INSPRU 8.1 Application

The Society is subject to INSPRU and GENPRU rules in respect of the insurance business of each Lloyd's member. These include rules in respect of:

1. (1)

   the calculation of the capital resources requirements for each member;

2. (2)

   the financial resources it manages on behalf of members; and

3. (3)

   the Society's own financial resources.

Syndicate membership may change from year to year or it may remain constant. Managing agents are required to apply INSPRU and GENPRU to the insurance business carried on through each syndicate for each syndicate year. This should ensure that INSPRU and GENPRU are applied to Lloyd's in a way that is consistent with the provision of capital to support the insurance business underwritten.

Where common systems and controls or processes are appropriate for all the insurance business carried on through more than one syndicate year, a single response may be adequate for all syndicate years. However, in some cases it will be important to consider the business of each open syndicate year separately, particularly for quantitative rules. For example, it is important that managing agents separately assess the financial resources (including capital) that are required and are available to support the insurance business carried on through each syndicate year, where the syndicate membership changes from year to year. This is because each member's assets are only available to support its own business, so the assets supporting one year of account may not be available to support another. For example, if a managing agent were to assess the financial requirements of two or more syndicate years together where the capital structure had changed, there would be a risk that the managing agent might take account of diversification effects that were not reflected in the capital supporting the insurance business.

There is no requirement on managing agents to carry out separate individual capital assessments for syndicates for each syndicate year. Managing agents are required to carry out individual capital assessments for each syndicate as if that syndicate were a firm; this would normally be on the basis of a going concern but, just as in a firm, account needs to be taken of any restrictions on the availability of assets (e.g. deposits with cedants), and some account needs to be taken of changes in the capital participation in the syndicate. The Society is responsible for the individual capital assessment for each member, which must take into account the assessments made by managing agents of any syndicates on which the member participates. INSPRU 7.1 contains rules and guidance on the assessment of capital adequacy for firms and INSPRU 7.1.74 G to INSPRU 7.1.90 R2 provide for the application of INSPRU 7.1 to the Society and managing agents.

The assessment which a firm makes should be based upon its future business plans and projections. This is the main area where the firm's assessment may diverge from its prescribed capital resources requirement which, necessarily, is based upon historic data.