As a captive domicile, Lloyd's is unique and offers significant benefits different to any other location These include global reach, cost savings, reduced cost of capital, the recognised financial rating of the market and access to expertise.
One key attraction of Lloyd's is the network of direct insurance licences in over 60 countries. All syndicates, including new captives, have immediate access to these licences which become effective once the syndicate has been approved by the Lloyd's regulators. Each Lloyd's syndicate, therefore, is effectively an international insurance company with a powerful global reach. For UK companies, Lloyd's has licences for the statutory classes of motor and employers' liability.
The Lloyd's captive can issue direct policies without the need for fronting arrangements, which results in significant savings in fronting fees, local broker fees, federal excise tax (FET) and withholding taxes. Direct issuance of policies will reduce administration and allow funds to flow more freely from overseas, thereby enhancing investment opportunities.
Reduced cost of capital
The minimum level of capital typically required will be greater than for the offshore domiciles. However, this can be provided entirely by way of letter of credit or parental guarantee, and there is no requirement for paid-up cash.
Recognised financial rating
All Lloyd's syndicates automatically qualify for the market rating of S&P A+ and AM Best A rating. The rating is useful for joint ventures to give comfort to all parties as to the security of the cover. Furthermore, if the captive owner wishes to write third party business, the new syndicate will be acceptable to the major brokers and can be accessed immediately by all brokers registered at Lloyd's.
Access to expertise
Every syndicate has access to the Lloyd's central services, including the production of wordings, claims services and advice on licensing and taxation issues. The Lloyd's policy signing office (LPSO) can ensure that all the captive's policies meet the high commercial standards enjoyed in the market. This is particularly valuable where the captive has issued policies in a high risk environment, such as US liability.
Power to the risk manager's elbow
As well as hard financial benefits, a Lloyd's captive gives the risk manager a powerful tool which not only provides effective worldwide insurance, but also reduces the need for intermediaries and tedious administration.
Once the master policies have been agreed prior to renewal, the captive syndicate can empower the risk manager to issue local policies directly. Typically the policies would be delivered through the client's own intranet system without the need for fronting companies or local brokers.
Premiums can be collected internally and direct from subsidiaries. These monies do not need to leave the group, avoiding the annoyance of fronting companies sitting on company funds.
Where applicable, the syndicate can delegate claims settling authority up to certain limits directly to the risk management department. This will allow payment of claims by the risk manager direct to the subsidiary without any need for any other service provider to be involved.
Which type of company will benefit
In order to take advantage of a Lloyd's captive, the parent company will typically have some of the following attributes:
How would a Lloyd's captive fit within a typical programme
A Lloyd's captive can be licenced to write a wide range of insurance classes. Indeed, as long as the underwriting expertise is available to the syndicate, the Lloyd's captive can write every business class that is written across the market. The captive is flexible and can be used in a number of different ways.
The following list illustrates a few key points which will help optimise the benefits.
Lloyd's as a domicile
Over the last few years Lloyd's has experienced a “big bang” as the market moves from a traditional environment of individual members of Names to a corporate capital one. Many of the world's insurance companies have recognised the considerable benefits gaining by locating an insurance subsidiary within the Lloyd's domicile. Now the captive market can also takes advantage of this unique UK opportunity.