london market 101
TRANSCRIPT
WSIA’s U40 2021 Webinar SeriesJuly 12, 2021
London Market 101
Presented byPeter Montanaro, Head of Market Oversight and Delivery, Lloyd’s
Lloyd’sPeter Montanaro, Head of Market Oversight and DeliveryMarkets
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Classification: Confidential
Lloyd’s originsResulting from two human activities coming together
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Classification: Confidential
• 1745 legal difference between insurance and gambling defined
• 1772 from Coffee House to Society
• 1843 Concept of “Lloyd’s member” introduced.
• 1871 Statutory recognition of Lloyd’s - Lloyd’s Act 1871
• Development of the non-marine market
Lloyd’s in the eighteenth & nineteenth century
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Classification: Confidential
• 1927 Lloyd’s Central Fund set up
• 1996 Reconstruction & Renewal
Lloyd’s in the twentieth century
6© Lloyd’s 2021
Robust financial strength
Complete confidence
Excellent financial security
2020 Annual Report, published March 2021 lloyds.com/annualresults2020
AA-Fitch Ratings (Very Strong)
A+Standard & Poor’s (Strong)
AA.M. Best (Excellent)
AA-Kroll Bond Rating Agency (Strong)
Lloyd’s Chain of Security
£55bn Syndicate level assets
£31bn Members' funds at Lloyd’s
£3bn Central assets*
*Central assets exclude subordinated debt liability and the callable layer. For more information please see the annual report.
Gross written premium
£35,466m
Why Lloyd’s?
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Writing international business
To write non-marine insurance internationally, Lloyd’s needed to arrange:
• Licensing as a single entity (e.g. “Underwriters at Lloyd’s, London”)
• Meeting local financial requirements
• Legal actions against Lloyd’s underwriters
• Payment of taxes
© Lloyd’s 2021
Global network
Serving clients in200 countries and territories
Cross border reinsurance only
Cross-border/onshore reinsurance
Onshore insurance/reinsurance licence
US Cross border/onshore reinsurance and surplus lines insurance
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Classification: Confidential
• 2002 Chairman’s Strategy Group
• 2013 Regulation by the PRA & FCA
• 2019 Future at Lloyd’s Prospectus
Lloyd’s in the twenty first century
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Classification: Confidential
How the Lloyd’s market works
Business flow Capital flowThe market
The Corporation – Supporting the market2020 Annual Report, published March 2021 lloyds.com/annualresults2020
50 managing agents - managing syndicates
76 syndicates - writing insurance and reinsurance directly
12 special purpose arrangements set up solely to write a quota share of another syndicate
2 syndicates in a box: writing innovative new business
Distribution channels
350 brokers distributing business
427 service company locations
4,030 coverholderlocations
Customers transferring risk
Global commercial organisations
Small and medium sized enterprises
Individuals
Other insurance groups
Members (capital providers)
Trade capital
Institutional capital
Private capital (via members agents)
11© Lloyd’s 2021
Classification: Confidential
Sharing risk with leading insurance brandsThe Lloyd’s market is home to leading insurance brands
lloyds.com/annualreport2018
12© Lloyd’s 2021
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Partnering with global capitalby source and location
2020 2019
19.1%
14.0%
12.2%11.3%
9.8%
9.8%
9.8%
8.5%5.5%
17.3%
14.9%
14.6%10.2%
9.6%
9.2%
10.5%
8.3%5.4%
US insurance industry
Bermudian insurance industry
UK insurance industry
Japan insurance industry
European insurance industry
Private capital, limited & unlimited
RoW insurance industry
Worldwide non-insurance
Middle/Far East insurance industry
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Classification: Confidential
• Delegated Underwriting Business
• Capital and Planning Group
• Market Oversight
• Standards to Principles
Market Oversight and Performance Management
© Lloyd’s 14
Classification: Confidential
Coverholders & Service
Cos38%
D&F37%
Treaty22%
Lineslip…Lloyd’s Premium**
Pre-determined
rates59%
Full authority24%
Prior submit14%
No discretion3%
Coverholder Underwriting Permission*
Coverholders: – an introduction
© Lloyd’s
Coverholdersǂ
4,031Service Companiesǂ
412
US$44 bn2020
Coverholder Community*
Lloyd’s Involvement53 Managing Agents
Global ReachOperating in 60 countries/territories
*Delegated Authorities team showing office locations (PINS) not legal entity count, May 2021 **Gross Signed Premiums sourced by Xchanging and LDR ǂPINs (Office locations), May 2021
Who are they? • Coverholders are insurance intermediaries appointed by a managing agent to bind risks
on their behalf. Outside the Lloyd’s market they may be referred to as MGAs/MGUs.• Service companies are in-house coverholders that are owned by a managing agent • Coverholders can vary considerably in terms of size, product and complexity• Many brokers are also approved coverholders
What do they do? • Coverholders’ authority to underwrite (bind) policies or pay claims is set out in an
outsourcing agreement called a Binding Authority (i.e. ‘binder’)• Coverholders and Service Companies are primarily focussed on writing SME and
consumer business – but some will write commercial lines
Why do they matter?• Coverholders and Service Companies represent 38% of Lloyd’s premium. They are a
local distribution channel and carry our brand• They provide an excellent route to access SME/Consumer business that would be
difficult or uneconomic to source via open market• They are also an effective fast-track route to market for innovative new entities (e.g.
parametric solutions)
Where are they based?• Coverholders are mainly based in our key markets – especially North America, UK,
Australia and Europe• Service Companies, especially those based on Lloyd’s overseas platforms, tend to write
local/regional reinsurance business – e.g. Asia and Middle East
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Classification: Confidential
Coverholder73%
Service Compani…
Unmatched Binder*
4%
© Lloyd’s Source: Gross Signed Premiums (GSP) sourced by Xchanging and LDR; by calendar year, based on the location of the policyholder. *Data Health Warning: Not all delegated authority premium is processed via Xchanging and LDR (approx. 80-90% is) or can successfully be matched due to deficiencies in data entered manually. Those are indicated as Unmatched Binder; Parts of Lloyd’s Asia DA business is not processed via Xchanging or LDR.
Coverholders are key distribution partners at Lloyd's
Coverholders write mainly insurance business, with c.70% of policyholders being based in North America. Business grew steadily from 2015-2019 but reduced in 2020 due to performance management.
Insurance…Facultative
7%
Non-Proportiona…
Proportional Treaty…
US$17 bn2020
US$17 bn2020
DA business is 73% Coverholders and 88% insurance
Policyholders in the Americas account for c.70% of DA business
Americas69%
EMEA19%
APAC12%
Lloyd’s DA business by location of policyholder
US$17 bn2020
Location of policyholder: 5 year CAGR
Americas 7%
EMEA -4%
APAC 4%
Overall DA business grew c.$4.5bn from 2015 to 2019, but fell by c.US$1.5 bn in 2020
Lloyd’s DA premium trend
13,752 14,774
16,202 18,168 18,255
16,717
0
4,000
8,000
12,000
16,000
20,000
2015 2016 2017 2018 2019 2020
GSP
(USD
mn)
7.3% CAGR2015-2019
-8.4%2019-20
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Classification: Confidential
A single, seamless Delegated Authority ecosystem
1
2
354
7
NEW DA systemExisting system
3. Lloyd’s Coverholder Workbench (optional) Integrates quoting, binding, document generation, billing & production of fully compliant data
2. Delegated Contract Manager (replacing BAR)Consistent, transparent data-based registration of contracts & optional construction of right-first-time contracts
6. Future at Lloyd’s Middle & Back-officeVision to streamline accounting & settlement processes
– enabling reduced complexity, errors & delays
7. Delegated Audit Manager (AiMS) Scheduling, scoping & follow-up for Coverholder & DCA audits. Will introduce risk-based optimization of audits &
provide insights on performance to market.
4. Future at Lloyd’s ClaimsVision includes automated straight-
through claims processing
1. Delegated Oversight Manager (replacing ATLAS)Smarter approval & data-based oversight of Coverholders & DCAs
5. Delegated Data Manager (DA SATS)Will act as a centralised Coverholder reporting data store,
reducing burden of regulatory reporting (when fully adopted)
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Classification: Confidential
Syndicate Oversight Lifecycle This view shows the end to end view of how oversight is applied to a syndicate from cradle to entry point to exit
Enter the Market*
Exit the Market*Assessment
ProcessCommunication
Planning
Monitoring & reporting Scan
Year 3 onwards: based on risk profile
Years 1-3: high touch
Annual Oversight
Cycle
Synd. Plan Approval
Performance Monitoring
Specific Reviews
Decisions
Communications
Assessment Closure
New Synd AssessmentHigh-Level PitchPrelim ApprovalMaking It HappenApprovalCommunication
Market Planning
Market MessagingMkt Oversight PlanMA LettersMA EngagementMA Negotiation
Syndicate Plan ApprovalSBF SubmissionLCR Submission
CPG ProcessMA Comms
Reg Updates
PerformanceMonitoring
Combined RatioPricing
Written premiumsPaid claims
Claim reservesModel changes
Specific Reviews
Thematic ReviewMin Standard RevAdditional OversightChange of Control
Survey ResultsRegulatory Reviews
DecisionsNew entrantsBusiness planCapital plan
Change of controlAuthority to underwrite
CommsDecisions to MAsOversight Plans
MA LetterThematic review
reportsReg ReportingRating Agency
ClosureSynd run-off
Synd retirementForced closure
RITC
Market Planning
* NoteEntering and exiting the Market are not annual processes, they are exceptional
Key InterventionsRemove
permission to underwrite
Approve / reject a
business plan
Impose a capital loading
Approve / reject a RI contract
Approve / reject a new
syndicate application
Impose operational risk loading
Impose conditions on appointment
of Board member
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Classification: Confidential
Key Decision Processes
The following slides define the key oversight decision making processes with their high-level inputs, key stages, approvals and outputs. In summary, those key decision-making processes are
Enter the Market
Exit the Market
Annual Oversight
Cycle
New Entrants Approval
The process to receive and review applications
for new entrants into Lloyd's from initial pitch
to full approval, confirming that they support the Lloyd’s
brand and meet Minimum Standards
Business & Capital Plan Approval
The process to receive, review and approve
annual syndicate business plans and
capital requirements, ensuring they align to Market Messages and
Lloyd’s strategy.
Market Oversight Planning
The process to plan appropriate,
proportionate oversight which is suitable to the
current risk environment and in accordance with Lloyd's risk appetite and regulatory requirements.
Change of Control ApprovalThe process to receive, review and approve any
changes in control of syndicates, MAs,
members agents and their parent
organisations, e.g. following a merger
Exit the MarketThe process to manage the exit and/or run-off of
syndicates and managing agents from the Lloyd’s market in a controlled, managed
way to mitigate any risk to policyholders,
investors or the Central Fund
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Three key interlinking elements of the Oversight Framework have been developed in parallel
© Lloyd’s
Syndicate categorisation
Oversight Principles
Clear syndicate categories driven by Lloyd’s view of performance against Principles and a syndicate’s
materiality
High-level principles, across 13 dimensions, supported by guidance, that allows Lloyd’s to differentiate from non-compliance through to best practice
An escalating scale of interventions that are linked to principles and overall
syndicates categorisation
Growth and development opportunities for the best run
businesses
Development opportunities
Oversight and
interventions
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Oversight Principles: A clear overarching principle is set for each oversight area, supported by a small number of underlying statements
Dimension Overarching Principle Dimension Overarching Principle
PERFORANCE
Underwriting Profitability
Managing agents should produce and execute syndicate business plans which are logical, realistic and achievable and ensure long term sustainability including expense management S
OLVENCY
Capital Managing agents should ensure syndicates Solvency Capital Requirement (SCR) appropriately reflects their risk profile and is calculated using a SII compliant internal model.
Catastrophe Exposure
Managing agents should ensure syndicates maintain appropriate control of Catastrophe risk (natural and non-natural) in line with agreed risk appetites
Investment Managing agents should ensure syndicate investment risk taking is effectively controlled, informed by wider business strategy and adheres to the Prudent Person Principle (PPP) requirements.
Outwards Reinsurance
Managing agents should define and execute syndicate outwards reinsurance strategy and purchasing plan which reflects the wider business strategy
Liquidity Managing agents should ensure syndicates (and their members) they have contractual access to sufficient liquidity in order to withstand a severe liquidity event (defined by Lloyd’s), underpinned by a robust liquidity risk management framework.
Claims Management
Managing agents should deliver a high quality claims service supported by efficient and effective claims management solutions and underpinned by a clear claims commitment which ensures fair and timely claims handling and good customer outcomes. O
PERATIONAL
Governance and Reporting (Subject to ELG review)
Managing agents should have governance structures and internal risk management and control frameworks in place which enable well-informed, timely and effective decision making and consistently accurate and timely reporting to Lloyd’s.
Regulatory, Compliance and Financial Crime
Managing agents should have robust regulatory and financial crime frameworks in place to meet and adapt to relevant legislation and guidance. Frameworks should support well informed, transparent relationships with Lloyd’s and regulators.Customer
OutcomesManaging agents should embed a culture and associated behaviours throughout their organisation to ensure they consistently focus on good customer outcomes
Operational resilience
Managing agents should maintain robust and resilient operations, embedding cyber resilience and effective third-party risk management.
Reserving Managing agents should ensure syndicates set reserves which are underpinned by a robust reserving process. All Actuarial Function requirements should be met in line with Solvency II.
Culture Managing agents should be inclusive and representative, creating a high performance culture.
© Lloyd’s
The 13 Principles set out the fundamental responsibilities expected of all Managing Agents in order to support the Markets’ overall performance, capital strength, financial and reputational credibility
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WSIA’s U40 2021 Webinar SeriesJuly 12, 2021
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