Chapter 8: Section 2.3

[jensen]

Hello

On the topic of three year funding at Lloyd's, will a three year open window be relevant for an syndicate specialising in long tailed claims?

Would also like to confirm my understanding that "the syndicates are reformed each year" means that the members can change but the syndicates will still continue to exist to pay future claims until cease trading?

Thanks.

 

[mattt78]

Hello

On the topic of three year funding at Lloyd's, will a three year open window be relevant for an syndicate specialising in long tailed claims?

Would also like to confirm my understanding that "the syndicates are reformed each year" means that the members can change but the syndicates will still continue to exist to pay future claims until cease trading?

Thanks.

the three year "window" will be more relevant to syndicates writing more long tail classes, but remember, at the end of the three years, the business is just passed to the next open YOA. So, where a syndicate writes only long term business, a new "name" will probably see very little happen in the first two years, but in the third year the performance for their syndicateYOA will depend largely on the performance of all the previous (now closed) years of account (which could be 20+ years) transferred in via a RITC into their syndicateYOA.

I think each syndicateYOA is a separate legal entity, with its own set of names, and these legal entities effectively cease to exist after 3 years. However, often a name will continue to be a name for a syndicate (meaning the set of all years of account) for many successive years of account. So when they say the syndicate continues to exist to pay future claims, I assume they just mean that the syndicate exists in the form of the newly created years of account entities, which take on the liabilities of earlier years of account (i.e. the closed now non-existent ones), and these newly created syndicate years of account will pay future claims. So, assuming a new syndicateYOA entity is created each year, the syndicate can be considered to exist indefinitely.

That's what I think anyway.

 

[jensen]

...

I think each syndicateYOA is a separate legal entity, with its own set of names, and these legal entities effectively cease to exist after 3 years. However, often a name will continue to be a name for a syndicate (meaning the set of all years of account) for many successive years of account. So when they say the syndicate continues to exist to pay future claims, I assume they just mean that the syndicate exists in the form of the newly created years of account entities, which take on the liabilities of earlier years of account (i.e. the closed now non-existent ones), and these newly created syndicate years of account will pay future claims. So, assuming a new syndicateYOA entity is created each year, the syndicate can be considered to exist indefinitely.

That's what I think anyway.

Thanks matt78

So after 3 years, the syndicate vanishes, and if there are new claims the reinsurer who took over the RITC will pay for these new claims?

 

[mattt78]

Thanks matt78

So after 3 years, the syndicate vanishes, and if there are new claims the reinsurer who took over the RITC will pay for these new claims?

yes, pretty much

to be clearer, i'd say that the syndicate for that YOA is closed, so names take their profit/loss, an RITC is paid, and all remaining liabilities (for notified and future claims from these policies) are then passed to the reinsurer - typically the next open YOA for that syndicate.

and once closed, my understanding is that the syndicate is dissolved (as it has no remaining assets or liabilities), and ceases to exist as a legal entity. (I guess that means to RITC must be more of a portfolio transfer than true reinsurance, as otherwise it would still have potential liabilities, due to reinsurer credit risk, wouldn't it? I think that might be mentioned in the notes somewhere.)