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Lloyd’s

It is in the best interest of the insurance industry to stop underwriting and investing in climate-wrecking energy sources that undermine investments, increase catastrophe losses and destroy reputations. While many insurers have started to put in place meaningful policies that exclude insurance of high carbon fossil fuel projects and companies, Lloyd’s new ESG policy allows continued insurance of existing coal, tar sands and Arctic energy projects until 2030, and has plan to exit new oil and gas.

The decisions that insurance companies take play a very significant role in determining the extent of the climate impacts that we all face. Lloyd’s market was estimated to be responsible for approximately 40% of the global energy sector insurance premium in 2018. Lloyd’s members provide insurance and reinsurance globally, and currently continue to support fossil fuel projects and companies. Lloyd’s of London and its members have a responsibility to act inline with climate science and prevent a climate catastrophe.

A growing movement of people across the globe are starting to hold the insurance industry accountable for the impacts of their underwriting and investments. Lloyd’s has been and remains an international laggard. Lloyd’s market continues to insure projects and sectors that more responsible insurers have already stopped insuring due to the climate impacts. This campaign holds Lloyd’s management and members responsible for the climate impacts of their underwriting and investments. Ultimately, we want to persuade and support Lloyd’s to transform from being a laggard on fossil fuels to a leader of the clean energy transition.

This campaign is led by the Insure Our Future network which consists of NGOs, social movements and finance advocates from around the world that hold the insurance industry accountable for its role in the climate crisis.

Click here to learn more about Insure Our Future.

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Lloyd’s website provides a lot of the basic information about its market and how it functions. Below is a summary of the most important facts about Lloyd’s, with a focus on its power to set minimum standards for its members.

Lloyd’s is an insurance and reinsurance market in which specialist underwriters and insurance companies, grouped together as syndicates, operate globally. A syndicate is formed by one or more members joining together to provide capital and accept insurance risks. All syndicates (approximately 93) are managed by a Lloyd’s managing agent (approximately 53).

The capital to underwrite policies is provided by Lloyd’s members. This capital is backed by many of the world’s major insurance groups, listed companies, individuals and limited partnerships, with corporate groups providing the majority of capital for Lloyd’s market.

Behind the Lloyd’s market is the Lloyd’s Corporation

Lloyd’s Corporation is an independent organisation which: promotes the market and protects its reputation; provides services including the infrastructure for processing risks; maintains the building and the network of trading licences and offices; produces industry research, reports and analysis; maintains market stability; protects its credit rating; and prevents underwriting behaviour which threatens the Central Fund.

Lloyd’s Corporation is not itself an insurer, but the overall Lloyd’s brand and structure is a little more complex. For example, Lloyd’s Insurance Company China Limited can conduct non-life insurance and reinsurance business inside China, while Lloyd’s Insurance Company S.A. is a fully operational and capitalised insurance company based in Belgium.

Lloyd’s Corporation has statutory and regulatory obligations to oversee the market, which include setting minimum standards and monitoring compliance. Lloyd’s by-laws set out a number of rules with which market participants are required to comply. Under one global brand, Lloyd’s market and Corporation work together to protect their joint interests.

Behind the Lloyd’s Corporation and the Lloyd’s market is the Lloyd’s Council

The Lloyd’s Society was first incorporated by an Act of Parliament called the Lloyd’s Act in 1871. The current governance structure and rules are defined by the Lloyd’s Act 1982 under which the Lloyd’s Council was established to have control over the management and regulation of the affairs of the Lloyd’s Society, including the power to make by-laws for these purposes.

Lloyd’s current by-laws note that in accordance with Section 6(2), Lloyd’s Act 1982, the Council, “shall have the management and superintendence of the affairs of the Society and the power to regulate and direct the business of insurance at Lloyd’s; and may exercise all the powers of the Society. … The Council may at any time give such directions or impose such conditions or requirements on any member (or any class or group thereof) as it thinks reasonably necessary or appropriate. Without prejudice to the generality of the foregoing, a direction, condition or requirement given or imposed under this paragraph may include a direction, condition or requirement for the purposes of… 3c) directing that the member cease, or reduce the level of, his underwriting business at Lloyd’s, underwriting business of a specified class or underwriting business through a specified syndicate at Lloyd’s.”

In June 2020, Lloyd’s Council re-centred its authority and confirmed the members of a newly formed Council in order “to ensure efficient governance and management of the Lloyd’s market and Corporation and to combine robust governance with swift decision making”.

The Council has 15 members which include the three executive officers of Lloyd’s Corporation appointed by the Council. The other members are elected by Lloyd’s membership. The Chairman and Deputy Chairmen are elected annually by the Council members. The Council discharges some functions directly by making decisions and issuing resolutions, requirements, rules and by-laws. Other decisions are delegated to committees and the members of the Executive.

Lloyd’s is regulated by the Prudential Regulatory Authority and the Financial Conduct Authority and is subject to the 2016 Solvency II regulatory and capital regime, which applies to the association of underwriters known as Lloyd’s as a collective entity.

Lloyd’s has a unique capital structure, often referred to as the ‘Chain of Security’

All Lloyd’s syndicates benefit from Lloyd’s central resources, including the Lloyd’s brand, its network of global licences and Central Fund. All Lloyd’s policies are ultimately backed by this common security, thus a single market financial rating is applied to every policy issued by every syndicate.

There are three links in Lloyd’s capital structure making assets of approximately £82 billion (2020):

  • First link – Syndicate level assets – £52,849 million
  • Second Link – Members Funds at Lloyd’s – £27,595 million
  • Third Link – Central assets: Central Fund – £2,483 million

A minimum standard for the market, enforced by Lloyd’s?

A key question around Lloyd’s ESG Report is the extent to which it will be applied as a minimum standard by all of Lloyd’s market members and enforced by Lloyd’s. The report frames the underwriting policy as Lloyd’s ‘asking’ its managing agents to “provide no new insurance cover” and “not to renew insurance coverages”. Whilst the investment policy states, “we will phase out new investments…by the Lloyd’s market and the Corporation”.

Following the publication of the ESG report, Lloyd’s clarified publicly that “Lloyd’s does, in exceptional circumstances, use its powers of oversight to set standards and ensure that the market complies with them”.