Lloyd’s, the specialist insurance and reinsurance marketplace headquartered in London, has introduced new oversight measures for legacy reinsurance transactions.
Legacy reinsurance transactions, which provide solutions for discontinued business written by syndicates, play an important role in the Lloyd’s market.
These include reinsurance to close (RITC) arrangements, loss portfolio transfers (LPT), and adverse development cover (ADC).
Historically, Lloyd’s oversight has centred primarily on capital adequacy at the receiving syndicate, associated outwards reinsurance, and post-transaction transition plans. Under the new approach, Lloyd’s will take a more comprehensive view of transactions before they are executed.
From 2025, legacy transactions will require approval from Lloyd’s before completion. Reviews will be undertaken by the Legacy Review Panel (LRP), which will assess the capital impact, risk exposure, and the effect of each deal on a syndicate’s maturity against the Principles for doing business at Lloyd’s. Final sign-off will rest with Lloyd’s Capital and Planning Group (CPG).
Lloyd’s is asking both ceding and receiving syndicates to engage at the earliest stage, ideally when boards begin to consider a potential transaction. Syndicates must ensure that any Non-Disclosure Agreements allow confidential data to be shared with Lloyd’s, and information must be submitted using the legacy data request templates available on Lloyds.com. Lloyd’s has emphasised that delays in providing data or notifications could jeopardise timely approval.
As part of the process, Lloyd’s expects receiving syndicates to carry out robust due diligence and to prepare detailed integration plans before finalising transactions. These plans should address any gaps in resources, skills, or capability, particularly in relation to reserving, claims management, and reinsurance arrangements.
Lloyd’s will review these plans under its Principles Based Oversight (PBO) framework to ensure the approach is sound, although commercial terms will remain a matter for the parties involved.
In relation to capital, Lloyd’s requires receiving syndicates to quantify additional requirements through an updated Lloyd’s Capital Return (LCR). Since full Solvency UK modelling may not be possible immediately, syndicates will need to apply a capital add-on that meets minimum tests set by Lloyd’s.
Ceding syndicates may only release any capital benefits after the transaction has been executed and the updated LCR approved by Lloyd’s, in line with established processes including the Major Model Change (MMC) and Quarterly Corridor Test (QCT).
Through these measures, Lloyd’s aims to reinforce market stability by ensuring that legacy reinsurance transactions are carefully scrutinised, appropriately capitalised, and consistent with its long-term framework for managing syndicate performance.
About the Author
