CII LM3 cheat sheet

The London Market is a marketplace, not a single company: it comprises Lloyd's syndicates, London-based insurers and reinsurers, brokers, MGAs and supporting service firms trading largely face-to-face or electronically.

Lloyd's is a society of members (corporate and individual) whose capital supports syndicates; it is regulated by the Prudential Regulation Authority and the Financial Conduct Authority, with its own Council and franchise structure.

Subscription market means several insurers each accept a share of the same risk on the same terms, led by a lead underwriter; each subscriber is severally liable only for its own line, not jointly.

Company market participants are conventional insurers and reinsurers writing from London offices; many also write through Lloyd's syndicates, so both markets overlap in personnel and practice.

The slip is the market's placing document; the policy is the formal contract issued afterwards. Terms agreed on the slip bind subscribers even before the policy is issued.

The lead underwriter sets terms and price for the following market; followers accept or decline the leader's terms, which is why lead quality and authority matter commercially.

Market bodies include the Lloyd's Market Association (LMA), International Underwriting Association (IUA), London & International Insurance Brokers' Association (LIIBA) and the Lloyd's Market Association's model wordings.

Supporting infrastructure includes placing platforms, central settlement, claims agreement services and bureaux that handle accounting and documentation between brokers and underwriters.

A placing broker acts for the insured (or reinsured) and owes duties of care, skill and disclosure of material facts; a producing broker introduces the business and shares commission.

An underwriter acts for the insurer and decides whether to accept, at what price, on what terms and for what line; the underwriter is not the broker's client and owes no duty to the insured.

Material facts must be disclosed by the insured to the broker and by the broker to the underwriter; failure can allow the insurer to avoid the policy for non-disclosure or misrepresentation.

Binding authorities delegate underwriting to an MGA or coverholder within written limits of class, geography, line size and premium; the insurer remains liable for risks written within authority.

Lloyd's managing agents run syndicates and employ the underwriters; members' agents advise and manage capital providers; both are distinct from the broking community.

Claims brokers and claims handlers manage notifications and settlements; loss adjusters investigate and quantify losses independently, reporting to insurers.

Coverholders, TPA (third-party administrators) and delegated claims handlers extend market capacity but must be approved and monitored by the insurer or managing agent.

Brokers must hold appropriate permissions for regulated activity and must not handle client money outside approved arrangements; commission and remuneration must be disclosed where required.

The placing process: broker prepares the slip and supporting information, approaches the lead underwriter, agrees terms, then presents to followers until the required 100% is subscribed.

A line is the percentage or share of the risk accepted by one subscriber; lines must total 100% for the risk to be fully placed, and shortfalls may be covered by additional subscribers or the broker's own market.

The slip identifies insured, period, interest, sums insured, conditions, exclusions, premium and each subscriber's line and initials; it is the basis of the contract once signed.

Leading and following: the leader's terms are recorded first, and followers sign down for their share; changes after binding require endorsement agreed by all affected subscribers.

Binding occurs when the underwriter signs the slip or otherwise agrees terms; a broker's cover note may confirm cover pending policy issue but does not replace the slip.

Scratching (or 'scratching the slip') means obtaining sufficient subscriptions to complete the placement; the risk is not bound until the required lines are secured.

Order of signing matters for claims and accounting: each subscriber is liable only for its own line, so a 20% line pays 20% of an agreed loss.

Placement must respect sanctions, licensing and territorial restrictions; brokers screen parties and underwriters must not write prohibited risks.

Underwriting assesses hazard (physical, moral, morale), exposure and claims history; the underwriter decides acceptance, terms, deductible, limits and premium.

Pricing fundamentals: expected loss cost plus expenses, profit and capital/risk margin; the technical premium must cover expected claims and costs over the cycle.

Rating approaches include experience rating, exposure rating, burning cost and judgment; portfolio pricing aggregates individual risk prices against capital and volatility.

Terms and conditions (deductibles, sub-limits, warranties, exclusions) are as important as price; a low premium with loose terms can destroy underwriting profit.

Reinsurance buying by the underwriter affects net capacity and capital usage; gross and net pricing must be distinguished when assessing profitability.

Accumulation and catastrophe exposure must be monitored: a single event (windstorm, flood, terrorism) can hit many policies across one portfolio.

Underwriting authority is delegated from the insurer or managing agent and is limited by class, line size and premium; breaches can invalidate cover or trigger regulatory issues.

Documentation of the underwriting decision (why accepted, at what terms) supports audit, regulatory review and future renewal negotiation.

The contract of insurance requires offer, acceptance, consideration (premium) and intention to create legal relations; insurable interest and utmost good faith underpin it.

The slip, policy wording, endorsements, schedules and any market wordings together form the contract; where documents conflict, the courts interpret the whole instrument.

A policy schedule records insured, period, limits, premium and endorsements; the wording sets cover, exclusions and conditions.

Endorsements amend the contract after inception (add/remove insured, change limits, extend period); they must be agreed by all subscribers whose lines are affected.

Warranties are promissory conditions; breach suspends or discharges cover depending on the wording and applicable law (for example the Insurance Act 2015 regime in the UK).

Conditions precedent (such as notification or premium payment) must be satisfied before cover responds; ordinary conditions give rise to a remedy in damages only if breached.

Utmost good faith duties were reformed in the UK by the Insurance Act 2015: the insured must make a fair presentation of the risk, and remedies for breach are proportionate.

Policy issuance should follow the slip; discrepancies between slip and policy are resolved in favour of the slip terms as the placing record.

Notification: the insured or broker notifies the leader and subscribers (or the claims lead) promptly; late notification can prejudice cover under notification conditions.

Claims agreement: in the subscription market the leader (or claims lead) agrees the claim on behalf of subscribers under a claims agreement agreement, binding followers to the settlement.

Investigation: loss adjusters, surveyors and experts establish cause, quantum and policy response; fraud or non-disclosure findings can allow the insurer to decline.

Reserving: case reserves and IBNR are set; claims reserves feed into solvency and capital calculations and must be reviewed regularly.

Recoveries: salvage, subrogation against third parties and reinsurance recoveries reduce net loss; reinsurance recoveries depend on the reinsurance wording and notice.

Payment follows agreement; in the subscription market each subscriber pays its own proportion of the agreed claim, so a 10% line pays 10%.

Claims handling must meet regulatory conduct requirements: fair treatment, timely communication, clear reasons for decisions and complaint handling.

The claims file should record notification, investigation, coverage analysis, reserve movements and settlement, supporting audit and any dispute.

Reinsurance transfers risk from a ceding insurer to a reinsurer; London is a major global reinsurance hub for both treaty and facultative business.

Treaty reinsurance covers a defined portfolio automatically (proportional quota share or surplus, or non-proportional excess of loss and stop loss); facultative covers a single risk.

Proportional treaties share premium and losses in the agreed proportion; non-proportional treaties respond only above a retention, with layers and reinstatements.

Reinsurance supports capital efficiency, catastrophe protection, new business growth and underwriting capacity; it does not remove the cedant's obligation to its insured.

Reinsurance is a contract of indemnity between insurer and reinsurer; the reinsured must disclose material facts and follow the reinsurance wording, including notice and claims cooperation clauses.

Cut-through clauses allow the original insured to claim directly against the reinsurer in defined circumstances; otherwise no privity exists between insured and reinsurer.

Reinsurance recoveries depend on the cedant paying the original claim and on proper proof; disputes often concern follow-the-settlements clauses and coverage alignment.

Common reinsurance wordings include LMA and LSW clauses; the London market uses standard clauses to align treaty and facultative terms.

The PRA and FCA regulate the London Market; the PRA focuses on prudential soundness, the FCA on conduct, market integrity and consumer protection.

Lloyd's is separately regulated by the PRA/FCA and has its own oversight; managing agents and syndicates must meet both regulatory and Lloyd's requirements.

The FCA's Principles for Businesses and the Senior Managers and Certification Regime impose personal accountability on senior individuals.

Financial crime obligations include sanctions screening, anti-money-laundering checks, customer due diligence and suspicious activity reporting.

Market conduct rules cover fair treatment of customers, clear communications, conflicts of interest, complaints handling and prompt claims payment.

The Insurance Act 2015 and the Consumer Insurance (Disclosure and Representations) Act 2012 set disclosure and remedies rules in the UK; contract certainty is a market requirement.

Record-keeping and reporting: firms must maintain records, submit regulatory returns and cooperate with regulators; breaches can lead to fines, restrictions or prohibition.

Sanctions and export controls prohibit writing or paying claims involving designated persons or countries; brokers and underwriters must screen before binding and at claims stage.