By George Shirley
Most people outside of the insurance market have no idea how Lloyd’s of London actually works, so here’s a *very simple* version:
Lloyd’s is a marketplace. Think of it a bit like an old school stock exchange, but instead of trading shares, people are trading risk.
Inside the building, and (sadly) increasingly on teams/email, you have syndicates. A syndicate is essentially a pool of capital run by a ‘managing agent’ and the managing agent writes insurance policies using that pool of capital.
When a broker walks in with a risk, say a satellite, no single syndicate would want to cover the whole thing. Too much exposure. So one syndicate writes the first chunk. That’s called the lead.
Then the broker walks the slip around to other syndicates who follow the lead. Each one takes a slice, until the risk is 100% placed.
That’s the subscription market. Multiple syndicates covering a share of one risk, typically priced by whoever leads it.
Naturally, for smaller risks, syndicates can choose to cover the whole thing or a 50% line. It really depends on the size of the risk and how comfortable an underwriter is with said risk.
But ultimately spreading risks across multiple syndicates is the reason Lloyd’s can insure such enormous things that otherwise no one would touch, because no single insurer has to swallow the risk of a £300m satellite.
