LLD Lloyd's

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Export part as

LLD 1

Society's regulatory functions

LLD 1.1

Application and purpose

01/12/2004

Application

LLD 1.1.1

The guidance in this chapter is relevant to the Society.

01/12/2004

Purpose

LLD 1.1.2

The guidance in this chapter is intended to:

(1) promote confidence in the market at Lloyd's by ensuring that it is appropriately and effectively regulated by the Society and the Council and those to whom the Council delegates the Society's regulatory functions;
(2) protect policyholders and members; and
(3) enable the FSA to use its resources in an efficient and effective way when regulating underwriting agents, and approved persons acting for or on behalf of those agents, by making it possible for the FSA to rely on the Society and the Council to carry out certain functions on behalf of the FSA or otherwise.

01/12/2004

LLD 1.2

Carrying out the Society's regulatory functions

01/12/2004

Delegation

LLD 1.2.1

The Society should establish and maintain a clear, appropriate and effective delegation of responsibilities for the carrying out of the Society's regulatory functions, so that the Council can adequately monitor and control them.

16/12/2004

LLD 1.2.2

The Council should:

(1) approve and record the delegation referred to in LLD 1.2.1 G; and
(2) review it at least once each year.

01/12/2004

LLD 1.2.3

The terms and limits of any delegation of authority referred to in LLD 1.2.1 G should be made clear to those to whom that authority is delegated.

01/12/2004

LLD 1.2.4

Any committee to which the Society delegates authority under LLD 1.2.1 G should:

(1) have formal terms of reference;
(2) make and retain proper records, including minutes of its meetings; and
(3) be composed of an appropriate number of individuals who are collectively and individually fit and proper.

01/12/2004

LLD 1.2.5

Any individual or other person to whom the Society delegates authority under LLD 1.2.1 G should:

(1) have a written statement of the scope of his delegated authority and the purpose for which it is to be exercised;
(2) make and retain proper records of the exercise of his delegated authority; and
(3) be fit and proper.

01/12/2004

Disciplinary arrangements

LLD 1.2.6

The Society's disciplinary arrangements, including the activities of its disciplinary and appeal committees, should ensure a prompt, fair and independent hearing for any person accused of breaching a byelaw, as required by the Human Rights Act 1998.

01/12/2004

Dealing with the FSA

LLD 1.4

Confidential regulatory information

01/12/2004

Export chapter as

LLD 2

Provision of information

LLD 2.1

Application and purpose

01/12/2004

Application

LLD 2.1.1

This chapter applies to the Society and the directions in it are given to the Council and to the Society acting through the Council.

01/12/2004

Purpose

LLD 2.1.2

The directions in this chapter are given under section 318 of the Act (Exercise of powers through Council), for the purpose of achieving the objective specified, as required by section 318(2) of the Act, in LLD 2.2.1 D.

01/12/2004

LLD 2.2

Specification of objective

01/12/2004

LLD 2.2.1

The directions and guidance in this chapter are given in relation to the exercise of the powers of the Society and of the Council generally, with a view to achieving the objective of enabling the FSA to:

(1) comply with its general duty under section 314 of the Act (Authority's general duty);
(2) determine whether underwriting agents, or approved persons acting for them or on their behalf, are complying with the requirements imposed on them by or under the Act;
(3) enforce the provisions of the Act, or requirements made under the Act, by enabling the FSA to consider, where appropriate, whether it should use its powers, for example, to:

(a) vary or cancel the permission of an underwriting agent, under section 45 of the Act (Variation etc on the Authority's own initiative);
(b) withdraw approval from an approved person acting for or on behalf of an underwriting agent, under section 63 of the Act (Withdrawal of approval) (see ENF 7);
(c) prohibit an individual acting for or on behalf of an underwriting agent from involvement in regulated activities, under section 56 of the Act (Prohibition orders) (see ENF 8);
(d) require an underwriting agent to make restitution, under section 384 of the Act (Power of Authority to require restitution) (see ENF 9);
(e) discipline an underwriting agent, or an approved person acting for it or on its behalf, for a breach of a requirement made under the Act, including the Principles, Statements of Principle and rules (see ENF 11, ENF 12 and ENF 13);
(f) apply to court for an injunction, restitution order or insolvency order (see ENF 6, ENF 9 and ENF 10); and
(g) prosecute any criminal offence that the FSA has power to prosecute under the Act (see ENF 15).

01/12/2004

LLD 2.2.2

Information provided to the FSA by the Society to comply with the Act, requirements under the Act or rules, may also be used by the FSA for the purposes stated in LLD 2.2.1 D.

01/12/2004

LLD 2.2.3

Other sections of LLD covering the provision of information to the FSA are:

(1) LLD 3.3 (Information about the Central Fund);
(2) LLD 4.3 (Information about the capacity transfer market);
(3) LLD 7.4 (Information about complaints); and
(4) LLD 15 (Reporting by the Society).

01/12/2004

LLD 2.3

Information on matters likely to be of material concern to the FSA

01/12/2004

LLD 2.3.1

The Society must immediately inform the FSA in writing if it becomes aware that any matter likely to be of material concern to the FSA may have arisen in relation to:

(1) the regulated activities for which the Society has permission; or
(2) underwriting agents; or
(3) approved persons or individuals acting for or on behalf of underwriting agents.

01/12/2004

LLD 2.3.2

LLD 2.3.1 D is designed to enable the FSA to fulfil its monitoring and enforcement obligations under paragraph 6 of Schedule 1 to the Act (The Financial Services Authority), whilst at the same time recognising the Society's powers and responsibilities for supervising and regulating the market.

01/12/2004

LLD 2.3.3

In view of the Society's responsibilities for the Society's regulatory functions, the FSA's monitoring of underwriting agents, and approved persons acting for them or on their behalf, may be less intensive than its monitoring of firms and approved persons outside the Lloyd's market. The purpose of LLD 2.3.1 D is to ensure that the Society informs the FSA when it becomes aware, as a result of carrying out the Society's regulatory functions, of matters likely to be of material concern to the FSA.

01/12/2004

LLD 2.3.4

Matters likely to be of material concern to the FSA include but are not limited to:

(1) facts suggesting that an underwriting agent may no longer satisfy the threshold conditions in relation to a regulated activity for which it has a Part IV permission;
(2) facts suggesting that an underwriting agent may have contravened, is contravening, or is likely to contravene, a requirement imposed on it by or under the Act;
(3) facts suggesting that the interests of consumers are or may be at risk;
(4) facts suggesting that an approved person acting for or on behalf of an underwriting agent may not be fit and proper to carry out the functions to which the approval relates;
(5) facts suggesting that an approved person, or individual acting for or on behalf of an underwriting agent, may not be fit and proper to perform functions in relation to a regulated activity carried on by a firm or exempt person;
(6) facts suggesting that an approved person acting for or on behalf of an underwriting agent may have failed to comply with a Statement of Principle, or may have been concerned in the contravention by an underwriting agent of a requirement imposed on it by or under the Act; and
(7) facts suggesting that a person may have committed a criminal offence that the FSA has power to prosecute under the Act and that came to the Society's notice in the course of its regulated activities or the Society's regulatory functions.

01/12/2004

LLD 2.4

Information on investigations and disciplinary proceedings

01/12/2004

LLD 2.4.1

The Society must inform the FSA if it commences investigations or disciplinary proceedings relating to apparent breaches:

(1) of the Act or requirements made under the Act, including the threshold conditions or the Principles or other rules, by an underwriting agent; or
(2) of the Statements of Principle by an individual or other person who carries out controlled functions for or on behalf of an underwriting agent.

01/12/2004

LLD 2.4.2

The Society must inform the FSA if it commences investigations or disciplinary proceedings which do not fall within the scope of LLD 2.4.1 D but which:

(1) involve an underwriting agent, or an approved person who carries out controlled functions for it or on its behalf; or
(2) may indicate that an individual acting for or on behalf of an underwriting agent may not be a fit and proper person to perform functions in relation to regulated activities.

01/12/2004

LLD 2.4.3

The information provided under LLD 2.4.1 D and LLD 2.4.2 D should include information about any:

(1) commencement of an inquiry under Lloyd's Inquiries and Investigations Byelaw (No 3 of 1983);
(2) issue of proceedings under Lloyd's Issue of Proceedings by Council Byelaw (No 18 of 1983);
(3) administrative suspension under Lloyd's Administrative Suspension Byelaw (No 7 of 1987);
(4) making of a review order under Lloyd's Review Powers Byelaw (No 5 of 1986);
(5) imposition of penalties under Lloyd's Misconduct and Penalties Byelaw (No 30 of 1996);
(6) directions given under Lloyd's Suspension: Supplementary and Consequential Matters Byelaw (No 19 of 1983);
(7) institution of disciplinary proceedings, settlement of disciplinary proceedings, or decisions of a Disciplinary Tribunal under Lloyd's Disciplinary Committees Byelaw (No 31 of 1996); and
(8) restitution ordered under Lloyd's Restitution Orders Byelaw (No 24 of 2000).

01/12/2004

LLD 2.4.4

The Society need not give the FSA notice of routine inspections which form part of regular monitoring or themed visits.

01/12/2004

LLD 2.4.5

At the end of each calendar month, the Society should report to the FSA on the progress of all investigations and disciplinary proceedings previously reported under LLD 2.4.1 D and LLD 2.4.2 D that are still in progress or which ceased during that month.

01/12/2004

LLD 2.4.6

The Society should send the FSA the information under LLD 2.4.1 D, LLD 2.4.2 D and LLD 2.4.5 G within five business days of the end of each calendar month.

01/12/2004

LLD 2.5

Co-operation between the FSA and the Society

01/12/2004

LLD 2.5.1

LLD 2.5.2 G sets out the FSA's policy regarding notification to the Society when the FSA investigates or takes action in relation to an underwriting agent, an approved person who carries out controlled functions for or on behalf of an underwriting agent, or an individual acting for or on behalf of an underwriting agent.

01/12/2004

LLD 2.5.2

Subject to the restrictions on disclosure or use of confidential information in or under sections 348 (Restrictions on disclosure of confidential information by Authority etc) and 349 (Exceptions from section 348) of the Act, any restrictions on disclosure or use that apply under European or common law, and any special circumstances of an individual case, the FSA will notify the Society when the FSA does any of the following:

(1) requires, or authorises an officer to require, an underwriting agent to provide specified information or documents under section 165 of the Act (Authority's power to require information); or

(2) requires an underwriting agent to provide a report by a skilled person under section 166 of the Act (Reports by skilled persons); or

(3) appoints an investigator to carry out an investigation under any of sections 167 to 169 of the Act (Appointment of persons to carry out general investigations, Appointment of persons to carry out investigations in particular cases, Investigations etc in support of overseas regulator) where the subject of the investigation is an underwriting agent or an approved person acting for or on behalf of an underwriting agent; or

(4) executes a warrant to search for and to seize documents where the subject of the investigation is an underwriting agent or an approved person acting for or on behalf of an underwriting agent; or

(5) issues a supervisory notice, a warning notice, a decision notice, a notice of discontinuance or a final notice in relation to the following administrative enforcement action against an underwriting agent:

(a) variation or cancellation of permission on the FSA's own initiative under sections 45 to 47 of the Act (Variation etc at request of authorised person, Variation of permission on acquisition of control, Exercise of power in support of overseas regulator); or

(b) restitution required by the FSA under section 384 of the Act (Power of Authority to require restitution); or

(6) issues a warning notice, a decision notice, a notice of discontinuance or a final notice in relation to the following administrative enforcement action against an approved person acting for or on behalf of an underwriting agent:

(a) withdrawal of approval under section 63 of the Act (Withdrawal of approval); or

(b) prohibition from regulated activities under section 56 of the Act (Prohibition orders); or

(7) issues a warning notice, a decision notice, a notice of discontinuance or a final notice in relation to the prohibition from regulated activities under section 56 of the Act (Prohibition orders) of an individual acting for or on behalf of an underwriting agent; or

(8) applies to the court for an injunction under section 380 (Injunctions) or restitution order under section 382 (Restitution orders) of the Act in relation to an underwriting agent or an approved person acting for or on behalf of an underwriting agent, or for an administration order, winding up order or bankruptcy order against an underwriting agent under Part XXIV of the Act (Insolvency); or

(9) commences a criminal prosecution against an underwriting agent or approved person acting for or on behalf of an underwriting agent.

01/12/2004

LLD 2.5.3

ENF 11 gives further guidance on the policy and procedures which apply in circumstances where both the FSA and other regulatory authorities have an interest in investigating or disciplining a firm, individual or other person. The FSA and the Society have agreed to have enforcement co-operation arrangements to assist them when they are considering cases of regulatory concern or misconduct of mutual interest.

01/12/2004

Export chapter as

LLD 3

The Central Fund

LLD 3.1

Application, purpose and enabling provision

01/12/2004

Application

LLD 3.1.1

This chapter applies to the Society.

01/12/2004

LLD 3.1.2

A 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.

01/12/2004

Purpose

LLD 3.1.3

(1) giving guidance to the Society about the protection that the Central Fund should provide for policyholders; and
(2) enabling the FSA to keep under review the protection the Central Fund provides for policyholders.

01/12/2004

Enabling Provision

LLD 3.1.4

The directions in this chapter are given under section 318 of the Act (Exercise of powers through Council) for the purpose of achieving the objective specified, as required by section 318(2) of the Act.

15/10/2003

LLD 3.1.5

The directions given in this chapter are given in relation to the exercise of the powers by the Society in respect of the Central Fund and are given with a view to achieving the objective of ensuring that the Society in making payments or in providing any other financial assistance from the Central Fund does so on a basis which takes no account of amounts of compensation which policyholders may receive under the provisions of the compensation scheme in respect of protected claims against members.

15/10/2003

LLD 3.2

The Central Fund

01/12/2004

LLD 3.2.1

The Society should seek to ensure that the Central Fund provides protection for policyholders so as to minimise the need for Lloyd's policyholders to have recourse to the compensation scheme.

15/10/2003

LLD 3.2.2

The Society should seek, and take appropriate account of, the FSA's views on all proposed changes in its arrangements relating to the Central Fund.

01/12/2004

LLD 3.2.3

The Society must, in the exercise of its powers to make payments from the Central Fund or to provide other forms of financial assistance from the Central Fund, ensure that in calculating and determining the amount of any such payment or the amount of any other financial assistance, it takes no account of the amounts of compensation which policyholders may receive under the provisions of the compensation scheme in respect of protected claims against members.

15/10/2003

LLD 3.3

Information about the Central Fund

01/12/2004

LLD 3.3.1

The Society must give the FSA a report on the Central Fund as at the end of each calendar quarter.

01/12/2004

LLD 3.3.2

The report referred to in LLD 3.3.1 R must reach the FSA within two weeks of the end of each calendar quarter and must include information on:

(1) the net market value of the Central Fund;
(2) payments made from the Central Fund in that quarter;
(3) the types of investment in which the Central Fund is held;
(4) the commencement or cessation of, or any changes in the terms of, any insurance policy taken out to protect the Central Fund; and
(5) any claim made, or circumstances notified that are likely to lead to a claim, under any insurance policy taken out to protect the Central Fund.

01/12/2004

LLD 3.3.3

Because of the significance of the Central Fund in the protection of policyholders, the Society should notify the FSA under LLD 3.3.2 R (5) of all matters relevant to any actual or potential claim. These include but are not limited to the facts on which that claim is based, the circumstances under which those facts arose and any relevant response to the claim from any insurer or reinsurer concerned.

01/12/2004

LLD 3.3.4

The report referred to in LLD 3.3.1 R must be submitted in writing in accordance with SUP 16.3.7 to SUP 16.3.10 (see SUP 16.3.6).

15/10/2003

Export chapter as

LLD 4

Capacity transfer market

LLD 4.1

Application and purpose

01/12/2004

Application

LLD 4.1.1

This chapter applies to the Society.

01/12/2004

LLD 4.1.2

01/12/2004

Purpose

LLD 4.1.3

The rules and guidance in this chapter are intended to promote confidence in the market at Lloyd's, and to protect certain consumers of services provided by the Society in carrying on, or in connection with or for the purposes of, its regulated activities. They do this by ensuring that the Society appropriately and effectively regulates the capacity transfer market so that it operates in a fair and transparent manner.

01/12/2004

LLD 4.2

Requirement to make byelaws governing conduct in the capacity transfer market

01/12/2004

Requirement

LLD 4.2.1

The Society must make appropriate byelaws governing conduct in the capacity transfer market.

01/12/2004

Standards expected

LLD 4.2.2

The byelaws referred to in LLD 4.2.1 R should:

(1) ensure that adequate and effective arrangements are in place to enable members and persons applying to be admitted as members to enter into transactions to transfer syndicate capacity and settle these transactions in a timely manner;
(2) give clear and comprehensive guidance about the dissemination of information that is, or may be, relevant to the price of syndicate capacity and the transparency of the capacity transfer market; and
(3) prohibit unfair and abusive practices (including market manipulation), the misuse of information not generally available, and the dissemination of false or misleading information.

01/12/2004

LLD 4.2.3

The Society should have adequate and effective arrangements to:

(1) record and monitor transactions in the capacity transfer market, and maintain adequate audit trails; and

(2) suspend or annul transactions where appropriate.

01/12/2004

LLD 4.2.4

The Society should have adequate and effective arrangements to monitor and enforce compliance with the byelaws referred to in LLD 4.2.1 R.

01/12/2004

LLD 4.2.5

The Society should regularly review the byelaws referred to in LLD 4.2.1R, taking account of the standards of conduct required in other UK financial markets.

01/12/2004

LLD 4.2.6

The Society's arrangements for reviewing and amending the byelaws referred to in LLD 4.2.1 R should be timely, effective and impartial and should take into account the guidance about conflicts of interest in LLD 1.3.

01/12/2004

LLD 4.2.7

The Society should consult members and underwriting agents before it finalises material changes in the byelaws referred to in LLD 4.2.1 R, and should have timely and effective arrangements for notifying them of changes in these byelaws.

01/12/2004

Changes in byelaws

LLD 4.2.8

The Society should give the FSA adequate notice of all changes it proposes to make in its byelaws governing conduct in the capacity transfer market.

01/12/2004

LLD 4.2.9

The FSA will take account of the standards of conduct required in other UK financial markets when it reviews proposed changes in the Society's byelaws governing the capacity transfer market.

01/12/2004

LLD 4.3

Information about the capacity transfer market

01/12/2004

LLD 4.3.1

The Society must give the FSA a report as at the end of each calendar quarter in which any capacity is transferred.

01/12/2004

LLD 4.3.2

The report referred to in LLD 4.3.1 R must reach the FSA within one month of the end of the relevant calendar quarter and must include information on:

(1) the total capacity in syndicates transferred during the quarter, analysed by syndicate and method of transfer;

(2) the number, and nature, of all investigations by the Society into conduct in the capacity transfer market undertaken or continued during the quarter; and

(3) the number, and nature, of all complaints received during the quarter about the operation of the capacity transfer market.

01/12/2004

LLD 4.3.3

The report referred to in LLD 4.3.1 R must be submitted in writing in accordance with SUP 16.3.7 to SUP 16.3.10 (see SUP 16.3.6).

18/04/2002

Export chapter as

LLD 5

Former underwriting members

LLD 5.1

Application and purpose

01/12/2004

Application

LLD 5.1.1

This chapter applies to the Society.

01/12/2004

LLD 5.1.2

01/12/2004

Purpose

LLD 5.1.3

The rules and guidance in this chapter are intended to promote confidence in the market at Lloyd's and to protect certain consumers of services provided by the Society in carrying on or in connection with or for the purposes of its regulated activities by:

(1) protecting policyholders against the risk that former underwriting members may not be able to meet any liabilities to carry out contracts of insurance that they underwrote at Lloyd's; and

(2) enabling the FSA to impose requirements under section 320(3) of the Act (Former underwriting members) if it considers this appropriate to protect policyholders.

01/12/2004

LLD 5.2

Requirements relating to former underwriting members

01/12/2004

LLD 5.2.1

The Society must draw sections 320 to 322 of the Act (Former underwriting members, Requirements imposed under section 320, Rules applicable to former underwriting members) to the attention of any person ceasing to be an underwriting member on or after commencement.

01/12/2004

LLD 5.2.2

The Society must require any person, other than a body corporate, ceasing to be an underwriting member on or after commencement to:

(1) notify the Society of any change in his address within one month of the change; and

(2) in the case of a natural person, to make arrangements for the Society to be notified in the event of his death.

01/12/2004

LLD 5.2.3

The Society should make and retain records of the notifications made to it under the requirements referred to in LLD 5.2.2 R. It should give the FSA access to these records if the FSA requests this.

01/12/2004

Export chapter as

LLD 6

Complaints
from policyholders

LLD 6.1

Enabling provision, application and purpose

01/12/2004

Enabling provision and application

LLD 6.1.1

The insurance market direction in this chapter is given under section 316(1) of the Act (Direction by Authority) and applies to members.

01/12/2004

Purpose

LLD 6.1.2

The insurance market direction given in this chapter is intended to protect the interests of policyholders and potential policyholders by:

(1) making members subject to the Compulsory Jurisdiction of the Financial Ombudsman Service with respect to the carrying on of insurance business; and

(2) enabling the complaints of policyholders who are eligible complainants to be dealt with under the rules of the Financial Ombudsman Service.

01/12/2004

LLD 6.2

Insurance market direction on policyholder complaints

01/12/2004

LLD 6.2.1

(1) With effect from commencement, Part XVI of the Act (The Ombudsman Scheme), and in particular section 226 (Compulsory jurisdiction), applies to the carrying on of insurance business by members.

(2) For the purposes of (1) 'insurance business' means the regulated activities of effecting or carrying out contracts of insurance written at Lloyd's.

01/12/2004

LLD 6.2.2

Part XVI (The Ombudsman Scheme) is a core provision mentioned in section 317(1) of the Act (The core provisions).

01/12/2004

LLD 6.2.3

Section 317(2) of the Act (The core provisions) 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. The effect of this, and of the insurance market direction set out at LLD 6.2.1 D, is that Part XVI of the Act (The Ombudsman Scheme), and in particular section 226 (Compulsory jurisdiction), apply also to members.

01/12/2004

LLD 6.2.4

Guidance on the jurisdiction of the Financial Ombudsman Service in relation to members is given in DISP 2.5.3 G. The handling of a policyholder complaint against a member is covered in DISP 1.7.1 R and DISP 1.7.2 R.

01/12/2004

Export chapter as

LLD 7

Complaints
from members

LLD 7.1

Application and purpose

01/12/2004

Application

LLD 7.1.1

This chapter applies to the Society.

01/12/2004

LLD 7.1.2

01/12/2004

Purpose

LLD 7.1.3

The rules and guidance in this chapter are intended to promote confidence in the market at Lloyd's, and to protect certain consumers of services provided by the Society in carrying on, or in connection with or for the purposes of, its regulated activities. They do this by ensuring that there are adequate and effective arrangements to handle and resolve complaints from members about the conduct of certain activities within the Lloyd's market by the Society or by underwriting agents.

01/12/2004

LLD 7.1.4

The Financial Ombudsman Service will not be able to deal with these complaints and separate rules and guidance are therefore required.

01/12/2004

LLD 7.1.5

Complaints from policyholders, and complaints from members about members' advisers, are dealt with in LLD 6, DISP 1.7 and DISP 2.5.3 G.

01/12/2004

LLD 7.2

Complaints handling arrangements

01/12/2004

LLD 7.2.1

The Society must establish and maintain appropriate and effective arrangements for handling any complaint from a member or a former member about:

(1) regulated activities carried on by the Society;

(2) the Society's regulatory functions carried on by the Society, the Council or those to whom the Council delegates authority to carry out such functions;

(3) advice given by an underwriting agent to a person to become, continue or cease to be, a member of a particular syndicate; and

(4) the management by a managing agent of the underwriting capacity of a syndicate on which the complainant participates or has participated.

01/12/2004

LLD 7.2.2

In establishing the arrangements referred to in LLD 7.2.1 R the Society should have regard to:

(1) the likely number of complaints it will receive; and

(2) the nature and complexity of the complaints it is likely to receive and investigate.

01/12/2004

LLD 7.2.3

The arrangements referred to in LLD 7.2.1 R should have the following features.

(1) They should allow for complaints to be made by any reasonable means.

(2) The complaints handling policy and arrangements should be published and be made available to members, former members and underwriting agents.

(3) Copies of the documents referred to in (2) should be sent to a complainant as soon as a complaint is received.

(4) The Society should ensure that its employees and those of underwriting agents are aware of the complaints handling policy and arrangements, and should endeavour to ensure that they act in accordance with them.

(5) All complaints should be investigated promptly and wherever possible provision should be made for review of that investigation by someone who was not involved in the matter complained of.

(6) Appropriate management controls should be put in place to ensure that complaints are handled fairly, impartially and consistently and that recurring or systemic problems can be identified and remedied.

(7) Complaints should be resolved speedily at the earliest stage possible.

(8) If a complaint cannot be resolved speedily, a letter of acknowledgement should be sent promptly, indicating when the complainant can expect a substantive response.

(9) All responses to complaints should adequately address the subject matter of the complaint.

01/12/2004

LLD 7.2.4

A response to a complaint should be sent within four weeks of its receipt. This should:

(1) accept the complaint and where appropriate offer redress (financial or otherwise); or

(2) reject the complaint and give reasons for doing so; or

(3) explain that it has not yet been possible to resolve the complaint and that more time is needed to do so, giving reasons for the delay and stating when a further response will be made.

01/12/2004

LLD 7.2.5

If a complaint has not been resolved within eight weeks from the date on which the Society received it, the complainant should be told that more time is needed and reasons for the delay should be given, with a date when the complainant will get a further response.

01/12/2004

LLD 7.2.6

At the end of the eight week period referred to in LLD 7.2.5 G, or at the time it sends a substantive response (if this is earlier), the Society should also send the complainant information on:

(1) any right to refer the complaint:

(a) to the Lloyd's Members' Ombudsman if the complaint relates to the matters identified in LLD 7.2.1 R (1) or LLD 7.2.1 R (2); or

(b) to the Lloyd's Arbitration Scheme if the complaint relates to the matters identified in LLD 7.2.1 R (3) or LLD 7.2.1 R (4); or

(c) to any other independent dispute resolution scheme that may, pursuant to LLD 7.5.1 R, replace either of the schemes referred to in (a) and (b); and

(2) arrangements and procedures for referring the complaint.

01/12/2004

LLD 7.2.7

Any redress accepted by a complainant should be provided promptly.

01/12/2004

LLD 7.2.8

Where financial redress is appropriate, the aim should be to return the complainant to the position he would have been in had the acts or omissions giving rise to the complaint not occurred.

01/12/2004

LLD 7.2.9

The redress referred to in LLD 7.2.8 G should include a reasonable rate of interest on sums to which the complainant would have been entitled but for the acts or omissions in question.

01/12/2004

LLD 7.2.10

All correspondence and literature about the Society's handling of complaints should be in plain language.

01/12/2004

LLD 7.3

Making and retaining records of complaints

01/12/2004

LLD 7.3.1

The Society should make records relating to complaints from members and former members involving allegations that the complainants have suffered, or may suffer, financial loss, material distress or material inconvenience.

01/12/2004

LLD 7.3.2

The records created under LLD 7.3.1 G should be retained for a minimum period of three years from the date of receipt of a complaint.

01/12/2004

LLD 7.4

Information about complaints

01/12/2004

LLD 7.4.1

Within one month of the periods ending June and December in each calendar year, the Society should give the FSA a report containing the following information:

(1) the number of complaints received from members and former members during that period involving allegations that the complainants have suffered, or may suffer, financial loss, material distress or material inconvenience;

(2) a summary of the nature of these complaints;

(3) the number of these complaints resolved or rejected;

(4) the amount of money paid to each complainant referred to in (1) as redress and any other form of redress made; and

(5) the number of these complaints which have been referred to the Lloyd's Arbitration Scheme, the Lloyd's Members' Ombudsman or any other independent dispute resolution scheme that may replace either of these schemes.

01/12/2004

LLD 7.4.2

For the purposes of the report referred to in LLD 7.4.1 G, "complaints resolved" include complaints where the Society has completed its consideration of the complaint and either knows the complaint has been resolved to the complainant's satisfaction or has no reason to suspect otherwise.

01/12/2004

LLD 7.5

Independent dispute resolution schemes

01/12/2004

LLD 7.5.1

The Society must maintain by byelaw one or more appropriate and effective schemes for the resolution of disputes between an individual member or a former member who was an individual member and:

(1) his underwriting agent; or

(2) the Society.

01/12/2004

LLD 7.5.2

For the purposes of LLD 7.5.1 R "individual member" includes a member which is a limited liability partnership or a body corporate whose members consist only of, or of the nominees for, a single natural person or a group of connected natural persons.

01/12/2004

LLD 7.5.3

The schemes to which LLD 7.5.1 R currently refers are the Lloyd's Arbitration Scheme and the Lloyd's Members' Ombudsman respectively, but the Society may maintain other independent dispute resolution schemes in addition to, or instead of, either of these schemes.

01/12/2004

LLD 7.5.4

The schemes referred to in LLD 7.5.1 R should be operationally independent of the Society.

01/12/2004

LLD 7.5.5

An individual member or former member who was an individual member should not have access to the schemes referred to in LLD 7.5.1 R unless the complaints arrangements maintained by the Society have failed to resolve the complaint to his satisfaction within eight weeks of receiving it.

01/12/2004

LLD 7.5.6

The Society should give the FSA adequate notice of all proposed changes to the byelaws relating to the schemes referred to in LLD 7.5.1 R.

01/12/2004

LLD 7.5.7

When considering what is required to ensure the operational independence of the schemes referred to in LLD 7.5.1 R, or proposed changes in such schemes, the Society should take account of similar arrangements operated by the Financial Ombudsman Service.

01/12/2004

Export chapter as

LLD 8

Compensation
arrangements for individual members

LLD 8.1

Application and purpose

01/12/2004

Application

LLD 8.1.1

This chapter applies to the Society.

01/12/2004

LLD 8.1.2

01/12/2004

Purpose

LLD 8.1.3

The rules and guidance in this chapter are intended to promote confidence in the market at Lloyd's, and to protect consumers of certain services provided by the Society in carrying on, or in connection with or for the purposes of, its regulated activities. They do this by ensuring that the Society continues to maintain adequate and effective compensation arrangements for individual members and former members who were individual members in respect of claims against underwriting agents (other than claims for losses arising only from underwriting or investment risk).

01/12/2004

LLD 8.1.4

The compensation scheme will not compensate members or former members if firms are unable to satisfy claims made in connection with regulated activities relating to their participation in Lloyd's syndicates. Separate rules and guidance are therefore required.

01/12/2004

LLD 8.2

Compensation arrangements for individual members

01/12/2004

LLD 8.2.1

The Society must maintain byelaws establishing appropriate and effective arrangements to compensate individual members and former members who were individual members if underwriting agents are unable, or likely to be unable, to satisfy claims by those members relating to regulated activities carried on in connection with their participation in Lloyd's syndicates.

01/12/2004

LLD 8.2.2

For the purposes of LLD 8.2.1 R "individual member" includes a member which is a limited liability partnership or a body corporate whose members consist only of, or of the nominees for, a single natural person or a group of connected natural persons.

01/12/2004

LLD 8.2.3

The arrangements referred to in LLD 8.2.1 R:

(1) will not compensate losses arising only as a result of underwriting or investment risk to which individual members or former members who were individual members are or were exposed by their participation in Lloyd's syndicates;

(2) may be restricted to compensation for losses arising out of fraud, dishonesty or failure to account; and

(3) should cover all regulated activities carried on by underwriting agents relating to Lloyd's syndicate capacity and syndicate membership.

01/12/2004

LLD 8.2.4

The arrangements referred to in LLD 8.2.1 R should have a governance structure that is operationally independent from the Society, but which is nevertheless accountable to the Society for the proper administration of the compensation arrangements.

01/12/2004

LLD 8.2.5

If the Society proposes to extend the scope of the losses covered by the arrangements referred to in LLD 8.2.1 R (beyond those resulting from fraud, dishonesty or failure to account), it should have regard to the types of losses covered by the compensation scheme.

01/12/2004

LLD 8.2.6

In setting the limit of compensation payable for a single loss, and whatever co-insurance should apply, the Society should have regard to the compensation payable by the compensation scheme for similar claims relating to similar regulated activities.

01/12/2004

LLD 8.2.7

The Society should consult interested parties on proposed changes in the byelaws establishing the arrangements referred to in LLD 8.2.1 R.

01/12/2004

LLD 8.2.8

The Society should give the FSA adequate notice of all changes it proposes to make to the byelaws establishing the arrangements referred to in LLD 8.2.1 R.

01/12/2004

Export chapter as

LLD 8A

Compensations arrangements for policyholders

LLD 8A.1

Enabling provision, application and purpose.

01/12/2004

Enabling provision and application

LLD 8A.1.1

The insurance market direction in this chapter is given under section 316(1) of the Act (Direction by Authority) and applies to members.

15/10/2003

Purpose

LLD 8A.1.2

The insurance market direction in this chapter is intended to protect the interests of policyholders and potential policyholders by:

(1) providing for the application of the compensation scheme in respect of contracts of insurance issued by members; and

(2) providing for the application of such other provisions of the Act as will enable the application of the compensation scheme to be effective in relation to insurance market activities carried on by members.

15/10/2003

LLD 8A.2

Insurance market direction on policyholder compensation.

01/12/2004

LLD 8A.2.1

With effect from 15 October 2003 the following core provisions of the Act apply to the carrying on of insurance market activities by members:

(1) Part X (Rules and guidance) for the purpose of applying the rules in COMP and relevant interpretative provisions; and

(2) Part XV (Financial Services Compensation Scheme).

15/10/2003

LLD 8A.2.2

Section 317(2) of the Act (The core provisions) 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. In particular, with effect from 15 October 2003, references to a relevant person in Part XV of the Act include a person who was a member at the time the act or omission giving rise to the claim against him took place.

15/10/2003

Export chapter as

LLD 12

Determination of liabilities

LLD 12.1

Application and purpose

01/12/2004

Application

LLD 12.1.1

This chapter applies to the Society.

01/12/2004

LLD 12.1.2

01/12/2004

Purpose

LLD 12.1.3

These requirements provide safeguards against the risk that insurance liabilities will be underestimated (see also LLD 9.1.4 G).

01/12/2004

LLD 12.1.4

Under LLD 9.4.1 R, subject to LLD 9 to LLD 15, the insurance accounts rules and generally accepted accounting practice apply to the valuation of assets and the determination of liabilities.

01/12/2004

LLD 12.3

Members' liabilities

01/12/2004

LLD 12.3.1

At stage (e) of PRU 2.2.14 R the Society must deduct from a member's capital resources a negative valuation difference being, for each member, (for open syndicate years through which the member carries on general insurance business taken together), if A+B exceeds C, A+B-C, where:

(1) A is the total of the member's proportionate shares for each syndicate year of the accumulated excess of income over outgoings;
(2) B is the amount of any unpaid additional contributions the member is required to make to the funds maintained for the syndicate years by the managing agents; and
(3) C is the total of the member's proportionate shares of the liabilities net of reinsurance recoveries.

01/01/2005
Past version of LLD 12.3.1 before 01/01/2005

LLD 12.3.2

For the purpose of PRU 4.2.52 G to PRU 4.2.56 G (Currency matching of assets and liabilities) and PRU 7.2.30 R (Localisation (UK firms only)), the amounts in LLD 12.3.1 R, which are intended to prevent the premature release of profits, may be left out of account.

01/01/2005
Past version of LLD 12.3.2 before 01/01/2005

Export chapter as

LLD 15

Reporting

LLD 15.1

Application and purpose

01/12/2004

Application

LLD 15.1.1

This chapter applies to the Society and to managing agents.

01/01/2005
Past version of LLD 15.1.1 before 01/01/2005

LLD 15.1.2

01/12/2004

Purpose

LLD 15.1.3

The requirements in this chapter lay down a minimum level of disclosure of financial information and of transparency.

01/12/2004

LLD 15.1.4

This chapter requires the Society to report on the insurance business carried on by members and on the assets and liabilities of members and the Society. It also requires managing agents to report on the insurance business carried on through each syndicate they manage. Reporting at syndicate level is required to enable the Society to prepare the Lloyd's Return.

01/01/2005
Past version of LLD 15.1.4 before 01/01/2005

LLD 15.1.5

The Lloyd's Return is made annually and contains the statement required from the Society that it has maintained capital resources equivalent to its capital resources requirement under PRU. This does not absolve the Society from the obligation to maintain capital resources equivalent to its capital resources requirement at all times.

LLD 15.1.6

This statement of solvency is required to be supported by sufficient detail to allow the FSA to form an opinion on the adequacy of the matters stated and to evaluate other key financial data. All the information submitted as part of the Lloyd's Return will be made available for public inspection.

01/12/2004

LLD 15.1.7

The Lloyd's Return is based on the return required from insurers, but the format and content have been modified where necessary to reflect the special characteristics of Lloyd's.

01/12/2004

LLD 15.1.8

Where appropriate, the Society is also required to modify reporting to make it more like that of an insurer. This is to aid comparisons between Lloyd's and insurers.

01/12/2004

LLD 15.2

Requirement to report to the FSA

01/12/2004

LLD 15.2.1

The Society must report to the FSA within 6 months of the end of each financial year on its financial situation and solvency and on the whole of the insurance business carried on by members.

01/12/2004

LLD 15.2.2

The report in LLD 15.2.1 R must be prepared in accordance with PRU 1.3.5 R and this chapter.

01/01/2005
Past version of LLD 15.2.2 before 01/01/2005

LLD 15.2.3

The report in LLD 15.2.1 R must include:

(1) the Lloyd's Return which comprises a completed set of the forms set out in LLD 15 Annex 1 R, together with any statements, notes, reports or certificates required by this chapter; and

(2) a copy of the syndicate accounts for each syndicate that is required by byelaw to prepare accounts for the financial year.

01/12/2004

LLD 15.2.4

The Lloyd's Return must be examined and reported on by the auditors appointed to audit the affairs of the Society.

01/12/2004
Future version of LLD 15.2.4 after 06/10/2006

LLD 15.2.5

The Society must provide a printed copy of the Lloyd's Return to the FSA, with Form 9 signed by three signatories who are senior officers of the Society each duly authorised by the Council to sign the Lloyd's Return on behalf of the Society.

01/12/2004
Future version of LLD 15.2.5 after 31/12/2005

LLD 15.2.6

If the FSA notifies the Society that any part of the Lloyd's Return is not in conformity with this chapter, the Society must promptly make any appropriate corrections or adjustments and if necessary re-submit the Lloyd's Return (or relevant part of it).

01/12/2004

LLD 15.2.6A

The report referred to in LLD 15.2.1 R must be submitted in writing in accordance with SUP 16.3.7 R to SUP 16.3.10 G (see SUP 16.3.6 R).

18/04/2002

LLD 15.2.7

The Society should make the report, including amendments and corrections, and amalgamated syndicate accounts available at its head office for inspection by policyholders and potential policyholders and members.

01/12/2004

LLD 15.2.8

The signatories that are required under LLD 15.2.5 R should where possible include the Chairman and Chief executive of the Society.

01/12/2004

LLD 15.3

Content and form of the Lloyd's Return

01/12/2004

LLD 15.3.1

In preparing the Lloyd's Return, the Society must:

(1) complete the forms in LLD 15 Annex 1 R, subject to LLD 15 to LLD 25, following the requirements of and making the disclosures required under Appendices 9.1, 9.2, 9.3 and 9.4 of IPRU(INS), as if in the documents referred to in those Appendices references to an insurer were references to the Society and members, and adapting the requirements in those Appendices where necessary;

(2) complete the forms in LLD 15 Annex 1 R using standard accounting classes as set out in LLD 15 Annex 6 R where the forms require reporting by accounting class;

(3) report treaty reinsurance general business falling in accounting classes 9 to 10 as set out in LLD 15 Annex 6 R in Forms 28 and 29 in LLD 15 Annex 1 R by reference to the categories in the underlying accounting classes; and

(4) complete forms 13, 14, 40-60 in LLD 15 Annex 1 R for each long-term insurance business syndicate.

01/01/2005
Past version of LLD 15.3.1 before 01/01/2005

LLD 15.3.2

(1) Where a reinsurance contract in LLD 15.3.1 R (3) covers more than one underlying accounting class as set out in LLD 15 Annex 6 R it must be apportioned between accounting classes in the way that best reflects its underlying composition.

(2) However, where the apportionment in (1) cannot be made with reasonable accuracy or without disproportionate effort, then the contract must be allocated to the accounting class as set out in LLD 15 Annex 6 R that most closely reflects its underlying composition.

(3) Whether apportioned under (1) or allocated under (2), a consistent approach must be taken to reporting:

(a) the progress of a treaty in subsequent years; and

(b) substantially similar insurance business in subsequent years.

(4) Where a different policy is subsequently followed a suitable explanatory note must be provided.

01/12/2004

LLD 15.3.3

If, during the financial year in question, the Society has agreed to, or carried out, a material connected party transaction, it must provide a brief description of that transaction by way of a supplementary note to the Lloyd's Return.

01/12/2004

LLD 15.3.4

The description to be provided under LLD 15.3.3 R must state:

(1) the names of the transacting parties;

(2) a description of the connection between the parties;

(3) a description of the transaction;

(4) the amounts involved;

(5) any other elements of the transaction needed for an understanding of its effect or potential effect upon the financial position of the Society; and

(6) amounts written off in the period in respect of debts due to or from transacting parties which are connected parties.

01/12/2004

LLD 15.3.5

Transactions with the same connected party may be disclosed on an aggregated basis unless separate disclosure is needed for a proper understanding of the effect of the transactions upon the financial position of the Society.

01/12/2004

LLD 15.4

Risk groups for general insurance business

01/12/2004

LLD 15.4.1

The Society must for the purposes of reporting under this chapter:

(1) classify the direct and facultive general insurance business of members according to appropriate risk groups; and

(2) where the risks are material, complete a separate Form 34 in LLD 15 Annex 1 R for each group.

01/12/2004

LLD 15.4.2

The Society must not include:

(1) policies falling within classes 14, 15, 16, 17 or 18 within the same risk group as policies falling within any other class, except that policies falling within class 14 may be included in the same risk group as policies falling within class 15; or

(2) policies in respect of private motor car risks, within the same risk group as policies in respect of other risks falling within accounting class 2 as set out in LLD 15 Annex 6 R; or

(3) policies in respect of comprehensive private motor car risks, within the same risk group as policies in respect of non-comprehensive private motor car risks; or

(4) policies transferred to members by way of a transfer under section 111 of the Act (Sanction of the court for business transfer schemes), within the same risk group as other policies.

01/12/2004

LLD 15.4.3

In assessing what are appropriate risk groups for reporting purposes the Society should ensure where possible that:

(1) each risk group should include only risks from within a single accounting class and in relation to a single country;

(2) policies are not included in the same risk group where, having regard to the patterns of risk, claims incurrence and settlement patterns, it is necessary to group them separately for the purposes of applying statistical methods in calculating the provision for claims outstanding in accordance with generally accepted accounting practice; and

(3) claims-made policies are not included in the same risk group as policies which are not claims-made policies, except:

(a) where this is not possible without disproportionate expense; and

(b) where the policies within the risk group do not exhibit materially different characteristics.

01/12/2004

LLD 15.4.4

Subject to LLD 15.4.2 R (1) and LLD 15.4.2 R (2) and LLD 15.4.3 G (3), the Society may in respect of any accounting class include all insurance business carried on by members in any country in any financial year as a single risk group.

01/12/2004

LLD 15.4.5

Notwithstanding the provisions of LLD 15.4.2 R (1) and LLD 15.4.2 R (2) and LLD 15.4.3 G (3), the Society may classify all insurance business carried on by members in any country in respect of any accounting class in any financial year as a single risk group, as long as gross premiums written for that year in respect of that insurance business are less than 5% of the world-wide gross premiums written for all accounting classes for that year.

01/12/2004

LLD 15.4.6

The requirements to report a separate risk group in LLD 15.4.2 R (1) do not apply where, in the case of any financial year, the gross premiums receivable for that year in respect of that risk group would be less than £1million.

01/12/2004

LLD 15.4.8

The Society must give the FSA notice of proposed changes to the definition or classification of the risk groups in LLD 15.4.1 R, sufficient to allow the FSA properly to assess the implications of the proposals.

01/12/2004

LLD 15.5

Major treaty reinsurers

01/12/2004

LLD 15.5.1

The Society must, in connection with the general insurance business carried on by members, include in the Lloyd's Return a statement of major treaty reinsurers.

01/12/2004

LLD 15.5.2

A major treaty reinsurer is any insurance company to which in the financial year in question or any of the five preceding financial years:

(1) in the case of proportional reinsurance, 2% or more of the gross premiums receivable in respect of general insurance business of the members in aggregate has been ceded; or

(2) in the case of non-proportional reinsurance, 5% or more of the gross premiums receivable in respect of general insurance business has been ceded.

01/12/2004

LLD 15.5.3

The Society should be treated as if it were a major treaty reinsurer when inter-syndicate reinsurance in aggregate exceeds the amounts set out in LLD 15.5.2 R.

01/12/2004

LLD 15.5.4

The requirements of LLD 15.5.1 R, LLD 15.6.1 R and LLD 15.7.1 R may be satisfied by giving a fair view and making use of an appropriate degree of approximation. The Society may employ any reasonable methods to establish the information required.

01/12/2004

LLD 15.5.5

LLD 15.5.2 R and LLD 15.7.2 R should be interpreted in relation to the period in which these reporting requirements come into effect. In the first Lloyd's Return, only one financial year will be reported on, in the second Lloyd's Return, two, and so on.

01/12/2004

LLD 15.5.6

The statement required under LLD 15.5.1 R must include:

(1) the full name of each major treaty reinsurer;

(2) the amount of the reinsurance premiums payable in the financial year to each such reinsurer;

(3) whether and if so how the reinsurer was connected to any member or any managing agent;

(4) the amount of any debt of each such reinsurer included at line 75 of Form 13 in LLD 15 Annex 1 R;

(5) the amount of any deposit received from each such reinsurer under reinsurance treaties included at line 31 of Form 15 in LLD 15 Annex 1 R; and

(6) the reinsurers' share of technical provisions shown on Form 13 in LLD 15 Annex 1 R, except that in respect of claims incurred but not reported, such recoveries need only be included to the extent that they are in respect of specific occurrences for which provisions have been allocated;

or, as the case may be, a statement that having aggregated the reinsurance ceded by members no reinsurer is a major treaty reinsurer.

01/12/2004

LLD 15.6

Major facultative reinsurers

01/12/2004

LLD 15.6.1

The Society must, in connection with the general insurance business carried on by members, include in the Lloyd's Return a statement of major facultative reinsurers.

01/12/2004

LLD 15.6.2

A major facultative reinsurer is an insurance company to which or with respect to which:

(1) 0.5% or more of the gross premiums receivable in respect of general insurance business of the members in aggregate has been ceded; or

(2) the addition of the amounts in items (4) and (5) of LLD 15.5.6 R produces an amount exceeding 1% of the aggregate gross assets of members.

01/12/2004

LLD 15.6.3

The Society should be treated as if it were a major facultative reinsurer when inter-syndicate reinsurance in aggregate exceeds the amounts set out in LLD 15.6.2 R.

01/12/2004

LLD 15.6.4

The statement required under LLD 15.6.1 R must include the matters listed in LLD 15.5.6 R, with appropriate amendments.

01/12/2004

LLD 15.7

Major reinsurance cedants

01/12/2004

LLD 15.7.1

The Society must, in connection with the general insurance business carried on by members, include in the Lloyd's Return a statement of major reinsurance cedants.

01/12/2004

LLD 15.7.2

A major reinsurance cedant is an insurance company which in the financial year in question or any of the three preceding financial years:

(1) cedes an amount which exceeds 5% of the gross premiums receivable by members in respect of general insurance business accepted under reinsurance treaties; and

(2) cedes an amount which exceeds 2% of the gross premiums receivable by members in respect of general insurance business.

01/12/2004

LLD 15.7.3

The Society should be treated as if it were a major reinsurance cedant when inter-syndicate cessions in aggregate exceed the amounts set out in LLD 15.7.2 R.

01/12/2004

LLD 15.7.4

The statement required under LLD 15.7.1 R must include the matters listed in LLD 15.5.6 R, with appropriate amendments.

01/12/2004

LLD 15.8

Additional information

01/12/2004

LLD 15.8.1

Derivative contracts
The Society must annex a statement to the Lloyd's Return comprising a brief description of:

(1) any byelaws and guidelines issued by the Society governing the use of derivative contracts;

(2) any provision in those guidelines governing the use of contracts under which members have a right or obligation to acquire or dispose of assets which was not, at the time when the contract was entered into, reasonably likely to be exercised and the circumstances in which, pursuant to that provision, such contracts may be used;

(3) the extent to which members were during the financial year a party to any contracts of the kind described in (2);

(4) the extent to which any of the amounts recorded in Form 13 would be changed if assets which members had a right or obligation to acquire or dispose of under derivative contracts outstanding at the end of the financial year (being, in the case of options, only those options which it would have been prudent to assume would be exercised) had been acquired or disposed of;

(5) the difference between (4) and the amount which would result under (4) if such options had been exercised and this were reflected in Form 13 to the maximum extent;

(6) how different the information provided pursuant to (4) and (5) would have been if, instead of applying to contracts outstanding at the end of the financial year, (4) and (5) had applied to derivative contracts outstanding at such other time during the financial year as would have changed the amounts in Form 13 to the maximum extent;

(7) the maximum loss which would be incurred by members on the failure by any one other person to fulfil its obligations under derivative contracts outstanding at the end of the financial year, both under existing market conditions and in the event of other foreseeable market conditions, together with an assessment of whether such maximum loss would have been materially different at any other time during the financial year;

(8) the circumstances surrounding the use of any derivative contract held at any time during the financial year which did not fulfil the criteria in PRU 4.3.5 R; and

(9) the total value of any fixed consideration received by members (whether in cash or otherwise) during the financial year in return for granting rights under derivative contracts and a summary of contracts under which such rights have been granted.

01/01/2005
Past version of LLD 15.8.1 before 01/01/2005

LLD 15.8.2

In relation to required disclosures of derivative contracts in LLD 15.8.1 R, references to a derivative contract and related expressions should be taken to include:

(1) any derivative contract entered into by a managing agent on behalf of a member as part of that member's insurance business; and

(2) any derivative contract entered into by the Society.

01/12/2004

LLD 15.8.3

Contracts that are quasi-derivative contracts should be treated as derivative contracts.

01/12/2004

LLD 15.8.4

For the purposes of LLD 15.8.1 R, if members are a party to:

(1) a contract for differences; or

(2) any other contract which is to be, or may be, settled in cash

they must be treated as having a right or obligation to acquire or dispose of the assets underlying the contract.

01/12/2004

General insurance business ceded

LLD 15.8.5

The Society must annex to the Lloyd's Return a statement:

(1) of each major treaty reinsurer and major facultative reinsurer; and

(2) for each of the realistic disaster scenarios set by the Society when fulfilling its obligation under PRU to monitor aggregation of risk within the Lloyd's market of the contribution it is assumed each such reinsurer would provide in the event of that disaster occurring.

01/01/2005
Past version of LLD 15.8.5 before 01/01/2005

LLD 15.8.6

The requirements of LLD 15.8.5 R may be satisfied by giving a fair view and may make use of an appropriate degree of approximation. The Society may employ any reasonable methods to establish the information required. The Society may also include such explanation as it considers to be necessary to allow a reasonable interpretation to be put on this statement.

01/12/2004

The Society

LLD 15.8.7

The Society must annex to the Lloyd's Return a statement naming each individual who has served:

(1) on the Council;

(2) as Chairman of the Council; and

(3) as Chief Executive Officer of the Society;

at any time during the financial year, including in each case the dates of commencement or end of service (as the case may be) of any individual who has not served for the entire year.

01/12/2004

Capacity controlled

LLD 15.8.8

The Society must annex to the Lloyd's Return a statement identifying any members, members' agents or managing agents that control a significant share of the underwriting capacity of the Society.

01/12/2004

LLD 15.8.9

To control a significant share means:

(1) in relation to a managing agent, managing, directing through one or more Members' Agent Pooling Arrangements or owning, whether directly or in conjunction with connected persons, capacity which in aggregate is greater than 5% of the total underwriting capacity of the Society;

(2) in relation to a members' agent, directing through one or more Members' Agent Pooling Arrangements or owing, whether directly or in conjunction with connected persons, underwriting capacity which in aggregate is greater than 2.5% of the total underwriting capacity of the Society; and

(3) in relation to a member, owning, whether directly or in conjunction with connected persons, underwriting capacity which, in aggregate, is greater than 2.5% of the total underwriting capacity of the Society.

01/12/2004

LLD 15.8.10

The statement in LLD 15.8.8 R should include comparative figures for the preceding two financial years and should state:

(1) the name of the managing agent, members' agent or member;

(2) the amount of capacity owned, directed or managed in each case;

(3) the names of the connected persons (if any); and

(4) their respective shares.

01/12/2004

LLD 15.9

Certificates and audit report

01/12/2004

Certificates

LLD 15.9.1

The Society must annex to the Lloyd's Return:

(1) a certificate from the Council, including the statements required by LLD 15 Annex 2 R;

(2) a statement from the Lloyd's actuary, including the statements required by LLD 15 Annex 3 R;

(3) a certificate from the syndicate actuary of each syndicate which carries on long-term insurance business, including the statements required by LLD 15 Annex 4 R, and;

(4) an abstract from the syndicate actuary of each syndicate which carries on long-term insurance business of the actuary's report made under SUP 4.6.14 G.

01/01/2005
Past version of LLD 15.9.1 before 01/01/2005

Audit report

LLD 15.9.2

The Society must ensure that the Lloyd's Return and every document annexed to or provided with it has been examined by the Society's auditors and must provide with the Lloyd's Return an audit certificate in respect of that examination.

01/12/2004

LLD 15.9.3

The certificate in LLD 15.9.2 R must be in the form set out in LLD 15 Annex 5 R.

01/12/2004

LLD 15.10

The Lloyd's global account

01/12/2004

LLD 15.10.1

The Society must prepare a global account in respect of each financial year that amalgamates all syndicate accounts for that year.

01/12/2004

LLD 15.10.2

The global account must be prepared and submitted to the FSA within six months of the end of the financial year and state that it is prepared in compliance with regulation 4 of the Insurance Accounts Directive (Miscellaneous Insurance Undertakings) Regulations 1993 (SI 1993/3245).

01/04/2003

LLD 15.10.3

The notes to the global account must include details of:

(1) inter-syndicate insurance business, including premiums received or receivable and claims paid;

(2) the method by which run-off claims are taken into account;

(3) the method by which the premium income limits of members are calculated; and

(4) the bases and methods used in the calculation of technical provisions for long-term insurance business.

01/12/2004

LLD 15.10.4

The notes to the global account must state:

(1) the aggregate amount of members' qualifying assets and how that is divided between:

(a) Lloyd's deposits;

(b) personal reserve funds;

(d) other qualifying assets;

(2) the aggregate amount of the central assets and how that is divided between:

(a) the net assets of the Central Fund; and

(b) other net central assets;

(3) the reason why any charges to tax are not shown in the accounts and the basic rate of tax applicable to amounts of tax deducted at source; and

(4) the estimated average rates of commission and brokerage charged by brokers.

01/12/2004

LLD 15.10.5

The Society must provide a printed copy of the global account to the FSA.

01/12/2004

LLD 15.10.6

The copy of the accounts referred to in LLD 15.10.5 R must be submitted in accordance with SUP 16.3.7 R to SUP 16.3.10 G (see SUP 16.3.6 R).

18/04/2002

LLD 15.11

Public disclosure

01/12/2004

LLD 15.11.1

The FSA will make all the documents received by it under this chapter available to the public.

01/12/2004

LLD 15.11.2

The Society must provide within a period not exceeding 30 days:

(1) on demand to any member or policyholder a copy of the Lloyd's Return and the global account most recently submitted to the FSA; and

(2) if specifically requested by a member or policyholder, a copy of any syndicate account submitted to the FSA.

01/12/2004

LLD 15.11.3

Copies of the Lloyd's Return, the global account and the syndicate accounts may be provided, if the applicant so requests, in electronic form.

01/12/2004

LLD 15.11.4

The Society may make a charge for the provision of the Lloyd's Return, the global account and of each syndicate account to cover its reasonable costs, including those of printing and postage.

01/12/2004

LLD 15.12

Other requirements

01/12/2004

LLD 15.12.1

IPRU(INS) 9.38R requires the Society to make a statistical report of member's insurance business activities in EEA States.

01/12/2004

LLD 15.13

Syndicate-level reporting

01/01/2005

LLD 15.13.1

Each managing agent must:

(1) prepare a return for each financial year in respect of the insurance business carried on through each syndicate managed by it; and

(2) provide the return in (1) to the Society as soon as practicable after the end of the financial year but in any event in time to enable the Society to report to the FSA in accordance with LLD 15.2.1 R.

01/01/2005

LLD 15.13.2

The Society must:

(1) issue instructions to managing agents setting out the form and content of the return under LLD 15.13.1 R; and

(2) issue the instructions in (1) as soon as practicable but in any event in time to enable managing agents to comply with LLD 15.13.1 R.

01/01/2005

LLD 15.13.3

A managing agent must annex to each return which it prepares under LLD 15.13.1 R, a certificate signed by the persons referred to in LLD 15.13.4 R, including the statements required by LLD 15.13.5 R.

01/01/2005

LLD 15.13.4

The certificate in LLD 15.13.3 R must be signed by:

(1) where there are more than two directors of the managing agent, at least two of those directors and, where there are not more than two directors, all the directors; and

(2) a chief executive, if any, of the managing agent or (if there is no chief executive) the secretary.

01/01/2005

LLD 15.13.5

The certificate in LLD 15.13.3 R must state that:

(1)

the return has been properly prepared in accordance with the instructions referred to in LLD 15.13.2 R;

(2)

proper accounting records have been maintained and adequate information has been obtained by the managing agent;

(3)

an appropriate system of control has been established and maintained by the managing agent over the syndicate's transactions and records;

(4)

in relation to the statement by the syndicate actuary of a syndicate carrying on long-term insurance business required by LLD 15.9.1 R (3):

(a)

proper accounts and records have been maintained for the purpose of preparing the statement; and

(b)

the information given has been ascertained in conformity with LLD 15 Annex 4 R.

01/01/2005

LLD 15.13.6

A managing agent must ensure for each syndicate managed by it that the return required under LLD 15.13.1 R is examined and reported on by the syndicate auditor.

01/01/2005

LLD 15.13.7

A managing agent must annex to each return required under LLD 15.13.1 R an audit certificate provided by the syndicate auditor including the statements required by LLD 15.13.8 R.

01/01/2005

LLD 15.13.8

The certificate in LLD 15.13.7 R must state:

(1)

that in the auditors' opinion, the return has been properly prepared in accordance with the instructions referred to in LLD 15.13.2 R;

(2)

that according to the information and explanations that the auditors have received:

(a)

in their opinion, the certificate required to be signed in accordance with LLD 15.13.3 R (other than statements to which paragraph 1(3) relates) has been properly prepared in accordance with the instructions; and

(b)

it was or was not unreasonable for the persons giving the certificate to have made the statements in it (other than statements to which paragraph 1(3) relates);

(3)

the extent to which, in giving their opinion, the auditors have relied, in respect of long-term insurance business, on the work of the syndicate actuary.

The audit opinion required by paragraph 1 does not extend to cover information on major treaty reinsurers or major facultative reinsurers.

To the extent that the information and explanations they have received do not allow the auditors to express an opinion as to whether it was or was not unreasonable for the persons giving the certificate required to be signed in accordance with LLD 15.13.3 R to have made the statements therein, the auditors must add to their report such qualification, amplification or explanation as may be appropriate.

01/01/2005

LLD 15 Annex 1

Reporting Forms

01/12/2004

LLD 15 Annex 1

This annex consists only of one or more forms or templates. Forms and templates are to be found through the 'Forms' link under Useful Links section at www.fsahandbook.info or on the Handbook CD-ROM.

01/01/2004
Future version of LLD 15 Annex 1 after 31/12/2005

LLD 15 Annex 2

Certificate by the Council (see LLD 15.9.1R(1))

01/12/2004

LLD 15 Annex 2

Subject to 5, the certificate required by LLD 15.9.1R(1) must state:

(1)

in relation to Forms 9 to 17, 20 to 42, the supplementary notes to the forms and the statements required under LLD 15.5.1 R, LLD 15.6.1 R and LLD 15.7.1 R, LLD 15.8.1 R, LLD 15.5.5 G and LLD 15.8.8 R, that:

(a)

the Lloyd's Return has been prepared in accordance with LLD 9 to LLD 15 ;

(b)

proper accounting records have been maintained and adequate information has been obtained by the Society; and

(c)

an appropriate system of control has been established and maintained by the Society over its transactions and records;

(2)

that reasonable enquiries have been made by the Society for the purpose of determining whether any persons are connected for the purposes of LLD 9 to LLD 15;

(3)

that, as applicable, the assets held by members throughout the financial year in question enabled the Society to comply with LLD 14.3.1 R (Currency matching and localisation); and

(4)

in relation to the statement required by LLD 15.9.1 R (2) to be made by the Lloyd's actuary, that:

(a)

for the purpose of preparing the statement, proper accounts and records have been maintained; and

(b)

the information given has been ascertained in conformity with LLD 15.9.1 R.

Subject to 5, the certificate required by LLD 15.9.1 R (1) must state that the required margin has been maintained throughout the financial year in question.

Subject to 5, the certificate required by LLD 15.9.1 R (1) must also state in relation to the long-term insurance business carried on by members:

(1)

that the requirements of IPRU(INS) 3.1R to 3.5R have been fully complied with and in particular that, subject to the provisions of IPRU(INS) 3.2R(3), assets attributable to long-term insurance business, the income arising, the proceeds of any realisation of such assets and any other income or proceeds allocated to the long-term insurance business fund or funds have not been applied otherwise than for the purpose of the long-term insurance business;

(2)

that any amount payable from or receivable by the long-term insurance business fund or funds in respect of services rendered by or to any other business carried on by a member or by a person who, for the purposes of IPRU(INS) 3.4R, is connected with it or is a subsidiary undertaking of it has been determined and where appropriate apportioned on terms which are believed to be no less than fair to that fund or those funds, and any exchange of assets representing such fund or funds for other assets of the member has been made at fair market value;

(3)

that all guarantees given by a member of the performance by a related insurer which would fall to be met by any long-term insurance business fund have been disclosed in the Lloyd's Return, and that the fund or funds on which each of those guarantees would fall has been identified in it;

(4)

that the return in respect of long-term insurance business is not distorted by agreements between the members concerned or by any arrangements which could affect the apportionment of expenses and income; and

(5)

that IPRU(INS) 3.5R has been fully complied with.

Subject to 5, where the Council is satisfied that:

(1)

the systems of control established and maintained by managing agents complied, at the end of the financial year in question, with any relevant guidance and it is reasonable to believe that those systems continued so to comply and will continue to so comply; or

(2)

the Lloyd's Return has been prepared in accordance with any relevant guidance; this must be so stated, by listing that guidance, in the certificate required by LLD 15.9.1 R (1).

Where, in the opinion of those signing the certificate, the circumstances are such that any of the statements required by 1 to 4 cannot truthfully be made, the relevant statements must be omitted.

Where, by virtue of 5, any statements have been omitted from the certificate this fact must be stated in a note.

01/12/2004
Future version of LLD 15 Annex 2 after 31/12/2005

LLD 15 Annex 3

Statement by the Lloyd's actuary (see LLD 15.9.1R(2))

01/12/2004

LLD 15 Annex 3

The statement required by LLD 15.9.1 R (2) must be prepared and signed by the Lloyd's actuary, and must:

(1)

state whether, for every syndicate year in which members carry on general insurance business either:

(a)

the syndicate actuary has provided an unqualified opinion, which:

(i)

is in a form conforming to guidance from the actuarial bodies; and

(ii)

confirms that the technical provisions set by the managing agent are at least equal to the syndicate actuary's best estimate; or

(b)

the Lloyd's actuary has set the technical provisions (both gross and net of reinsurance recoveries); and

(2)

describe any source of uncertainty in the liabilities covered by the technical provisions, which in his opinion is material to the Society as a whole:

(a)

which any syndicate actuary mentions in his opinion; or

(b)

which affects any syndicate year for which the Lloyd's actuary has set the technical provisions.

If the Lloyd's actuary has set the technical provisions for any syndicate year, the statement must include an opinion covering those technical provisions, which:

(1)

confirms that they are at least equal to his best estimate; and

(2)

is in a form conforming to guidance for syndicate actuaries from the actuarial bodies, modified to show:

(a)

that he is retained by the Society and not the managing agent;

(b)

that he, and not the managing agent, set the technical provisions; and

(c)

separately, the technical provisions of each syndicate year covered.

If the Lloyd's actuary considers it necessary, such qualification, amplification or explanation as may be appropriate must be added to the statement.

01/12/2004

LLD 15 Annex 4

R Certificate by syndicate actuary (see LLD 15.9.1R(3))

01/12/2004

LLD 15 Annex 4

The certificate required by LLD 15.9.1 R (3) to be signed by the syndicate actuary appointed to a syndicate in which members carry on long-term insurance business must state:

(1)

whether in his opinion, proper records have been kept by the managing agent adequate for the purpose of the valuation of the liabilities of the syndicate;

(2)

whether the sum of the mathematical reserves and the deposits received from reinsurers as shown in Form 14 constitute proper provision at the end of the financial year for the long-term insurance business liabilities where these liabilities:

(a)

include any increase in liabilities arising from a distribution of surplus as a result of an investigation as at the end of the financial year into the financial condition of the long-term insurance business; and

(b)

include all liabilities arising from deposit back arrangements;

but exclude liabilities which had fallen due before the end of the financial year, other than those arising from deposit back arrangements;

(3)

whether the liabilities have been valued in accordance with LLD 9 to LLD 15 in the context of assets valued in accordance with LLD 9 to LLD 15, as shown in Form 14;

(4)

by way of a list, the professional guidance that has been complied with;

(5)

whether in his opinion, premiums for contracts entered into during the financial year and the income earned on them are sufficient on reasonable actuarial assumptions, taking into account other financial resources of the members and the Society that are available for the purpose, to enable the members to meet their commitments and, in particular, to establish adequate mathematical reserves; and

(6)

whether the amounts in Form 60 are accurate.

If the syndicate actuary considers it necessary, such qualification, amplification or explanation as may be appropriate must be added to the certificate.

01/12/2004
Future version of LLD 15 Annex 4 after 31/12/2005

LLD 15 Annex 5

R Auditors' report (see LLD 15.9.3R)

01/12/2004
Future version of LLD 15 Annex 5 after 31/12/2005

LLD 15 Annex 5

The report required by LLD 15.9.3 R must, in addition to any statement required by section 237(2) and (3) of the Companies Act, state:

(1)

that in the auditors' opinion, Forms 9 to 17, 20 to 42, the supplementary notes to the forms and the statements required under LLD 15.5.1 R, LLD 15.6.1 R, LLD 15.7.1 R, and LLD 15.8.1 R have been properly prepared in accordance with LLD 9 to LLD 15;

(2)

that according to the information and explanations that the auditors have received:

(a)

in their opinion, the certificate required to be signed in accordance with LLD 15.9.1 R (1), otherwise than in relation to statements to which paragraph 1(3) of this table relates, has been properly prepared in accordance with LLD 9 to LLD 15; and

(b)

subject to paragraph 1(3), it was or was not unreasonable for the persons giving the certificate to have made the statements in it (other than statements to which paragraph 1(3) relates); and

(3)

the extent to which, in giving their opinion, the auditors have relied:

(a)

in respect of financial information supplied to the Society by managing agents on behalf of syndicates, on work carried out by syndicate auditors; and

(b)

in respect of long-term insurance business carried on by members, on the certificates of the syndicate actuaries given in accordance with the requirements of LLD 9 to LLD 15 with respect to the amounts in Form 60.

The audit opinion required by 1(2)(a) does not extend to cover the statements required under:

(1)

LLD 15.8.5 R and LLD 15.8.8 R; and

(2)

LLD 15 Annex 2 R 1(4), but only in so far as it relates to relevant guidance which either states that compliance with the guidance need not be audited or which relates to controls with respect to money laundering.

To the extent that the information and explanations they have received do not allow the auditors to express an opinion on whether it was or was not unreasonable for the Council to have made the statement required by LLD 15 Annex 2 R 1(c) the auditors must add to their report such qualification, amplification or explanation as may be appropriate.

Where the auditors refer in their report or in any note attached to their report to any uncertainty, the report must state whether, in the auditors' opinion, that uncertainty is material to determining whether the Society is able to meet the solvency requirements of LLD 9 to LLD 15.

01/04/2003
Future version of LLD 15 Annex 5 after 31/12/2005

LLD 15 Annex 6

R Accounting classes (see LLD 15.3.1R(2))

01/12/2004

LLD 15 Annex 6

For the purposes of LLD 9 to 15, the accounting classes for general insurance business are those set out in the following table:

Accounting class

Description

Corresponding classes of general insurance business

Accident and health

1 (other than 1(p) and 2

Motor

1(p), 3 and 10

Aviation

1(p), 5 and 11

Marine

1(p), 6 and 2

Transport

Property

4, 8, and 9

Third-party liability

Miscellaneous and pecuniary loss

14, 15, 16, 17 and 18

Non-proportional treaty

Proportional treaty

Marine, aviation and transport treaty

01/12/2004

Export chapter as

LLD 16

General provisions applying PRU to Lloyds

LLD 16.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 16.1.1

01/01/2005

LLD 16.2

Application

01/01/2005

LLD 16.2.1

This chapter applies to:

(1) the Society; and

(2) managing agents.

01/01/2005

Purpose

LLD 16.2.2

The purpose of this chapter is to:

(1) 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

(2) clarify how PRU rules and guidance are to apply to the insurance business of Lloyd's members.

01/01/2005

LLD 16.2.3

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.

01/01/2005

LLD 16.3

Application of PRU to the Society and managing agents

01/01/2005

LLD 16.3.1

If a provision in PRU applies to the Society "in accordance with" this rule, the Society must:

(1) manage each member's funds at Lloyd's;

(2) manage its central assets; and

(3) 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.

01/01/2005

LLD 16.3.2

The Society is subject to PRU rules in respect of the insurance business of each Lloyd's member. These include rules in respect of:

(1) the calculation of the capital resources requirements for each member;

(2) the financial resources it manages on behalf of members; and

(3) the Society's own financial resources.

01/01/2005

LLD 16.3.3

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:

(1) the syndicate assets; and

(2) the insurance business carried on by the members of the syndicate through that syndicate;

01/01/2005

LLD 16.3.4

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.

01/01/2005

LLD 16.3.5

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.

01/01/2005

LLD 16.3.6

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.

01/01/2005

LLD 16.4

Summary of application of PRU to Lloyd's

01/01/2005

LLD 16.4.1

Key PRU requirements for Lloyd's

Key PRU requirements

PRU

LLD

Risk management, systems and controls

The Society to establish and maintain systems and controls to address risks affecting the Lloyd's market

LLD 17.4

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

PRU 1.4, PRU 3.1, PRU 4.1, PRU 5.1 & PRU 6.1

LLD 17.4, LLD 18.4, LLD 20.2, LLD 21.2, LLD 22.2 & LLD 23.2

Managing agents to establish and maintain systems and controls for the management of prudential, credit, market, liquidity, operational, and insurance risks affecting each syndicate

PRU 1.4, PRU 3.1, PRU 4.1, PRU 5.1, PRU 6.1 & PRU 7.1

LLD 17.4, LLD 18.4, LLD 20.2, LLD 21.2, LLD 22.2, LLD 23.2 & LLD 24.2

Adequacy of financial resources

The Society to ensure that members' financial resources are adequate

PRU 1.2

LLD 18.2

Members taken together to maintain adequate financial resources in respect of the insurance business conducted at Lloyd's

LLD 18.2

Managing agents to ensure that financial resources are adequate for each syndicate

PRU 1.2

LLD 18.2

Valuation

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

PRU 1.3. & PRU 4.3

LLD 18.3 & LLD 21.4

Capital resources requirements

The Society to calculate the MCR in respect of the general insurance business of each member

PRU 2.1

LLD 19.2

The Society to calculate the CRR (higher of MCR and ECR) in respect of the long-term insurance business of each member

PRU 2.1

LLD 19.2

Capital resources

The Society and managing agents to calculate capital resources in accordance with the rules and guidance in LLD and PRU

PRU 2.2

LLD 19.3

Adequacy of capital resources

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)

PRU 2.3

LLD 19.4

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

PRU 2.3

LLD 19.4

01/01/2005

Export chapter as

LLD 17

Special provisions for Lloyds

LLD 17.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 17.1.1

01/01/2005

LLD 17.2

Management of insurance business

01/01/2005

LLD 17.2.1

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.

01/01/2005

LLD 17.2.2

LLD 17.2.1 R ensures that any insurance business carried on by members is subject to appropriate FSA requirements.

01/01/2005

LLD 17.3

Obligations under PRU

01/01/2005

LLD 17.3.1

The Society must ensure that all participants in the Lloyd's market are made aware of their obligations under PRU.

01/01/2005

LLD 17.3.2

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.

01/01/2005

LLD 17.4

Management of risk

01/01/2005

LLD 17.4.1

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.

01/01/2005

LLD 17.4.2

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.

01/01/2005

LLD 17.4.3

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.

01/01/2005

LLD 17.4.4

The Society must take all reasonable steps, including establishing and maintaining adequate systems and controls to enable it:

(1) to manage the risks to which funds at Lloyd's and central assets are exposed; and

(2) to ensure that funds at Lloyd's and central assets are adequate to support all balancing amounts.

01/01/2005

LLD 17.4.5

In complying with LLD 17.4.4 R the Society should take appropriate account of effects such as diversification and concentrations.

01/01/2005

LLD 17.4.6

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.

01/01/2005

LLD 17.4.7

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.

01/01/2005

LLD 17.4.8

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.

01/01/2005

LLD 17.4.9

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:

(1) 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;

(2) 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.

01/01/2005

LLD 17.4.10

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:

(1) consult any affected member, where practical in advance; and

(2) in accordance with PRIN 11 (Relations with regulators), LLD 2 and, to enable the FSA to comply with section 314 of the Act (Authority's general duty), consider whether it should notify the FSA.

01/01/2005

Group risk and conflicts of interest

LLD 17.4.11

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.

01/01/2005

LLD 17.4.12

In complying with LLD 17.4.6 R, managing agents should have particular regard to:

(1) transactions which may give rise to a conflict of interest, such as those to which the counterparties are:

(a) other members of the managing agent's own group;

(b) any members of any syndicates managed by the managing agent; or

(c) any entity that is part of a group to which one or more members of any syndicates managed by the managing agent belong; and

(2) transactions involving:

(a) the provision of capital;

(b) the provision of reinsurance; or

01/01/2005

LLD 17.4.13

The Society must establish and maintain effective arrangements to monitor and manage risk arising from:

(1) conflicts of interest (including in relation to (2) to (4));

(2) inter-syndicate transactions, including reinsurance to close and approved reinsurance to close;

(3) related party transactions; and

(4) transactions between members and itself.

01/01/2005

LLD 17.4.14

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:

(1) any differences in the amounts recorded as due or payable by each party to any such transaction; or

(2) any actual or likely disputes between the parties to any such transaction.

01/01/2005

LLD 17.4.15

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:

(1) the capital resources of any member concerned; or

(2) the Society's capital resources.

01/01/2005

LLD 17.4.16

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.

01/01/2005

LLD 17.5

Approved reinsurance to close

01/01/2005

LLD 17.5.1

As defined in the Glossary, "approved reinsurance to close" excludes:

(1) reinsurance between parties other than members; and

(2) balance transfers between syndicate years of syndicates having only one member, which have no effect on the overall liabilities of that member.

01/01/2005

LLD 17.5.2

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.

01/01/2005

LLD 17.5.3

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:

(1) 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

(2) 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.

01/01/2005

LLD 17.6

Provision of information by managing agents

01/01/2005

LLD 17.6.1

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.

01/01/2005

LLD 17.6.2

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.

01/01/2005

LLD 17.7

Insurance receivables to be carried to trust funds

01/01/2005

LLD 17.7.1

The Society must take all reasonable steps to ensure that each member:

(1) executes the appropriate Lloyd's trust deeds; and

(2) 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.

01/01/2005

LLD 17.7.2

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.

01/01/2005

LLD 17.7.3

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.

01/01/2005

LLD 17.7.4

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.

01/01/2005

LLD 17.7.5

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.

01/01/2005

LLD 17.8

Amendments to byelaws, trust deeds and standard form letters of credit and guarantees

01/01/2005

LLD 17.8.1

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.

01/01/2005

LLD 17.8.2

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:

(1) any Lloyd's trust deed;

(2) any standard form letter of credit prescribed by the Society from time to time; or

(3) any standard form guarantee agreement prescribed by the Society from time to time.

01/01/2005

LLD 17.8.3

The Society must provide the FSA with full details of:

(1) the form of any new Lloyd's trust deed it intends to approve, as described in LLD 17.8.1 R; and

(2) any amendments falling within LLD 17.8.2 R.

01/01/2005

LLD 17.8.4

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.

01/01/2005

LLD 17.8.5

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.

01/01/2005

LLD 17.8.6

The information provided to the FSA by the Society under LLD 17.8.3 R must include:

(1) 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

(2) a description of the consultation undertaken under LLD 17.8.4 R including a summary of any significant responses to that consultation.

01/01/2005

LLD 17.8.7

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.

01/01/2005

Export chapter as

LLD 18

Application of PRU 1 to Lloyd's

LLD 18.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 18.1.1

01/01/2005

LLD 18.2

Adequacy of financial resources

01/01/2005

Application of PRU 1.2

LLD 18.2.1

PRU 1.2 applies to managing agents and to the Society in accordance with:

(1) [to follow]

(2) for the Society, LLD 16.3.1 R.

01/01/2005
Future version of LLD 18.2.1 after 01/01/2006

LLD 18.2.2

LLD 18.2.7 R applies to members, pursuant to the insurance market direction in LLD 18.2.5 D.

01/01/2005

Insurance market direction

LLD 18.2.3

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.

01/01/2005

LLD 18.2.4

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.

01/01/2005

LLD 18.2.5

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.

01/01/2005

LLD 18.2.6

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.

01/01/2005

Members' obligation to maintain adequate financial resources

LLD 18.2.7

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.

01/01/2005

LLD 18.2.8

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.

01/01/2005

LLD 18.2.9

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.

01/01/2005

LLD 18.3

Valuation and recognition

01/01/2005

Application of PRU 1.3

LLD 18.3.1

PRU 1.3 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

Amounts receivable but not yet received

LLD 18.3.2

When recognising and valuing assets that are available to meet liabilities arising from a member's insurance business, neither the Society nor managing agents may attribute any value to any amounts receivable but not yet received from that member or another member, except for:

(1) timing differences provided that a corresponding amount has been deducted from syndicate assets or funds at Lloyd's;

(2) the Society's callable contributions, which are valued according to LLD 18.3.10 G to LLD 18.3.12 R; and

(3) debts owed by a member to another member of the Society where the debt is a liability arising out of the insurance business he carries on at Lloyd's.

01/01/2005

Letters of credit, guarantees and life assurance policies

LLD 18.3.3

Letters of credit, guarantees and life assurance policies are admissible assets in respect of insurance business at Lloyd's and qualify as capital resources under PRU 2.2, subject to LLD 18.3.4 R to LLD 18.3.9 G.

01/01/2005

LLD 18.3.4

When recognising and valuing assets held as members' funds at Lloyd's the Society may, if the conditions in LLD 18.3.5 R are satisfied, attribute a value to letters of credit and guarantees that it holds in respect of a member's insurance business.

01/01/2005

LLD 18.3.5

The conditions referred to in LLD 18.3.4 R are that letters of credit and guarantees must be:

(1) in the form prescribed by the Society from time to time and notified to the FSA; and

(2) issued by a credit institution or an insurance undertaking.

01/01/2005

LLD 18.3.6

When recognising and valuing assets held as members' funds at Lloyd's the Society may attribute a value to verifiable sums arising out of life assurance policies.

01/01/2005

LLD 18.3.7

The Society must value any letter of credit, guarantee or life assurance policy at its net realisable value. The Society must make all appropriate deductions, including those in respect of:

(1) the expenses of realisation; and

(2) any reduction in value that would be likely to occur if the asset needed to be realised at short notice to meet liabilities falling due earlier than expected.

01/01/2005

LLD 18.3.8

If a member relies on a value attributed to a letter of credit or guarantee to meet any applicable capital resources requirement and that letter of credit or guarantee will expire in less than one month, the Society must take appropriate steps to ensure that the applicable capital resources requirement will continue to be met, including taking steps to ensure that sums due under the letter of credit or guarantee are drawn down when due and carried to the appropriate Lloyd's trust fund.

01/01/2005

LLD 18.3.9

In LLD 18.3.8 R, the expiry date includes the date on which the instrument will terminate if not renewed, and the date on which any notice to terminate will or would take effect.

01/01/2005

The Society's callable contributions

LLD 18.3.10

Under LLD 19.3.7R (2) and LLD 19.3.9 R, the Society may recognise and value callable contributions in its calculation of its own capital resources. LLD 18.3.11 R specifies the maximum value that may be attributed to callable contributions.

01/01/2005

LLD 18.3.11

For the purposes of LLD 19.3.7R (2) and LLD 19.3.9 R, the amount assumed to be callable from a member must not exceed the lower of:

(1) the maximum callable contribution that member is or may be liable to make in that financial year; and

(2) the amount by which the member's own capital resources exceed the member's own capital resources requirement.

01/01/2005

LLD 18.3.12

The Society must value callable contributions taking appropriate account of any legal, constructive or other limits on its ability to call for contributions from members or to realise the amount called.

01/01/2005

LLD 18.3.13

The Society must give the FSA adequate advance notice if it proposes to change the maximum amount of the callable contribution that members may be liable to make in any financial year.

01/01/2005

LLD 18.3.14

The FSA would normally expect not less than six months' notice under LLD 18.3.13 R.

01/01/2005

Liabilities

LLD 18.3.15

Subject to LLD 18.3.16 R, the Society must recognise and value all of a member's liabilities in respect of its insurance business.

01/01/2005

LLD 18.3.16

The Society need not recognise or value a member's liabilities that are recognised and valued at syndicate level by managing agents in accordance with PRU 1.3.

01/01/2005

LLD 18.3.17

For the purposes of calculating a member's capital resources, when valuing a member's funds at Lloyd's the Society must deduct the value of a member's liabilities determined under LLD 18.3.15 R.

01/01/2005

LLD 18.3.18

The liabilities to be valued under LLD 18.3.15 R and deducted under LLD 18.3.17 R include:

(1) amounts owing to members' agents;

(2) amounts owing to the Society;

(3) an appropriate accrual for tax payable on any profits;

(4) (where required under any applicable accounting principle in accordance with PRU 1.3.5 R), any contingent liability relating to liabilities reinsured into Equitas Reinsurance Ltd; and

(5) amounts apportioned to members in respect of the credit equalisation reserve under PRU 7.5.

01/01/2005

LLD 18.3.19

In recognising and valuing a member's liabilities, the Society and managing agents may, to the extent permitted by applicable accounting principles, leave out of account the liabilities in respect of 1992 and prior general insurance business reinsured by Equitas Reinsurance Limited.

01/01/2005

LLD 18.3.20

There may be contingent liabilities associated with the reinsurance into Equitas. PRU 1.3 requires managing agents and the Society to treat those contingent liabilities in accordance with applicable accounting principles: see PRU 1.3.5 R. Depending on the circumstances, managing agents or the Society may need to disclose or account for such a liability.

01/01/2005

LLD 18.4

Prudential risk management and associated systems and controls

01/01/2005

Application of PRU 1.4

LLD 18.4.1

Subject to LLD 18.4.2 R, PRU 1.4 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 18.4.2

The requirement in PRU 1.4.18 R to take reasonable steps to ensure the establishment and maintenance of a business plan does not apply to the Society.

01/01/2005

Export chapter as

LLD 19

Application of PRU 2 to Lloyd's

LLD 19.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 19.1.1

01/01/2005

LLD 19.2

Calculation of capital resources requirements

01/01/2005

Application of PRU 2.1

LLD 19.2.1

PRU 2.1 applies to the Society in accordance with LLD 16.3.1 R.

01/01/2005

LLD 19.2.2

PRU 2.1.34 R to PRU 2.1.35 G apply to managing agents in accordance with LLD 16.3.3 R.

01/01/2005

LLD 19.2.3

PRU 2.1.9 R requires the Society to ensure, in relation to each member's insurance business, that capital resources equal to or in excess of the member's capital resources requirement (CRR) are maintained. PRU 2.1 sets out the overall framework of the CRR. PRU 7.2 sets out the calculation of the components of the general insurance capital requirement and the long-term insurance capital requirement.

01/01/2005

LLD 19.2.4

Managing agents are required to calculate the ECR for the purposes of carrying out syndicate ICAs under PRU 2.3. As with-profits insurance business is not carried on through any syndicate, the calculation of the with-profits insurance capital component will not be applicable. PRU 7.4 is not applied to Lloyd's.

01/01/2005

Calculation of the MCR

LLD 19.2.5

For the purposes of PRU 2.1.21 R, the Society must calculate the MCR in respect of the general insurance business of each member as the higher of:

(1) the member's share of the base capital resources requirement in respect of general insurance business for the members in aggregate; and

(2) the general insurance capital requirement for the member, calculated according to LLD 19.2.11 R.

01/01/2005

LLD 19.2.6

For the purposes of LLD 19.2.5R (1), the Society must determine the member's share by apportioning the base capital resources requirement in respect of general insurance business for the members in aggregate between members in proportion to the result for each member of LLD 19.2.11 R.

01/01/2005

LLD 19.2.7

For the purposes of PRU 2.1.22 R, the Society must calculate the MCR in respect of the long-term insurance business of each member as the higher of:

(1) the member's share of the base capital resources requirement in respect of long-term insurance business for the members in aggregate; and

(2) the sum of, for each member:

(a) the long-term insurance capital requirement; and

(b) the resilience capital requirement.

01/01/2005

LLD 19.2.8

For the purposes of LLD 19.2.7R (1), the Society must determine the member's share by applying to the aggregate long-term business base capital resources requirement the ratio of the result for the member of LLD 19.2.7R (2) to the aggregate of the results of LLD 19.2.7R (2) for all members.

01/01/2005

Calculation of the base capital resources requirement

LLD 19.2.9

Subject to PRU 2.1.27 R, the amount of the base capital resources requirement for the members in aggregate is:

(1) for general insurance business, €3 million; and

(2) for long-term insurance business, €3 million.

01/01/2005

Calculation of the general insurance capital requirement

LLD 19.2.10

For the purposes of PRU 2.1.30 R, the Society must calculate the general insurance capital requirement for the members in aggregate as the higher of:

(1) the aggregate for all members of the higher of, for each member, the result of the premiums amount and the claims amount; and

(2) the brought forward amount.

01/01/2005

LLD 19.2.11

The Society must determine the general insurance capital requirement for each member by apportioning the result of LLD 19.2.10 R between members on a fair and reasonable basis, provided that the general insurance capital requirement for a member must not be less than the higher of the result of the premiums amount and the claims amount for that member.

01/01/2005

LLD 19.2.12

The Society should calculate the premiums amount and the claims amount for each member on the basis of the member's own general insurance business, including insurance business that attaches to the reinsuring member for the purposes of PRU following an approved reinsurance to close (see LLD 17.5.3 R).

01/01/2005

LLD 19.2.13

The Society must calculate the general insurance capital requirement it would have to determine under PRU 2.1.30 R if it were an insurer carrying on all the general insurance business carried on by its members, but eliminating inter-syndicate reinsurance (the Society GICR).

01/01/2005

LLD 19.2.14

For the purpose of LLD 19.2.13 R the Society may make appropriate approximations, taking reasonable care to avoid underestimating the Society GICR.

01/01/2005

LLD 19.2.15

The Society must determine each member's share of the Society GICR by allocating the Society GICR between the members in proportion to the result for each member of LLD 19.2.11 R.

01/01/2005

LLD 19.3

Capital resources

01/01/2005

Application of PRU 2.2

LLD 19.3.1

Subject to LLD 19.3.3 R, LLD 19.3.4 R and LLD 19.3.6 R, PRU 2.2 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 19.3.2

PRU 2.1 sets out minimum capital resources requirements for a firm and for Lloyd's members. PRU 2.2 sets out how, for the purpose of these requirements, capital resources are defined and measured. PRU 2.2 applies:

(1) to managing agents for their calculation of the capital resources managed by them in respect of each syndicate they manage (by reference, where there is a change in the underlying capital provision, to each open syndicate year); and

(2) to the Society for its calculation of:

(a) each member's capital resources; and

(b) its own capital resources.

01/01/2005

LLD 19.3.3

PRU 2.2.15 G to PRU 2.2.26 R (Limits on the use of different forms of capital) do not apply to managing agents.

01/01/2005

LLD 19.3.4

PRU 2.2.15 G to PRU 2.2.26 R (Limits on the use of different forms of capital) apply to the Society with respect to:

(1) the capital resources requirements for the members in aggregate; and

(2) the aggregate capital resources supporting the insurance business of all the members.

01/01/2005

LLD 19.3.5

PRU 2.2.72 R does not apply to the Society or to managing agents.

01/01/2005

LLD 19.3.6

In this Chapter LLD 19, "the aggregate capital resources supporting the insurance business of all the members" are:

(1) the aggregate of all the members' capital resources calculated under LLD 19.3.10 R; and

(2) the Society's capital resources excluding callable contributions.

01/01/2005

Calculation of capital resources

LLD 19.3.7

Table PRU 2.2.14 R applies with the modifications that:

(1) (A) CORE TIER ONE CAPITAL includes Lloyd's members' contributions in accordance with LLD 19.3.19 R, subject, in the case of letters of credit, guarantees and verifiable sums arising out of life assurance policies, to compliance with LLD 18.3.3 G to LLD 18.3.9 G; and

(2) the Society may also recognise and value callable contributions, pursuant to LLD 19.3.9 R.

01/01/2005

LLD 19.3.8

Lloyd's member's contributions are admissible assets under LLD 19.3.19 R and include letters of credit, guarantees and verifiable sums arising out of life assurance policies held as funds at Lloyd's. Assets that may be valued as part of capital resources under PRU are not necessarily, however, permitted investments for members under the terms of any Lloyd's trust deed.

01/01/2005

LLD 19.3.9

In calculating its capital resources, the Society may, subject to LLD 18.3.10 G to LLD 18.3.12 R, recognise and value callable contributions.

01/01/2005

LLD 19.3.10

The Society must calculate each member's capital resources as the sum of:

(1) a member's proportionate share of the capital resources held at syndicate level for each syndicate in which the member participates; and

(2) the value of a member's funds at Lloyd's after deducting liabilities in compliance with LLD 18.3.17 R.

01/01/2005

LLD 19.3.11

In order to comply with PRU 2.1.9 R the Society must ensure at all times that:

(1) each member's capital resources requirement is covered by:

(a) that member's capital resources, calculated according to LLD 19.3.10 R; and

(b) to the extent that (a) is insufficient, by the Society's own capital resources; and

(2) the Society GICR is covered by the aggregate capital resources supporting the insurance business of all the members.

01/01/2005

LLD 19.3.12

For the purposes of LLD 19.3.11R (1)(b), the Society must maintain at all times capital resources sufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's capital resources requirement.

01/01/2005

LLD 19.3.13

The Society must calculate each member's share of the amount of capital resources required to comply with PRU 2.2.17 R as the higher of:

(1) 1/3 of the long-term insurance capital requirement for the members in aggregate; and

(2) the base capital resources requirement;

allocated between the members in proportion to the result for each member of LLD 19.2.7R (2).

01/01/2005

LLD 19.3.14

For the purposes of PRU 2.2.18 R, the Society must ensure that the aggregate capital resources supporting the insurance business of all the members meet the higher of:

(1) 1/3 of the general insurance capital requirement for the members in aggregate; and

(2) 1/3 of the Society GICR; and

(3) the base capital resources requirement;

with the sum of the items listed in PRU 2.2.18 R.

01/01/2005

LLD 19.3.15

The Society must calculate each member's share of the amount of capital resources required to comply with PRU 2.2.18 R as the higher of:

(1) 1/3 of the general insurance capital requirement for the members in aggregate; and

(2) 1/3 of the Society GICR; and

(3) the base capital resources requirement;

allocated between the members in proportion to the result for each member of LLD 19.2.11 R.

01/01/2005

Characteristics of tier one capital

LLD 19.3.16

A Lloyd's member's contribution may be included in tier one capital resources to the extent that:

(1) the proceeds are immediately and fully available in respect of the member's insurance business at Lloyd's;

(2) (except in relation to letters of credit), it complies with PRU 2.2.29 R (3) or cannot be repaid to a member until all of the member's liabilities in respect of its insurance business at Lloyd's have been extinguished, covered or reinsured by an approved reinsurance to close;

(3) it otherwise complies with PRU 2.2.29 R (5) to PRU 2.2.29 R (8).

01/01/2005

Adjustments for related undertakings

LLD 19.3.17

PRU 2.2.90 R applies to the Society with the modification that the Society must also value its insurance undertakings in accordance with PRU 2.2.90 R.

01/01/2005

LLD 19.3.18

If a related undertaking is an insurance undertaking which has a deficit in the capital resources available to cover its capital resources requirement, the Society must make provision for:

(1) its proportionate share of that deficit; or

(2) in the case of a subsidiary undertaking, the whole of that deficit.

01/01/2005

Modification of Annex 1R for Lloyd's

LLD 19.3.19

In the case of members, Lloyd's members' contributions are included in PRU 2 Annex 1R and include:

(1) letters of credit;

(2) guarantees; and

(3) verifiable sums arising out of life assurance policies;

held as funds at Lloyd's.

01/01/2005

LLD 19.3.20

The effect of LLD 19.3.19 R is that Lloyd's members' contributions, including letters of credit, guarantees and life assurance policies, are admissible assets.

01/01/2005

LLD 19.4

Individual capital assessment

01/01/2005

Application of PRU 2.3

LLD 19.4.1

Subject to LLD 19.4.2 R, PRU 2.3 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 19.4.2

Managing agents must carry out assessments of capital adequacy for each syndicate they manage by reference to all open syndicate years taken together.

01/01/2005

Assessment of adequacy of capital resources for syndicates and members

LLD 19.4.3

PRU 1.2 requires firms to carry out assessments of the adequacy of their financial resources. Financial resources include capital resources and liquidity resources. PRU 5 contains guidance on liquidity stress tests. Managing agents should manage liquidity risk affecting each syndicate they manage and the Society should manage liquidity risk affecting funds at Lloyd's and central assets, including the risk that it cannot make liquid assets available to support syndicates on a timely basis.

01/01/2005

LLD 19.4.4

PRU 2 sets out provisions that deal specifically with the adequacy of that part of a firm's financial resources that consists of capital resources. PRU 2.3 sets out guidance on how firms should assess the adequacy of their capital resources. The relevant requirements for Lloyd's are that:

(1) the Society should carry out regular assessments of the adequacy of the capital resources available to support each member's insurance business; and

(2) managing agents should carry out regular assessments of the adequacy of capital resources held at syndicate level in respect of the insurance business carried on through each syndicate.

01/01/2005

LLD 19.4.5

Responsibility for:

(1) managing the risks associated with the insurance business; and

(2) holding the capital resources that support those risks;

is divided between managing agents and the Society. To clarify the respective responsibilities of managing agents and the Society for ensuring the adequacy of financial resources, the FSA distinguishes between the managing agents' responsibility to carry out capital adequacy assessments for each syndicate that they manage, and the Society's responsibility to carry out an assessment for each member.

01/01/2005

LLD 19.4.6

In carrying out capital adequacy assessments in respect of the insurance business carried on through each syndicate (the syndicate ICA), managing agents must consider the risks, controls and the financial resources relevant to each syndicate.

01/01/2005

LLD 19.4.7

When carrying out the syndicate ICA, managing agents must not take into account risks to which a member may be exposed or controls from which a member may benefit:

(1) because that member carries on insurance business through another syndicate or more than one syndicate year (whether or not managed by the same managing agent); or

(2) because that member's financial resources include funds at Lloyd's or central assets.

01/01/2005

LLD 19.4.8

The Society must have regard to syndicate ICAs in arriving at its own capital assessment for each member.

01/01/2005

LLD 19.4.9

In assessing the adequacy of the capital resources supporting the insurance business of each member, the Society should consider the risks, controls and financial resources relevant to the totality of the member's insurance business, including:

(1) the adequacy of syndicate ICAs;

(2) the member's share of syndicate ICAs;

(3) adjustments in respect of risks and controls relating to funds at Lloyd's, central assets and the interaction of risks underwritten by the member through different syndicates and in respect of different syndicate years; and

(4) the ongoing validity of any relevant assumptions it makes.

01/01/2005

LLD 19.4.10

The Society should be able to justify any reliance it places on a syndicate ICA, for example by being able to demonstrate that it has carried out appropriate checks.

01/01/2005

LLD 19.4.11

In taking account of a syndicate ICA under LLD 19.4.8 R:

(1) if the Society considers a syndicate ICA to be adequate, it should use the managing agent's risk and capital assessments in carrying out its individual capital assessment in relation to any member of that syndicate, or it should be able to justify why it will not; and

(2) if the Society considers a syndicate ICA to be less than adequate, the Society should increase the syndicate ICA so that it is adequate for the purpose of carrying out its individual capital assessment in relation to the members of that syndicate.

01/01/2005

LLD 19.4.12

The assessment of capital adequacy for a member will rarely equal the proportionate share of a syndicate ICA (or sum of those shares, where the member participates on more than one syndicate) as attributed to that member, because, in determining the capital assessments for each member, the Society may make adjustments to take account of:

(1) risks and controls associated with funds at Lloyd's and central assets, which can increase the member's individual capital assessment;

(2) diversification effects, including as a result of members' participations on more than one syndicate year, which can reduce the member's individual capital assessment; and

(3) its own assessment of syndicate risks, which can be higher than the managing agent's and so increase the member's individual capital assessment.

01/01/2005

The balancing amount

LLD 19.4.13

Capital resources to meet each syndicate ICA could be:

(1) held within a syndicate and managed by the managing agent; or

(2) held and managed by the Society; or

(3) not needed in full, because of effects such as diversification that the Society takes into account.

01/01/2005

LLD 19.4.14

The balancing amount is a function of the relationship between the syndicate ICA and the amount of assets held within the syndicate. As illustrations:

(1) if the syndicate holds no capital resources (but its liabilities are fully covered by relevant assets), the balancing amount equals the syndicate ICA (as there are no capital resources at syndicate level, all the capital resources must be held as funds at Lloyd's or central assets);

(2) if capital resources held at syndicate level are negative (i.e. if relevant assets do not fully cover liabilities for the syndicate), the balancing amount should be higher than the syndicate ICA by an amount corresponding to the negative capital resources held by managing agents on behalf of the syndicate; and

(3) conversely, if a syndicate holds positive capital resources for the syndicate, the balancing amount should be lower than the syndicate ICA by a corresponding amount.

01/01/2005

LLD 19.4.15

Managing agents must periodically notify the Society of the syndicate ICA and the balancing amount in respect of each syndicate.

01/01/2005

LLD 19.4.16

For the purpose of assessing the adequacy of capital resources held as funds at Lloyd's and central assets, the Society must have regard to balancing amounts notified to it by managing agents.

01/01/2005

LLD 19.4.17

After notification of a balancing amount by a managing agent, the Society must:

(1) confirm to the managing agent that capital resources held as funds at Lloyd's and central assets are adequate to support the balancing amount; or

(2) notify the managing agent that it cannot give that confirmation.

01/01/2005

LLD 19.4.18

Managing agents should submit syndicate ICAs and notify balancing amounts to the Society as part of the annual capital-setting process at Lloyd's. The submission of the syndicate ICA and notification of the balancing amount should be made in good time for the Society to review them and place appropriate reliance on them when it determines the capital assessments for each member.

01/01/2005

LLD 19.4.19

When communicating the syndicate ICA and balancing amount for each syndicate to the Society, managing agents should agree with the Society an allocation of the syndicate ICA between syndicate years. The purpose of the allocation is to ensure that there is an appropriate matching of assets to risk and liabilities and an equitable treatment between the members reflecting the provision of capital in each syndicate year.

01/01/2005

LLD 19.4.20

Under LLD 19.4.23 R, a managing agent has a continuing obligation to communicate to the Society a revised syndicate ICA and, where appropriate, a revised balancing amount, if it considers that the syndicate ICA and balancing amount communicated in the capital-setting process are no longer adequate in the light of the risks to which the syndicate business is exposed.

01/01/2005

Monitoring of capital resources

LLD 19.4.21

For the purposes of complying with their obligations under PRU, managing agents may assume that any balancing amount confirmed by the Society under LLD 19.4.17 R is supported by capital resources held as funds at Lloyd's and central assets.

01/01/2005

LLD 19.4.22

Following initial confirmation of a balancing amount by the Society, assumptions made about risks and controls may change or risks may crystallise, affecting:

(1) the syndicate ICA (and hence, possibly, the balancing amount); or

(2) the relationship between a syndicate ICA and a member's individual capital assessment; or

(3) the amount of capital resources available.

01/01/2005

LLD 19.4.23

If a managing agent has, at any time, a significant doubt about the adequacy of a syndicate ICA or balancing amount with respect to syndicate risks and controls, it must notify the Society immediately.

01/01/2005

LLD 19.4.24

If the Society has, at any time, a significant doubt about the adequacy of any member's capital resources held by it in support of any balancing amount, it must notify the relevant managing agent immediately.

01/01/2005

Export chapter as

LLD 20

Application of PRU 3 to Lloyd's

LLD 20.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 20.1.1

01/01/2005

LLD 20.2

Credit risk management systems and controls

01/01/2005

Application of PRU 3.1

LLD 20.2.1

Subject to LLD 20.2.2 R, PRU 3.1 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 20.2.2

In accordance with LLD 18.4.2 R, the rules and guidance in PRU 3.1 relating to the establishment and maintenance of a business plan do not apply to the Society.

01/01/2005

LLD 20.3

Credit risk in insurance funds

01/01/2005

Application of PRU 3.2

LLD 20.3.1

Subject to LLD 20.3.2 R, PRU 3.2 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 20.3.2

PRU 3.2.23 R to PRU 3.2.32 G (Large exposure calculation for reinsurance exposures) do not apply to the Society.

01/01/2005

Overall limitation of credit risk

LLD 20.3.3

For Lloyd's, counterparty exposure is:

(1) for managing agents, the amount by which the net assets managed by or under the direction of a managing agent in respect of a syndicate together with any relevant balancing amount would decrease if the counterparty were to default;

(2) for the Society, the amount by which its net assets (which include those of its subsidiary undertakings) would decrease if the counterparty were to default; and

(3) for the Society's management of each member's funds at Lloyd's, the amount by which the member's net assets would decrease if the counterparty were to default.

01/01/2005

Large exposures

LLD 20.3.4

For the purposes of PRU 3.2.20 R (Large exposure limits: counterparty exposure and asset exposure), the Society may determine the exposure to any letters of credit, guarantees or members' life assurance policies as an exposure of the members in aggregate.

01/01/2005

LLD 20.3.5

For the purposes of PRU 3.2.22 R (Large exposure limits: market risk and counterparty limits), the Society must calculate the amount of and deduct from capital resources:

(1) an exposure (expressed as a percentage of the relevant member's capital resources held as funds at Lloyd's), other than to the assets identified in LLD 20.3.5 R (2)(a) to LLD 20.3.5 R (2)(c), of a member's capital resources held as funds at Lloyd's to a counterparty, in excess of the limits in PRU 3.2.22 R;

(2) an exposure in excess of 20% (expressed as a percentage of the aggregate of capital resources held as funds at Lloyd's) of the aggregate of capital resources held as funds at Lloyd's to a single issuer of:

(a) letters of credit;

(b) guarantees; or

(3) an exposure of its own to a counterparty, in excess of the limits in PRU 3.2.22 R, expressed as a percentage of the Society's own assets.

01/01/2005

LLD 20.3.6

For the purposes of PRU 3.2.22 R (Large exposure limits: market risk and counterparty limits), managing agents must calculate the amount of and deduct from capital resources an exposure (expressed as a percentage of the admissible assets held in respect of the relevant syndicate) of admissible assets held in respect of a syndicate to a counterparty in excess of the limits in PRU 3.2.22 R.

01/01/2005

LLD 20.3.7

If the exposures of capital resources held as funds at Lloyd's for members in the aggregate do not exceed the limits in PRU 3.2.22R (3)(c), then, for each individual member, that limit may be replaced by 10%.

01/01/2005

Exposures excluded from the large exposure limits

LLD 20.3.8

For managing agents, in PRU 3.2.33 R and PRU 3.2.35 R, references to an exposure do not include exposure arising from balancing amounts.

01/01/2005

LLD 20.4

Asset-related Capital Requirement

01/01/2005

Application of PRU 3.3

LLD 20.4.1

PRU 3.3 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 20.4.2

This chapter applies to the Society for each member, including the capital charge relating to central assets, to the extent that those assets are held to support a particular member.

01/01/2005

Export chapter as

LLD 21

Application of PRU 4 to Lloyd's

LLD 21.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 21.1.1

01/01/2005

LLD 21.2

Market risk management systems and controls

01/01/2005

Application of PRU 4.1

LLD 21.2.1

PRU 4.1 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 21.2.2

In accordance with LLD 18.4.2 R, the rules and guidance in PRU 4.1 relating to the establishment and maintenance of a business plan do not apply to the Society.

01/01/2005

LLD 21.3

Market risk in insurance

01/01/2005

Application of PRU 4.2

LLD 21.3.1

PRU 4.2 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R, subject to LLD 21.3.4 R below; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

Resilience capital requirement (applicable to long-term business only)

LLD 21.3.2

Managing agents must calculate the amount of the resilience capital requirement for the long-term insurance business carried on through the syndicates they manage.

01/01/2005

LLD 21.3.3

The Society must determine the resilience capital requirement for the insurance business of each member under PRU 4.2.10 R as the member's proportionate share of the resilience capital requirement calculated by the managing agent for the long-term insurance business carried on through the syndicate.

01/01/2005

Currency risk: matching of assets and liabilities

LLD 21.3.4

For the purposes of PRU 4.2.53 R, a managing agent must ensure that:

(1) syndicate liabilities are covered by matching syndicate assets as required by PRU 4.2.53 R; or that

(2) it immediately notifies to the Society the nature and extent of any syndicate liabilities not covered by matching assets under (1).

01/01/2005

LLD 21.3.5

Notwithstanding the terms of PRU 4.2.53 R, a managing agent may comply with PRU 4.2.53 R by notifying unmatched currency liabilities to the Society.

01/01/2005

LLD 21.3.6

On receipt of a notification by a managing agent under LLD 21.3.4 R (2), the Society must ensure that the liabilities in respect of the insurance business of the members in aggregate are covered with matching assets complying with PRU 4.2.53 R.

01/01/2005

LLD 21.3.7

The Society should consider the need to cover the unmatched currency liabilities notified under LLD 21.3.4 R (2) with assets in the same currency held as funds at Lloyd's for any relevant member or, if necessary, with central assets meeting the currency matching requirements.

01/01/2005

LLD 21.4

Derivatives in insurance

01/01/2005

Application of PRU 4.3

LLD 21.4.1

PRU 4.3 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

Export chapter as

LLD 22

Application
of PRU 5 to Lloyd's

LLD 22.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 22.1.1

01/01/2005

LLD 22.2

Liquidity risk systems and controls

01/01/2005

Application of PRU 5.1

LLD 22.2.1

PRU 5.1 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 22.2.2

In accordance with LLD 18.4.2 R, the rules and guidance in PRU 5.1 relating to the establishment and maintenance of a business plan do not apply to the Society.

01/01/2005

Export chapter as

LLD 23

Application of PRU 6 to Lloyd's

LLD 23.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 23.1.1

01/01/2005

LLD 23.2

Operational risk: prudential systems and controls

01/01/2005

Application of PRU 6.1

LLD 23.2.1

PRU 6.1 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

LLD 23.2.2

In accordance with LLD 18.4.2 R, the rules and guidance in PRU 6.1 relating to the establishment and maintenance of a business plan do not apply to the Society.

01/01/2005

Export chapter as

LLD 24

Application of PRU 7 to Lloyd's

LLD 24.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 24.1.1

01/01/2005

LLD 24.2

Insurance risk systems and controls

01/01/2005

Application of PRU 7.1

LLD 24.2.1

PRU 7.1 applies to managing agents in accordance with LLD 16.3.3 R.

01/01/2005

LLD 24.3

Capital resources requirements and technical provisions for insurance business

01/01/2005

Application of PRU 7.2

LLD 24.3.1

PRU 7.2 applies to the Society in accordance with LLD 16.3.1 R.

01/01/2005

LLD 24.3.2

The following rules and guidance apply to managing agents in accordance with LLD 16.3.3 R:

(1) PRU 7.2.13 G to PRU 7.2.20 R (except PRU 7.2.13 R (1));

(2) PRU 7.2.42 G to PRU 7.2.43 G; and

(3) PRU 7.2.74 G to PRU 7.2.80 G.

01/01/2005

Establishing technical provisions

LLD 24.3.3

Managing agents are advised by the syndicate actuary in relation to the long-term insurance business carried on through long-term insurance business syndicates. The standards and guidance issued by the Faculty and Institute of Actuaries to assist syndicate actuaries are important sources of evidence as to generally accepted actuarial best practice, as referred to in PRU 7.2.16 R (1).

01/01/2005

General insurance capital requirement

LLD 24.3.4

PRU 2.1.30 R and LLD 19.3.10 R to LLD 19.3.12 R set out the calculation of the general insurance capital requirement for Lloyd's.

01/01/2005

LLD 24.3.5

The Society must calculate the brought forward amount for the members in aggregate in accordance with PRU 7.2.51, using the result of LLD 19.2.6 R for the prior financial year and the aggregate of all members' technical provisions for the relevant periods.

01/01/2005

Accounting for premiums and claims

LLD 24.3.6

For the purposes of PRU 7.2.66 R and further to that rule, in the case of Lloyd's members, amounts of premiums and claims must be adjusted for approved reinsurance to close to exclude any amount included in, or adjustment made to, premiums and claims to reflect the consideration for an approved reinsurance to close.

01/01/2005

LLD 24.3.7

Members of Lloyd's can effect contracts of approved reinsurance to close with other members in accordance with LLD 17.5. For the purposes of PRU as it applies to Lloyd's, the capital requirement relating to business transacted through an approved reinsurance to close is calculated for the reinsuring and not the reinsured member under the contract.

01/01/2005

LLD 24.4

Mathematical reserves

01/01/2005

Application of PRU 7.3

LLD 24.4.1

PRU 7.3 applies to managing agents in accordance with LLD 16.3.3 R.

01/01/2005

Approved reinsurance to close

LLD 24.4.2

In respect of business that has been subject to an approved reinsurance to close, managing agents must calculate mathematical reserves (before and after deduction of reinsurance cessions) for the reinsuring and not for the reinsured member.

01/01/2005

LLD 24.5

Equalisation provisions

01/01/2005

Application of PRU 7.5

LLD 24.5.1

PRU 7.5 applies to the Society in accordance with LLD 16.3.1 R:

(1) with the modification set out in LLD 24.5.2 R; and

(2) except PRU 7.5.11 R to PRU 7.5.37 G.

01/01/2005

LLD 24.5.2

The Society must calculate a credit equalisation provision for the aggregate insurance business of all members; it is not required to calculate a credit equalisation provision separately for the business of each member.

01/01/2005

LLD 24.5.3

The Society must allocate the result of LLD 24.5.2 R between itself and each of the members on a fair and reasonable basis.

01/01/2005

LLD 24.6

Internal-contagion risk

01/01/2005

Application of PRU 7.6

LLD 24.6.1

PRU 7.6 applies to managing agents and to the Society in accordance with:

(1) for managing agents, LLD 16.3.3 R; and

(2) for the Society, LLD 16.3.1 R.

01/01/2005

Restriction of business to insurance

LLD 24.6.2

The Society and managing agents must take all reasonable steps to ensure that:

(1) a corporate member does not carry on any commercial business other than insurance business and activities arising directly from that business; and

(2) individual members do not, in their capacity as underwriting members, carry on any commercial business other than insurance business and activities arising directly from that business.

01/01/2005

Syndicates not to carry on both general and long-term business

LLD 24.6.3

A managing agent must not permit both general insurance business and long-term insurance business to be carried on together through any syndicate managed by it.

01/01/2005

LLD 24.6.4

PRU 7.6.17 G contains guidance setting out the FSA policy (reflecting requirements of the Insurance Directives) in relation to the carrying on together of general and long-term insurance business.

01/01/2005

Export chapter as

LLD 25

Regulatory intervention
points for Lloyd's

LLD 25.1

Section 150 of the Act (Actions for damages)

01/01/2005

LLD 25.1.1

01/01/2005

LLD 25.2

Application

01/01/2005

LLD 25.2.1

The rules and guidance in SUP App 2 apply to the Society:

(1) with the modifications set out in LLD 25.3.1 R to LLD 25.8.1 G; but

(2) except SUP App 2.8.1 G to SUP App 2.8.5 G, SUP App 2.9.1 R, SUP App 2.10.1 R, SUP App 2.12.1R (2)(a), SUP App 2.12.2 G and SUP App 2.12.7 R.

01/01/2005

LLD 25.3

Interpretation

01/01/2005

LLD 25.3.1

For the purpose of this Chapter LLD 25 and the application of SUP App 2 to the Society:

(1) "capital resources", as the context requires:

(a) in relation to the Society's own capital resources, means its own capital resources calculated in accordance with PRU 2.2.12 R;

(b) in relation to a member's capital resources, means the member's capital resources calculated in accordance with LLD 19.3.10 R;

(c) in relation to the aggregate capital resources of the Society and the members supporting the insurance business of the members, means the aggregate of the capital resources in (1)(a) and (b) but excluding the Society's callable contributions.

(2) "guarantee fund":

(a) in relation to the general insurance business carried on by members, means the amount of capital resources required in order to comply with PRU 2.2.18 R, LLD 19.3.4 R and LLD 19.3.14 R; and the "member's share of the guarantee fund" for general insurance business means the result of the calculation set out in LLD 19.3.15 R;

(b) in relation to the long-term insurance business carried on by members, means the amount of capital resources required in order to comply with PRU 2.2.17 R and LLD 19.3.4 R; and the "member's share of the guarantee fund" for long-term insurance business means the result of the calculation set out in LLD 19.3.13 R;

(3) "required margin of solvency":

(a) in relation to the general insurance business carried on by members, means the higher of the Society GICR and the general insurance capital requirement for the members in aggregate; and

(b) in relation to the long-term insurance business carried on by members, means the long-term insurance capital requirement for the members in aggregate.

01/01/2005

LLD 25.3.2

The calculations of the base capital resources requirement, the long-term insurance capital requirement and the general insurance capital requirement for members and for the members in aggregate are set out in PRU 2.1 and in LLD 19. LLD 19.2.13 R requires the Society to calculate the Society GICR. PRU 2.2.17 R and PRU 2.2.18 R, as applied to Lloyd's and modified by LLD 19.3.4 R and LLD 19.3.13 R to LLD 19.3.15 R, contain requirements for the calculation of the guarantee fund and the member's share of the guarantee fund.

01/01/2005

LLD 25.4

Purpose

01/01/2005

LLD 25.4.1

Under PRU and LLD 19 the Society must, separately in respect of the general insurance business and long-term insurance business carried on by members, ensure:

(1) its own capital resources are sufficient to cover the aggregate of, for each member, any amount by which the member's capital resources are inadequate to meet the member's CRR; and

(2) that the aggregate capital resources of the Society and the members supporting the insurance business of the members comply with the requirements of PRU 2.2.15 G to PRU 2.2.26 R.

The PRU provisions as applied to Lloyd's reflect requirements under the Insurance Directives.

01/01/2005

LLD 25.4.2

Regulatory intervention is triggered under SUP App 2 if:

(1) the capital resources of the Society are insufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's share of the guarantee fund (the guarantee fund required by Article 17, First Non-Life Directive and Article 29, Consolidated Life Directive);

(2) the capital resources of the Society are insufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's share of the required margin of solvency (the solvency margin required by Article 16a, First Non-Life Directive and Article 28, Consolidated Life Directive);

(3) the capital resources of the Society and of each of the members supporting their own insurance business, in the aggregate, no longer comply with PRU 2.2.16 R and PRU 2.2.24 R. PRU 2.2.16 R and PRU 2.2.24 R prescribe limits on the forms of capital resources which a firm must hold. (For Lloyd's, the Society must comply with PRU 2.2.16 R and PRU 2.2.24 R in relation to the aggregate of its own capital resources and the capital resources of the members supporting their own business: see LLD 19.3.4 R);

(4) the capital resources of the Society are insufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's share of the CRR for the members in aggregate.

01/01/2005

LLD 25.4.3

PRU requires the Society to ensure that the financial resources supporting the insurance business of each member are adequate at all times. Under PRU 2.3.13 G, the FSA may give individual capital guidance to the Society stating the amount and quality of capital resources that it considers ought to be held to meet PRU 1.2.22 R. If the Society's own capital resources fall below individual capital guidance given to the Society in respect of those resources, the FSA may take further action as set out in SUP App 2.7.1 G to SUP App 2.7.5 G.

01/01/2005

LLD 25.5

Capital resources below guarantee fund

01/01/2005

LLD 25.5.1

For the purposes of SUP App 2.4.1 R and SUP App 2.4.2 G, capital resources will have fallen below the guarantee fund if the Society's own capital resources are such that they are no longer sufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's share of the guarantee fund.

01/01/2005

LLD 25.6

Capital resources below required margin of solvency

01/01/2005

LLD 25.6.1

For the purposes of SUP App 2.5.1 R to SUP App 2.5.3 G, capital resources will be such that they no longer equal or exceed the required solvency margin if the Society's own capital resources are insufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's share of the required solvency margin.

01/01/2005

LLD 25.7

Capital resources below capital resources requirement

01/01/2005

LLD 25.7.1

For the purposes of SUP App 2.6.1 G, capital resources will have fallen below the capital resources requirement if the Society's own capital resources are insufficient to meet the aggregate of, for each member, the amount, if any, by which the member's capital resources fall short of the member's share of the capital resources requirement for the members in aggregate.

01/01/2005

LLD 25.8

Capital resources below the level of individual capital guidance

01/01/2005

LLD 25.8.1

For the purposes of SUP App 2.7.1 G to SUP App 2.7.5 G, capital resources will have fallen below the level of individual capital guidance if the Society's own capital resources have fallen below the level advised in individual capital guidance given to the Society in respect of those capital resources.

01/01/2005

Export chapter as

Transitional Provisions and Schedules

LLD TP 1

Transitional provisions

LLD TP 1

Transitional provisions

(1)

(2) Material to which the transitional provision applies

(3)

(4) Transitional provision

(5) Transitional provision: dates in force

(6) Handbook provision: coming into force

LLD 7.2.1 R

Where the Society receives a complaint relating to an act or a failure to act, which occurs before commencement, it may either handle that complaint in accordance with LLD 7.2.1 R or with the complaints handling arrangements in effect at the time of the act or the failure to act.

Indefinite

Commencement

LLD 7.4.1 G

Expired

LLD 13.2.2 R and LLD 9 to LLD 15

The Society must comply with LLD 13.2.2 R by identifying and valuing the assets of individual members that become former underwriting members before 1 January 2003 in accordance with the requirements for the identification and valuation of assets contained in the "Conditions and Requirements Relating to Solvency and Reporting" which were approved by the FSA, exercising the powers of HM Treasury under section 83 of the Insurance Companies Act 1982, and which were applicable immediately before commencement.

Indefinite

Commencement

LLD 13.2.2 R and LLD 9 to LLD 15

Expired

LLD 15.9 to LLD 15.11

Expired

LLD

Expired

LLD 11.4.8 R

The Society must take each member's share of the general insurance business premiums to be his share calculated for general insurance business premiums receivable.

1.1.2004 to 31.12.2005

1.1.2004

LLD 11.5.1 R

In calculating the Society margin, the Society must calculate the first method (premium basis) as set out in IPRU(INS) Appendix 2.1 using only gross premiums receivable and not gross premiums earned.

1.1.2004 to 31.12.2005

1.1.2004

LLD 15.2.1 R

The Society may prepare the Lloyd's Return in respect of the financial year ending on 31 December 2003:
(1) without taking account of the changes to LLD effected by the Lloyd's Sourcebook (Solvency I Directive) Instrument 2003 or the changes to IPRU(INS) effected by the Interim Prudential Sourcebook for Insurers (Solvency I Directive) Instrument 2003, provided that
(2) the Society sends to the FSA, within six months of the end of that financial year, Form 9 completed in respect of that year and completed in accordance with LLD and IPRU(INS) as amended by those Instruments. The Form 9 sent to the FSA under (2) need not be audited.

1.1.2004 to 31.12.2005

1.1.2004

LLD Sch 1

Record keeping requirements

01/12/2004

LLD Sch 1.1

The aim of the guidance in the following table is to give the reader a quick overall view of the relevant record keeping requirements.

It is not a complete statement of those requirements and should not be relied on as if it were. In particular, in accordance with the application rules in LLD 16 to LLD 25, the Society and managing agents are subject to prudential requirements in PRU which include record keeping requirements. They should refer to the relevant Schedules to PRU for a view of those requirements.

LLD Sch 1.2

Handbook reference

Subject of record

Contents of record

When record must be made

Retention period

LLD 1.2.2 G (1)

Delegation of responsibility for carrying out the Society's regulatory functions

Not specified

LLD 1.2.4 G (2)

Records of any committee with delegated authority to carry out the Society's regulatory functions

Should include minutes of its meetings

Not specified

LLD 1.2.5 G (2)

An individual's or other person's exercise of his delegated authority to carry out the Society's regulatory functions

Not specified

LLD 1.3.10 G (1)

Interests of those involved in carrying out the Society's regulatory functions

Not specified

LLD 1.3.10 G (2)

Conflicts of interest of those involved in carrying out the Society's regulatory functions

Disclosures of conflicts of interest and the steps taken to handle them

Not specified

LLD 4.2.3 G (1)

Transactions in the capacity transfer market

Adequate audit trails

Not specified

LLD 5.2.3 G

Notifications made to the Society by, or on behalf of, certain persons who have ceased to be underwriting members

Changes of address and deaths of certain persons who have ceased to be underwriting members

Not specified

LLD 7.3.1 G LLD 7.3.2 G

Complaints from members or former members involving allegations that they have suffered, or may suffer, financial loss, material distress or material inconvenience

Not specified

Minimum period of 3 years from receipt of complaint

LLD 9.4.5 R

Accounting records

Sufficient to demonstrate compliance with LLD 9 to LLD 15

As required in accordance with LLD 9 to LLD 15

Normally not less than 10 years

LLD 10.8.3 G (4)

Managing agents' records

Various records and analyses of underwriting and claims

Not specified

01/12/2004
Future version of LLD Sch 1.2 after 31/12/2005

LLD Sch 2

Notification requirements

01/12/2004

LLD Sch 2.1

The aim of the guidance in the following table is to give the reader a quick overall view of the relevant requirements for notifications and reporting.

It is not a complete statement of those requirements and should not be relied on as if it were.

01/12/2004
Future version of LLD Sch 2.1 after 31/12/2005

LLD Sch 2.2

Handbook reference

Matter to be notified

Contents of notification

Trigger event

Time allowed

LLD 2.3.1 D

Any matter likely to be of material concern to the FSA in relation to the regulated activities for which the Society has permission; or underwriting agents; or approved persons or individuals acting for or on behalf of underwriting agents

Includes but is not limited to matters listed in LLD 2.3.4 G

The Society becomes aware of the matter

Immediate

LLD 2.4

Commencement, continuation and cessation of relevant investigations and disciplinary proceedings

Commencement, continuation and cessation of investigations and disciplinary proceedings listed in LLD 2.4.1 D, LLD 2.4.2 D and LLD 2.4.3 G

End of each calendar month

5 business days

LLD 2.6.2 G LLD 2.6.3 G

Proposed changes in byelaws for supervising and regulating the market at Lloyd's

Details of proposed changes, consultation undertaken and responses to consultation

Not specified

The FSA should be given adequate notice

LLD 2.6.4 G

Regulatory and market bulletins; and all amendments to byelaws

Copies of bulletins and amendments

Publication

Immediate

LLD 3.3

Information about the Central Fund

Information on the Central Fund's net market value, payments, investments, changes in any insurance policy and any claims on the latter, or circumstances likely to lead to a claim

End of each calendar quarter

2 weeks

LLD 4.3

Information about the capacity transfer market

Capacity transferred, investigations into conduct in the capacity transfer market, and all complaints received

End of each calendar quarter in which any capacity is transferred

1 month

LLD 7.4

Information about certain complaints from members and former members

Number, nature, resolution and referral of these complaints

End June and end December

1 month

LLD 10.4

Intention to approve or amend a trust deed

New trust deed and proposed amendment, plus a statement of the purpose of the deed/amendment and an analysis of its impact

The Society intends to approve or amend a trust deed

Sufficient time for the FSA to consider proposals before Society approval

LLD 10.5.2 R

Material changes proposed to risk-based capital system

Details of proposed changes

The Society intends to make amendments to risk-based capital system maintained under LLD 10.5.1 R

Adequate time for the FSA to review proposals and assess their implication

LLD 10.5.4 R

Independent reviews commissioned by the Society of the operation of the RBC model

Results of each review

Completion of the review

Not specified

LLD 10.6

Reviews of aggregations of risk and plans for monitoring aggregations of risk

Discussion

Completion of regular reviews

Not specified

LLD 10.9.5 R

A syndicate actuary of a general insurance business syndicate will or may be unable to provide an unqualified opinion under LLD 10.9.4 R (3)(b)

Not specified

The Society becomes aware

Prompt notification

LLD 11.2.4 R

If the solvency requirements of LLD 11.2.1 R are not maintained

A plan for the restoration of a sound financial position

The Society becomes aware

Prompt notification

LLD 11.2.11 R

If criterion similar to the guarantee fund requirement for insurers is not maintained

A short-term financial scheme similar to that required from insurers under SUP, Appendix 2 1.4

The Society becomes aware

Prompt notification

LLD 15

Lloyd's Return and Lloyd's global account

Detailed reports in accordance with the requirements of LLD 15 and its Annexes

End of each financial year

6 months

LLD Sch 3

Fees and other required payments

01/12/2004

LLD Sch 3.1

There are no requirements for fees or other payments in LLD.

01/12/2004

LLD Sch 4

Powers exercised

01/12/2004

LLD Sch 4.1

The following powers have been exercised by the FSA to make LLD

01/12/2004

LLD Sch 4.2

The rules in LLD 3 to LLD 5 and LLD 7 to LLD 15 are made under section 138 of the Act (General rule-making power).

01/12/2004
Future version of LLD Sch 4.2 after 31/12/2005

LLD Sch 4.3

The directions in LLD 2 are given under section 318 of the Act (Exercise of powers through Council).

01/12/2004

LLD Sch 4.4

The direction in LLD 6is given under section 316 of the Act (Direction by Authority).

01/12/2004
Future version of LLD Sch 4.4 after 31/12/2005

LLD Sch 4.5

The guidance is given under section 157(1) of the Act (Guidance).

01/12/2004

LLD Sch 5

Rights of action for damages

01/12/2004

LLD Sch 5.1

The table below sets out the rules in LLD contravention of which by an authorised person may be actionable under section 150 of the Act (Actions for damages) by a person who suffers loss as a result of the contravention.

01/12/2004

LLD Sch 5.2

If a "Yes" appears in the column headed "For private person?", the rule may be actionable by a "private person" under section 150 (or, in certain circumstances, his fiduciary or representative; see article 6(2) and (3)(c) of the Financial Services and Markets Act 2000 (Rights of Action) Regulations 2001 (SI 2001/2256)). A "Yes" in the column headed "Removed" indicates that the FSA has removed the right of action under section 150(2) of the Act. If so, a reference to the rule in which it is removed is also given.

01/12/2004

LLD Sch 5.3

The column headed "For other person" indicates whether the rule may be actionable by a person other than a private person (or his fiduciary or representative) under article 6(2) and (3) of those Regulations. If so, an indication of the type of person by whom the rule may be actionable is given.

01/12/2004

LLD Sch 5.4

Right of action under section 150

Chapter/Appendix

Section/Annex

Paragraph

For private Person?

Removed?

For other person?

All rules

Yes

LLD 3.1.2 R

All rules

Yes

LLD 4.1.2 R

All rules

Yes

LLD 5.1.2 R

All rules

Yes

LLD 7.1.2 R

All rules

Yes

LLD 8.1.2 R