Chapter 4: The notes say that a syndicate's FAL must be at least 40% of its Overall Premium Income Limit... If a syndicate wrote significantly less than its OPIL then would its FAL still be at least 40%? It seems like a disincentive to write cautiously, the example in my head is if in a particular syndicate year they'd have to charge low premiums due to a soft market or lack of people wanting to buy, then they'd still have to pay 40% of OPIL even if their actual premium income was itself less than 40% of the OPIL.
That's right Danielle. In fact, it's call "overcapacity" - ie when the capital backers (Names) have provided X amount of capital but there isn't enough profitable business in the market. Needless to say, syndicates feel the pressure to fill their books up to their OPIL (or reasonably close to it at least). This has been a problem in the past (in the bad old days before 1993), and as it happens it's a problem now too. Just Google "overcapacity at lloyd's of london" and see what comes up!
