Market Reform Forum

1. Market Reform Forum 24 November John Muir / John Harvie / Steve Hulm

2. Objective: Update on reform • Quick run down of what is going on • Implementing contract certainty a broker’s perspective • Contract certainty - How does the process change? • Contract certainty - Questions we have been asked • Your questions Page2

3. Quick run down on what’s going on Page3

4. Accounting & Settlement MRG and A&S Project Board review. Result: three workstreams: • Radical review of options for A&S ‘end vision’ • supported by MRG • consulting with market associations Q4 • Introduce Step 1 repository (‘e-LPAN’), progress market take up • detailed supplier negotiation Q4 • supplier decision at 29 November MRG Meeting • Introduce measurement regime and performance monitoring • scope agreed Q3 • QA requirements produced Q4 • statistics published Q1 06 Page4

5. Electronic Claims File • XIS development work • Phase 1 and Phase 2 - Now live • Phase 3 – (partial) DRI: Now live • Phases 4.5/5.5 CLASS at Lloyds data through GUI/Seamless link • Implementation • 27 partnerships operational (from 6 in May, 27 in November) • Relatively low volumes (291 first advices) • testing out electronic infrastructure and developing procedures • Replanning of delivery dates: mid-May (from January), then MAT • Publicity published on lmp-reforms.com Page5

6. Contract certainty • Publications • 14th Nov • Slides, including material for internal sponsors • FAQs • Guidance on measurement • 14th Dec • Batch 2 guidance • Further FAQs • More to follow in the New Year • Communications • Sessions for sponsors and project managers • 70% attended • Public Q+As • 1st Dec • 14th Dec • Plus Market Association sessions • Plus more planned for New Year Page6

7. Implementing contract certainty – A broker’s perspective Page7

8. Implementing contract certainty – A broker’s perspective • Internal communication • External communication • Implementation • Measurement involving: • Contract Certainty by inception • Signed Lines by no later than 30 days after inception • Evidence (s) of Cover by no later than 30 days after inception • Challenges • Structure / process • Culture / behaviour STOP BEING PART OF THE PROBLEM AND START BEING PART OF THE SOLUTION! Page8

9. Contract certainty - How does the process change? Page9

10. High-Level Process Changes • The purpose of these slides is to highlight the differences in processes required to implement and support Contract Certainty. • The focus is on the changes, they do not attempt to fully document existing processes. • They represent the typical process likely to be followed by most market business. Page10

11. Achieving Contract Certainty, Current : Lloyd’s 5. XIS Stage 1, Accounting and closing 1. Quote 3. Place Firm Order 4. Determine signed lines 6. Contract check by XIS (Stage 2) 8. XIS Lloyd’s Policy signing (if required) 7. Broker sends Evidence of Cover to client 2. Broker & insurer check slip Process: always takes place Page11 Process: does not always take place

12. Red text/line indicates change from current process Process: always takes place Process: does not always take place Achieving Contract Certainty, Proposed Process : Lloyd’s 5. XIS Stage 1, Accounting and closing Signed lines to underwriters within 30 days Signed lines to underwriters within 30 days 1. Quote 3. Place Firm Order 4. Determine signed lines 6. Contract check by XIS (Stage 2) 8. XIS Lloyd’s Policy signing (if required) Single broker submission to XIS Single broker submission to XIS using CC checklist & Lloyds compliant submission using CC checklist & Lloyds compliant submission - Checking 100% - QA Tool-based - Checking 100% - QA Tool-based by inception by inception ** CC achieved and recorded ** ** CC achieved and recorded ** No post inception overplacing No post inception overplacing 7. Broker sends Evidence of Cover to client 2. Broker & insurer check slip Timing now within 30 days of inception with all terms & the full wording** Early Check using QA Tool & CC Checklist Early Check using QA Tool & CC Checklist Page12 ** As per CC checklist

13. Achieving Contract Certainty Current : Bureau Company 5. XIS Stage 1, Accounting and closing 6. Contract check by XIS (Stage 2) 8. XIS Lloyd’s Policy signing (if required) 1. Quote 3. Place Firm Order 4. Determine signed lines Bureau 7. Broker sends Evidence of Cover to client 2. Broker & insurer check slip Process: always takes place Page13 Process: does not always take place

14. Red text/line indicates change from current process Process: always takes place Process: does not always take place Achieving Contract Certainty, Proposed Process : Bureau Company 5. XIS Stage 1, Accounting and closing Signed lines to underwriters within 30 days 6. Contract check by XIS (Stage 2) 8. XIS Lloyd’s Policy signing (if required) 1. Quote 3. Place Firm Order 4. Determine sign lines Single broker submission to XIS Bureau using CC checklist compliant submission by inception - Checking X% 100% • Company • Bureau checks - QA Tool-based ** CC achieved and recorded ** No post inception overplacing 7. Broker sends Evidence of Cover to client 2. Broker & insurer check slip Timing now within 30 days of inception with all terms & the full wording** Early Check using internal * & CC Checklist Early Check using QA Tool & CC Checklist Page14 * Company’s internal checking procedures ** As per CC checklist

15. Achieving Contract Certainty Current : non Bureau Company 5. Accounting and closing 8. Company Policy production (if required) 1. Quote 3. Place Firm Order 4. Determine signed lines 7. Broker sends Evidence of Cover to client 2. Broker & insurer check slip Process: always takes place Page15 Process: does not always take place

16. Red text/line indicates change from current process Process: always takes place Process: does not always take place Achieving Contract Certainty, Proposed Process : non Bureau Company 5. Accounting and closing Signed lines to underwriters within 30 days Signed lines to underwriters within 30 days 8. Company Policy production (if required) 1. Quote 3. Place Firm Order 4. Determine sign lines using CC checklist compliant submission using CC checklist compliant submission by inception by inception ** CC achieved and recorded ** ** CC achieved and recorded ** No post inception overplacing No post inception overplacing 7. Broker sends Evidence of Cover to client 2. Broker & insurer check slip Timing now within 30 days of inception with all terms & the full wording** Early Check usingChecklist & internal procedures Early Check using Checklist & internal procedures Page16 ** As per CC checklist

17. Contract certainty - Questions we have been asked Page17

18. Contract Certainty: Recent FAQs How should Service Company business be measured? • Contracts written under delegated underwriting arrangements with London Market bureau participants are classified as London Market, and hence checked against MRPO checklist. • Insurers need to determine whether any other S/C business should be measured against London or non-London checklist (they will be very similar!). • It will be helpful to distinguish types of business in your stats e.g. binders, line-slips, open-market. Page18

19. Contract Certainty: Recent FAQs What if an order arises very close to inception? • Brokers should explain CC to clients and the contribution they can make towards its achievement. However these situations will continue to occur, and: • Model or fallback wordings may be used where an appropriate manuscript wording is not available. An endorsement can then be used once final terms are agreed. • Recognise that CC may not be achieved by inception in all cases, but principles should be observed as far as possible. • We are working on further guidance & principles regarding late orders. (Possibly CC could be maintained ). Page19

20. Contract Certainty: Recent FAQs How do you “clearly identify” an “As Original” or similar prior wording if it not attached? • References to a separate document may also be embedded in clauses e.g. “all terms … to follow original policy”. • Provide policy or wording reference, or • Key identifying fields: Insurer; Type; Insured; Period; Interest; and Policy Limit(s). • Some insurers may wish to go further than the above requirements and insist upon a reference or attached wording. • Need to weigh risks versus practicalities Page20

21. Contract Certainty: Recent FAQs How will the market manage renewal peaks? • Recognise that all market participants face a challenge to meet CC requirements during renewal periods. Some possible mitigating actions are: • Early consideration of renewal wordings; • Ensuring (for renewals as expiring) that the expiring contract was satisfactory in all respects; • The greater use of model wordings; and • Use of service providers. Page21

22. Contract Certainty: Recent FAQs What is the legal weight of a fully-claused slip versus an insurance policy? • Once the insurance policy has been signed , the status of the slip to evidence the contract(s) of insurance may be unclear. It depends on whether the parties intended the policy to supersede the slip. Page22

23. Contract Certainty: Recent FAQs Is the Guidance relating to a copy of the complete slip intended to be used as evidence of the parties’ intent as to the legal effect (or otherwise) of slip provisions ? • No ! It is not the intention to use the CC Guidance to create or confer any new or additional rights on the insured or insurers, nor to try and deprive the insured or insurers of any existing rights they may have. • The document does not affect the legal relationship between the parties to insurance/reinsurance contracts. Page23

24. Contract Certainty: Recent FAQs How is CC achieved for Treaty Reinsurance contracts? • The requirement to meet the CC definition for these contracts is that the scope and terms of the reinsurance cover are fully defined. • This requirement does not extend to defining the terms and scope of individual cessions which may be covered under the reinsurance. Page24

25. Contract Certainty: Recent FAQs Are there other types of “appropriate” evidence of cover? • Other forms of EoC are possible, as long as they specify the coverage as fully as those types listed in the CoP, and make clear who has produced and authorised the document. • One specific example is where an electronic placement system has been used, and the (re)insured may have no requirement for a separate EoC. Page25

26. Contract Certainty: Recent FAQs What is the escalation procedure if one of my trading partners is hindering my efforts to achieve CC? • Initially raise the matter with your contacts within the other organisation; • Then escalate to their Compliance Officer; • If unresolved, take forward with your own Trade Association; and • If still unresolved, consider referral to MRPO/MRG. Page26

27. Contract Certainty: Recent FAQs Does CC mean more cost for the market? • Operational expenses could increase, in the short-term, to meet the requirements of CC. • This is expected to be offset, over time, by a reduction in costs arising from re-work, together with the downstream processing benefits of CC. • Also reductions in legal fees and claims dispute costs are expected as CC is achieved. • CC will have the effect of improving efficiency and ultimately removing cost across the market. • The costs borne by the market as a result of a lack of CC are significant: legal expenses; E&O exposure; excessive claims costs; inappropriate rating; and potential capital misallocation. Page27

28. Contract Certainty: Recent FAQs Is technology the key to achieving CC? • Behaviour is the main issue, not technology. • Changes in behaviour are necessary to change fundamental working processes. • Nevertheless, technology is increasingly expected to play a part in supporting these behavioural changes. Page28

29. Contract Certainty: Recent FAQs Will achieving CC slow down the placing process and drive business elsewhere? • The implementation of the CC principles is a commercial and regulatory imperative for the market. • Potential initial delays, arising from lack of familiarisation with new procedures, can be minimised by: • Good preparation; • Sensible co-operation; and • Avoiding over-bureaucratic implementation. Page29

30. Contract Certainty: Future FAQs • To be published December/January (& ongoing?) • Sample of questions raised: • How do we achieve CC for foreign language wordings? • Is there anything that can be done to achieve CC for late orders? • Can cover be back-dated? • Clients may benefit from post-inception over-placing, how can we meet their needs? • How do we handle CC failures that are outside the control of the London Market? • How do we prevent London being “traded against” by markets with different regulatory requirements? • Are there some forms of stamp condition that are still valid? Page30

31. Questions Market Forum 24 November John Harvie/Steve Hulm