1A contravention of the rules in this chapter does not give rise to a right of action by a private person under section 150 of the Act (Actions for damages) and each of those rules is specified under section 150(2) of the Act as a provision giving rise to no such right of action.
This chapter applies to:
the Society; and
The purpose of this chapter is to:
set out specific requirements for the prudential management of the insurance business of Lloyd's members, including management of the assets supporting that business; and
clarify how PRU rules and guidance are to apply to the insurance business of Lloyd's members.
Members bear the risk in respect of their insurance business and so it is their responsibility to hold financial resources to support that business. A member participates on a several basis, for its own account. In practice managing agents manage the business and the Society manages the market. Should a member hold insufficient financial resources, the Society's own assets may be used to support that member's business.
If a provision in PRU applies to the Society "in accordance with" this rule, the Society must:
manage each member's funds at Lloyd's;
manage its central assets; and
supervise the insurance business carried on by each member at Lloyd's;
so as to achieve in relation to those assets and that insurance business the same effect as the relevant PRU provision would have (that is, conforming with the requirements of any rule and taking appropriate account of any applicable guidance,) when applied to a firm or to the insurance business of a firm.
The Society is subject to PRU rules in respect of the insurance business of each Lloyd's member. These include rules in respect of:
the calculation of the capital resources requirements for each member;
the financial resources it manages on behalf of members; and
the Society's own financial resources.
If a provision in PRU applies to a managing agent "in accordance with" this rule, the managing agent must, in relation to each syndicate managed by it and for each syndicate year, manage:
the syndicate assets; and
the insurance business carried on by the members of the syndicate through that syndicate;
so as to achieve in relation to those assets and that insurance business the same effect as the relevant PRU provision would have (that is, conforming with the requirements of any rule and taking appropriate account of any applicable guidance,) when applied to a firm or to the insurance business of a firm.
Syndicate membership may change from year to year or it may remain constant. Managing agents are required to apply PRU to the insurance business carried on through each syndicate for each syndicate year. This should ensure that PRU is 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. PRU 2.3 contains rules and guidance on the assessment of capital adequacy for firms and LLD 19.4.1 R to LLD 19.4.24 R provide for the application of PRU 2.3 to the Society and managing agents.
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Key PRU requirements |
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Risk management, systems and controls |
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The Society to establish and maintain systems and controls to address risks affecting the Lloyd's market |
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The Society to establish and maintain systems and controls for the management of prudential, credit, market, liquidity and operational risks affecting funds at Lloyd's and central assets |
LLD 17.4 , LLD 18.4, LLD 20.2, LLD 21.2, LLD 22.2 & LLD 23.2 |
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Managing agents to establish and maintain systems and controls for the management of prudential, credit, market, liquidity, operational, and insurance risks affecting each syndicate |
LLD 17.4 , LLD 18.4, LLD 20.2, LLD 21.2, LLD 22.2, LLD 23.2 & LLD 24.2 |
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Adequacy of financial resources |
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The Society to ensure that members' financial resources are adequate |
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Members taken together to maintain adequate financial resources in respect of the insurance business conducted at Lloyd's |
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Managing agents to ensure that financial resources are adequate for each syndicate |
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Valuation |
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The Society and managing agents to apply generally accepted accounting principles to valuing assets, liabilities, equity and income statement items for the purposes of the rules and guidance in LLD and PRU unless the contrary is expressly stated |
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Capital resources requirements |
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The Society to calculate the MCR in respect of the general insurance business of each member |
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The Society to calculate the CRR (higher of MCR and ECR) in respect of the long-term insurance business of each member |
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Capital resources |
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The Society and managing agents to calculate capital resources in accordance with the rules and guidance in LLD and PRU |
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Adequacy of capital resources |
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Managing agents to assess the adequacy of capital resources held at syndicate level in respect of insurance business carried on through each syndicate (annual ICA for each syndicate) |
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The Society to assess the adequacy of capital resources available to support each member's insurance business (ICA for each member), both at syndicate level (taking account of syndicate ICAs), and as funds at Lloyd's |
