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.
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.
LLD 17.2.1 R ensures that any insurance business carried on by members is subject to appropriate FSA requirements.
The application of PRU to Lloyd's is effected in LLD 16 to LLD 24. SUP App 2 is applied to Lloyd's in LLD 25. Further requirements relevant to the Society's general responsibilities with regard to the market are contained in LLD 1 to LLD 8A and LLD 17. Requirements relevant to managing agents and other participants and advisers in relation to the Lloyd's market are contained elsewhere in the Handbook.
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.
As well as the risks that are common to other firms, there are significant risks in the Lloyd's market arising out of its structure and the interrelationships between the entities involved. The risks include aggregations of risk in the market. The Society should ensure that the systems and controls required by LLD 17.4.1 R enable it to identify, monitor and manage those risks.
The systems and controls in LLD 17.4.1 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capital assessment for each member are regularly reviewed and that appropriate action is taken if any assumption is no longer valid.
The Society must take all reasonable steps, including establishing and maintaining adequate systems and controls to enable it:
to manage the risks to which funds at Lloyd's and central assets are exposed; and
to ensure that funds at Lloyd's and central assets are adequate to support all balancing amounts.
In complying with LLD 17.4.4 R the Society should take appropriate account of effects such as diversification and concentrations.
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.
In complying with LLD 17.4.6 R a managing agent need not take account of risks associated with assets that are not syndicate assets.
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.
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:
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;
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.
Should the Society intend to exercise any power it may have to prescribe a course of action for a managing agent which the managing agent might reasonably consider to be inconsistent with the interests of any member whose insurance business it manages, the Society should:
Many entities operating within the Lloyd's market are part of a corporate group, including the Society, certain managing agents and members. Those entities are subject to group risk arising from their own corporate group and, depending on the relationships within their own group, may be subject to FSA systems and controls requirements or group risk requirements. The rules and guidance in this section are intended to ensure that sufficient systems and controls are in place to protect policyholders and potential policyholders from such risks. The Society is also subject to the risk of wider conflicts of interest or the appearance of conflicts of interest in carrying out the Society's regulatory functions. LLD 17.4.13R (1) requires the Society to monitor and manage those risks.
In complying with LLD 17.4.6 R, managing agents should have particular regard to:
transactions which may give rise to a conflict of interest, such as those to which the counterparties are:
other members of the managing agent's own group;
any members of any syndicates managed by the managing agent; or
any entity that is part of a group to which one or more members of any syndicates managed by the managing agent belong; and
transactions involving:
the provision of capital;
the provision of reinsurance; or
the provision of other services.
The Society must establish and maintain effective arrangements to monitor and manage risk arising from:
conflicts of interest (including in relation to (2) to (4));
inter-syndicate transactions, including reinsurance to close and approved reinsurance to close;
related party transactions; and
transactions between members and itself.
The arrangements in LLD 17.4.13 R must enable the Society to identify any significant overstatement of financial resources resulting from any transaction falling within LLD 17.4.13R (2) to LLD 17.4.13R (4), including as a result of:
If the Society identifies a significant overstatement of the kind referred to in LLD 17.4.14 R, it must ensure that an appropriate adjustment is made, including if appropriate by a deduction from or reduction in the value attributed to:
the capital resources of any member concerned; or
In complying with LLD 17.4.14 R and LLD 17.4.15 R, the Society should consider the significance of any overstatement with regard to the value of the Society's capital resources that are not required to cover shortfalls in a member's capital resources.
As defined in the Glossary, "approved reinsurance to close" excludes:
reinsurance between parties other than members; and
balance transfers between syndicate years of syndicates having only one member, which have no effect on the overall liabilities of that member.
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.
Notwithstanding that the liability of a reinsured member to a policyholder is unaffected by an approved reinsurance to close as described in LLD 17.5.2 G, for the purposes of PRU only:
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
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.
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.
A managing agent need not comply with LLD 17.6.1 R if the managing agent knows that the Society already has the relevant information.
The Society must take all reasonable steps to ensure that each member:
executes the appropriate Lloyd's trust deeds; and
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.
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.
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.
In complying with LLD 17.7.1 R to LLD 17.7.3 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.
The requirement in LLD 17.7.4 R should be read in conjunction with the requirements of PRU 7.6 as applied to the Society and managing agents in LLD 24.6.1 R to LLD 24.6.5G.
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.
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:
any Lloyd's trust deed;
any standard form letter of credit prescribed by the Society from time to time; or
any standard form guarantee agreement prescribed by the Society from time to time.
The Society must provide the FSA with full details of:
the form of any new Lloyd's trust deed it intends to approve, as described in LLD 17.8.1 R; and
any amendments falling within LLD 17.8.2 R.
The Society must consult interested parties in relation to any new Lloyd's trust deed and in relation to any amendment falling within LLD 17.8.2 R.
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.
The information provided to the FSA by the Society under LLD 17.8.3 R must include:
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
a description of the consultation undertaken under LLD 17.8.4 R including a summary of any significant responses to that consultation.
The FSA would normally expect to receive the information required under LLD 17.8.3 R and LLD 17.8.6 R not less than three months in advance of the proposed change.
