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many syndicates. Names agree to accept a predetermined
percentage of all risks underwritten on behalf of the syndicates.
Where total insurance claims are less than the premiums collected
plus investment income, Names make a profit commensurate with the
percentage that they agreed to underwrite. However, where claims
exceed premiums collected plus investment income, Names must
cover their percentage of the loss.
Names have a certain capacity of premiums that they can
underwrite for a given year. A Name’s usual capacity is from
�200,000 to �2 million. In order to be accepted by Lloyd’s, a
Name must demonstrate his/her ability to cover potential losses,
a.k.a., “show means”. A Name generally may show means by posting
cash, assets, or a letter of credit equal to at least 30 percent
of his/her underwriting capacity with Lloyd’s.
Petitioner’s Underwriting Activities
Beginning in the 1960's, petitioner invested in stock. In
1988, to secure a letter of credit, petitioner transferred his
stock portfolio (pledged stock) to a brokerage account at Bank
Julius Baer (BJB), a London-based bank.
During 1992 and 1993, petitioner underwrote �500,000 of
Lloyd’s premiums which were secured by a letter of credit from
BJB in the amount of �150,000.
During those years, a number of the syndicates in which
petitioner participated incurred losses. In order to cover those
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Last modified: May 25, 2011