What happens if a Lloyd's syndicate fails?

The correct response reflects the nature of how Lloyd's of London operates and manages risk among its syndicates. When a Lloyd's syndicate faces failure, it does not result in immediate and total loss for all members due to the presence of an internal guarantee system. This mechanism helps manage the risk by allowing the remaining capital within the Lloyd's market or from the broader market resources to absorb the losses, providing some level of support for policyholders and maintaining stability within the insurance system.

The internal guarantee system helps mitigate the risk of individual syndicate failure, allowing other syndicates and members to step in and help cover those losses, ensuring that policyholders are not left without coverage. This characteristic is vital to the functionality of Lloyd's as a global insurance market, as it bolsters confidence among policyholders and participants about the system's reliability.

In contrast, the other options do not accurately reflect how failures are handled within the Lloyd's framework. Members do not automatically lose all their investments, premiums are not doubled as a standard response to a failure, and although a syndicate may close, it does not have to do so permanently due to the established mechanisms in place for managing such situations. Understanding this internal structure is crucial for anyone studying or working within the surplus lines