Introduction to Lloyd's: syndicate capacity
A syndicate’s ‘capacity’ is the term used to refer to the amount of premium income that a syndicate may underwrite for a year of account – that is the maximum amount of premium income, net of reinsurance premiums paid, that it may accept. The syndicate’s capacity is itself the total of the premium limits of all the syndicate’s members on that syndicate.
A member’s overall premium limit (OPL) – often referred to as the member’s capacity – is directly related to the capital they put at risk: their Funds at Lloyd’s (LLM1200).
This means that a syndicate’s capacity is directly related to the amount of the capital backing provided by its members. The syndicate should therefore have sufficient capital backing for it to meet all claims by policyholders against policies written by the syndicate.
Syndicate capacity is referred to in terms of its notional amount.
A syndicate may have ‘capacity’ for a year of account of say £100m. A member may have a 10% share of that syndicate, that is, capacity on that syndicate of £10m. The member’s underwriting on that, and any other, syndicate is taken into account in determining the member’s capital requirement, that is, how much Funds at Lloyd’s the member must hold.
It is not unusual for premiums received net of reinsurance to fall short of a syndicate’s capacity, especially where there is plenty of capacity available in the insurance market generally.
Establishing the true legal character of syndicate capacity is difficult, given the fact that it relates to ‘annual ventures’ - see LLM4210.