LLD 18.2 Adequacy of financial resources
Application of PRU 1.2
PRU 1.2 applies to managing agents and to the Society in accordance with:
- (1)
for managing agents, LLD 16.3.3 R; and1
1 - (2)
for the Society, LLD 16.3.1 R.
LLD 18.2.7 R applies to members, pursuant to the insurance market direction in LLD 18.2.5 D.
Insurance market direction
The insurance market direction in LLD 18.2.5 D is given under section 316(1) of the Act (Direction by Authority) and applies to members.
The purpose of the insurance market direction in LLD 18.2.5 D is to enable the FSA to make the rule in LLD 18.2.7 R applying to members, in order to:
- (1)
protect policyholders against the risk that members may not have adequate financial resources to meet liabilities under or in respect of contracts of insurance as they fall due;
- (2)
promote confidence in the market at Lloyd's by requiring members to maintain financial resources which are adequate to meet their liabilities.
With effect from 1 January 2005, Part X of the Act (Rules and Guidance) applies to the members of the Society taken together in relation to the insurance market activities of effecting and carrying out contracts of insurance written at Lloyd's, for the purpose of applying the rules and guidance in LLD 18.2.7 R to LLD 18.2.9 G.
Part X of the Act is a core provision specified in section 317(1) of the Act (The core provisions). Section 317(2) provides that references in an applied core provision to an authorised person are to be read as references to a person in the class to which the insurance market direction applies. From 1 January 2005, references in Part X of the Act are to be read as references to members for the purposes of LLD 18.2.7 R to LLD 18.2.9 G.
Members' obligation to maintain adequate financial resources
The members taken together must at all times maintain overall financial resources, including capital and liquidity resources, that are adequate, both as to amount and quality, to ensure that there is no significant risk that liabilities under or in respect of contracts of insurance written at Lloyd's will not be met as they fall due.
Under PRU:
- (1)
managing agents must ensure that adequate financial resources are available to support the insurance business carried on through each syndicate that they manage; and
- (2)
the Society must, having regard to the availability and value of the central assets, ensure that the financial resources supporting the insurance business of each member are adequate at all times.
In practice compliance with the requirements described in LLD 18.2.8 G are likely to have the effect that members comply with LLD 18.2.7 R.