A warm Welcome to the October market Breakfast Group

1. Control Framework A warm Welcome tothe October market Breakfast Group

2. Control Framework Breakfast Group agenda 9:00 Arrival, breakfast & networking All 9:15 Welcome Ali Dove 9:20Hiscox - Coverholder Stephen Burns risk assessment James Chaplin 9:35 Coverholder audit scope Charles Rowley- Catlin 9:50 Phase II update Jaana Rouvari 10:00 Xchanging – Binder management Steve Reid services Andrew Austen 10:20Q & A All 10:30 Close Ali Dove

3. CF2:Hiscox Coverholder Risk Assessment Stephen Burns - Delegated Underwriting Manager and James Chaplin - Business Analyst Hiscox Group

4. Scope • CF2 presents significant challenges for Hiscox • Engaging with multiple stakeholders:- • c.300(Lloyd’s business) coverholders worldwide • c.400 (Lloyd’s business) binding authorities across multiple classes • c.50 (Lloyd’s business) TPAs worldwide • c.60 Lloyd’s placing binder brokers • We need to: • Keep work to a manageable level and avoid duplication • Strike the right balance between pragmatism and rigor

5. Guiding Principles • Location of risk is deemed pivotal • Where risks are moving across jurisdictions complexity is suspected • Risk assessment factors will be considered in combination • Binders are deemed either lower or higher risk as the factors elicit binary data • L/M/H categories are attributed through a weighted total score per binder

6. Hiscox Risk Assessment Factors

7. Slip Wordings • Wordings vary greatly within the Lloyd’s standard slip format. • The concern is that this variation will lead to data errors and confusion. Simple?

8. Slip Wordings • Wordings vary greatly within the Lloyd’s standard slip format. • The concern is that this variation will lead to data errors and confusion. Complex?

9. Slip Wordings • Wordings vary greatly within the Lloyd’s standard slip format. • The concern is that this variation will lead to data errors and confusion. ???

10. Analysis & Assessment • We are currently finalising our base data set for all binders/coverholders • Analysis will be data driven, with the findings for each factor being scored. • Factor scores will be weighted to reflect the relative risk impact of each factor • An overall score for each binder will determine L/M/H status • ‘Terms of Reference’ paper captures thought process and rationale for scoring

11. Next Steps • Overall findings of the risk assessment will be: • Fed into the audit planning for 2014 to ensure alignment to priorities • Used to estimate feasibility of Dec 2014 deadline • Submitted to Lloyd’s CF2 Programme Team mailbox by 20/12/2013

12. Hiscox Coverholder Risk Assessment ANY QUESTIONS?

13. Coverholder Audit Scope Review An update from the Audit Scope Review Steering Group

14. Introduction • LMA Survey indicated “strong interest from the respondents to review and update the scope and to improve the way in which audits are conducted.” Key suggestions were: • Split between Core Modules and Appendices • Split between General and Contract Specific • Updates to Underwriting Claims and Compliance sections • Add guidance on ‘risk rating’ recommendations possibly using RAG str. • Structure should aid audit coordination. All 56 managing agents were surveyed, 22, 40% replied. 18% of those who replied used the audit scope, a further 55% used a variant. In total 73% of replies, and 29% of all managing agents.

15. Objectives of the review • Update the Coverholder Audit Scope to ensure that it is used by many more stakeholders. • To improve the value of audits and minimise duplication. • To ensure the Audit Scope reflects the changing regulatory environment and can be adapted to address the challenges of changes to market systems and processes.

16. The Steering Group

17. The Review • Steering group with members from DUC, DUM, BOLT, BACG and Lloyd’s undertook initial review of scope. • Working groups of subject matter experts from around the market met to review different sections. • Lloyd’s local representatives consulted with local coverholders and auditors, comments received from auditors in Australia and Italy and from Lloyd’s offices in Australia, Hong Kong, Italy and Spain. • UK MGAA and US AAMGA associations consulted. • With thanks to AAMGA, AON, Ark, Atrium, Axiom, Barbican, Beazley, Bell and Clements, Bowood, Brit, Canopius, Catlin, Chaucer, Cranmore Australia, C&N Insurance, Decus, Gold Seal, Hiscox, Integro, Kiln, Lloyd’s local representatives, Lloyd’s Delegated Authorities Team, Markel, MGAA, Miller, Mitsui, R&Q, Self Assured Limited, THB, Torus, Towers Watson, Tyser and Willis

18. Draft Structure – Modular for a Risk Based Approach Executive summary On site Audit • General / All Binders • Company • Accounts • E&O • IT • Licences and taxes, financial crime etc. • Financial controls etc. Note: Each section could be split between what could be covered by different types of audit Self - Certification On-line Underwriting management • Contract specific • Underwriting • Claims • Transactional accounting • Reporting etc. Underwriting file review Claims / Underwriting No authority Note: Each section could be broken down into basic, medium and advanced, for example for claims Claims / Underwriting Authority • Appendices • UK Consumer • Internet Trading • Control Framework (Higher Risk)

19. Structure – Examples A and B Simple Commercial 1 country Complex Consumer UK and EEA Executive summary Executive summary • General / All Binders • Company • Accounts • E&O • IT • Licences and taxes, financial crime etc. • Financial controls etc. • General / All Binders • Company • Accounts • E&O • IT • Licences and taxes, financial crime etc. • Financial controls etc. • Contract specific • Underwriting • Claims • Transactional accounting • Reporting etc. • Contract specific • Underwriting • Claims • Transactional accounting • Reporting etc. • Appendices • UK Consumer • Internet Trading • Control Framework (Higher Risk) • Appendices • UK Consumer • Internet Trading • Control Framework (Higher Risk)

20. New version of audit scope • Significant updates to underwriting, claims, reporting and compliance sections • Inclusion of requirements for UK consumer business, TPAs, Internet trading, Data Quality (Control Framework 2) and Financial Crime • Full details of changes will be advised with new draft • Guidance notes will also be provided • Out of scope for this delivery: - • Online audit templates • Self certification templates (to be considered alongside annual review process.)

21. Next Steps • Currently being drafted; draft to be made available late October/November • Consultation on draft during November • Final version end of the year or early 2014 • Develop guidance document • Consult with regulators. • Develop a communications plan to all relevant stakeholders. • Work with coordination group to finalise a ‘Co-ordination sheet’ to support this process. Next year • Review and consider the need for a self certification module. • Review and consider the need for an on-line audit module. • Set up a regular review process.

22. Summary - New version of audit scope Current proposed changes • Significant updates to underwriting, claims, reporting and compliance sections • Inclusion of requirements for UK consumer business, TPAs, Internet trading, Data Control Framework and Financial Crime • Full details of changes will be advised with new draft • Guidance notes under development Current plan • Currently being drafted • Draft to be made available late October/November • Consultation on draft during November • Final version end of the year or early 2014 The review process • Cross market steering group:- Chair - Charles Rowley (DUM/Catlin); Steve Hart (DUC/Ark); Patricia Beaton (BACG/Canopius); Dan Lott (BOLT/Integro); Ian Whitehead (Bell and Clements) and Sarah Thacker (Lloyd’s) • Working Groups of experts focused on specific topics; and comments were also received from managing agents, brokers, coverholders, auditors and Lloyd’s country reps • With thanks to AAMGA, AON, Ark, Atrium, Axiom, Barbican, Beazley, Bell and Clements, Bowood, Brit, Canopius, Catlin, Chaucer, Cranmore Australia, C&N Insurance, Decus, Gold Seal, Hiscox, Integro, Kiln, Lloyd’s local representatives, Lloyd’s Delegated Authorities Team, Markel, MGAA, Miller, Mitsui, R&Q, Self Assured Limited, THB, Torus, Towers Watson, Tyser and Willis

23. Control Framework Control framework Phase II update by Jaana Rouvari

24. Control Framework Where are we as a market? Initial meetings with managing agents 100% Complete Managing agent has project resources in place 65% Confirmed resources Rest are progressing well % Completion Coverholder risk rating exercise 10% Completed, 50% shared early cuts Risk ratings reflected in audit schedules Confirm delivery timeline to Lloyd’s 10% Complete

25. Control Framework The challenge • 9 weeks until Christmas! • Inform Lloyd’s project team early if there are issues New stuff • Phase I • Ownership of Control Framework for new service company applications is transitioning from Lloyd’s Market Operations to Lloyd’s Delegated Authorities • Phase II • Changes to gap analysis template on lloyds.com • New team member at Lloyd’s – Hannah Warrilow

26. Control Framework What happens next? • Lloyd’s engaging with LIIBA on how we collaborate with brokers • BOLT on 12th November • Following BOLT - Calling on the managing agent working group • Broker Engagement • In September we met with 23 brokers,10 of these are in the top 40 by GWP • Lineage and Control Framework

27. BINDER MANAGEMENT SERVICES Presentation to Control Framework Breakfast Group 22nd October 2013

28. Key messages A number of issues with the reporting of data from cover holders (via brokers), make it difficult for insurers to manage the underlying exposures on their binding authority contracts. Focus is increasing in this area While many of the issues are shared, the available binder management solutions are currently being procured on an individual basis 01 02 03 04 Xchanging already plays a pivotal role in the processing of premium and claim bordereaux for the market and has a track record of providing shared service solutions In partnership with a third party software provider, Xchanging plans to launch two new elective service offerings in January 2014, to address the priority issues. The cost and operation of these services will be shared between subscribing insurers. BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

29. Agenda for today 1 Binders in context Context Current issues and Control Framework objectives Current high level process flow 2 Solution components The Xchanging Solution Elective offerings Revised Process Map 3 Benefits 4 Roadmap and Timeline BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

30. Binders in context Binder share of the Lloyd’s Market: Split between subscription and singleton binders: Number of participants per subscription binder: BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

31. Current issues and control framework objectives Technology Services Technology Services Current market issues Control framework objectives • A lack of visibility of bordereau for following market participants • Inconsistent timing of bordereau delivery • Inconsistent and non-standard data • Lack of granular level data for Lloyd’s reporting • Insurers are spending large sums of money on manual validation & rekeying of data • No centralised query management process • “Raise the bar” on quality across the market  • Protect managing agents from direct regulatory investigations and penalties for non-compliance  • Maintain and enhance the Lloyd’s brand and reputation  • Minimise the risk to the overall Lloyd’s licences  • Protect and potentially improve the competitive position of the platform. BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

32. Current Process Map Multiple queriesfrom multiple MA’s Multiple systems + levels of sophistication Non standard. Incorrect / missing data Review / check / adjust Bdx BSM / USM sent Broker part cleanses Bdx Additional query loop Cover holder Cover holder Broker XIS/XCS Managing Agent(s) Market Broker Submission to Bureau Missing Bdx as followers Process Bdx on an aggregate level Non Standard Bdx Time consuming Query resolution Time consuming Query resolution BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

33. Components of The Xchanging solution Central administration Availability Service delivery via a dedicated Xchanging team Central storage and availability of Risk Bordereaux for all binder participants (Broker, Leader, Followers) Components of The Xchanging solution MI Conversion Provision of strategic MI for all parties to drive decision making and support regulatory reporting requirements Conversion of non standard Risk, Premium and Claim Bordereaux into standard format options with a level of automated validation Central storage Validation Central storage of standard format bordereaux, available to Brokers, Leaders and Followers Enhanced bordereaux validation including query management and resolution to reduce the burden on brokers and managing agents BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

34. Two New elective service offerings 1 2a 2b Risk Bordereaux for the following market Bordereaux Conversion Validation extra BordereauxTransformation • Xchanging will receive the risk bordereau from the Lead Insurer and/or broker in a format preferred by the sender • The bordereau will be saved in the IMR in a new Risk Bordereaux folder* • A link will then be sent to the following market which will provide Insurers direct access to view the bordereaux. • Xchanging will receive the risk, premium or claim bordereaux from the insurer • On first receipt the bordereaux will be mapped to the required standard • All subsequent bordereaux for the same binder will be processed against the mapping • Converted bordereaux will be stored centrally and provided to subscribing customers • As an extension to the Bordereaux Conversion service, Xchanging will apply additional validation to each bordereaux • Any processing exceptions will be resolved in conjunction with the insurer and/or broker as required * Subject to AAC approval BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

35. Future Process Map Single query line for all MA’s Non standard Bdx BSM / USM sent Submission to Bureau Non standard Bdx Cover holder Broker / Lead MA Xchanging BTS Broker XIS / XCS Market Mapped & transformed standard Bdx including Bdx for Followers Query Response Process standard Bdx on an aggregate level Managing Agent BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

36. Reduced cost of bordereaux conversion Removed requirement to map bordereaux Reduced administration of bordereaux exceptions CUSTOMER BENEFITS INCLUDE More effective query management Improved Data Quality Efficient processing Improved MI and Reporting capabilities Both lead and follower data processed No set up charges and transaction based pricing BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

37. Roadmap and timeline February 2014 January 2014 Load, map, validate & distribute first Bordereaux December 2013 Launch new services November 2013 Complete Risk Bordereaux trial and decide on full roll out October 2013 Commence trial for Risk Bordereaux to followers Announce selected vendor for bordereaux transformation Test and mobilise bordereaux transformation service Configure bordereaux transformation service BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

38. Key messages A number of issues with the reporting of data from cover holders (via brokers), make it difficult for insurers to manage the underlying exposures on their binding authority contracts. Focus is increasing in this area While many of the issues are shared, the available binder management solutions are currently being procured on an individual basis 01 02 03 04 Xchanging already plays a pivotal role in the processing of premium and claim bordereaux for the market and has a track record of providing shared service solutions In partnership with a third party software provider, Xchanging plans to launch two new elective service offerings in January 2014, to address the priority issues. The cost and operation of these services will be shared between subscribing insurers. BINDER MANAGEMENT SERVICES – SUPPORT TO MANAGING AGENTS AND BROKERS

39. For further information please contact: Steven Tucker – Product Manager steven.tucker@xchanging.com D +44 (0)20 3604 3236 M + 44 (0)7554 112 617

40. Control Framework Q & A

41. Control Framework Close Further information on Control Framework – controlframework@lloyds.com Lloyd’s Modernisation – Directors Briefing 29th October Next Breakfast Meeting – TBC, in early December www.lloyds.com/controlframework