Introduction to Lloyd's: basic concepts and terms: managing agents and premium trust funds
Members delegate all responsibility for management of the underwriting business of a syndicate to the managing agent.
Managing agents are usually companies. They employ the professional insurance underwriter who actually conducts the underwriting (each syndicate has a lead underwriter), and other staff who support the professional underwriter and carry out other services, including handling claims and accountancy. They charge the members of the syndicate fees for managing the affairs of the syndicate and a profit commission based on its overall profitability.
The insurance underwriter may also be a Name (investor) and a member of the syndicate on which they are the underwriter, and/or other syndicates, in which case the underwriter is known as a working name. Members of syndicates other than the active underwriter do not have any say in the conduct of the syndicate’s business.
Managing agents may manage more than one syndicate. The number of managing agents has declined in recent years as the number of syndicates has reduced. In 2007 there were 42 managing agents.
Premium trust fund (PTF)
The PTF is a regulatory requirement. The business of the syndicate is conducted through the PTF under a standard Deed approved by Lloyd’s. The trustees of the fund are appointed by managing agents and approved by Lloyd’s.
The PTF is a fund into which all premiums are paid, and from which all claims and expenses are paid. It is held for the benefit of policy holders until such time as a profit or loss is declared (see LLM4060 and LLM5290 for more on the ‘declaration basis’). In the case of aligned member syndicates(see LLM1060) the PTF may also hold “member capital”. See LLM1095.
The member remains the ultimate beneficiary of the appropriate share of the assets in the fund and is therefore entitled to receive an appropriate share of the investment income arising on those assets.
In practice, the PTFs of all syndicate members are managed as one fund together. The managing agent will generally pool all open years of account of a syndicate, and is also entitled to pool assets between syndicates.
US dollar premiums are held in a ‘Lloyd’s Dollar Trust Fund’ (LDTF). Again, managing agents appoint trustees for this fund. There may be trust funds for other US and other territories’ situs business.
Income and profits or losses from assets in the PTF form part of the syndicate’s overall profit or loss.
The money which represents a member’s distributable profit from the syndicate is, except possibly for aligned member syndicates, transferred to the member’s personal reserve fund (PRF) for which Lloyd’s act as the trustee.
See LLM1180+ for further details on the Lloyd’s ‘chain of security’.