Investors at Lloyd’s provide capital to syndicates. In return they receive a share of the profits or pay losses in proportion to their commitment.

The Lloyd’s market

Lloyd’s is not an insurance company, but the world’s leading specialist insurance market. It comprises different managing agents that operate a total of 98 syndicates and Special Purpose Arrangements (SPAs).

Investors at Lloyd’s provide capital for these syndicates and SPAs. At the start of 2024, there were 18 full tenancy syndicates and 14 Limited Tenancy Syndicates (including SPAs) open to private capital. More syndicates may choose private capital in the future. Syndicates and SPAs have different areas of expertise and transacts a wide variety of insurance business on behalf of its capital providers.

For 2024, the Lloyd’s market is forecast to underwrite gross premium income of approximately £57bn (£52bn in 2023) which makes it one of the larger insurance providers in the world.

Capital providers receive a share of the profits or losses that accrue from the underwriting business of these syndicates and SPAs in proportion to their commitment.

Lloyd’s has a sought-after network of overseas business licences that gives syndicates direct access to most major overseas markets.

For over 330 years, Lloyd’s has never failed to pay a valid insurance claim. Lloyd’s has built a Central Fund of pooled reserves which stand as a guarantee behind each of the trading units at Lloyd’s. All Lloyd’s syndicates enjoy the benefit of these capital resources and share financial strength ratings: Standard & Poor’s AA- (Very Strong); Fitch AA- (Very Strong); A.M. Best A (Excellent); and Kroll Bond Rating Agency AA-.

The Lloyd’s Performance Management Directorate

The PMD (formerly the Franchise Performance Directorate) was set up in 2003 to ensure that the Corporation of Lloyd’s undertook an active commercial role in managing market performance.

The principal purposes of the PMD is to:

  • Protect the Central Guarantee Fund
  • Monitor and improve the long-term performance of Lloyd’s syndicates
  • Raise standards across the Lloyd’s market

Its responsibilities include:

  • Reviewing, challenging and approving business plans
  • Setting guidelines for the levels of risk to be taken
  • Ensuring a competent standard of underwriting across all syndicates in the market
  • Improving the performance of the bottom quartile syndicates

Advantages

The main benefits of Lloyd’s membership are:

  • Direct access to underwriting returns with an opportunity for capital gains
  • Limited liability
  • Attractive returns
  • Low correlation with other asset classes
  • Double use of assets and some leverage
  • Tax efficiency & estate planning benefits
  • Liquidity via sale of LLV

Risks

Prospective clients should note that underwriting at Lloyd’s involves a significant degree of risk and they will be exposed to the risk of underwriting losses, both from current underwriting and from exposure to prior years.

Should claims reserves prove inadequate, members are liable for losses until the liability of all years participated upon have been closed by means of reinsurance. Even then, in the event of failure of the reinsurer, the ultimate liability remains with the member. For Limited Liability Vehicles (LLVs), this liability is limited to the total Funds at Lloyd’s in place plus any pipeline profits, the value of syndicate capacity and funds held in the LLV.

The capital value of syndicate capacity can fall as well as rise, so any member risks capital losses as well as underwriting losses.

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