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We have listed
below some information that may be of general interest. For
more information on any of these subjects please contact your Names
Executive.
LMAS Service Standards:
LMAS has various service
standards which it adheres to. The two standards which may
be of most interest to Names are the answering of correspondence within
one week and the return of telephone calls within 24 hours.
The remaining service standards are available upon request.
Reducing Your Bank
Guarantee/Letter or Credit:
As you may be aware, at two
points during the year, 30th April and 31st July, Lloyd's
perform a Capital Test to evaluate a Names' Funds at
Lloyd's position against their potential liabilities. As
there are no longer any additional Market Services Charges, it is
recommended that any Name that is entitled to a reduction in
their Funds at Lloyd's should, at the appropriate time, reduce their Bank Guarantee or
Letter of Credit and reduce the amount they pay to their Bank
for this service. A Name may also wish to settle any
Cash Calls or Losses from their own resources by providing LMAS with a cheque. We could then apply to Lloyd's for a
substitution of assets and reduce the Guarantee/Letter of Credit by a
similar amount.
Deposit to Personal Reserve
Fund Transfer:
Any Name that has cash in the
General Deposit knows that, due to to the Trust Deed under which these funds are held, it is difficult
and timely to release these funds to settle losses. It is possible to perform a
Deposit to PRF transfer by signing the relevant Deed which, with a few exceptions, would
enable the Deposit funds to be transferred to the PRF. This
would provide a quicker and easier way for your cash to
be utilised to settle losses. It should also be mentioned that it is
also quicker and easier for Lloyd's to perform a compulsory draw
down against funds held in the PRF.
Substitution of Funds:
Names may exchange an asset
held at Lloyd's for another acceptable asset of equal value.
In order to request a substitution, Names should contact their
Names Handler to make the necessary arrangements and to submit
the appropriate application on their behalf. Cash can be
deposited into a Name's Funds at Lloyd's in exchange for a
release of funds of an equal value. This cash can then be
drawn upon to settle losses, however, if the funds are placed
into the General Deposit a voluntary release of funds
Form would be required
in order to transfer the cash to settle losses.
Partial Release of Funds:
Each year Lloyd's
complete solvency calculations for Names with open syndicate
participations and the process, known as "The Capital Test",
determines the minimum funding requirement for Names. The
figures are published in May (30th December Valuation) with a subsequent
revision based on the position at the end of June.
In the event that a Name's Funds at Lloyd's exceed the funding
requirement as calculated by Lloyd's, Names may be eligible to
apply for a partial release of funds held in excess of
their requirement. There are several initial criteria which
must be met before an application for a release can be submitted:
The value of the funds held
at Lloyd's must be in excess of the minimum funding requirement
in order for the excess to be released.
All current liabilities
must be funded, including any Market Services Charges or Member's Agents
Expenses; THERE MUST NOT BE ANY OUTSTANDING DEBTS.
The funds are of a
releasable nature, for example no releases are permitted from the
Special Reserve Fund whilst the Name has continuing
liabilities through open syndicates.
An exercise is conducted
annually by LMAS to advise Names where their Funds at Lloyd's exceed the
funding requirement and the release criteria has been met.
This process takes place after the distribution process has been
completed and the revised funding requirement based on the
position at 30th June has been published. LMAS will contact
Names where a potential release is available and, subject to the
Names request meeting all the necessary criteria, an application
will be submitted to Lloyd's. You should be aware that
funds held in the Special Reserve Fund can not be released and a
minimum of £5,000 must be maintained as non SRF monies.
Lloyd's impose a concentration disallowance on certain categories
of assets held in Funds at Lloyd's. Your Names Handler can
provide more details on Lloyd's concentration of assets rules.
Applications for a partial release must be lodged with Lloyd's
before a specified date in October for Lloyd's to consider the
request. After that date the window of opportunity closes
for the year as Lloyd's begins the process of calculating solvency
for the subsequent year.
Total Release of Funds:
With the closure of all open
syndicates and settlement of any outstanding liabilities the
majority of Name's would become eligible to have the balance of
their Funds at Lloyd's released. Following completion of the
distribution process at the end of June, Names with no open
syndicate participations can apply for the release of their
remaining Funds at Lloyd's through their Names Handler. LMAS
will send notice to Names that are eligible for a release
following the conclusion of the distribution process and, provided
that all remaining liabilities have been funded, instructions for
the release of assets can then be provided by Names to LMAS, for
submission to Lloyd's. The revisions to the Market
Services
Charging
Structure have removed
both the Total Release and Cessation of Membership Charges.
Exeat policies:
Exeat policy quotations are
sent to Names annually (usually early July). Only those
Names with involvement purely in syndicates in run-off will be
sent a quotation. A Name should consider the following
points: By purchasing an Exeat policy, you will be able to
draw a line under your Lloyd's Underwriting and have any
remaining assets released from Lloyd's. Once your funds
have been released you will not have any further Market Services
Charges to
settle, which equates to a saving for an average name of
approximately £500 a year. You may also save money on
Accountancy charges and, if applicable, Bank Guarantee/Letter of
Credit charges. It would also give you peace of mind.
In the event of the death of a Name, it is possible for the
Estate to purchase an Exeat policy at the appropriate time. The down side is that
it is generally felt that syndicates would close naturally at a
cost less than the Exeat policy quotation.
Estates of Deceased Names:
Following the death of an underwriting Name of Lloyd’s and the
issue of the Grant of Probate or Letters of Administration,
executors will be in a position to make a distribution of assets
as set out under the terms of the Will or that governed by the
rules of intestacy. However, they may wish to consider seeking
leave of the Court before doing so.
Names will be aware that all
1992 and prior Lloyd’s business has been reinsured into Equitas, a
limited liability company approved by the DTI to conduct
reinsurance business. In the event of Equitas’ failure to settle
its underwriting obligations on behalf of the Name, it is
conceivable that a valid claimant would seek settlement from the
principal, i.e. the Name, or, in the event of the Name’s death, the
executors or administrators of his/her Estate.
To protect the executors from
any personal liability following the distribution of the estate’s
assets and in the event of Equitas’ failure, the executors may
wish to seek the protection of the Court.
In a test
case the executors of a deceased Name, with the support of the
Society of Trust and Estate Practitioners (STEP), applied to the
Court which subsequently permitted the executors to distribute the
estate’s assets on the reliance of the financial validity of
Equitas, thus absolving the executors from any future liability to
creditors in the event of Equitas’ failure. Although STEP did not
obtain a general direction, it was agreed that a “fast track”
application procedure should be established where an application
could be made to the Court in a simple unopposed application to a
Master of Chancery Division to obtain the appropriate authority.
A practice
direction giving effect to the fast track method was subsequently
issued by the Chief Chancery Master. The procedure is most
appropriate where all liabilities of the estate in respect of
syndicates of which the deceased was a member have been reinsured
into Equitas and the only reason for delaying distribution of the
estate is the possibility of personal liability to Lloyd’s
creditors. The practice direction did not at this point apply to
estates where liabilities have not been reinsured into Equitas,
i.e. 1993 and post-business. However, an extended Practice
Direction, covering the reinsurance of the 1993 and subsequent
years of account into succeeding Lloyd’s syndicates and/or the
protection afforded by either the Estate Protection Plan or the Exeat
policies, has now been approved by the Vice Chancellor.
The revised
Direction is available from this office to Names or their legal
advisers upon request.
We should point out that the
‘Fast Track’ application procedure has only been approved in the
English Courts. |