more than 200 countries worldwide.

Presentation

Lloyd's history dates back to the 17^th century. As of 1688, rich traders, ship owners and captains pooled up in Edward Lloyd's tavern in order to insure their ships and carry out insurance transactions.

The establishment of Lloyd's into an underwriting institution dates back to 1811. During its establishment, Lloyd's business was wrapped around marine insurance. Henceforth, all risks may be underwritten with it.

It operates through brokers. Those brokers who are keen on taking part in Lloyd's activities must first obtain its approval and be members of the GISC (General Insurance Standards Council).

At the start of the 1990s, Lloyd's went through a crisis which considerably strained its capacity and led to the personal ruin of several of its members: the “names”.

Operating pattern

The insurance policies and reinsurance contracts are written by the “names” pooled up into syndicates.

Each syndicate is regarded as a full-fledged insurer detaining its own capital. This capital may come from its members who are either natural persons with unlimited responsibilities or corporate body whose responsibility is limited.

Syndicates are run by “managing agents” who make out business plans, define the syndicate's policy and ensure due process of underwriting, but do not take part in it on the market. They designate an underwriter who intervenes on behalf of the members.

All risks are placed by a Lloyd's broker in London; the latter stands as a link between the underwriters and the clients (insurers and reinsurers).

Lloyd's structures

The corporation

It is an association which is endowed with the corporate body that gathers Lloyd's leaders and top staff executives. Financed by members' contributions, the association provides the material and human resources required for the progress of the institution.

The corporation does not issue insurance policies, nor does it underwrite risks. It manages.
By December 31, 2008, the corporation has 851 staff members worldwide, 719 of whom in the United Kingdom.

The board

The board is entrusted with the task of governing and controlling Lloyd's. it may approve new members, agents and brokers.
The board delegates specific tasks to two bodies: the market board and the regulatory board.

Services

A unique body, CSU (Central Service Unique) centralizes all agents' administrative tasks and provides them with information on the syndicates, their financial performances as well as their exposure to risks.