Prudential Regulation Authority Rulebook

1.1

Except in 11 and unless otherwise stated, this Part applies to:

1. (1) in accordance with Insurance General Application 3, the Society; and
2. (2) in accordance with Insurance General Application 3, managing agents, where specified.

1.2

In this Part, the following definitions shall apply:

capacity transfer market

means any method of transferring capacity in syndicates, including capacity auctions, bilateral arrangements, capacity offers, minority buy-outs and conversion schemes.

insurance business

means the regulated activities of effecting contracts of insurance or carrying out contracts of insurance written at Lloyd's.

Lloyd's member's contribution

means assets:

1. (1) provided to a managing agent in response to a cash call; or
2. (2) held by the Society as funds at Lloyds.

underwriting agent

means a firm permitted by the Council to act as an underwriting agent at Lloyd's.

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.

2.2

The Society must ensure that all participants in the Lloyd’s market are made aware of their obligations under the Solvency II Firms Sector of the PRA Rulebook.

2.3

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

1. (1) conflicts of interest (including in relation to (2) to (4));
2. (2) inter-syndicate transactions, including reinsurance to close and approved reinsurance to close;
3. (3) related party transactions; and
4. (4) transactions between members and itself.

3.1

Notwithstanding that the liability of a reinsured member to a policyholder is unaffected by an approved reinsurance to close for the purposes of the Solvency II Firms Sector of the PRA Rulebook:

1. (1) for an approved reinsurance to close which is not to a subsidiary undertaking of the Society:
1. (a) 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. (b) 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.
2. (2) for an approved reinsurance to close to a subsidiary undertaking of the Society, a contract of insurance reinsured under that approved reinsurance to close must be treated as if the reinsured member had not effected the original contract of insurance but:
1. (a) for the purposes of the calculation of the Lloyd’s SCR, general insurance business carried on by members and former underwriting members which has been reinsured to a subsidiary undertaking of the Society under an approved reinsurance to close must be treated as reinsured to a third party; and
2. (b) for the purposes of calculating the SCR of any subsidiary undertaking of the Society which is a UK Solvency II firm, the approved reinsurance to close must be treated as a reinsurance.

4.1

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.

4.2

A managing agent need not comply with 4.1 if the managing agent knows that the Society already has the relevant information.

5.1

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

1. (1) executes the appropriate Lloyd’s trust deeds; and
2. (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.

5.2

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.

5.3

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.

5.4

In complying with 5.1 to 5.3, 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.

6.1

The Society must, as soon as it is practical to do so, notify the PRA of its intention to approve the form of any new Lloyd’s trust deed.

6.2

The Society must, as soon as it is practical to do so, notify the PRA of its intention to make any amendment which may alter the meaning or effect of any byelaw, including:

1. (1) any Lloyd’s trust deed;
2. (2) any standard form letter of credit prescribed by the Society from time to time; or
3. (3) any standard form guarantee agreement prescribed by the Society from time to time.

6.3

The Society must provide the PRA with full details of:

1. (1) the form of any new Lloyd’s trust deed it intends to approve, as described in 6.1; and
2. (2) any amendments falling within 6.2.

6.4

The Society must consult interested parties in relation to any new Lloyd’s trust deed and in relation to any amendment falling within 6.2.

6.5

The information provided to the PRA by the Society under 6.3 must include:

1. (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. (2) a description of the consultation undertaken under 6.4 including a summary of any significant responses to that consultation.

7.1

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

7.2

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 does not take into account the amounts of compensation which policyholders may receive under the provisions of the compensation scheme in respect of protected claims against members.

7.3

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 does not take into account the amounts of compensation which policyholders may receive under the provisions of the compensation scheme in respect of protected claims against members.

8.1

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

9.1

The Society must ensure that sections 320 to 322 of FSMA (Former underwriting members, Requirements imposed under section 320, Rules applicable to former underwriting members) are drawn to the attention of any person ceasing to be an underwriting member on or after 1 December 2001.

9.2

The Society must require any person, other than a body corporate, ceasing to be an underwriting member on or after 1 December 2001 to:

1. (1) notify the Society of any change in his address within one month of the change; and
2. (2) in the case of a natural person, to make arrangements for the Society to be notified in the event of his death.

10.1

In complying with requirements imposed on it in the Solvency II Firms Sector of the PRA Rulebook, the Society must ensure that any relevant provision of the Solvency II Regulations is applied in order to achieve the same effect as that provision of the Solvency II Regulations would have (that is, conforming with the requirements of the relevant provision) when applied to a UK Solvency II firm.

10.2

In complying with requirements imposed on it in the Solvency II Firms Sector of the PRA Rulebook, a managing agent must, in relation to each syndicate managed by it and for each syndicate year, ensure that any relevant provision of the Solvency II Regulations is applied in order to achieve the same effect as that provision of the Solvency II Regulations would have (that is, conforming with the requirements of the relevant provision) when applied to a UK Solvency II firm.

11.1

1. (1) The PRA directs that, with effect from 27 May 2014, Part XXII of FSMA (Auditors and Actuaries) applies to the carrying on of insurance business by members as modified by (2).
2. (2) Regulations made by the Treasury under section 342(5) and section 343(5) of Part XXII of FSMA apply only to actuaries appointed by a managing agent in respect of the insurance business of a syndicate, in relation to the long-term insurance business of that syndicate.
3. (3) In Part XXII of FSMA (Auditors and Actuaries) as applied by this direction:
1. (a) a reference to an auditor of an authorised person is to be read as including an auditor appointed by a managing agent in respect of the insurance business of a syndicate; and
2. (b) a reference to an actuary acting for an authorised person is to be read as including an actuary appointed by a managing agent in respect of the insurance business of a syndicate.

12.1

This Chapter applies to the Society.

12.2

With effect from 15 October 2003, it was directed that the following core provisions of FSMA apply to the carrying on of insurance market activities by members:

1. (1) Part 9A (Rules and guidance) for the purpose of applying the rules in chapters 1 and 3, the Policyholder Protection Part, the FSCS Management Expenses Levy Limit and Base Costs Part, the Management Expenses in respect of Relevant Schemes Part and relevant interpretative provisions; and
2. (2) Part XV (Financial Services Compensation Scheme).

13.1

This Chapter applies to the Society.

13.2

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.