Key to case study 8

1. 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.

2. Chapter 10 Insurance Market

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

4. 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”.

5. 2. London Insurance companies • The amount of insurance companies 500 companies with head offices 127 foreign companies

6. 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)

7. 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)

8. 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 .

9. 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.

10. 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.

11. 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.

12. 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 (P&I 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.

13. 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.

14. 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.

15. The 10th Largest Insurance Brokers in 1999-2001

16. 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.

17. 5. Recent Changes in London Insurance Market

18. Overlooking of Lloyd’s outside Clock locating in the center of the first floor.

19. The Gate or Entrance of Lloyd’s

20. Overlooking of Lloyd’s

21. Insurance transactions in Lloyd’s in the past

22. Overlooking of London financial center See the photo next page:

23. Mansion house Bank of England Stock exchange Royal exchange Lloyd’s market ILU Association of British Insurers Lombard street Lloyd’s Register of shipping Plantation house London underwriting center Tower of London

24. The End of Chapter 10 Next Chapter