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LONDON-Lloyd's of London is considering opening its doors to captive insurers in a move designed to bring some business it has lost back to the market.
In the next few weeks, Lloyd's Council will discuss whether captives should be allowed into the market. Technically, a parent company would be the sole owner of a corporate syndicate writing its own business. Whether the syndicate would be allowed to write third-party business is under question.
There are many advocates for the idea.
"I think it's very exciting," said Michael C.R. Baddeley, executive director-captive development for Willis Corroon Group P.L.C. in London. "You'd be able to take advantage of Lloyd's ability to write anywhere in the world. It would be good for Lloyd's as Bermuda has stolen their march for the past four or five years."
"We believe there are advantages for captives and for Lloyd's to allow captives in the market and be the center of captive excellence," said Paul Archard, chief executive of Murray Lawrence & Partners Ltd., which is spearheading the initiative along with Risk & Insurance Research Group Ltd.
Lloyd's captives would be able to write business in the 60 countries where Lloyd's has a license, said Mr. Archard.
If approved, initial captives likely would be formed by U.K. companies, though international parents could follow. The parent would have to put up enough capital to satisfy Lloyd's corporate syndicate requirements of 50% of premium capacity.
This might be increased for captives to 75%, said Mr. Archard. However, investors in Lloyd's can put up to 85% of the first 5 million pounds ($8.2 million) of capital in a letter of credit, and 100% of amounts excess of 5 million pounds in an LOC, Mr. Rodger said.
The application fee would be 10,000 pounds ($16,440), plus there would be a "Reconstruction and Renewal levy" of 1.1% of profit on an annual basis for the next five years.
A captive syndicate would have to be managed by Lloyd's managing agencies.
Critics of the proposal fear that allowing single-parent corporate captive syndicates to write third-party business could diminish the security of the Lloyd's policy, Mr. Archard acknowledged. They are concerned that if a captive became insolvent and a parent decided to walk away from it, Lloyd's Central Fund could be stuck covering its third-party claims.
Lloyd's Council will address this issue, said Mr. Archard, who sits on the Council.