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Lloyd's Of London Term Paper

Loyd's Lloyds of London

Lloyd's of London is an internationally based insurance market leader and insurer. The company is the world's second largest insurer and sixth largest re-insurance group in the world. Lloyd's provides specialist insurance services to companies and organizations in 120 markets globally. The name is widely respected and well-known throughout the international business market community. Lloyd's has been in operation for over 300 years. The company has underwritten over 1688 ships and cargoes, 1887 non-marine risk ventures and issued the first motor policy in 1904 (Lloyd's, 2003). The company also underwrote many of the claims that were paid as a result of the San Francisco earthquake of 1906 (Lloyd's, 2003).

Lloyd's began as a coffeehouse, Edward Lloyd's coffeehouse, which bloomed into a marine insurance industry during the 17th century, and eventually expanded from shipping into other risk areas generally deemed untouchable by other insurance markets (Sapient, 2003). Lloyd's has developed a great deal of contacts and networking representatives over the years and established a solid reputation and security because of those relationships. The market Lloyd's provides has become so reliable that the British government in the height of its era has often relied on the market for economic and military intelligence in the past (Sapient, 2003).

Lloyd's of London has been deemed a "bona fide British institution," a marketplace where risk is mitigated via investors who underwrite risk in exchange for premium payments (Sapient, 2003). Lloyd's currently realizes multiple levels of revenue based on the various risk insurance and services it provides to its customers (Sapient, 2003). Though the market is not immune from fluctuations in the economy, such as the events that occurred following the attacks on the World Trade Centers, the market still has consistently managed to realize some profit and long-term security over the years. The companies accounting practices typically span a three-year cycle. This means that the method of accounting requires accounts to remain open for a period of 36 months, and premium income and claims are usually accounted for within the actual year a policy is issued (Lloyd's, 4792). The global assets for the company available to meet policyholder's claims for years 2001 and 2002 are defined in the chart below:

Cash and Investments

Reinsures share of technical provisions

Other assets

Total Assets

Total Liabilities

Net Resources

Source: http://www.lloyds.com/index/asp?ItemID=4792

Currently, Lloyd's holds approximately 5% of the world's re-insurance is placed at Lloyds. This 5% equates to half of London's international insurance market. Reinsurance is basically defined as insurance for insurance companies (ICMIF, 2003). Specifically, Lloyd's reinsures by distributing the risks and potential liabilities of other insurance companies onto itself. An original insured company distributes its risks to reduce the impact of a harsh claim. Reinsurance typically occurs in international business markets. Reinsurance does not guarantee a reduction in loss for the reinsured, but rather makes the impact of loss less damaging.

Lloyd's shares the risk of other insurance companies and enables clients to get coverage that any one company would not necessarily be able to assume. Lloyd's establishes contracts which insure companies against any risk they may incur by insuring someone else. Any international company that insures anything is inherently taking on risks. Lloyd's attempts to enable companies to minimize the impact of such risks.

Lloyd's business class ventures as of December 2002 included the following:

3% of business from Accident and Health

2% Motor third party liability

7% motor other classes

14% Marine, aviation and transport

22% Fire and other property damage

23% third party liability

25% reinsurance

3% other

Source: Lloyd's Market Reporting & Analysis, Lloyd's 2003

Lloyd's is also responsible for insuring some unusual risks. One such risk is lottery winnings. Currently employers can purchase insurance from Lloyd's that will protect them if employees in the UK were to win the lottery and walk out of their job (Lloyd's, 2003). Lloyd's also insures events including the Olympic Games, British and Commonwealth Games and World Soccer Championships (Lloyd's, 2003). Currently Lloyd's is looking into expanding into another unusual market - hacking. According to Lloyd's representatives, "hackers can cause millions of dollars worth of damage to businesses, and insurance companies have historically been unwilling to insure against those losses" (Enos, 2000). Lloyd's however, has recently partnered with a California based insurance company, Counterpane Security Inc., in an effort to provide insurance coverage for business losses that result from hacker "mischief" (Enos, 2000). The new insurance venture will protect companies from loss of revenues and loss of information assets which result from internet and e-commerce breaches (Enos, 2000). Lloyd's in this respect has become a pioneer of sorts, just another example of the constant desire for innovation within...

Lloyd's agreed to insure the company because Counterpane adequately demonstrated that it could reduce its client's exposure to hacking risk through advanced forms of security monitoring (Enos, 2000). As with all of its unusual ventures, Lloyd's has been very selective to assure that it invests in viable and safe business ventures.
Lloyd's must be defined as a market and not a company. The Lloyd's market currently overseas interaction between insurance brokers and underwriters within the "Lloyd's market place" (Lloyd's, 2003). Underwriters are responsible for accepting risk, and continually evolving new and innovating ways to meet consumers and client's needs to cover those risks. Brokers are responsible for offering competitive prices to clients and providing specialty knowledge regarding insurance prospects (Lloyd's, 2003).

MEMBERS

Lloyd's members provide supporting capital for the insurance market (Lloyd's, 2605). Corporate eligibility for members includes investment institutions and international insurance companies, who are referred to as "Names" once they join Lloyd's" (Lloyd's, 2605). Lloyd's of London utilizes capital gained from memberships to underwrite insurance risks (Lloyd's, 2605). Certain groups of members are referred to as insurance syndicates. These members are a group of individuals or a corporate entity that provide Lloyd's with the capital necessary to back liabilities that Lloyd's insures, and such members are typically annual ventures (Lloyd's, 2605). A syndicate is typically defined as an association or grouping of companies that come together for a definitive purpose, in Lloyd's case to underwrite or provide insurance (hyper dictionary, 2003). Insurance syndicates of Lloyd's are authorized to undertake underwriting tasks and to negotiate business.

Each insurance syndicate make operate an independent business unit and generally are run by managing agents (Lloyd's, 2605). Syndicates appoint an underwriting team that represents the syndicate membership, whether corporate or individual. Within Lloyd's there are currently 71 insurance underwriting syndicates that cover specialty areas which include: Marine, Aviation, Catastrophe, Professional Indemnity and Motor (Lloyd's, 2605).

Each of the associate or syndicate members are responsible for responding to specific risks in the client base, which for Lloyd's includes "syndicates competing on price and service for business from 96% of the FTSE 100 companies and 93% of Dow Jones companies" (FTSE, 2002). Lloyd's is able to offer its clients flexibility and continued choice and innovation.

MANAGING AGENTS/BROKERS

The managing agents in charge of running syndicates each operate a franchise of Lloyd's market. Brokers are responsible for placing "risk in the Lloyd's market on behalf of clients" (Lloyd's, 2605). As of November of 2002 there were 150 firms of brokers associated with Lloyd's of London (Lloyd's, 2605). Lloyd's requires that all of its brokers seek accreditation in order to access its market, and all must be GISC registered as a means to protect investors and their financial credibility (Lloyd's, 2605).

Management AT LLOYD'S

London enacted an Act of Parliament referred to as the Lloyd's Act of 1982, which currently defines and regulates the management structure that Lloyd's adheres to (Lloyd's, 2638). Currently the management at Lloyd's is regulated by the Financial Services Authority or FSA (Lloyd's, 2638). A council currently manages Lloyd's, comprised of a total 18 members, 1/3 of which are working, 1/3 of which are external members and 1/3 of which are nominated by investors (Lloyd's, 2638). The Governor of the Bank of England currently is responsible for confirming each nominated member, whereas the working and external members are currently nominated and appointed by Lloyd's internal members (Lloyd's, 2638).

The council of Lloyd's currently has the authority to make decisions and issue resolutions, requirements, rules and byelaws for the organization (Lloyd's, 2638). A franchise board has also been established that is responsible for establishing strategy for each independent franchise as well as establishing protocol for risk management procedures for franchisees. The Franchise board, operating under the general direction of the council of Lloyd's also provides direction for syndicates and establishes guidelines for developing business planning and underwriting standards (Lloyd's, 2638). Currently the Franchise Board is comprised of a CEO, Director of Finance, Risk Management Operator and Franchise Performance Director (Lloyd's, 2638).

"Corporation of Lloyd's" also exists to provide executive support to both council members and the Franchise Board (Lloyd's, 2638). Some of the key corporation departments within Lloyd's include the following departments currently exist that govern operations: Change Management and Human Resources/Communications/Finance, Risk Management and Operations/Financial Control/Information Technology/Legal Services.

Change Management and Human Resources are comprised of personnel dedicated to personnel issues, benefits, training and development and community affairs (Lloyd's, 2398). Nick Prettejohn heads up the change management team at Lloyd's and is currently working on the development of a Franchisor…

Sources used in this document:
References

Capacity." Lloyds. September 10, 2003 http://www.lloyds.com/index.asp?itemid=2648

Communications" Lloyds. November 4, 2003. http://www.lloyds.com/index.asp?ItemId=2392

Change Management and Human Resources. Lloyds. October 17, 2003. http://www.lloyds.com/index.asp?ItemId=2398

Explanation of the Market" October 27, 2003. Lloyds. http://www.lloyds.com/index.asp?ItemId=2605
Enos, Lori. "Insurance." E-Commerce Times. July 10, 2000. http://www.ecommercetimes.com/perl/story/3730.html
Finance and Risk Management. Lloyds. February 13, 2003. http://www.lloyds.com/index.asp?ItemId=2396
ICMIF. 2003. "What is Reinsurance?" International Cooperative and Mutual Insurance Federation November 17, 2003 http://www.icmif.org/reinsurance/definition.asp
International Compliance." Lloyds. February 14, 2003. http://www.lloyds.com/index.asp?ItemId=2407
December 17, 2002. Director of Worldwide Markets. http://www.bulletins.lloydsoflondon.com/bulletins/mktcirc.nsf/mktBulletins/YS944/$file/Y2944.pdf
Lloyd's Members Services Unit." Lloyds. February 2003 http://www.lloyds.com/index.asp?ItemId=3423
Market Structure." Lloyds. November 4, 2003 http://www.lloyds.com/index.asp?ItemId=2664
Management Structure" Lloyd's of London. May 11, 2003. http://www.lloyds.com/index.asp?ItemId=2638
Plimley, Jonathan. "Opportunities in Asia-Pacific" November 18, 2003 http://www.lloyds.com/index.asp?ItemID=4170
Sapient. "Combining the best of tradition and technology." Sapient Technology. November 18, 2003, http://www.sapient.com/case/lloyds/htm
Suppliers of Global Capital/Funds." Lloyds. November 3, 2003 http://www.lloyds.com/index.asp?ItemId=2663
Sources of Capital" Lloyds. October 27, 2003 http://www.lloyds.com/index.asp?ItemId=3423
Syndicate" November 18, 2003, http://www.hyperdictionary.com/dictionary/syndicate
WWM. Global or Multinational Policies. Director, Worldwide Markets. 26 November, 2002. http://www.bulletins.lloydsoflondon.com/bulletins/mktcirc.nsf/mktBulletins/Y2920/$file/Y2920.pdf
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