Chapter 4 p4 refers to "Funds at Lloyds" and Chapter 8 p6 refers to the "Central Fund". Are these the same thing? They are both used to pay claims when a member defaults. Also, does anyone know what happens if the Central Fund is too big? Is it carried forward to the next year, or returned to members? Thanks
The Funds at Lloyds are not the same thing as the Central Fund although they are both there to provide policyholder protection. The Funds at Lloyds are the equivalent of the capital in an insurance company. They are used to support the underwriting and are calculated based on similar ICA calculations to those used for insurance companies. The Funds at Lloyds are based on, but will usually be much higher than, the ICA amount, to provide added security for policyholders. The Central Fund acts as a compensation scheme (similar to the FSCS). It is funded by contributions from Lloyds members (among other things) and is administered by the Council of Lloyds. Lots of detailed analysis is done to work out the required size of the Central Fund, with testing done against a number of scenarios and a range of forecasts of market conditions. If the premium trust fund is not large enough to pay the claims then the Funds at Lloyds will be called upon. If this isn't enough then the Central Fund will be called upon.
Is the fund called upon if the RITC premium is higher than the current premiums - claims incurred (i.e. the balance of the premium trust fund) assuming that the result of the year is certain enough that an RITC premium can be agreed.
