§ Mr. John MorrisTo ask the President of the Board of Trade what assessment he has made of the extent to which the solvency rate for Lloyd's of London for each year since 1987 took account of statistics made available to his Department with particular reference to non-marine all other business.
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§ Mr. Jonathan EvansLloyd's statutory solvency requirements, which are aimed at ensuring that there are sufficient funds to pay policyholders' valid claims, do not include a solvency rate.
Lloyd's is subject to two solvency requirements, the first determined in accordance with section 84 of the Insurance Companies Act 1982, requires the members of Lloyd's taken together to maintain a margin of solvency as prescribed by the Act and relevant regulations. Since 1987, the margin of solvency—the extent to which the value of the declared assets of the members taken together exceeds the required minimum—has varied between 11.5 and 2.25 the required minimum, and for the year ended December 1993 was three times the required minimum. For this test, the required minimum is calculated—in conformity with domestic and European law applying to all insurers—by reference to premium received or claims notified. The "settlement statistics" made available to the Department about particular classes of business—of which the non-marine all other is one—do not have a direct impact on this margin of solvency.
The settlement statistics are however one of the elements used to determine the basis for calculating the liabilities considered in the second solvency requirement. In accordance with section 83 of the Act, the value of each underwriter's assets must meet his/her liabilities—the liabilities, for general business, within which the non-marine all other category falls being calculated on a basis approved by the Secretary of State. Where appropriate, an underwriter's assets may be supported by the central fund and other assets held centrally by the society. For these purposes a name's liability on each syndicate is his/her share of the syndicate's liabilities, which in turn is the greater of
- (i) the product of the syndicate's premium income and a percentage approved by the Secretary of State, and
- (ii) the reserves regarded as necessary by the underwriting agent, and confirmed by syndicates' auditors.
In deciding which percentages to approve, the Secretary of State has regard to all available relevant information, of which the settlement statistics are an important part. Since the percentages determine the minimum reserves applicable to all syndicates, and are not averages to be applied to the totality of business, and the settlement statistics are in respect of the aggregate of business in a particular audit class, the percentages are not directly dependent upon the settlement statistics. It would be inappropriate to impose a level of percentages based upon the average of all syndicates, as that would cause some to be materially over-reserved. It is accordingly expected that a number of syndicates' liabilities will be determined on the basis (ii) above. Thus the achievement of this solvency requirement—which has been met every year since 1987, and every year prior to that—is not directly dependent on the settlement statistics.