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and reinsuring worldwide risks.1 Like insurance companies,
Lloyd’s generates income from the underwriting of insurance risks
and from the investment of premiums received on the insurance
policies underwritten. Generally, the underwriting component
generates losses, while the investment component generates
profits.
Lloyd’s is organized into numerous entities referred to as
syndicates. Syndicates are composed of individual and corporate
members (Names) and controlled by managing agents. Names provide
the financial backing behind Lloyd’s policies. From the mid-
1970's until the years in issue, petitioner was a Name for
Lloyd’s.
The managing agents of the syndicates select policies to
underwrite from the Lloyd’s trading floor in the same fashion as
a mutual fund manager acquires stock for a mutual fund. A
managing agent may decide to underwrite any percentage of the
risk of any Lloyd’s policy that he/she wishes. For example, a
managing agent may choose to underwrite 10 percent of the risk on
an aviation policy and leave the other 90 percent of the risk to
be underwritten by other syndicates.
Each year, Names choose the syndicates in which they wish to
participate. To limit their risk, Names usually participate in
1 Lloyd’s is not an insurance company but a competitive
market where risks are undertaken by syndicates and their
members.
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Last modified: May 25, 2011