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LLOYD’S UPDATE - 2009 RESULTS & 2010 CAPACITY

Appendix 4

Lloyd’s Chain of Security

Lloyd’s security consists of three links in what is called the Chain of Security as shown in Chart 17. The three links are:

  • 1.

    Syndicate assets: Premium Trust Funds (PTFs) of GBP37.4bn. PTFs consist of premiums for a given year of account managed under trust by the Managing Agent. All claims pertinent to that year of account are paid out of the relevant PTF. There are separate PTFs held for life and non-life lines of business, and also for business written overseas in currencies other than sterling.

  • 2.

    Members’ assets: Funds at Lloyd’s (FAL) of GBP13.2bn. Capital requirements for each member are determined through the Individual Capital Assessment (ICA) whereby each syndicate states how much capital it requires to cover the underlying business risks. This is agreed with the corporation and then “uplifted” (by 35% in 2009) to ensure extra capital is in place to support Lloyd’s ratings and financial strength. This uplifted ICA is known as the Economic Capital Assessment (ECA). Assets supporting FAL requirements must be liquid but may include letters of credit and bank guarantees.

3.

Central resources of the Society. The net assets of the Society as at 31 December 2009 were GBP1.1bn, which included Central Fund net assets of GBP983mn. Syndicate loans, introduced in 2005, have now been replaced with a second tranche of subordinated debt that, together with the 2005 issue, totals GBP958mn and brings central resources to GBP2.1bn. The Council can also call from members’ PTFs an amount up to 3% of a member’s premium limits in aggregate in any one year. The Council of Lloyd’s regularly reviews the central assets target and level of contribution. The current target for unencumbered central assets is a minimum of GBP1.7bn. The contribution rate remains at 0.5% of gross premiums written for 2010.

Chart 17 – Assets at Lloyd’s as at 31 December 2009

Central Assets

Subordinated Debt GBP958mn

Central Fund GBP983mn Corporation Assets GBP143mn

Callable Layer (=3%) GBP683mn

Members' Assets

Funds at Lloyd's (underlying capital set by Lloyd's) GBP13,159mn

Syndicate Assets

Premium Trust Funds GBP37,400mn

Several assets

Mutual assets

Contingent

Source: Lloyd’s

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