Q1 part i of September 2009,

[George88]

I don’t think I understand Lloyds very well.


It was my understanding that a managing agency is not a risk carrier, but manages the affairs of the business on behalf of the members of the syndicate.


I understood that if a managing agent A buys B, it simply buys the right to manage the syndicates of B. Unlike when an insurance company buys another, (when the shareholders are bought out), the syndicate under b will still exist in the same form, and will be separate to the other syndicates of managing agency A. Is this correct?


The solution reads like it is talking about an insurer buying another. It talks about the impact on company As:

• credit rating,– wouldn’t each syndicate have its own credit rating rather than the agent?
  
  
• its risk tolerance,
  
  
• Diversification & capital/volitility savings of integrating the businesses – wouldn’t the syndicates remain separate just managed by the same company?
  

Surely the risks detailed regarding claim events and reserves are risks to the members of syndicate B. This has knock on effects to managing agency A, in terms of expenses of managing a failing synidicate, and reputation risk. This was the angle I took in my answer.


It says that the syndicate would be integrated into the larger syndicate. Is this where I am missing something, how would this work?


It says that the “company” is currently solvent under reserving methodology, but the capital backing is weak. What does this mean in terms of the premium trust fund, and the Funds at Lloyds, which I think is what is being referred to as the capital backing being weak?

 

[MorningtonCrescent]

That's a lot of questions the day before the exam, especially on a weekend! If I were you I'd keep trawling the net because I wouldn't hold my breath that you'll get responses to so many questions in the few hours left before the exam. But I can help a little...

I don't have the exam paper to hand, but it sounds like they're talking about an integrated Lloyd's vehicle, where the Name and the Managing Agent are one and the same. This makes a syndicate much more akin to a normal insurer.

"Solvent, but with weak capital" sounds like the PTF is sufficient (that's the reserving idea) and the FAL meets solvency requirements, but there isn't a lot to spare beyond that.

 

[Pede]

I too don't have the paper to hand. But a Lloyd's Managing Agent is the thing that looks after syndicates. A Managing General Agency (MGA) is something else - a form of broker that also has underwriting authority. There's a good glossary somewhere on the web with all these things - from the International Risk Management Institute. I presume the exam question was on about MGAs rather than Managing Agents. If not, then I guess Mornington Crescent's suggestion must be it.

 

[gdmiccc]

I'm also confused by the examiner solution to this question and I have many of the same questions that George88 had above. It was my understanding that a managing agency is not a risk carrier, but manages the affairs of the syndicate. Why do we need to assess the reserve adequacy of the syndicate when we are taking over a managing agency. Should we always assume it is an Integrated Lloyd's Vehicle (ILV)?

 

[Ian Senator]

The question was a bit ambiguous, but given the way the question is worded (an agency owning just a single syndicate), it reads more like a standard 'takeover' question, albeit within a Lloyd's context. I would hope that if you interpreted it slightly differently but made sensible comments, you'd still score well.