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Status: You are viewing the version of the handbook as on 2009-03-31.

INSPRU 8.2 Special provisions for Lloyd's

Management of insurance business

INSPRU 8.2.1R

Neither the Society nor managing agents may permit a member to carry on any insurance business except as a participant on one or more syndicates.

Obligations under INSPRU and GENPRU

INSPRU 8.2.2R

The Society must ensure that all participants in the Lloyd's market are made aware of their obligations under INSPRU and GENPRU.

Management of risk

INSPRU 8.2.3R

The Society must establish and maintain systems and controls to enable it appropriately to address the risks to which the Lloyd's market is exposed.

INSPRU 8.2.4R

The systems and controls in INSPRU 8.2.3 R must include systems and controls to enable the Society to ensure that any assumptions made in calculating a member's capital resources or in determining the individual capital assessment for each member are regularly reviewed and that appropriate action is taken if any assumption is no longer valid.

INSPRU 8.2.5R

The Society must take all reasonable steps, including establishing and maintaining adequate systems and controls to enable it:

  1. (1)

    to manage the risks to which funds at Lloyd's and central assets are exposed; and

  2. (2)

    to ensure that funds at Lloyd's and central assets are adequate to support all balancing amounts.

INSPRU 8.2.6R

A managing agent must establish and maintain adequate systems and controls to manage the risks to which the insurance business carried on through each syndicate it manages is exposed.

INSPRU 8.2.7G

In complying with INSPRU 8.2.6 R, managing agents should have particular regard to:

  1. (1)

    transactions which may give rise to a conflict of interest, such as those to which the counterparties are:

    1. (a)

      other members of the managing agent's own group;

    2. (b)

      any members of any syndicates managed by the managing agent; or

    3. (c)

      any entity that is part of a group to which one or more members of any syndicates managed by the managing agent belong; and

  2. (2)

    transactions involving:

    1. (a)

      the provision of capital;

    2. (b)

      the provision of reinsurance; or

    3. (c)

      the provision of other services.

INSPRU 8.2.8R

In complying with INSPRU 8.2.6 R a managing agent need not take account of risks associated with assets that are not syndicate assets.

INSPRU 8.2.9R

The Society must take reasonable steps to ensure that systems and controls established and maintained by managing agents are adequate to ensure that risks to which the insurance business carried on through each syndicate is exposed do not have a detrimental effect on funds at Lloyd's or central assets.

INSPRU 8.2.10G

Managing agents and the Society each hold and manage some of the financial resources held to support the insurance business carried on through syndicates. In particular:

  1. (1)

    the Society holds and manages funds at Lloyd's and central assets which must be held to support balancing amounts. The Society is required to manage the risks that affect funds at Lloyd's and central assets directly, once the effects of any aggregation and diversification have been taken into account;

  2. (2)

    managing agents hold and manage some of the financial resources in respect of the insurance business carried on through each syndicate that they manage. Managing agents are required to manage all risks affecting a syndicate except for the risk that funds at Lloyd's and central assets are not available to support the balancing amount.

INSPRU 8.2.11RRP

The Society must establish and maintain effective arrangements to monitor and manage risk arising from:

  1. (1)

    conflicts of interest (including in relation to (2) to (4));

  2. (2)

    inter-syndicate transactions, including reinsurance to close and approved reinsurance to close;

  3. (3)

    related party transactions; and

  4. (4)

    transactions between members and itself.

INSPRU 8.2.12R

The arrangements in INSPRU 8.2.11 R must enable the Society to identify any significant overstatement of financial resources resulting from any transaction falling within INSPRU 8.2.11R (2) to INSPRU 8.2.11R (4), including as a result of:

  1. (1)

    any differences in the amounts recorded as due or payable by each party to any such transaction; or

  2. (2)

    any actual or likely disputes between the parties to any such transaction.

INSPRU 8.2.13R

If the Society identifies a significant overstatement of the kind referred to in INSPRU 8.2.12 R, it must ensure that an appropriate adjustment is made, including if appropriate by a deduction from or reduction in the value attributed to:

  1. (1)

    the capital resources of any member concerned; or

  2. (2)

    the Society's capital resources.

Approved reinsurance to close

INSPRU 8.2.14G

As defined in the Glossary, "approved reinsurance to close" excludes:

  1. (1)

    reinsurance between parties other than members; and

  2. (2)

    balance transfers between syndicate years of syndicates having only one member, which have no effect on the overall liabilities of that member.

INSPRU 8.2.15G

The "approved" status of an approved reinsurance to close does not alter the legal status or effect of the original contract of insurance, or the liability of a reinsured member to the policyholder under or in respect of the original contract of insurance.

INSPRU 8.2.16R

Notwithstanding that the liability of a reinsured member to a policyholder is unaffected by an approved reinsurance to close as described in INSPRU 8.2.15 G, for the purposes of INSPRU and GENPRU only:

  1. (1)

    a contract of insurance reinsured under an approved reinsurance to close must be treated as if the reinsuring member and not the reinsured member had effected the original contract of insurance; and

  2. (2)

    any payment received by a member as consideration for or in connection with an approved reinsurance to close must be treated as a Lloyd's member's contribution and not as premium or as a reinsurance recovery.

Provision of information by managing agents

INSPRU 8.2.17R

A managing agent must, as soon as possible, give the Society any information the managing agent has concerning material risks to funds at Lloyd's or central assets.

INSPRU 8.2.18R

A managing agent need not comply with INSPRU 8.2.17 R if the managing agent knows that the Society already has the relevant information.

Insurance receivables to be carried to trust funds

INSPRU 8.2.19RRP

The Society must take all reasonable steps to ensure that each member:

  1. (1)

    executes the appropriate Lloyd's trust deeds; and

  2. (2)

    carries to the appropriate Lloyd's trust fund all amounts received or receivable by the member, or on its behalf, in respect of any insurance business carried on by it.

INSPRU 8.2.20RRP

The Society must carry all amounts it receives on behalf of any member in respect of that member's insurance business to the appropriate Lloyd's trust fund.

INSPRU 8.2.21RRP

A managing agent must carry all amounts it receives on behalf of any member in respect of that member's insurance business to the appropriate Lloyd's trust fund.

INSPRU 8.2.22RRP

In complying with INSPRU 8.2.19 R to INSPRU 8.2.21 R, the Society and managing agents must take all reasonable steps to ensure that amounts received or receivable by a member in respect of general insurance business and long-term insurance business are carried to separate Lloyd's trust funds.

Amendments to byelaws, trust deeds and standard form letters of credit and guarantees

INSPRU 8.2.23RRP

The Society must, as soon as it is practical to do so, notify the FSA of its intention to approve the form of any new Lloyd's trust deed.

INSPRU 8.2.24RRP

The Society must, as soon as it is practical to do so, notify the FSA of its intention to make any amendment which may alter the meaning or effect of any byelaw, including:

  1. (1)

    any Lloyd's trust deed;

  2. (2)

    any standard form letter of credit prescribed by the Society from time to time; or

  3. (3)

    any standard form guarantee agreement prescribed by the Society from time to time.

INSPRU 8.2.25RRP

The Society must provide the FSA with full details of:

  1. (1)

    the form of any new Lloyd's trust deed it intends to approve, as described in INSPRU 8.2.23 R and

  2. (2)

    any amendments falling within INSPRU 8.2.24 R.

INSPRU 8.2.26RRP

The Society must consult interested parties in relation to any new Lloyd's trust deed and in relation to any amendment falling within INSPRU 8.2.24 R.

INSPRU 8.2.27GRP

Except in urgent cases, the Society should consult in relation to any new Lloyd's trust deed or amendments before the new deed or amendments take effect.

INSPRU 8.2.28RRP

The information provided to the FSA by the Society under INSPRU 8.2.25 R must include:

  1. (1)

    a statement of the purpose of any proposed amendment or new Lloyd's trust deed and the expected impact, if any, on policyholders, managing agents, members, and potential members; and

  2. (2)

    a description of the consultation undertaken under INSPRU 8.2.26 R including a summary of any significant responses to that consultation.

INSPRU 8.2.29GRP

The FSA would normally expect to receive the information required under INSPRU 8.2.25 R and INSPRU 8.2.28 R not less than three months in advance of the proposed change.