Delegated Authority
Change in Approach to Approvals and Oversight
October 2022

© Lloyd’s 2022

DA Business Strategy
Oversight model is being developed to support our wider DA strategy

Ourambition

Our
OfferEligibleBusinessSupportedthat meetthesecriteria

Is to be the market of choice for sustainable, profitable delegated business partnerships where interests are aligned. Provide
products and services that deliver good customer outcomes, and use data effectively to oversee and manage performance.
Lloyd’s infrastructure and shared services support and facilitate the ease of doing business for Coverholders and Syndicatesmaking Lloyd’s an attractive place for new and innovative business opportunities.
Allows Syndicates and Lloyd’s approved Coverholders to leverage the benefits of:• access to Lloyd’s Global Licenses and business insights through our Global Network• the strength of our Brand and Reputation• our prudential Rating• our unrivalled Breadth of Expertise• range of services and support - designed to facilitate the ease of doing DA business in the Lloyd’s market
To ensure Lloyd’s Business Outcomes are achieved, DA business should meet the following criteria.
✓ Aligns with Lloyd’s Distribution Strategy✓ Third party firms uphold Lloyd’s values, protect the brand and provide good value for policyholders✓ Business proposals are proven and/or plans will realistically achieve sustainably profitable business✓ New business to Lloyd’s promotes innovation through products, distribution models and services✓ Commissions are fair and reasonable, link between remuneration and profitability is strong and interests arealigned✓ Third party firms have capability to accurately capture and share meaningful data and MI✓ Managing Agent operational models reflect delegation outside their firms in lower internal operating expenses

2Why are we making changes to DA Oversight?

•The changes we are announcing today support the wider DA strategy by ensuring our focus is on supporting
profitability and managing higher risk arrangements.

•Currently Lloyd's approves all new coverholders and all changes in permission... approx 3000 applications peryear. Many very low risk. Lloyd's checks may add little "value".

•

Rio assessments mean that we now have the evidence to "trust" managing agents that meet our expected maturity
assessments (primarily via the Customer Outcomes principle & its DA sub-principle)•But we will also "verify" that trust (via our new QA sampling checks).

•Lloyd's should only prior "check" an application or intervene where a clear high-risk reason.

•

This risk based approach is also in line with 2019 DA oversight market-wide consultationo 87% of responses agreed that Lloyd's should adopt a risk-based approach (focusing on high risk only)
o 77% thought that such an approach would benefit their firms.

© Lloyd’s3

What is the relevant RIO principle?
The Customer Outcomes Principle (principle 5)
Managing Agents should embed a culture and associated behaviours throughout their business to ensure
they consistently focus on good customer outcomes and that products provide fair value

The DA Sub-principle
Managing agents should... engage, manage and oversee third party service providers in accordance with theoutsourcing strategy and the service of standard set by the managing agent

MA's RIO assessment dependent upon "materiality" criteria

Foundational (iecommercial/RI)

Intermediate (moderateDA/consumer/SME)

Advanced (High volumeDA/Consumer/SME)What will the complete Oversight Process Look like?
3. Co-ordinated Audits
2. Ongoing Compliance Oversight• Well established co-ordinated audit process• Lloyd’s administered and monitored• Alignment to ongoing compliance required• System supported where required• Managing agent determined assessments – leader only

• Reduced duplication• Minimum level for ongoing compliance checks (entity level)• Monitoring MIComplianceAudit

4. Performance Management & Oversight
1. Approvals Process•

Lloyd’s to hold internal record of poor performing coverholders asmechanism to avoid persistence in the market• Managing agent’s attest to completion of thorough due diligence•

Risk assessed operational management oversight of Third-Partyrisks•

Quality control covering applications & ongoing compliance•

Third party material issues investigated•Insights to inform Lloyd’s risk appetite and ongoing assessment ofmanaging agent capabilities• Early engagement with Lloyd’s Country Managers/Reps
provide added insights and assurances• Lloyd’s preapproval referrals by exception only for Rio compliant
managing agents *• Lloyd’s 5 Day approvals process (for qualifying applications) - weare aiming to cut this down to 24hrs once process is embedded

OversightApprovals

DA Strategy & RiskAppetite*All applications for managing agents not meeting the expected level of maturity for Lloyd’s Principle 5 will require decision paper approvalWHAT DOES THIS MEAN IN
PRACTICE FOR YOU?
Approvals

Changes inPermission

Ongoing Compliance6

Approvals
How will coverholder approval (onboarding) change?

1

Simplification of current process: No decision paper is required

2

Country Manager engagement upfront: Liaise upfront when due diligence isstarted. Discuss the business case and any regulatory expectations.

3

Referral risk criteria will be available on lloyds.com: To be checked when due diligence is started

4MA attestation to be submitted to Lloyd's: Attestation will replace the decision paper

5Formal Lloyd’s registration process (based on attestation): 5 day turnaround. No
double checking the MA's due diligence

67New

MA not meeting expected maturity rating will follow current decision paper process: Normal SLA's remain
1/1 application deadline not applicable: as per published SLA's
7

Change of permissions
How will change of permissions for existing coverholders work?

1

Simplification of current process: No rationale or checklist is required to be provided

2

Referral risk criteria will be available on lloyds.com: To be checked when due diligence is started

New

3

MA attestation to be submitted to Lloyd's: Attestation will replace the rationale or checklist

4

Formal Lloyd’s registration process (based on attestation): 5 day turnaround time5

MA not meeting expected maturity rating will continue to provide supporting information: Normal SLA's
remain8Managing Agent Attestation
Receipt of the attestation will be the trigger for Lloyd's granting formal approvalNew

1

Confirm ATLAS is correct and includes the relevant classes and regions

2

Confirm the business will support high performance

3

Confirm the firm uphold Lloyd’s values, protects the brand and provides good value for policyholders

4

Confirm that the application has been discussed with the Country Manager

5

6

7

Confirm that the referral criteria has been reviewed and any appropriate conversations have happened
Slightly different attestation for Lloyd's Europe
Managing agent internal processes and broker processes stay the same9

Delegated Authorities Quality Assurance oversight...to verify reliance

NewFollowing the attestation process Lloyd's will
carry out periodic sample checks on
MA's coverholder due diligence.

Attestation
process

Periodicchecks

If Lloyd's identify areas of improvement thiswill be raised and support provided.
The outcome of the periodic checks will feed
into the syndicate Rio ratings against theCustomer Outcome Principles.

Support forimprovements© Lloyd’sOutcomes
feed RIO

Lloyd's will liaise with market participants tofinalise the periodic checks process in early
2023.

10

11

Ongoing Coverholder Compliance
How will this change (Next steps during 2023)

1

Lloyd’s will continue to host the core compliance information centrally for all relevant parties to access.

2

Lloyd’s has already stopped undertaking centralised compliance checks, removing theduplication between Lloyd’s and Managing Agents3

Lloyd's will work alongside the LMA, in 2023, in an attempt to simplify and standardise the due diligenceprocesses across the market

4

Want to get to a position where the lead syndicate will lead the ongoing entity level compliance checks for theircoverholders

5

Remove the need for followers having to undertake duplicate checks, a major source of current friction
and inefficiency

6

Align with and build upon the process that we have already developed for centralised coverholder audits

12

Continuous Contracts

Key Benefits

Managing
AgentsBrokers

Coverholders•Shift to ongoing compliance, annual checks no longer linked to renewal•Flexibility to monitor performance and compliance in alignment withinternal risk appetite•Competes with non-Lloyd’s carriers who can already grant ‘evergreen’
contracts•No longer required to create endorsement for each annual period•Time saved as DCOM and admin processes involved in renewal nolonger required•Able to offer coverholders greater levels of continuity and predictability,
which promotes long term relationship•No longer reliant ‘positive decision’ from managing agents, removes
uncertainty which is a major concern for our coverholders•Shift in focus from renewal cycles means removal of duplication,
blockers and downtime•

Current annual renewal process a key source of uncertainty forcoverholders•

Communication released to the market 29/9 along with important
guidance on Lloyds.com•

Currently available for singleton (BAA Contracts which are 100%
supported by a single managing agent) and service company
agreements•

Continue to work with market participants to develop best practice andhow this can work for subscription binders (Please contact us if youwould like to join working group to pilot subscription continuous
contracts)•DCOM functionality will be released within 1.5 release•Any Managing Agent who would like to enter in a continuous
contract - get in touch with us via Coverholders@lloyds.com

13

Timeline of oversight changes

New approval approach islaunched (but previous
process may be followed
until 31.1.23)

Decision paper submitted
to Lloyd's phased out for
Rio compliant MA's

Q4 2022
1st November 2022

Streamlined onboarding &compliance rollout
Continued Commitment•Simplification of market process for onboarding& compliance: work with LMA and market to review entity
level due diligence for onboarding & ongoingcompliance oversight for coverholders/DCA’s•

Continued alignment to DA data strategy: working towardsone strategic solution•

System solutions: following process simplification agree any
central systems that need to be enhanced or created•Continued advancements of Continuous Contracts: workwith market participants to review subscription binder roll out.
We will continue providing market guidance aroundcontinuous contacts as adoption rates advance.

Q1 2023
31st January 2023

Kick off compliance &onboarding simplification
work with LMA

Q3 2023 onwards

Working group
established forcompliance simplification
across themarket
Embed and roll out DA
quality assurance
oversight (i.e. spotchecks)

14Summary
If you are meeting Rio Principles (Customer Outcomes & DA Sub-Principle) we will Trust you to appoint
coverholders – we will ask for an "attestation" from you but no other checks of your due diligence.

You should still do the same checks as you do today – no change for MA internal checks
In limited circumstances you will still need to refer certain "high risk" features to Lloyd's for prior checking– those "referral criteria" will be available on lloyds.com
Lloyd's role will be to Advise (via early Country Manager engagement), Check (but only the highest riskapplications) and Verify (via new QA sample checking)

Our quality assurance sample checks on MAs will be used to validate your Rio rating assessments

All of which means.... quicker onboarding of coverholders, greater clarity of responsibilities andincreased focus of Lloyd's oversight on higher risk arrangements and poor performance15

Questions?

16Helpful contacts

Lloyd's DA team: Coverholders@lloyds.com

Lloyd's Europe DA team: LloydsEurope.DelegatedAuthority@lloyds.com

Delegated Claims Administrators team: Delegatedauthorities@lloyds.com

Coverholder compliance queries: coverholdercompliance@lloyds.com

Market support centre: https://marketsupport.lloyds.com/© Lloyd’s17