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Risk Management – The view from Lloyd’s

Risk Management – The view from Lloyd’s. Andrew Gurney – Manager, Risk Analysis Risk Management Division, Lloyd’s 13 October 2004 – ISDA/PRMIA Seminar, London. Managing Agents (45) Syndicates (66). The Lloyd’s Market in 2004. Corporation. Lloyd’s Brokers (168). CLIENTS. MEMBERS.

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Risk Management – The view from Lloyd’s

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  1. Risk Management – The view from Lloyd’s Andrew Gurney – Manager, Risk Analysis Risk Management Division, Lloyd’s 13 October 2004 – ISDA/PRMIA Seminar, London

  2. Managing Agents (45) Syndicates (66) The Lloyd’s Market in 2004 Corporation Lloyd’s Brokers (168) CLIENTS MEMBERS Reinsureds Corporate Groups (649) Commercial Individuals (Unlimited Liability Members) (2,045) Members’ Agents (4) Service Companies Individuals(Limited Liability Members) (1,402) Personal BUSINESS FLOW CAPITAL PROVISION Source: Lloyd’s

  3. Trends in syndicates & managing agents 2004 average syndicate capacity £227m 2004 1983 Source: Lloyd’s

  4. 7% 8% Geographical source Property Casualty 36% 9% Marine Direct 48% Aviation 52% Reinsurance Motor 11% Energy 29% 3% 5% 8% North America UK 12% 45% Europe Asia Pacific Latin America Africa/Middle East 27% Business mix: 2004 year of account Class of business Source: Lloyd’s, analysis of 2004 franchisee business plans

  5. Franchise Goal “To create and maintain a commercial environment at Lloyd’s in which the long term return to all capital providers is maximised” Lloyd’s Franchise Board

  6. Franchise Board – Strategic Aim • Outstanding risk management capability

  7. Risk Management • Position within the Franchise • Governance • Competency • Capability • Resource

  8. Key Focus areas • Develop a risk management framework • Raise risk management awareness & capability • Benchmark the standard of risk management • Improve the accuracy of market level loss estimates

  9. Actual Losses • Identify and measure internal and external losses & near misses • Classify • Analysis Franchise Risk Management Framework Risk Strategy Objectives, Vision, Risk Policy, Appetite, Organisation & Governance Structure, Risk Glossary Risk Groups Business Strategy Credit Capital Liquidity Financial MarketInsuranceRegulatory Operational • Risk and Control Assessment • Identify & assess • - Risks • - Controls • - Processes • Measure (qualitative & quantitative) • Appetite • Owners • Key Indicators • Key risk indicators • Key control indicators • Key performance indicators • Environmental monitoring • Stakeholder monitoring Action Plans risk environment

  10. Lloyd’s Risk Framework • Initial workshops • Iterative follow-up • Quarterly Franchise Risk & Control Assessment • Oversight and challenge • Risk Management Assessment

  11. Raising Risk Awareness • Risk conference • Risk forum • Workshops • Communication • Risk Management Assessment

  12. Risk Management Assessment • Capability Survey • Control self assessment

  13. RDS Guidance and Instruction • Issued in April 2004 • Key sections • Definitions • Calculation Principles • Recommended Best Practice • “Event Subset” Submissions • Scenarios and Events • Available on Risk Management Website • www.lloyds.com/riskmanagement

  14. Scenarios and Events DE-MINIMIS SCENARIOS 1 USA Windstorm 2 Marine Event 3 North Sea – Loss of Major Complex 4 Aviation Collision 5 Major Risk Loss 6 Satellite Risks 7 Liability Risks 8 Political Risks 9 Alternative RDS: A 10 Alternative RDS: B SPECIFIC SCENARIOS 11 Second Event 12 Florida Windstorm 13 California Earthquake 14 New Madrid Earthquake 15 European Windstorm 16 Japanese Earthquake 17 Terrorism

  15. Conclusions • Next steps and key challenges • ICA reviews • RDS Overhaul – stage 2 • Risk Management Assessment – feedback • Risk Management Capability Model • Competency framework • Continued training, education and assistance • Embedding risk management throughout the Franchise

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