Key to case study 8

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Key to case study 8

• Johnson is the owner of a house. The cost of
  rebuilding the house will be ? 600,000. He has a
  mortgage for ? 350,000 with China Construction
  Bank. Discuss what extent both Johnson and China
  Construction Bank have an insurable interest in
  the house?
• Johnson is the owner of the house and therefore
  has 100 percent insurable interest of the house,
  that is, ? 600,000.
• China Construction Bank has also an insurable
  interest as mortgagee in the house. But the
  interest is limited to 350,000.
• In practice, China Construction Bank will require
  Johnson to insure the house in the joint names of
  the owner of the house and China Construction
  Bank.

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Chapter 10 Insurance Market
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Content

• 1. London Insurance Market
• 2. London Insurance companies
• 3. London Insurance Organizations
• 4. Insurance intermediaries
• 5. Recent Changes in London Market

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London Insurance Market

• A market is a group of people who are
  individuals and members of organizations. They
  are the actual or potential buyers of a product.
  
• Some specialists believe that the core of its
  activity in London is the conduct of
  internationally traded insurance and reinsurance
  business.

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2. London Insurance companies

• The amount of insurance companies

500 companies with head offices
127 foreign companies
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3. London Insurance Organizations
Association of British Insurers
Institute of London Underwriters
London Insurance and Reinsurance Market
Association
Organizations
Fringe companies
Protection and Indemnity Clubs
Contact offices
Pools
Lloyd's of London (see the pictures)
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3. London Insurance Organizations
Association of British Insurers
Institute of London Underwriters
London Insurance and Reinsurance Market
Association
Organizations
Fringe companies
Protection and Indemnity Clubs
Contact offices
Pools
Lloyd's of London (see the pictures)
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A. Association of British Insurers

• Association of British Insurers (ABI) is the main
  trade association of insurance companies in the
  UK , with membership of 450 firms transacting all
  classes of life and non-life insurance.
• They account for over 90 of the worldwide
  business of the company market. ABI has eight
  regional representatives in various parts of the
  UK .

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B. Institute of London Underwriters (ILU)

• Institute of London Underwriters (ILU) is the
  trade association for companies to write marine,
  aviation and transport business in the London
  company market.
• All companies authorized by the DTI (Department
  of Trade and Industry) to write such classes are
  eligible to apply for membership provided they
  have been transacting such business in the UK or
  in a comparable market elsewhere in the world.

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C. London Insurance and Reinsurance Market
Association

• London Insurance and Reinsurance Market
  Association (LIRMA) is also the trade association
  for companies to write primarily non-marine
  insurance and reinsurance business in the London
  Market.
• Only companies that are authorized to write
  insurance in the UK may join as Ordinary members
  there are about 104 members. There is
  considerable overlap between the membership of
  LIRMA and ILU, therefore there are 39 companies
  belonging to both bodies.

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D. Fringe companies

• The term fringe companies in the past referred
  to companies that operated on the fringes of the
  Lloyd's market. They may write direct insurance
  and reinsurance business on the London market.
• They are relatively small companies which will
  take a small line on risks led by a Lloyd's
  syndicate. At the time of writing, there are very
  few companies in that category, but their number
  does tend to vary with the state of the
  underwriting cycle.
• They enter the market at times when capacity is
  scare and leave the market when premium rate are
  falling and losses are rising.

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• E. Contact offices
• Some foreign companies maintain an offer in
  London to keep in contact with the market, and to
  transmit to their head offices for acceptance any
  business which may be offered to them by brokers.
  It is an offence for such a company to actually
  underwrite the business in Britain. F. Protection
  and Indemnity Clubs
• Marine Protection and Indemnity Clubs (PI
  Clubs) form the most important group of mutual
  associations operating on the London Market.
• At the end of 1992, of the 41 Clubs writing
  business in Britain, 4 were incorporated in
  Bermuda and 2 in Luxembourg. Many of the Clubs
  employ managers who act for two or more Clubs.

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• G. Pools
• There are two pools operating in the London
  Market. One is International Oil Insurers and the
  British insurance (Atomic Energy) Committee. Both
  operate on a net line basis.
• H. Lloyd's of London
• Lloyd's of London is a market place. The
  capital is supplied by investors, known as Names,
  who conduct their business through syndicates.
  Managing agents run these syndicates on the
  Names' behalf. (see the chart)
• In 1994, 25 corporate investors including 12
  listed investment companies formed solely to
  underwrite business at Lloyd's. They were
  admitted to membership of Lloyd's.

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4. Insurance intermediaries

• 4.1 Insurance Broker
• An insurance broker means an person, based on
  the interests of the applicant, provides
  intermediary services between the applicant and
  the insurer and receives a commission from
  insurer.

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The 10th Largest Insurance Brokers in 1999-2001
Name of the Brokers Reference Versions Commissions of the Brokers
Marsh Mclennan, UK ????????? (??)???? 1005 million
Willis Group ????? 728 million
AON UK Holdings ??(??)?? 551 million
Health Lambert Group ???????? 251 million
Jardine Lloyd Thompson Group ?????????? 251 million
Benfield Greig Group ????????? 92 million
Alexander Forbes, UK ???????(??) 89 million
HSBC Insurance Broker Subsidiary ????????? 88 million
Miller Insurance Group ?????? 50 million
SBJ Group SBJ?? 38 million
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4.2 Insurance agentAn insurance agent means an
entity or an individual delegated by an insurer
and to transact insurance business on behalf of
the insurance company.
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5. Recent Changes in London Insurance Market
Original Copanies Merger or Purchase Influence
Royal Insurance Merger in 1996, called Royal Sun Alliance Reducing current insurance business substantially in London
Sun Alliance Merger in 1996, called Royal Sun Alliance Reducing current insurance business substantially in London
Commercial Union Merger in 2000, called CGNU. In July, it is called Aviva Withdrawing business in London insurance market in 2000.
General Accident Merger in 2000, called CGNU. In July, it is called Aviva Withdrawing business in London insurance market in 2000.
Norwich Union Merger in 2000, called CGNU. In July, it is called Aviva Withdrawing business in London insurance market in 2000.
Guardian Royal Exchange Purchased by Axa in 1999 Reducing the degree of participation in London market
Eagle Star Purchased by Zurich in 1997 Reducing the degree of participation in London market
Cornhill Purchased by Allianz in 1986 Reducing the degree of participation in London market
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Overlooking of Lloyds outside
Clock locating in the center of the first floor.
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• The Gate or Entrance of Lloyds

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• Overlooking of Lloyds

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• Insurance transactions in Lloyds in the past

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• Overlooking of London financial center

See the photo next page
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Mansion house
Bank of England
Stock exchange
Royal exchange
Lloyds market
ILU
Association of British Insurers
Lombard street
Lloyds Register of shipping
London underwriting center
Tower of London
Plantation house
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The End of Chapter 10
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