I am reading through Chapter 2, page 26. Please could you give some more detail about the underlined bits below: 1) In functions of RITC, it says "It is a reinsurance of all liabilities for a premium that is usually settled in terms of assets including outwards reinsurance cover." 2) Regarding the Lloyd's chain of security: "If, for some reason, the chain fails then the reinsured members can become liable." What I don't understand here is how can the reinsured members become liable? Doesn't their association end at RITC? 3) From the chain of security paragraph again: "An important effect of the RITC is to allow members to take 100% of the reinsurance as an asset in their solvency tests and thus to release, when all years are closed, their funds at Lloyd’s. To remove liability would require a Part VII transfer." Doesn't this contradict point 2 above?
Hi Aruk For 1) transfer of liabilities can be settle through cash and other assets which includes any reinsurance cover bought with respect to the specific underwriting yr
That's my understanding from what I have read. Maybe someone else could confirm. Sorry for 2)& 3) waiting for an answer as well
Avnish is right about (1). (2) is saying that the member can become liable even after RITC, in the unlikely event that the sum of the PTFs and FAL and Central Fund prove inadequate to pay the liabilities. This is a little understood fact, and it's not much advertised. Lloyd's seems to keep remarkably quiet about it. But as an example, even after all the 1992 and prior Names were RITC-ed into Equitas, they were still liable to stump up more cash if Equitas ever ran out of money. It's only recently (in 2009) that those legacy Names could finally walk away, and that was because of a Part VII transfer. (3) I don't think there's a contradiction here. Both (2) and (3) are saying that members remain ultimately liable, even after RITC has taken place. The point about (3) is that RITC allows members to release their FAL, they have no more reporting requirements, and to all intents and purposes they can walk away from the closed year.
Hi there I am not sure I quite agree with comments to 2) above Shouldnt RITC be irrevocable? It should thus allow the reinsured members to totally walk away from the Syndicate YOA. The Glossary definition also states that in exchange for the assets, the reinsuring members undertake to handle and pay all known and unkown liabilities arising out of the reinsured YOA. Surely whats being referred to here is thw current syndicate members, who would have "added" the RITC to their current PTF pot?
Not quite Chinj. Mornington Crescent is right. If the Chain of Security holds, everything works as you say. But if we're considering the scenario where Lloyd's runs out of money and the Central Fund is depleted, then the original reinsured can become liable, despite having purchased RITC.
Thanks Katherine MorningtonCrescent was indeed right, its a little understood fact! It wasnt quite apparent and I think I read over the notes here too. But if you have limited liabilty and have "released" your FAL on paying the RITC premium for the particular YOA, are you obliged to pay in the scenario that the Chain fails?
Hmmm, good question. Limited liabilities Names are only liable up to the amount deposited with Lloyd's. If they're no longer a member at the time the Chain fails, I'd reckon they're not obliged to pay up. Of course though, if they still have other open years, they won't be allowed to continue writing business the following year unless they stump up the cash. Chinj I think you're worrying way too much about this. To quote another post on this forum "Lloyd's is shrouded in mystery", and certainly it's always very hard to read up on these sorts of legal intricacies. I think you've absorbed the key issues here well enough and I recommend you move on with your study.
Thanks again Kathrine I have certainly picked up an intricacy i didn't know before. Moving right along
