Update on Lloyd’s CAS Spring Meeting, Miami May 8, 2001 Todd J. Hess

Lloyd’s Overview b Insurance b Insurance Company LicensesLicenses PaperPaper CommonCommon rating b Marketplace overover 100 syndicates SubscriptionSubscription market CompetitionCompetition

Market Participants b The Corporation of Lloyd’s b Syndicates b Brokers b Capital Providers b Managing Agencies b Members’ Agents

Capital Providers b Bespoke Names b Corporate Capital b MAPA b Conversion Vehicles b Listed Companies

View of Lloyd’s for Capital provider

Integrated Lloyd’s Vehicle b Common ownership of capital and agency b ILV ownership variants Listed companyListed company Privately heldPrivately held Combinations there-ofCombinations there-of

ILV Organisation Chart

Chain of Security (Doug’s topic) b Premium Funds Trust FundsTrust Funds Held for Three Years (3 year accounting)Held for Three Years (3 year accounting) b Solvency Reserves b Funds at Lloyd’s (FAL) b Central fund Actual FundingActual Funding Reinsurance LayerReinsurance Layer callable fundscallable funds

3 year Accounting b Year of Account Focus Closing a yearClosing a year Reinsurance to Close (RITC)Reinsurance to Close (RITC) b Equity among names b Reserving/cash flow

US Situs Trust Funds b Name (Premium Trust Fund) suggests that funded by premium b CRTF (100% of gross, cash) b SLTF (30% of gross-may be LOCs) b NYID has held-up release of funds for some syndicates

Bigger Burden for Lloyd’s Requirement not exclusive to Lloyd’s, but b Higher reinsurance spend b Capital structure often cash light b Double-funding of losses > 100% (solvency reserve and trust funding if fund as LOC)

Reconstruction and Renewal b Agreed in 1996 b Equitas took RITC for 1992 and prior b Equitas solvency position b Lloyd’s welcomed rating agency review b Less data for on-going business (tails look shorter)

Lloyd’s Core Strengths b Strong Brand Marketplace where difficult things get doneMarketplace where difficult things get done Leader in important marketsLeader in important markets Never failed to pay valid claimNever failed to pay valid claim b Global Licenses b Mutualised Security b ‘Robust Regulatory Management’ (from S&P)

Lloyd’s Challenges b World-wide competition increasingly technical b Cost of Capital b ART and other non-traditional b Service Standards b Rating issues