LLM1010 - Introduction to Lloyd's: background
What is Lloyd’s?
Lloyd’s is not an insurance company. It is a market in which independent insurance underwriters join together in syndicates to sell insurance, mainly through brokers, under the umbrella of the Lloyd’s brand name.
Lloyd’s began in the seventeenth century when ship owners and merchants, who met in a London coffee house owned by Edward Lloyd, got together to share the risk of losing their ships and cargoes, insuring that no single person could suffer a catastrophic loss. They signed the foot of slips signifying acceptance of part of the risk. As time went by they attracted capital from outsiders to help support this “underwriting” activity in a “subscription” market, the latter signifying that a series of underwriters will assume shares of the risk. Lloyd’s is now the world’s leading specialist insurance market, and writes a wide range of insurance business on a worldwide basis. Itis particularly strong on marine and aviation insurance, and in reinsurance, but writes very little life insurance. It was known as Lloyd’s of London until 1997 when the name was changed to Lloyd’s.
The Society of Lloyd’s is a statutory corporation incorporated by Lloyd’s Act1871. The objects of the Society include “the carrying on by Names of the Society of the business of insurance of every description including guarantee business”. The Society is an ‘authorised person’ under the Financial Service and Markets Act 2000, and has permission to arrange the conduct of insurance business in the market. It does not itself underwrite insurance business.
The Council of Lloyd’s (established by Lloyd’s Act 1982) is Lloyd’s governing body, and has power to make such byelaws as it thinks fit to further the objectsof the Society. The Council provides a framework of regulation, supervision and commercial standards which aims to ensure that underwriters operate in a way that benefits the whole market.
The taxation of Lloyd’s
Underwriting at Lloyd’s is an insurance business, and as such members of Lloyd’s are taxed as traders on the basis of their profits or losses from underwriting. The normal rules that apply to the computation of trade profits under Case Iof Schedule D (ICTA88/S18) and in Part 2 of the Income Tax (Trading and Other Income) Act 2005 apply generally to Lloyd’s members. However, the Lloyd’s market has anumber of unique features and tax rules have to be adapted to reflect these features. The special tax legislation for Lloyd’s members is set out in Finance Act 1993 (FA93/S171 to FA93/S184) and Finance Act 1994 (FA94/219 to FA94/S230), and in secondary legislation.
In order to understand the Lloyd’s tax rules it is necessary to explain the basic structure of the market, and this is set out in LLM1020 onwards. Terms used in the tax legislation are defined in FA93/S184 and FA94/S230, and these in turn derive from terms and concepts used in the Lloyd’s market. LLM1040 onwards explain these terms and concepts.