Lloyd’s to Restrict Members’ Use of Letters of Credit as Funds at Lloyd’s

8 May 2018
View Debevoise Update
Key takeaways:
  • On 12 April 2018, Lloyd’s published Market Bulletin Y5117, which clarifies recent guidance from Lloyd’s on a range of topics.
  • From 1 December 2020, each member’s Tier 2 capital allowance (usually through letters of credit) as a proportion of its Funds at Lloyd’s may not exceed 50% of its Economic Capital Assessment (“ECA”). This restriction will be phased in over the next three years.
  • All members are required to cover open year solvency deficits with Tier 1 capital.
  • Lloyd’s has set out various situations in which an accelerated injection of capital may be required from members, including where there is a shortfall of more than 10% against a member’s ECA or ultimate solvency.