Principles for doing
business at Lloyd’s

Published July 2024

Introduction

Lloyd’s Oversight Framework creates an efficient and joined-up approach to oversight,
providing the conditions for the best businesses to thrive and driving decisive interventions
for underperforming businesses. The Oversight Framework:• ensures focus on the oversight outcomes we seek to achieve;• provides a way of differentiating managing agent approaches based on their materiality;• allows managing agent senior management to interpret and apply Lloyd’s expectations in
the way most appropriate to their business;• provides clarity, transparency and efficiency across the market for all participants;• is resilient to change over time by focusing on principles and outcomes, rather thanprescriptive rules;• focuses on the most important key areas of operating at Lloyd’s.
Lloyd’s Oversight Objectives
In order to deliver effective, consistent and risk-based oversight, the Lloyd’s Oversight
Objectives underpin the Oversight Framework. Our differentiated approach to oversight plays
a key role in providing the best run syndicates the space to grow, whilst at the same timeensuring appropriate and proportionate oversight across the businesses performing poorly
against Lloyd’s financial and non-financial expectations.
Oversight Objectives

1. Lloyd’s oversightsupports the delivery of
the Lloyd’s strategy

2. Lloyd’s oversight isaligned with the Risk
Appetite set by theCouncil

3. Lloyd’s oversight instils
confidence in regulatorsand rating agencies

4. Lloyd’s oversightcreates the conditions
for good business tothrive5. Lloyd’s oversight isdecisive and impactful
for substandard
managing agents

6. Lloyd’s places primary
responsibility foroversight on managing
agents’ boards andmanagement

7. Lloyd’s oversight is riskbased and proportionate

8. Lloyd’s oversight isholistic and joined up

9. Lloyd’s oversight isobjective and data
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Lloyd’s Oversight Framework
The Lloyd’s Oversight Framework has three interlinking elements that work together tosupport differentiated and impactful oversight:
1.

The Principles for doing business at Lloyd's

2.

Syndicate Categorisation

3.

Interventions and Incentives

The Principles
The Principles articulate the fundamental responsibilities expected of all managing agents inorder to support the market’s overall performance, capital strength, financial and reputational
credibility. The suite of 13 Principles are outcomes based and allow for more differentiationaccording to syndicate materiality. These are the basis against which we view andcategorise all syndicates and managing agents in terms of both their capability andperformance.
Syndicate Categorisation
We operate one consistent approach to syndicate and agent categorisation based on
assessment against the Principles, both on a qualitative and quantitative basis, across the 13
Principles. Under the framework, there are five syndicate categories:
OUTPERFORMING

MODERATEGOOD

UNDERPERFORMINGUNACCEPTABLE

Whilst all Principles contribute to the syndicate and agent category, the overall category will
only ever be as high as the lowest of the four fundamental Principles of 01. UNDERWRITINGPROFITABILITY, 06. RESERVING, 10. GOVERNANCE, RISK MANAGEMENT AND
REPORTING and 13. CULTURE.
Interventions and Incentives
Oversight and the application of interventions are directly informed by a syndicate’s
categorisation. For businesses on the lower end of the scale, a range of interventions can beapplied to remediate and ensure they return to expected financial and non-financial
performance. For those businesses at the top end of the scale, there will continue to be arange of incentives to support growth and development to help those businesses thrive,
including a differentiated business plan approach and proactive support of new syndicates/
SPAs/ Syndicates in a Box.
Clear syndicate categories driven by Lloyd's view of performanceagainst Principles and a syndicate’s materiality

Syndicatecategorisation

High-level Principles,
across 13 dimensions,
supported by guidance,that allows Lloyd’s todifferentiate from noncompliance through to bestpractice

Principles

Oversight andInterventions

Development
Opportunities

An escalating scale of interventions
that are linked to Principles andoverall syndicate categorisation
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Growth anddevelopment
opportunities for thebest run businesses

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The Principles
The Principles are at the heart of our Oversight Framework and set out the fundamental
responsibilities expected of all managing agents. The Principles provide a clear andconsistent articulation of the outcomes expected and also recognise that different syndicatesand managing agents will deliver against the Principles in many different ways.
The suite of 13 Principles is supported by guidance in the form of a Maturity Matrix.

Principle

A brief statement setting out the fundamental
expectation expected of all managing agents andarticulated at the highest level

Sub-Principles

A number of statements setting out the key areas
supporting the Principle

Maturity Matrix& GuidanceTechnical level guidance setting out indicators andexamples of different ways that the Principles and
Sub-Principles could be met across a spectrum
ranging from the lowest to the highest materiality.
The guidance is expressed in terms of outcomes,
capabilities and processes but is not prescriptive

Applicable regulation and requirements
Adherence to regulation and other relevant requirements by managing agents is assumed to
be in place, and the Principles do not replicate local and international regulation, or
guidance and requirements from relevant professional bodies. Where appropriate somespecific regulation is referred to within the Principles, for example Solvency II.
Application of proportionality
Whilst the guidance contained within the Maturity Matrices sets out indicators and examples
of different ways that the Principles and Sub-Principles could be met, the concept of
proportionality always applies and should be considered when forming an assessment
against the Principles.

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Classification: ConfidentialUnderstanding the Maturity Matrix
Across the large number of syndicates and managing agents in the market, we recognisethat there will be many different ways to deliver against the Principles and the maindifferentiator is materiality: the more material a syndicate is to a particular Principle, the moresophisticated we would expect the syndicate’s capabilities to be to meet that Principle. The
measures that determine materiality vary by dimension. These different levels of
sophistication are described as a Maturity Matrix, from FOUNDATIONAL level applying to theleast material syndicates through to ADVANCED level applying to the most material.
FOUNDATIONAL level is calibrated to be the baseline which all syndicates are expected to
be able to meet. In accordance with the Principles based regime it is outcomes focused anddoes not prescribe a required approach.
The content of the Maturity Matrices should be read from left to right, as the guidance at one
level can be understood as the starting point for the next. An example of this is shown below:

Sub Principle

Guidance

While the Maturity Matrices for each of the Principles and Sub-Principles set out examples
and indicators relevant to each technical area, these are not exhaustive and there are also
some generic guidelines that are useful to describe the different maturity levels fromFOUNDATIONAL through to ADVANCED.
FOUNDATIONAL(Low materiality)

INTERMEDIATE(Moderate materiality)

Syndicate with
Syndicate withfoundational capabilities. intermediate
capabilities.
Core competencies andprocesses in place toConsistent with goodeffectively manage
market practicelower materiality riskobserved at Lloyd’s,
exposure
demonstrating
comprehensive, wellembedded processes toeffectively manage
moderate materiality risk
exposure

ESTABLISHED(High materiality)

ADVANCED(Highest materiality)

Syndicate withestablished capabilities.

Syndicate withadvanced capabilities.

Consistent with strong
practice observed at
Lloyd’s and globally,
demonstrating
sophisticated processes
and strong capabilities
to effectively manage
high materiality risk
exposure

Consistent with Lloyd’s
and global best practice,
showing leadership on
emerging techniques,and proactively
supporting Lloyd’s inimproving standards
across the market

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There are some Principles and Sub-Principles where the guidance does not differentiate.
This is because for some cases we do not consider that there would be tangible and visible
differences in approach from the least to the most material syndicates. Where this is thecase, the guidance would apply to all syndicates regardless of their materiality and would be
expressed in the Maturity Matrix at only the Foundational level.
Similarly, there are some cases where there may be differences in approach across only twoor three maturity levels, and in these cases the guidance reflects this by setting out less thanfour levels of maturity.
Where we believe that there is no differentiation between different maturity levels the Maturity
Matrix specifies “No guidance at [Foundational/Intermediate/Established/Advanced]”.
Examples of this are shown below:

Guidance applies to all
syndicates, regardless ofmateriality

Guidance does notdifferentiate across all fourlevels of materiality

Over time, we expect the content of the Maturity Matrices to flex and evolve, whether in
response to changes in market practices, new and emerging initiatives, or as we gain
deeper insights into newer areas of oversight.

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Forming an assessment against the Principles
Operating under an outcomes-based approach requires a specific mindset to be adopted.
Ticking off a list of prescriptive requirements takes a “bottom up” approach and canpotentially result in the misleading conclusion that as long as all the underlying requirements
are met, then the overall intention must also be met. However, this is often not the case. An
assessment conducted under an outcomes-based approach takes an entirely different
approach, requiring a “top down” view to be formed and a larger degree of judgement needs
to be applied. This requires teams to draw on their expertise in identifying important
oversight considerations, considering the relative importance of these considerations, andgaining comfort with their assessment by considering a range of inputs.
Principles focus on the outcome, rather than the requirements and it is against this outcomethat an assessment should be made. This requires a specific type of questioning anddiscussion to be had in forming an assessment. Boards and senior management will need toengage with the Principles and the outcomes that they set out to achieve at the highest
level, and not regard them as activities that can be delegated to compliance.
Examples of the difference in forming an assessment under a rules-based approach, to a
Principles based approach are shown below:
Rules based approach “Bottom up”

Outcomes based approach “Top down”▪ Have we checked all the requirements?

▪ How successful have we been in achieving
the outcome?

▪ Do we have the required processes/
policies/ procedures in place?
▪ Have we checked the performance of ourcontrols through a control assessment?
▪ Have we done an audit of our controls?
▪ Do we have the required documentation?

▪ Are there times when we have not beensuccessful? What should/ could we havedone differently?
▪ How are we satisfied that we are achieving
the outcome in a way that’s appropriate toour business?
▪ Do we know what our peers are doing?
▪ What can we conclude about the results ofsecond and third line independent reviews?
▪ What performance data do we have tosupport our assessment?
▪ Based on our assessment what actions do
we need to take?

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Additional notes on updates to the Principles and Maturity Matrices
July 2024 update
CultureCulture was embedded in Lloyd’s oversight framework in 2022. A Culture Principle wasdefined which set Foundational expectations for managing agents that covered the basics ofan effective, healthy, diverse and inclusive culture.
As the market has improved, we are evolving our expectations to move the market forward,
creating more ambition on culture for agents to aim towards. This is in line with Lloyd’s
Culture Strategy, to transform the culture across the market by embedding inclusive practices
that enable high performance and to be a destination of choice for talent.
We have defined new maturity levels against the Culture sub-principles, introducing
Intermediate, Established and Advanced maturity where appropriate, as well as reviewing
and extending the guidance within Foundational. The new maturity levels incorporate bestpractice and are informed by our understanding of current practice gained from our oversightof the market. We have also incorporated viewpoints from consultation via the LMA andsought to align with emerging PRA and FCA D&I regulation.
Materiality / Expected Maturity will be based on workforce size, recognising there aredifferences in resource, capacity and levers between small and large firms and that more
controls are required to manage some cultural risks in larger organisations.
There will be a phased approach to implementation. Managing agents will be asked to attest
against the new maturity levels in March 2025 (as part of the Principles Board Attestation),
and where the expected maturity level is not met at this point, there will be a transition periodwith action to reach expected maturity by March 2026. Culture assessments against the new
maturity levels would not impact Syndicate Categories until 2026 (unless Below
Foundational).
Further detail is available on the the Culture Principle page on Lloyds.com, including arecording of Lloyd’s briefing calls on this subject.

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Additional notes on updates to the Principles and Maturity Matrices
December 2023 updates (included in previous update)
Operational Resilience
With the 2025 regulatory deadline for Operational Resilience approaching, we have evolved
the approach to oversight of the market for the Operational Resilience Principle with theintroduction of four levels of expected maturity and revised sub-principle wording andguidance. In March 2024, managing agents are required to attest to their new expectedmaturity level in the Principles Board Attestation.
We recognise that managing agents will need time to reflect on how the changes affect theirbusiness. As such, there will be no immediate impact to managing agents’ syndicate
categories for not meeting expected maturity in March 2024. Consequently, syndicate
categories confirmed through 2024 oversight letters will not change as a result of not meeting
expectations for Operational Resilience. However, those not meeting expectations by
October 2024 may see an impact to their syndicate category in the 2025 oversight letter.

Catastrophe Exposure (Nat Cat and Non-Nat Cat)The structure of the Catastrophe Exposure Principle has been revised to align the information
required from managing agents directly with Lloyd’s review approach. For 2024, we have
converted the 10 previous “components” of the 5 sub-principles into a new set of 10 subprinciples (applies equally to Nat Cat and Non-Nat Cat). The sub-principle wordings havebeen revised for clarity but there is no change to the Principle wording or underlying
guidance.

Legacy Reinsurance – Underwriting Profitability (applies to RITC syndicates only)
As part of Lloyd's wider oversight enhancements for the legacy reinsurance market, we haveintroduced an adapted Legacy Reinsurance Underwriting Profitability Principle. This will
enable us to assess capability across strategy, pricing, ongoing performance including
expense management, and governance. We communicated this change to relevant
syndicates in market workshops during 2023. RITC syndicates should attest to this Principle
in March 2024 as part of the Principles Board Attestation.

Sustainability - Underwriting Profitability
We have reviewed the wording we use in sub-principle 8 of the Underwriting Profitability
Principle. To reduce ambiguity, we have amended references to ESG to either “sustainability”
or more specifically to “environmental and social risks”. This is to align with our recently
published Insuring the transition roadmap consultation.

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Principles

OPERATIONALSOLVENCYPERFORMANCE

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
DIMENSION

PRINCIPLE

1. Underwriting
Profitability

Managing agents should produce and execute syndicate business plans which are
logical, realistic and achievable, and ensure the delivery of a sustainable profit
including expense management.​

1. Legacy Reinsurance
Underwriting Profitability(RITC syndicates only)

Managing agents should ensure their strategy for underwriting legacy reinsurance
transactions is clear and that pricing assumptions are sufficiently robust, to ensure
the sustainable run-off of acquired liabilities.

2. Catastrophe ExposureManaging agents should ensure syndicates maintain appropriate control ofcatastrophe risk (from natural and non-natural perils) in line with their wider
business strategy. Catastrophe risk management and modelling practices mustcomply with Solvency II requirements.

3. Outwards
ReinsuranceManaging agents should define and execute syndicate outwards reinsurance
strategy and purchasing plans which effectively support the wider syndicate
business strategy and objectives.

4. Claims Management

Managing agents should ensure that they have a claims commitment in place
which is designed to deliver a high-quality claims service which includes a promptand fair customer service, efficient and effective claims handling, and compliancewith legal and regulatory obligations.

5. Customer OutcomesManaging agents should embed a culture and associated behaviours throughout
their business to ensure that they consistently focus on good customer outcomes
and that products provide fair value.

6. Reserving

Managing agents should ensure syndicates set reserves which are underpinned bya robust reserving process. All Actuarial Function requirements should be met inline with Solvency II.

7. CapitalManaging agents should ensure syndicates' Solvency Capital Requirement (SCR)
appropriately reflects their risk profile and is calculated using a Solvency II
compliant internal model.

8. Investments

Managing agents should ensure syndicate investment risk is effectively controlled,
informed by wider business strategy and adheres to the Prudent Person Principle(PPP) requirements​.​

9. Liquidity

Managing agents should ensure syndicates have contractual access to sufficientliquidity in order to withstand a severe liquidity event (defined by Lloyd’s),underpinned by a robust liquidity risk management framework​. ​10. Governance, Risk
Management andReportingManaging agents should have governance structures and internal risk
management and control frameworks in place which align to Solvency IIrequirements, enable sound and prudent management of the business and supportdelivery of the business strategy​.

11. Regulatory
and Financial Crime

Managing agents should have robust frameworks in place to assess and address
regulatory and financial crime risks arising from their UK andinternational businesses. Frameworks should support compliance with law,regulation and guidance, and allow for well informed, transparent relationships with
Lloyd’s and applicable regulators.

12. Operational
resilience

Managing agents should maintain robust and resilient operations, embedding cyber
resilience and effective third-party risk management​.

13. Culture

Managing agents should be diverse and create an inclusive and high-performance
culture.

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PERFORMANCE

Principle 1: Underwriting Profitability

Principle
Managing agents should produce and execute syndicate business plans which are
logical, realistic and achievable and ensure the delivery of a sustainable profit, including
expense management.
To support this, managing agents should ensure their syndicates:​1

Have a clear and robust medium to long term business strategy with clearly definedand understood underwriting risk appetite

2

Develop and execute annual business plans which align with their business strategy

3

Have underwriting controls, monitoring and reporting in place which are appropriate totheir risk profile in order to deliver the agreed business plan

4

Manage and control expenses in order to ensure they are appropriate for the businesswritten5

Have robust portfolio management in place in order to deliver the agreed
business plan

6

Have an effective pricing framework in place in order to evaluate sustainable technicalprice, rate adequacy and deliver sustainable profit

7

Have robust governance processes in place to support underwriting decision making,with underwriting assumptions clearly articulated and understood by stakeholders
supported by proactive involvement and sufficient challenge by the wider functions

8

Have processes in place to support decision making in relation to integrating sustainability
into underwriting
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PERFORMANCE

Principle 1: Legacy Reinsurance Underwriting
Profitability (RITC syndicates only)

Principle
Managing agents should ensure their strategy for underwriting legacy reinsurance
transactions is clear and that pricing assumptions are sufficiently robust, to ensure thesustainable run-off of acquired liabilities.
To support this, managing agents should ensure their syndicates:​1

Have a clear and robust medium to long term business strategy with clearly definedand understood underwriting risk appetite, giving consideration to existing legacy
reinsurance transactions on the balance sheet

2

Develop and execute legacy business plans which align with their business strategy

3

Not applicable

4Manage and control expenses in order to ensure they are appropriate for the businesswritten5

Not applicable

6

Have an effective pricing framework in place in order to set sustainable pricing for legacytransactions that will ensure the discharge of assumed liabilities within the assets
received with, and generated by, the assumed portfolio

7

Have robust governance processes in place to support legacy underwriting decision
making, with underwriting assumptions clearly articulated and understood by stakeholders
supported by proactive involvement and sufficient challenge by the wider functions

8

Not applicable
Sub-principle numbering follows the Underwriting Profitability Principle

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PERFORMANCE

Principle 2: Catastrophe Exposure

Principles

Managing agents should ensure syndicates maintain appropriate controlof catastrophe risk (from natural and non-natural perils) in line with business strategy.
Catastrophe risk management and modelling practices must comply with Solvency IIrequirements.
To support this, managing agents should ensure their syndicates:​

1

Manage catastrophe exposure in line with their agreed risk appetites and tolerances

2

Employ appropriate tools to support effective and efficient exposure data capture,
management and use

3

Adopt a robust risk-based framework for exposure quantification and monitoring, tosupport downstream decision making

4

Have the teams and expertise in place to meet the business needs, including strategic
projects, regular deliverables and research and development

5

Define and maintain an appropriate cat view of risk methodology

6

Implement appropriate risk-based validation of the cat view of risk

7

Maintain a materially complete representation of cat in the syndicate view of risk

8

Adopt a robust risk-based framework for managing changes to cat view of risk andexposure management methodologies

9

Maintain consistent understanding, use and continual development of cat view of risk
outputs

10

Have robust governance and oversight of risk aggregations
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PERFORMANCE

Principle 3: Outwards Reinsurance

Principle
Managing agents should define and execute syndicate outwards reinsurance strategy andpurchasing plans which effectively support the wider syndicate business strategy andobjectives.
To support this, managing agents should ensure their syndicates:​1

Have outwards reinsurance strategies and purchasing plans which are robust and reflect
the underwriting, exposure and capital management appetites of each individual
syndicate, and the best interests of the members of the syndicate​2

Have appropriate systems, controls, procedures and expertise toenable the effective management of outwards reinsurance purchasing and recoveries​

3

Identify, monitor, evaluate and mitigate live and potential financial, operational,
counterparty, contract and liquidity risks arising from their outwards reinsurance
arrangements​

4

Have robust and effective monitoring, reporting and governance frameworks employedover their outwards reinsurance arrangements

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PERFORMANCE

Principle 4: Claims Management

Principle
Managing agents should ensure that they have a claims commitment in place designed todeliver a high-quality claims service which includes a prompt and fair customer service,efficient and effective claims handling, and compliance with legal and regulatory obligations.
To support this, managing agents should ensure:​

1

Claims related information and knowledge is available and used pre-emptively inbusiness planning and wider syndicate performance management

2

The claims environment and infrastructure enables effective servicing at an appropriate
level of sophistication, through the retention of adequately and suitably skilled resource,
underpinned by a strong claims culture and continuous education

3

Claims are handled efficiently and effectively, ensuring active claims and lifecycle
management remains appropriate combined with a framework designed to facilitatecontinuous improvement

4

Delivery of accurate and timely case reserving through robust reserving processes andpractices5

Claims management through third-party service providers and third-party experts delivers
the claims commitment and supports syndicate performance

6

Claims performance, customer experience and opportunities for improvement are
regularly assessed using both data and qualitative assessment

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PERFORMANCE

Principle 5: Customer OutcomesPrinciple
Managing agents should embed a culture and associated behaviours throughout theirbusiness to ensure that they consistently focus on good customer outcomes and that
products provide fair value.
To support this, managing agents should:​

1

Ensure the conduct culture set by the board promotes good customer outcomesthroughout the product lifecycle and supports the protection of Lloyd's brand, reputation
and regulatory standing worldwide

2

Design and oversee products through suitable governance structures that meet the
expectations of the target market

3

Ensure there are no barriers to easily accessing clear and fair sales and post sales
services

4

Deliver fair and prompt claims and complaints handling services in line with a clear
servicing commitment

5

Engage, manage and oversee third-party service providers in accordance with theoutsourcing strategy and the standard of service set by the managing agent

6

Ensure regular and robust oversight of customer outcomes is achieved, using data andqualitative assessment

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PERFORMANCE

Principle 6: Reserving

Principle

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.
To support this, managing agents should ensure their syndicates:​1

Have clear governance and ownership of the reserves

2

Make appropriate allowance for uncertainties when setting reserves

3

Use assumptions to set reserves which are realistic, transparent and consider historicalexperience

4

Identify, understand and justify any differences in assumptions between reserving andother functions

5

Periodically and objectively challenge the reserving processes and assumptions

6

Set best estimate reserves in line with Solvency II principles, with any allowance for UK
GAAP margins set explicitly in addition

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SOLVENCY

Principle 7: Capital

Principle
Managing agents should ensure syndicates Solvency Capital Requirement (SCR)
appropriately reflects their risk profile and is calculated using a SII compliant internal model.
To support this, managing agents should ensure their syndicates:​

1

Maintain an internal model which captures all material risks that the syndicate is
exposed to​2​Use modelling assumptions which are realistic and justifiable, methodology which isadequate, and all material limitations are understood3

Have strong feedback loops joining the business and the model​

4​Demonstrate robust governance and understanding of the model. This includes adequate
understanding and challenge at senior management level.​​5

Implement changes to the model which are reasonable and justified and their impact on
the SCR adequately explained​​6

Conduct objective challenge of the internal model through independent validation

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SOLVENCY

Principle 8: Investments

Principle

Managing agents should ensure syndicate investment risk is effectively controlled, informed
by wider business strategy and adheres to the Prudent Person Principle (PPP) requirements​.​
To support this, managing agents should ensure their syndicates:​1

Have a clear articulation of investment objectives and risk appetites, with rationale having
regard to high level business or solvency strategy ​2

Have clear investment parameters and guidelines with robust processes to monitor andreport positioning against limits ​3

Integrate investment stress testing into investment management ​4

Ensure investment performance and risk, including that of outsourced arrangements, areeffectively overseen through monitoring and reporting ​5

Develop and embed a Responsible Investment Policy

6

Have Asset-Liability Modelling (ALM) capabilities consistent with Use Test Principles

7

Have robust investment governance​

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SOLVENCY

Principle 9: Liquidity

Principle

Managing agents should ensure syndicates have contractual access to sufficient liquidity inorder to withstand a severe liquidity event (defined by Lloyd’s), underpinned by a robust
liquidity risk management framework.
To support this, managing agents should ensure their syndicates:​

1

Identify and assess their key sources of liquidity risk​ and have appropriate monitoring andreporting in place2

Conduct and consider the outcomes of stress tests, including Lloyd’s defined stress test
and syndicates’ own 1:200 stress test​​

3

Have clearly defined liquidity risk appetites​​

4

Conduct regular assessment of liquidity buffers above expected cashflow projections

5

Have thorough liquidity contingency plans in place including articulation of whatmanagement actions and steps are open to alleviate liquidity strain

6

Have robust governance over liquidity risk

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OPERATIONAL

Principle 10: Governance, Risk
Management and Reporting

Principle
Managing agents should have governance structures and internal risk management andcontrol frameworks in place which align to Solvency II requirements, enable sound andprudent management of the business and support delivery of the business strategy.
To support this, managing agents should:​

1

Manage a suitable board and committee structure which enables well informed, timely andaccountable decision making

2

Operate a strong risk and control environment which allows for appropriate challenge

3

Maintain appropriate oversight of operational processes for effective management of thebusiness

4

Employ and develop people with appropriate skillsets and ensure thebusiness is appropriately resourced​

5

Ensure decision making is supported by appropriate data and qualitative assessment

6

Maintain reporting, including all financial reporting, of a high quality and submit all reports
in a timely, accurate and complete manner to Lloyd’s and to applicable regulators.
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OPERATIONAL

Principle 11: Regulatory and Financial
Crime

Principle
Managing agents should have robust frameworks in place to assess and address regulatory
and financial crime risks arising from their UK and international businesses. Frameworks
should support compliance with law, regulation and guidance, and allow for well informed,
transparent relationships with Lloyd’s and applicable regulators.
To support this, managing agents should:​

1

Embed a culture of transparency, regulatory and financial crime compliance, and anunderstanding of the benefits of this across their managed businesses

2

Have a robust understanding of their regulatory and financial crime risk exposure andappetite, which is subject to appropriate challenge

3

Have appropriate systems and controls, including training, in place to manage regulatory
responsibilities and financial crime risk

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OPERATIONAL

Principle 12: Operational Resilience

Principle
Managing agents should maintain robust and resilient operations, embedding cyber
resilience and effective third-party risk management.
To support this, managing agents should:​1

Operate a robust operational resilience framework2

Maintain oversight of operational resilience through appropriate governance processes
and risk and control environments​

3

Maintain appropriate cyber resilience

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OPERATIONAL

Principle 13: Culture

Principle
Managing agents should be diverse and create an inclusive and high-performance culture.
In order to support this, managing agents should:​

1

Demonstrate leadership focus on fostering an inclusive and high-performance culture at
all levels

2

Foster inclusive behaviour, with zero tolerance for inappropriate behaviour

3​Foster psychological safety to encourage speaking up, access diverse perspectives andfocus on continuous improvement

4

Ensure diverse representation within their workforce and leadership levels, reflecting
society. Be inclusive in hiring and retention and contribute to the market being adestination of choice for talent

5

Understand their employee population, use data and insights to inform action to create an
inclusive employee experience
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1.
Underwriting
ProfitabilityPrinciple 1: Underwriting Profitability
Managing agents should produce and execute syndicate business plans which are logical, realistic
and achievable, and ensure the delivery of a sustainable profit including expense management.​

UNDERWRITING PROFITABILITY
Have a clear and robust medium to long term business strategy with clearly defined and

1 understood risk appetite.

StrategyFoundational•

Risk Appetite

•

•

•

•

•

Intermediate

Established

Advanced

Underwriting strategy •is set collaboratively
with engagement andfeedback loops
between the relevant
stakeholders.
Underwriting strategy
articulates, at class ofbusiness level,
appetite for:i. Lead vs follow
businessii. Open market vsDelegated
Authorityiii. Line size
deployment

Underwriting strategy •identifies key
elements such as
sub-class, industry
sector, geography,
distribution channel /placement strategy.

Underwriting strategy •outlines a forwardlooking plan
concerning the key
target contracts to be
won / renewed.
•

Regular horizon
scanning towards
emerging risks is
considered andreflected within the
Underwriting strategy.
Underwriting strategy
is forward looking
allowing agile
management acrossthe underwriting
cycle.

•

Underwriting risk•
appetite is aligned to
strategic thinking, withlinkage to operating
limits.
Underwriting staff
understand how risk•
appetite influences
their everyday
underwriting
decisions.
Controls and breachescalation are•
defined, including
accountabilities for
operating within
appetite.
Performanceassessment for senior
management
considers adherence
to risk appetite.

Underwriting•
appetites are coded
into underwriting
systems forautomated controls
and monitoring.
Training in place for•underwriting staff on
the significance of therisk appetite
framework for runningthe business.
•
Performanceassessment for senior
management, andunderwriting staff,
considers adherence
to risk appetite.

There is real time
monitoring ofunderwriting risk
appetite / exposure
with breaches
escalated immediately.
Managing agent isleading the way inresponding to market
level and regulatory
concerns;
Reward andremuneration metrics
are consistently linked
to underwriting risk
appetite at all levels.

The board has
defined underwriting
risk appetitestatements. These
are linked to andcontained within the
syndicate business
plan.
Underwriting risk
appetite statements
are articulated at
portfolio level andcascaded to eachclass of business.
They are defined on agross and net basis.
Risk appetitestatements reflectmarket level feedback
from Lloyd’s andregulatory concerns.
Underwriting staff
understand theconcepts of risk
appetite and how it
links to strategy.

•

•

•

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2 Develop and execute annual business plans which align with their business strategy.

Business PlanningFoundational
•

•

•

•

•

KPI monitoring

•

•

•

Intermediate

Established

Business plan aligns •to the syndicate’s
medium to long term
underwriting strategy
and risk appetite.
Board has
responsibility for•developing,challenging, andapproving the annual
business plan.
Business planning
process engages, andallows for challenge
from, all key
stakeholders .
Business plan
includes assessmentof both prior year
performance andcurrent prevailingmarket conditions.
Assumptions and key
risks in the businessplan are clearly
articulated andunderstood by all Key
stakeholders.

Consideration is•clearly evident ofdefining optimum
business mix aligned
to the agreed
strategy.
•
There is an annual
review of the
syndicate businessplanning process withfeedback andrecommendations
made to the board.

•

Extensive suite of•
KPIs used to review
progress against
business plan coverage at an aggre
gated and individual
risk level.
Granularity allows forreview of KPIs at•
different time interval(e.g. month-to-date or
year-to-date).
Monitoring allows for
identification of both
positive and adverse
variation to plan.
Regular review ofbusiness plan and
KPIs incorporates
latest analysis fromother functions andpromotes consistency

Syndicate businessplan is kept underreview, with KPIs
monitored andreported to the board
at an appropriate
frequency
KPIs align to themetrics required in
the returns to Lloyd’s
and are supported bynarrative which
validates
performance against
KPIs .
Timely actions aretaken to address
variances to businessplan, and root cause
analysis conducted to
fully understandunderlying drivers.

•

•

•

•

•

Business planningand review process
considers output fromstress and scenario
testing.
Underwriters bring
their understanding of
renewal book andtarget market
contracts andcompetitor initiatives
to help formulate
Logical, Realistic andAchievable businessplans.
Data direct frompricing models
is used to derive
realistic andachievable targets inthe business plansuch as the level of
new business, mix ofbusiness and ratechange.

Advanced•

Underwriting
proactively develops a
strategic businessplan concerning:• Key contracts tobe won / renewed• Distribution
strategies• Competitors• Brokers• Relationships..with clear linkage to thelonger-term strategicview.
• The planning
framework involves
challenge tounderwriters and to
management toremove biases andensure the businessplan is on a best
estimate basis.

Suite of KPIs•
includes underwriting
operational KPIs
to monitor completionof qualitative checks
and controls, e.g. PreBind Quality
Assurance (PBQA).
Suite of KPIs are
kept under review
to consider if
any changes are
required to themetrics themselves or
any additions toensure early detectionof issues.

Thematic findings
are drawn out
from underwriting
operational
KPI monitoring,with training in place
to address gaps.

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Have underwriting controls, monitoring and reporting in place which are appropriate to their risk

3 profile in order to deliver the agreed business plan.

Underwriting authority

Foundational
•

•

•

•

•

•

•

•

Underwriting systems •and controls include a
range of prevention
and detection
controls.
The systems andcontrols framework is •aligned to syndicate
business plan.
Underwriting
authorities are inplace, properly•
authorised, signed
and subject to annual
review.
Underwriting
authorities are directly
linked to experience,
knowledge andexpertise of theindividual.
Underwriting authority
and escalation
procedures are clear
and consistent,
including the effective
period of the licence
Breaches against
underwriting
authorities are
escalated andreported upwards, aswell as toCompliance.
Underwriters have theappropriate
experience andcapabilities to writeand manage policies
profitably in line withbusiness plan.
Deviation fromtechnical price iscontrolled via
underwriting authority
or escalated in linewith procedures.

Intermediate
Capacity deployment
rules clearly
articulated andregularly reported todemonstratecompliance.
Underwriters analyseand record thedifference between
technical price andmarket price.
Process andcontrols in place forapproval of any
delegated authority.
Approved persons
with power
to delegate must
be recorded
within underwriting authorities.

Established••

Authority matrices are •in place. They aretracked and controlled
within limits.
Deviations arerobustly monitored•
and governed. Key
licence holders are
identified, recorded
and reviewed
regularly.
There is regular
technical training tounderwriters fromdifferent departments
e.g. wordings, claims,
reserving, catmodelling teams, etc. •Advanced
Automated tracking
and reporting against
underwriting limits,aggregate exposuresand pricing adequacy.
A process is in place
to regularly monitor
underwriter
capabilities andperformance that
directly feeds into
regular review andupdate of authority
levels. Documented
outcomes are used to
evolve authority
framework.
There is monitoring of
the underwriterjudgement where
adjustments are madeto claims and nonclaims cost pricing.
Oversight in place toidentify, challenge
and mitigate biases.

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Have underwriting controls, monitoring and reporting in place which are appropriate to their risk

3 profile in order to deliver the agreed business plan.

Pre-and Post-bind analysis

Foundational•••

Where leading, prebind contract reviews,
on a risk-based
approach, areconducted on allcontracts (risks or
portfolios) withsuitable amendment
controls in place
For follow business –a suitable rangeof pre-bind analysis
and controls are
utilised and recorded.
Up to date user
guides for all models
are available for all
stakeholders andthese are suitably
refreshed.

Intermediate
•

•

•

•

Established

Detailed pre-bind•
analysis is conducted
and recordedwith structured
rationale for all leadbusiness.
Pre-bind usage
statistics form part of •regular MI andmonitored throughgovernance.
There is regulartraining forunderwriters on
operating models,
applying judgement,
and identifying areas
for improvement.
•
Specialist wordings /legal personnel areengaged for
production of productor contract wordings
with suitableamendment controls.
••

Operation of•comprehensive prebind modelling acrossall underwriting
teams. Exceptions arelimited in nature andclearly justified.
There is analysis ofpre-bind trends in new
and renewedbusiness. This isgranular enough topick up relationshiptrends between
particular•underwriters andbrokers.
The analysis
performed pre-bindincludes verifying thatpredicted gross loss
ratio, net ofreinsurance positions,
exposures, andcapital positions are
consistent with risk
appetite.
Underwriters consider
and document the
impact of changes topolicy terms andconditions. Thisshould include
expected claims cost,associated risk andquoted premium
impacts.
Consideration given
to financial security ofprospective clients or
new binder
authorities.

Advanced
Underwriters haveclear pre-quotepositions on key
contracts both forrenewal and new
business books. This
includes a clear
understanding of
economic, minimum
and appropriate rates
well in advance of
associated renewal
date when using quick
quote models.
Clear evidence of
training, development
and horizon scanningof future risks bysenior underwriters.

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Have underwriting controls, monitoring and reporting in place which are appropriate to their risk

3 profile in order to deliver the agreed business plan.

Delegated Underwriting Authority (DUA) Business

Foundational

Intermediate

Established

Advanced

The expectations below relate to all business written where there is delegation to a third-party andshould be proportionate to the amount of DA business written by the syndicate:
•
•
•
•
•
•
•
•
•
•
•
•

Third parties are able to provide relevant, timely and sufficient information.
DUA reporting information is provided at a frequency that allows for effective challenge ofbusiness written.
Level of information provided is at a level of granularity which aligns with that used by the syndicate.
Validation of information provided with sample checking undertaken by underwriters.
Robust segmental performance analysis is conducted to assess binder against expectations.
When leading, strong feedback loops with training provided back to Delegated Authorities toimprove data quality.
Business written on syndicates’ behalf aligns with risk appetite and approved business plan.
When leading, proactive engagement with coverholder / brokers to ensure performance issues
are addressed quickly and underwriting philosophies remain aligned.
When leading, regular and detailed reviews of coverholder underwriting guidelines, wordings,
models and controls are conducted with timely action taken where required.
Referral processes are in place for any potential breaches of delegated authority rules.
Steps are taken to identify and address conflicts of interests.
Binding Authority Agreement should include sufficient underwriting controls andreferral requirements and be subject to annual review.

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Have underwriting controls, monitoring and reporting in place which are appropriate to their risk

3 profile in order to deliver the agreed business plan.

ReportingFoundational
•

•

•

•

Provision of•robust andrelevant management
information to
the board and senior
management, withuncertainties andlimitations clearly
explained in relation
to the intended
audience.
Granularity of internalreports andsupporting analysis
relates to wholeaccount andsyndicate class ofbusiness.
Regular exception
reporting identifies
potential variances orcontrol failures,
including risk
appetites, and these
are investigated,
reported andescalated.
External reporting is
an extension ofinternal reporting. It is
well-governed andreviewed by multiple
levels ofmanagement.

Intermediate
Regular internal•reporting to a greaterlevel of granularity(e.g. including perilregion), consistent
with risk appetite
framework andconsidering suitability
to audience.

EstablishedNo guidance at
Established.

© Lloyd’s 2023

Advanced••

Automated internalreporting andnotification to
management.
The output isinformative, wellthought out andinteractive. There is arange of regular andad-hoc reporting tools
as well as
visualisation
capabilities,
dashboards andscorecards thatleverage dataconsistently acrossthe enterprise.

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4 Manage and control expenses in order to ensure they are appropriate for the business written.
Foundational
•

•

•

•

•

•

•

Medium to Long-term •Strategy in place tocontrol overall Net
Operating Expense(Net OPEX).
Clear strategy within
the annual businessplan for both
Acquisition and
Administration
expense management
which ensures Net•
OPEX is in line with
Lloyd’s Market
Message
expectations.
Internal expense
policy in place withappropriate
thresholds and•referral points, e.g.
around travel andentertainment.
Recognition of how
both Gross and Net
Operational Expenses(Acquisition &Administration)•
impacts P&L.
Granularity of•analysis evident down
to individual
Syndicate Class ofBusiness level.
Quarterly data and MI
in place to track
position against
expected and actions
taken to remediate
where required.
Administration
Expenses areproportionate and areforecast in line withplanned underwriting
strategy / business tobe written.

Intermediate
Clear strategy for Net •OPEX which reflects
the fixed cost vsvariable and link to
GWP growth. To
include cost saving
initiatives withinreasonableassociatedtimeframes, whereappropriate.
•
All aspects of OPEX
(including
dependencies on nonUW functions) are
understood andconsidered as part ofsyndicate’s
underwriting strategy.
Ability to identify andvalidate any one-off
investment costs
which might impact
the short-term P&L
and demonstrate how
P&L will benefit in
mid-term.
Net OPEX identifiable
down to SCOB Level.
Monthly data and MI
in place to track
position against
expected and actions
taken to remediate
where required.

Established
Forward looking
identification ofpotential expenses
necessary to support
strategic decision
making. Proactive
action taken to
manage expenses
over medium tolonger term.
Ability to flex
underwriting strategy
in year to reflect any
changes driven by
adverse Net OPEX
performance, e.g.
higher than planned
ORI cost, Open
Market vs Binder
growth not to plan.

Advanced•••

Clear strategy for
identifying optimal
time to invest, e.g.
staff / systems.
‘What if’ analysis
which demonstrates
the ability tounderstand trends on
Net OPEX &subsequent impacts
on P&L. This should
be at both syndicate
and market level.
Real time tracking inplace to assess
position of OPEX
against expected withproactive measures
adopted to address.

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4 Manage and control expenses in order to ensure they are appropriate for the business written.
Foundational
•

•

•

•

•

•

Clear itemised•
breakdown of Admini
stration Expenses,
both Fixed andVariable expenses.
Clear identification of
any Managing Agent
Profit Commission
elements within the
Administration
expense costs.
Acquisition Costs areproportionate to thebusiness written andPlacement Methodwith a clearly
documented strategy
for the remunerationof brokers, third
parties, coverholders
and overseas levies
though acquisition
costs.
When delegating tothird parties, costs
charged are assessed
as being
commensurate withthe work transferred
and/or the services
delivered.
Demonstrable
understanding of how
the portfolio mix canchange Acquisition
Costs, specificallybetween Open Market
and Binders.
Demonstrable
understanding of how
ORI purchase can
impact both the Net
Acquisition costthrough the receipt of
ORI Commissions,and also how actual
ORI expense will
impact NWP.

Intermediate
See previous page.

Established•

See previous page.

Advanced•

See previous page.

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5 Have robust portfolio management in place in order to deliver the agreed business plan.
Foundational
•

•

•

•

•

•

•

Portfolio Management •Framework in placeand supported
by repeatable process
to analyse portfolio
mix and drivers of
performance.
•
Quantitative analysis
focused on strategic
decisions within
business planning•
process and quarterly
business reporting.
Portfolio management
framework iscascaded consistently
and operates
effectively across thebusiness.
•
Success of actions
taken are monitored
at an appropriate
frequency against
expected
performance.
Action plans areproduced to•
remediate portfolio
where required, e.g.
Performance
Improvement Plans
and Whole Accountremediation plans.
The progress andimpact of any
remediation plans are •monitored with
sufficient frequency.
Employee withresponsibility forPortfolio Management
is a senior,
experienced individualwith relevant skills
and experience andclear mandate andauthority to implement
the Framework.

Intermediate
Greater level of•
granularity to allow
more specificidentification ofdrivers of
performance.
Results from theanalysis informs all
aspects of P&L
management.
•
The outcomes fromongoing assessmentsof Framework
effectiveness arecascaded to all
relevant teams and•the board whererequired.
Performance
Improvement
Processes areembedded and an
integral part ofPortfolio•
Management,
allowing timely action
to be taken.
There is anannual review of
the Portfolio
Management
Frameworkwith feedback andrecommendations
made to the board•
Employee
responsible forPortfolio Management
is able to influence•and implement
portfolio management
framework acrossall applicable areas.
•

EstablishedThe framework•
identifies opportunities
as well as issues within
the portfolio. Once
identified, issues andopportunities are•understood, analysed
and response
implemented.
The framework is
extended to include
element of qualitative
assessment to support
quantitative•
assessment of KPIs.
The framework
includes elements ofresearch anddevelopment to
conduct horizon
scanning andunderstand emerging
risks.
There is a robust
framework in place•
which is able to readily
adapt and change
when testing a range ofassumptions. The
framework is supported
by technology andanalytical tools whichthemselves arereviewed and updated
as appropriate.
Strong feedback loop inplace with ability tochange, amend andimprove the process.
Portfolio management
resource scaled toreflect size andcomplexity of portfolio.
Performance
Management isdriven by leadindicators provided
regularly whichhighlight potential
underperformancein advance ofactual deterioration.

Advanced
Portfolio
Management
analysis isembedded intobusiness decisions
Analysis is produced
at a high level of
granularity, and on afrequent basis,including analysis
being undertaken atpoint of risk
selection.
The framework
includescomprehensive
scenario modellingto test a range ofassumptions,
includingconsideration of thewider
macroeconomic
environment.
Sufficiently flexible
to allowfrequent analysis ofeffectiveness.

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5 Have robust portfolio management in place in order to deliver the agreed business plan.
Foundational••

Action plans are•produced to
remediate portfolio
where required. Can
include but not limited •to Performance
Improvement Plans,
Whole Accountremediation plans.
The progress andimpact of any
remediation plans aremonitored quarterly.

Intermediate

EstablishedThe progress and•impact of any
remediation plans aremonitored monthly.
There is an annual
review of the Portfolio
Management
Framework withfeedback
and recommendations
made to the board.

Advanced

Performance•
Management is driven
by lead indicators
provided regularly
which highlightpotential
underperformance inadvance of actual
deterioration.

See previous page.

Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Pricing coverage

Foundational••

There is a Technical •Price for all lines,
territories, andsegments.
For a large proportion •of risks TechnicalPrice may be
calculated at portfolio
level and not
individually modelled.

Intermediate
There is a TechnicalPrice for all lines,
territories, andsegments.
There is modelling of
the material risks
within segments andTechnical Price may
be calculated at
portfolio level for asmall proportion ofrisks.

Established••

There is a TechnicalPrice for all lines,
territories, andsegments.
There are models fora high portion of thetotal business.

Advanced•••

There is a TechnicalPrice for all lines,
territories, andsegments.
Risks are always
modelled where there
is sufficient data and it
is proportionate to doso.
Technical Price isconsistently applied
across all thebusiness.

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Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Claims Pricing Model Methodology

Foundational
•

•

•

•

•

•
•

•

•

In setting price,•
attritional, large, andcat claims are allowed
for.
There is limited
consideration ofheads ofdamage/perils.
Pricing is informed by •some use ofexperience or
exposure data (asapplicable) and not
only benchmarks /judgements.
There is limited•
justification of expert
judgement in pricing
model
parametrisation•
focused only on themost material
judgements.
For individual cases
pricing decisions are •captured but rationale
captured for the mostsignificant decisions
only.
•
External data is notconsidered.
While consistency is
considered in the•
management andapproach to pricing
models, it is not welldemonstrated.
There is validation of
selected pricing
models: actual versus
modelled, analysis
using historical data,
and/or benchmarking.
Peer reviews of risk
models takes place
but at high level orlimited number ofmodels.

Intermediate
Attritional, large, andcat claims are
explicitly allowed forin pricing. In setting
price, consideration is
given to the full
distribution of
expected losses.
Heads of damage/perils are modelledusing separate
approaches, but split
is not explicitly shownto user in the rating
model.
Experience or
exposure-based
pricing approaches
are used.
Expert judgement
used in pricing model
parametrisation has
well documented
justification.
For individual cases,
rationale is captured
for all pricing
decisions.
The use of external
models and data is
considered, but withlimited own analysis.
Differences between
pricing models areunderstood andacknowledged in thedecision-making
process, although
there are siloedapproaches todevelopment.

Established
•

•

•

•

•

The relationship•between pricing andplanning views of
attritional, large, andcat loss ratios is wellunderstood. Consider
ation is given to thefull distribution of
expected losses.
Modelling
segmentation is split
into granular perils
allowing for•
appropriatetechniques to model
frequency andseverity
characteristics. Perils
are explicitly shown tothe user in the rating
model.
Blends of experienceand exposure•
approaches may be
used as applicable.
There is a range of
sophisticated,
granular modelling
approaches.
There is an agreed
expert judgement
governance process
in place aroundpricing model•
parameterisation.
There is a goodunderstanding of thematerial expert
judgements andreasons behind theseby relevant
stakeholders.
Pricing decisions and •rationales forindividual cases arecaptured andanalysed for common
adjustments.

Advanced
The relationshipbetween pricing andplanning views of
attritional, large, andcat loss ratios are wellunderstood and there
is a process in place
to easily reconcile thetwo. The full
distribution of
expected losses iswell understood.
There are appropriate
sub-models for all
perils and there areappropriate tools to
combine perils into
the final risk
premium. Perils are
explicitly shown to theuser in the rating
model.
The use of bothexperience andexposure approaches
evolves with regularfeedback over time.
Model toolkit
extensive and easily
adaptable to data
available: from basic
ratios to machinelearning.
The governanceprocess ensuresjudgements arechallenged, monitored
against actual
experience, andobservations drive
decision making inpricing models.
Pricing decisions on
individual cases arewell documented andfeed into reparameterisation ofunderlying model.

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Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Claims Pricing Model Methodology

Foundational•

See previous page.

Intermediate••

Established

There is validation of •all material pricing
models: actual versus
modelled, analysis
using historical data,
benchmarking, and/or
scenario generated
outcomes. There issome validation of
extreme outcomes
and the impact on thepricing model. Ad hoccomparison of prices
and models to the•market.
Peer reviews of allrisk models takeplace.

••

There is use of both•internal and external
data in pricing
models. There is aprocess of critiquing
third-party model
outputs and data, withreference to own
internal data andmodels and•applicable expert
judgement, to ensure
fit for purpose.
Processes are inplace to identify andaddress modellinginconsistencies
across the business.
Where
inconsistencies are
accepted, they are
documented andunderstood.
Regularly scheduled •validation reviews are
conducted on allmodels, integrated
with rating/return on
capital reviews andincorporating
underwriting input.
As-if analysis andstress testing
performed tounderstand pricing
assumption
sensitivity. Quote data
is used for validation.
Peer reviews of allrisk models areundertaken, andactions noted for
future models.

Advanced
Critical internal andexternal data isincorporated directly
into the pricing tool ona real-time basis, andtechnical pricing can
be rapidly refreshed.
There is active use ofbroader market data.
There is a regularvalidation cycle thatverifies applicability ofmodels. AI andmachine-basedlearning tools areavailable to supportmodel validation.
Comprehensive
assessment against
the competitive
landscape is
performed using in
depth quote analysis.
Peer reviews of risk
models areundertaken and aretimely enough foradjustment to bemade to models as
result of the current
review.

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Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Non-claims costs model methodology

Foundational••

There is allocation of •loadings applied at
the class level and theaggregate viewreconciles to businessplanning.
The view of risk isincorporated into
pricing at syndicate
level, e.g. return on•
capital.

Intermediate
There are explicit•
loadings for internal
expenses, acquisition
costs and reinsurance
applied throughattribution analysis.
This is reconciled to•the aggregate view tobusiness planning.
The class of businessview of risk isincorporated into
pricing, e.g. return on •capital.

Established
Full attribution•
allocation of loadings
to classes taking
account of underlying
risk and expense atpolicy level.
The view of risk (e.g.
return on capital) is•
allocated to policies
taking into accountunderlying risk ofsimilar policies.
Actual non-claim
costs are monitored
against business planand pricing models
recalibrated when•required.

Advanced
Loadings calculated
by cost area (forexample internal
expenses, acquisition
costs andreinsurance) on a perpolicy basis.
The view of risk (e.g.
return on capital) is
allocated to policies
taking into accountunderlying risk ofsimilar policies andindividual policy
characteristics whereappropriate.
Systems monitor
costs associated withspecific policy
loadings (actual vsexpected), which are
tracked over time andenable associatedmodels to bereviewed andupdated.

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Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Delegated Authority Pricing

Foundational••

Calibration of Models•••

Intermediate

Established

Advanced

The syndicate•
understands thepricing approach,philosophy, andexpected
performance of any
third-party
arrangement ensuring
this aligns to theirpricing policy, risk
appetite, andbusiness plan before
entering any
delegated authority
agreement.
All delegated authority
contracts stipulate the •appropriate
granularity andfrequency of
performance andpricing information.
•
Actual performance,risk-adjusted ratechange, and priceadequacy is kept
regularly under review
with any material
variances reflected inrevised performance
forecasts.

The syndicate•
understands thepricing approach,philosophy, andexpected
performance of any
third-party
arrangement ensuring
this aligns to theirpricing policy, risk
appetite, andbusiness plan before •entering any
delegated authority
agreement and this isreviewed periodically.
Pricing information is •timely and accurate
but requires
manipulation before it
can be used.
Actual performance,risk-adjusted ratechange, and priceadequacy is kept
regularly under•review. Changes are
made to manage
performance andaddress material
variances.

There is ongoing•
discussion between
the syndicate and the
DA/MGA around thepricing approach,philosophy, andexpected performanceensuring continuedalignment with pricing
policy, risk appetite,and business plan.
Data feeds provide•
timely performanceand pricing informationthat is accurate andeasy to use.
Actual performance, •risk-adjusted ratechange, and priceadequacy is kept
regularly under review.
Regular changes are
made to manage
performance andaddress variances.
Underlying risk-by-riskrate change and priceadequacy can be tied
to overall performance •and linked to businessplan.

The syndicate has ahigh degree of control
over delegation
includingunderstanding andownership of pricing.
Strong data feeds inplace for monitoring
and controls. Nonclaims costs are partof this strategy.
Real-time data feeds
provide timely
performance data andthe ability for ad hocanalysis.
There are strong
feedback loops around
actual performance,risk-adjusted ratechange, and priceadequacy to ensure
performance is in linewith expectations andnon-DA portfolio.
Rapid changes can bemade to address
adverse performance.
Underlying risk-by-riskrate change and priceadequacy can bechallenged to ensure
calculation in line withsyndicate
expectations.

Models reviewed and •recalibrationconsidered annually.
Annual alignment withnew planningassumptions.

Model is recalibrated •at least annually,
supported by actual
versus expected
monitoring and is
updated withexperience.
Annual alignment withnew planningassumptions.

There is an•established feedback
loop around pricing
model development
and assumption
setting to ensure they
are updated regularly •to reflect the mostrecent relevant
experience andbusiness planassumptions.

The pricing model
development cycle
has dedicatedownership committed
to regular
updates/reviews.
The feedback loop formodel development
and recalibration is
informed by different
data sources, internal
and third-party, andinformed by horizon
scanning.
Underwriters and
SMEs contribute tothis feedback loop. 39•

Classification: Confidential

UNDERWRITING PROFITABILITY
Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Price Adequacy and Rate Monitoring

Foundational
•

•

•

•

There is a nominated •director withresponsibility forassessing andcalculating the impactthat pricing
movements of all•
business (renewed,
new, and nonrenewed) may haveon the syndicate loss
ratios.
The syndicate
measures:• Price adequacy the difference•
between the actual
premium charged
and theBenchmark andTechnical•
Premiums• Renewal businesspricing
movements fromthe previous yearin accordance with
Lloyd'srequirements(RARC)
This covers all
sources of businessincluding open market
and delegatedbusiness at regularintervals throughout
the life of thecontract.
Calculation of ratechanges, Benchmark
Premium andTechnical Premium
may be a manual
process.

Intermediate
Senior management •regularly review the
impact that pricing
movements have on
the syndicate loss
ratios.
Price adequacy andrate movements areseen to be key•
metrics to understandthe profitability ofopen market anddelegated authority
business written by
the syndicate.
•
The impact of terms
and conditions areincluded in the policy
database in a
structured manner.
Automation of
calculation of ratechanges andBenchmark andTechnical premiums.

Established

Advanced

There is a regular•process and structure
to ensure the correct
senior stakeholders
review pricing MI, theimpact on profitability
and challenge theprocess.
The syndicate is
actively managing its
portfolio using rate•
movements and priceadequacy as leadindicators.
There is anunderstanding of the
impact of changing
terms and conditions,which areincorporated in ratechange calculations
using judgement. This •is well governed.

•

There is a regularprocess and structure
to ensure the correct
senior stakeholders
have review pricing
MI and the impact on
profitability. This
informs executive
decisions on pricing
strategy.
The syndicate is
actively managing its
portfolio using rate
movements and priceadequacy as leadindicators across all
business written by
the syndicate. Thereis visibility of pricing
metrics at board
level.
These measures are
considered alongsideon-levelling trends
such as claims
inflation and informed
by insights fromchanges in businessmix.
Robust studies arecarried out regularly
on underwriting
judgement in order toensure accuracy andconsistency of pricing
MI.

40Classification: Confidential

UNDERWRITING PROFITABILITY
Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Technology and Systems Architecture•

Data governance and processes

Foundational

•

•

•

•

•

•

Intermediate

Established

Advanced

Internal solutions are •typically manual.
There is no central
design for technology
and systems
architecture. There isa siloed approach to
managing tools.
There are security
controls in place fortools andorganisational data.
Understanding user•
experience is ad hoc
and model changes
are low priority.
•

Solutions include a•
range of tools for the
purposes of different
stakeholders acrossdifferent business
functions. While there
is central systems
management, there issome overlap offunctionality of tools
created internally bydifferent departments.
Well-established•security controls arein place for tools andorganisational data.
User experience is•captured but systems
development is ad
hoc when resource isavailable.

There is a well•
documented
technology designand strategy arounddata for pricing andperformance
management, with•
implemented
solutions thatsignificantly reduce orreplace areas of•manual processing.
There are strong
security controls inplace for tools andorganisational data.
There are feedback
loops, capturing user
experience, to support
the prioritisation ofsystems
development.

The syndicate
considers advanced
technology solutions
to enhance theirpricing and MI
capabilities.
There are strong
security controls inplace for tools andorganisational data.
Current and potential
future systems
requirements and theresultant priorities arewell understood anddelivered.

Policies and•procedures are inplace covering data
accuracy,
appropriateness, andcompleteness.
•
Data owners aredefined, and somedata controls are inplace to ensure
accuracy andcompleteness.
All data procedures
cover SII
requirements. Data
quality is, however,•inconsistent. There
are not consistent
standards in place for
database
infrastructure anddata storage.
Compliancemonitoring is in place,but control issues are
addressed on an ad
hoc basis.

Data policies,•
standards, andprocedures arecomprehensive anddetailed.
Data quality tools andcontrols are in place.
These are wellgoverned, including
oversight•
forums/committees,
ongoing controls
testing, and training toensure correct
implementation.
There is an•understanding of the
impacts of data
quality issues onmodelling andapplications.

Data considerations•
are comprehensively
supported throughout
the syndicate,including how toaddress data
limitations acrossapplications by eachbusiness function.
Data is managed
closely, including acomplete audit trail for •data. Data quality isgoverned by both thebusiness and IT.
There is regular data
MI and built-in data•
validations. Regular
audits of data
accuracy are
conducted.

Comprehensive andproactive dataprocesses are inplace from slip input
to analysis and acrossall businessapplications. Thismay be supported byan advanced data
quality toolkit andreal-time MI.
AI and machinebased learning tools
are available tosupport data
validation.
There is automateddata MI and built-in
data validations.
There are automatedprocesses to fix errors
and improve data
quality.

41
Classification: Confidential

UNDERWRITING PROFITABILITY
Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Data collection and storage

Foundational
•

•

•

•

•
•

Standard data•
definitions are notalways utilised.
Data collection is
primarily manual innature and may
require re-entry into
multiple systems.
Significant data
cleansing is required •before data can beused for modelling
purposes.
•
Use of third-party data
is limited in natureand it is challenging to
map this data to•internal data.
Unstructured data is
not captured.
Quote data is not•
captured.
•Intermediate

EstablishedSource data conforms •to pre-defined
templates and data
definitions. There isan organisational data
dictionary withconsistent data•
definitions utilised
across sources.
Some automated datacollection and uploads
in place.
•
Data requires somecleansing before it
can be used formodelling purposes.
There is some use ofthird-party data at
portfolio level (e.g.
•analytics).
Some unstructured
data is captured.
Some quote data iscaptured.
••

Source data conforms •to pre-defined
templates and data
definitions. Joining
multiple data sources
is straight-forward.
•
There is granular andautomated data
capture withgovernance controls
built in.
•
There areunderwriting andclaims processes inplace that mitigate
need for significant•
data cleansing before
modelling.
There is investment inthird-party data to•better understand risk
profiles at a granularlevel.
Unstructured data iscaptured and there issome capability to•transform and use it.
Quote data is retainedon system and there
is some capability touse it.

Advanced
Multiple data sources
are automaticallyreconciled (acrossinternal and third-partysets).
There is, granular,
automated, and richdata capture withstrong governancecontrols built in.
Data cleansing is
automated using
machine learning tools
and is done in realtime.
There is investment inthird-party data tobetter understand andprice individual risks.
Integrated systems arein place to ingest
unstructured data
which is automaticallylinked into businesstools.
Quote data issystematically retained
and used.

42
Classification: Confidential

UNDERWRITING PROFITABILITY
Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Resourcing of Pricing Function

Foundational
•

•
•

•

Staff have limited
experience, or
activities are
performed by staff
whose primary role isnot pricing.
Resourcing is
inadequate.
There is limited
interaction between
pricing andunderwriting teams
leading to a siloedapproach to pricing.
There is limited
pricing training
support available.

Intermediate
•

•

•

•

Team members major •focus is pricing andthey demonstrate agood understandingof relevant pricing
techniques.
Resourcing isadequate to meetdeadlines, but there•
may be insufficient
resource for longerterm or strategic
projects.
There is some ad hocinteraction between
pricing andunderwriting teams
and a desire to shareknowledge between
teams.
•
There is training
material available tosupport developmentof pricing skills.
•

Established
Pricing team/s include •strong quantitativeand data-oriented
personnel. Dedicatedmodel development
resource in place forcontinuous model
development.
•
Team is wellresourced for existing
and future projects,
and there is a goodmix of skills. Thereare clearly definedroles and
responsibilities, andkey person
dependencies havebeen identified.
•
Mechanisms are inplace to reduce teamsilos and to shareknowledge between
teams.
Internal and external •training is available
and actively used by
the pricing team tokeep skills up to date.

Advanced
The syndicate
demonstrates
investment in
attracting, retaining,and continuously
developing highquality pricing teams.
Team/s is/are
sufficiently andeffectively resourced
to allow research anddevelopment as wellas efficient day-to-day
activities; key personrisks are identified
and mitigated, andsuccession planning
is in place.
There is regular,
structured
communication
between teams toshare knowledge andreduce silos.
Team members takeresponsibility for theircontinued
professional
development withsupport from thesyndicate.

43
Classification: Confidential

UNDERWRITING PROFITABILITY
Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Claims and Reserving

Foundational•

Pricing, underwriting,and reserving teams
operateindependently.

Intermediate••

Established

Pricing and•underwriting
teams meet withclaims and reserving
teams to shareknowledge and tocontribute to thereserving process.
Pricing andunderwriting consider
reserving•
assumptions andoutput in pricing.

•

Advanced

Pricing and•underwriting teams
regularly feedtechnical pricing
assumptions andunderwritingknowledge to thereserving team foruse within thereserving process.
Pricing andunderwriting explicitly •consider of reserving
assumptions andoutput in pricing
where appropriate.
Where there aredifferent views
between pricing,•underwriting, andreserving the rationale
is clear anddocumented.
•

There is acollaborative
approach between
pricing, underwriting,and reserving teamsin the reserving
process aroundtechnical priceassumptions andchanges in written
portfolio etc.
Pricing andunderwriting teams
actively engage withreserving to raise
emerging issues andchallenge
assumptions.
Underwriters
proactively use output
from claims andreserving exercises tochallenge pricing
assumptions.
Where consensus
cannot be reached,
the rationale is clear
and well documented.
The impact ofdifferences is wellunderstood. A
process exists tominimise thesedifferences over time.

44
Classification: Confidential

UNDERWRITING PROFITABILITY
Have an effective pricing framework in place in order to evaluate sustainable technical price, rate

6 adequacy and deliver sustainable profit.

Other (Risk Transfer, Exposure Controls, Capital
Modelling and allocation)•

Pricing Training

Foundational•

Intermediate

Pricing operates•
independently fromother technicalmodelling teams suchas capital,
reinsurance, andexposure
management.
•

Established

Pricing and•underwriting teams
intermittently meetwith other functions,for knowledge transfer
and to support
selection ofassumptions in nonpricing models.
•
There is someconsideration ofreinsurance,
exposure, and capitalin pricing.
•Training needs are
not well defined.
Communication
around pricing islimited.

•Generic training isoffered to all relevant
staff covering thepricing policy andtechnical pricing.

•

Advanced

Pricing and•underwriting teams
feeds technical pricing
assumptions andunderwritingknowledge to otherteams for use in theirmodelling processes.
Pricing and•underwriting teams
make explicit
considerations forreinsurance,
exposure, and capitalin pricing decisions.
Where there aredifferent views
between pricing,underwriting andother teams, the•rationale is clear anddocumented.

Pricing andunderwriting teams
actively engage othermodelling teams toraise emerging issues
and challenge
assumptions used byother teams.
Underwriters
proactively use output
from capital,
exposure, andreinsurance exercises
to challenge pricing
assumptions.
Underwriters
understand capitalintensity of businesswritten.
Where consensus on
assumptions between
pricing, underwriting
and other teams
cannot be reached,
the rationale is clear
and documented. The
impact of differences
is well understood. A
process exists tominimise thesedifferences over time.

There is on-demand •pricing training for all
relevant employees,
tailored by role level,leading to a strong
understanding acrossthe syndicate.

Pricing training forms
a part of annual
pricing development
cycle. Gaps are
identified and training
is well supported.

45
Classification: Confidential

UNDERWRITING PROFITABILITY
Have robust governance processes in place to support underwriting decision making, with

7 underwriting assumptions clearly articulated and understood by stakeholders supported byproactive involvement and sufficient challenge by the wider functions
Foundational
•

•

•

•

•

•

•

Underwriting•
governance framework
is in place with reportinglines and committee
framework defined.
Governance frameworkensures regular internal
audit, peer review, andindependent peer review •takes place, supported
by effective systems andcontrols.
Results of reviews
include clear
recommendations
reported to senior•
management, andescalated to the board
where relevant.
Scope and output
of peer reviews,
and independent
peer reviews is
consistent andcovers representative
share ofrisks underwritten
Governance and change
control procedures
relating to underwriting
strategy, risk appetiteand pricing models arein place.
Underwriting decision
making including theunderwriting strategy,
business planning and
KPI monitoringprocesses engages all
key stakeholders(including reinsurance,
exposure management,
claims, reserving andcapital).
Within the governanceframework, underwriters
are actively heldto account for
their decision making.

Intermediate
Governance and•change control
procedures include
decision on whether
review of individual
pricing models andunderwriting guides
are required.
Senior management
understandthe underwriting
approach and its
limitations and canchallenge
key decisions.
All classesof business are•covered within thereview framework.
There aredemonstrable
actions to address
review findings withina reasonable•
timescale.

EstablishedThe board and•seniormanagement haveestablished acultureof accountability at
all levels of the
syndicate, including
clear risk
and control
expectations and ano blame culture•
for reporting
underwriting issues. This is linked toperformanceappraisals.
Underwriting
committees havecomprehensive andforward-looking
coverage, andupwards reportingneeds well defined. •Performance
management
utilises strong
feedback loops
between the wider
functions thatincorporates latest
analysis andimprovesconsistency.

Advanced
The board and senior
management
challenge and actively
promote thedevelopment ofunderwriting practices(incl. the underwriting
and pricing
frameworks), andtheir consistent use
by underwriters.
Expectations on risks
and controls,
including the impact
on everyday
behaviours aroundunderwriting
decisions, are clear
and consistent acrossthe syndicate. Staff
have clearly defined
avenue to express
concerns upwards.
There is a cycle oftargeted deep-divereviews taking place,with regular follow-up
of all relevant findings
to ensurerecommendations andimprovement points
are adopted.

46
Classification: Confidential

UNDERWRITING PROFITABILITY
Have processes in place to support decision making in relation to integrating sustainability into

8 underwriting.

Foundational
•

•

•

•

Board approved•
Sustainability Strategy
covers approach tosustainable
underwriting.
Sustainability Strategy
focuses on the mostmaterial areas ofsustainable
underwriting•
operations and how
Sustainability can be
integrated into theseareas.
Underwriting
Governance
Framework is alignedwith broader
Sustainability
governance.
Data requirements
needed to aid
decision making havebeen identified andefforts are underway
to gather thenecessary data tounderstand, monitor
and report onenvironmental andsocial exposures.

Intermediate
Board approved•
Sustainability Strategy
and approach tosustainable
underwriting iscascaded throughout
the managing agent
through sustainability
targets.
•
Analysis of existing
portfolios carried out
to identify incumbent
exposures/client
relationships that may •not be supportable
going forward basedon syndicates’
Sustainability
Strategy.

Established
Board approved
Sustainability strategy
fully embedded andaligned with overall
underwriting strategy,
annual business plan
process and risk
appetites.
Additional qualitative
Sustainability
considerations areincluded as part ofbusiness planning.
Full awareness ofwhich exposures inexisting portfolio are
not aligned withsyndicates’
sustainable
insurances
framework; either
elected to non-renew
or are working with
the insured andsupporting theirtransition.

Advanced
•

•

•

•

•

•
•

Additional focus on
Sustainability andproduct innovation
through new
business.
Written guidance isprovided articulating
Sustainability
approach alongside
any delegatedauthority.
Protocol for
examining data
through establishedsystems.
Granularity of data
used is appropriate
for the needs andbusiness profile.
Pricing underwriting
systems in place toreview whether
assumptions / data
are appropriate from asustainability
perspective.
Policyholder
engagement strategy
established.
Work underway todevelop credible
transition plans with
policyholders whichpose the mostmaterial
environmental andsocial risks based on
syndicates’
Sustainability
strategy.

47
Classification: Confidential

1.
Legacy Reinsurance
Underwriting Profitability(RITC syndicates only)Legacy Reinsurance Underwriting Profitability
Managing agents should ensure their strategy for underwriting legacy reinsurance transactions isclear and that pricing assumptions are sufficiently robust, to ensure the sustainable run-off of acquired
liabilities.
LEGACY REINSURANCE UNDERWRITING PROFITABILITY
Have a clear and robust medium to long term business strategy with clearly defined and

1 understood underwriting risk appetite, giving consideration to existing legacy reinsurance

Risk Appetite

Strategytransactions on the balance sheet
Foundational

Established

Advanced•

Underwriting strategy is set
collaboratively withengagement and feedback
loops between the relevant
stakeholders•

Underwriting strategy outlines
a forward-looking plan
concerning the key elementsthat identify a target contract•

Regular horizon scanningtowards emerging risks is
considered and reflected within
the underwriting strategy•

The board has defined
underwriting risk appetitestatements. These are linked
to and contained within the
syndicate business plan•

Performance assessment for •senior management considers
adherence to risk appetite

Underwriting strategy isforward looking, allowing agile
management of the due
diligence process employed inunderwriting•

Risk appetite statements
reflect market level feedback
from Lloyd's and regulatory
concerns

49

Classification: Confidential

LEGACY REINSURANCE UNDERWRITING PROFITABILITY

Business Planning

2

Develop and execute legacy business plans which align with their business strategy.
Foundational

Established

Advanced•

Business plan aligns withthe syndicate's medium tolong term underwriting
strategy and risk appetite•

Monitoring allows
for identification of both
positive and adverse
variation to plan••

Business plan is kept
under review, with KPIs
monitored and reported tothe board at an appropriate
frequency••

Timely actions are taken
to address variances tobusiness plan, and root
cause analysis conducted
to fully
understand underlying
drivers

Suite of KPIs are kept
under review toconsider if
any changes are
required to the metrics
themselves or
any additions toensure early detectionof issues•

Regular review ofbusiness plan and
KPIs
incorporates latest
analysis fromother functions andpromotes consistency•

The underlying drivers are
fed back into the due
diligence process for future
underwriting

Thematic findings are
drawn out fromunderwriting operational
KPI monitoring. These
are fed back into the due
diligence process for
future underwriting withtraining in place toaddress gaps

50
Classification: Confidential

LEGACY REINSURANCE UNDERWRITING PROFITABILITY

Expense Management

4

Manage and control expenses in order to ensure they are appropriate for the business written.
Foundational

Established

Advanced•

Medium to long term
strategy in place tocontrol overall
net operating expense•

Monthly data and MI inplace to track position
against expected andaction taken to remediate
where required••

Internal expense policy
in place withappropriate thresholds
and referral points•

Forward looking
identification of potential
expenses necessary tosupportstrategic decision
making. Proactive action
taken tomanage expenses overmedium to longer term•

All aspects ofoperational expenditure
are understood andconsidered as part ofthe syndicate's
underwriting strategy•

Quarterly data and MI inplace to track position
against expected andaction taken to remediate
where required•

Administration expenses
are proportionate and areforecast in line withplanned underwriting
strategy

Real time tracking inplace to assess the
position of operating
expensesagainst expected withproactive measures
adopted toaddress actual andforecast variance

51
Classification: Confidential

LEGACY REINSURANCE UNDERWRITING PROFITABILITY

Pricing

6

Have an effective pricing framework in place in order to set sustainable pricing for legacytransactions that will ensure the discharge of assumed liabilities within the assets received
with, and generated by, the assumed portfolio
Foundational

Established

Advanced•

Experience based
pricing approach is used

•

•

•

Pricing policy andprocedure havebeen reviewed
and approved by theboard and are fully
documented

Resourcing allows formore in-depth analysis
feeding into the pricing
process, withforward looking views
feeding into assumptions•

The view of risk
is incorporated
into pricing at syndicate
level, such as
the impact of concentrati
on risk of the target
portfolio on the existing
portfolio. This is done on
a forward-looking basis•

Pricing decisions
and rationales
are captured
and analysed on an
ongoing basis foradjustments based on
the outturn of
the acquired business•

Pricing policy andprocedure arereviewed regularly
to ensure that they are up
to date with the current
experience of the
syndicate•

The parameters
employed in thedue diligence process
for underwriting
are consistent with, andsupport,the syndicate’s businessplan•

Resourcing is adequate
to conduct due diligence
to a standard that resultsin viable pricing of all
the transactions being
pursued by the syndicate

No guidance at
Advanced. Lloyd's
will consult tofurther develop our view

52
Classification: Confidential

LEGACY REINSURANCE UNDERWRITING PROFITABILITY

Governance

7

Have robust governance processes in place to support legacy underwriting decision making,with underwriting assumptions clearly articulated and understood by stakeholders supported
by proactive involvement and sufficient challenge by the wider functions.
Foundational

Established

Advanced

•

•

•

•

•

•

Underwriting
governance framework isin place with reporting lines
and committee framework
definedNo binding bid is
made unless approved by
the appropriate
committee which includes
Independent Nonexecutive Directors
to ensure that it
is consistent with theinternal rate of return set
out in the syndicate’s
business plan
Any bid put before
the appropriate committee
is sufficiently detailed
to allow thatcommittee’s participants toensure that theassumptions used arein line with thesyndicate’s businessplan and reasonable
market expectations
A process is in place
to document whether
due diligence has
followed the approved
process and that document
is available to thetransaction approving
committee

The senior
management
have established aculture ofaccountability at alllevels of the
syndicate,including clear risk
control expectations
and a no blame
culture for reporting
underwriting issues

The board andsenior management
actively promote challenge
to underwriting including
the parameters andassumptions used

53
Classification: Confidential

2a.
Catastrophe
Exposure
Natural CatastrophePrinciple 2a: Catastrophe Exposure –Natural Catastrophe
Managing agents should ensure syndicates maintain appropriate control of catastrophe risk (fromnatural perils) in line with their wider business strategy.

CATASTROPHE EXPOSURE (NATURAL CATASTROPHE)Cat Risk Appetites and Tolerances

1 Manage catastrophe exposure in line with their agreed risk appetites and tolerances
Foundational••

Intermediate

Catastrophe risk•
appetite statements
are in place;
exposures aremonitored against
appetite and reported
to seniormanagement and theboard.
Business plans reflect
catastrophe risk
appetites

Established

Catastrophe risk•
appetites are derived
with consideration ofView of Risk. There isa clear link between
risk appetite andbusiness strategy anddecision-making.

Advanced

Catastrophe risk•
appetites arecascaded to relevantbusiness functions
and are supported bytolerances, limits, andbreach management
processes. Risk
appetites inform
decision-making at
each level, within the
exposure
management teams
and other functions.

Catastrophe risk
appetites are clearly
embedded at every
level, with changes
communicated andused efficiently.
Statements may be
forward-looking, andthemselves reactive
to external events,
business planchanges, andfeedback loops.

Employ appropriate tools to support effective and efficient exposure data capture, management

Data and Tools

2 and use

Foundational

Intermediate

•

•

•

Policies andprocedures cover all
aspects of data
standards. Data
owners are defined,
and controls are inplace.
Appropriate data iscaptured and used in
exposure
management
activities.

•

Established

Data quality tools and •controls are in place.
The impact of data
quality on modelling isunderstood.
Functions use•
consistent tools anddata.

Data considerations
and limitations arecomprehensively
understood acrossbusiness functions.
There is a well
documented
technology
architecture designand strategy, andlimited manual
processing.

Advanced•••

Comprehensive andproactive dataprocesses are inplace across businessapplications
Advanced technology
solutions formodelling, data andMI are considered.
Frequent review andimprovement of data
and tools.

55

Classification: Confidential

CATASTROPHE EXPOSURE (NATURAL CATASTROPHE)
Adopt a robust risk-based framework for exposure quantification and monitoring, to support

3 downstream decision making

Exposure Monitoring and Reporting

Foundational
•

•

•
•

•

Procedures for riskrecording, loss
estimation, exposure
controls and limits
monitoring are clearly
documented
Exposure ismeasured against
limits on a regularbasis
Simple, high-level
reporting in place
Stress and scenario
tests conducted inaccordance with
Solvency IIrequirements,
includingconsideration of
Lloyd's RDSs.
Regulators
are informed inadvance of issues or
missed deadlines.

Intermediate
•

•

•

•

Established

Well defined•monitoring
framework, with
exposure controls
linked to risk appetiteand underwriting.
Appropriate regular•internal reporting
consistent with therisk appetite
framework.
•
External reporting isefficient, timely andaccurate with some•internal review
applied.
Additional stress andscenario tests(beyond Solvency IIrequirements) design
ed around defined risk
appetites.

Defined governance•around theidentification,
escalation andresponse to risk
appetite breaches.
Regular, granular,
comprehensive,
timely and wellgoverned reporting.
•
Clear consideration ofdata and modelling
uncertainties.
Stress and scenario
tests reflect risk
appetites and own
view of risk.
•
Implication of results
well understood andacted upon. Set of
SSTs regularly
reviewed.

Advanced
Controls (including
stress and scenario
tests) are forwardlooking and consider
risk budgets, acomprehensive viewof perils covered aswell as emerging
risks.
Real time internalreporting, which isinteractive and may
include alternative
views ormethodologies andfuture projections.
Stress and scenario
tests incorporate input
from other business
functions and senior
management,
promoting appropriate
exposure
management acrossthe business.

Have the teams and expertise in place to meet the business needs, including strategic projects,

4 regular deliverables and research and development .

Resourcing and ExpertiseFoundational•••

Staff responsible for•
exposure
management havesufficient experienceto perform their role.
Resourcing isadequate to meet
regulatory deadlines.
Where operations areoutsourced,
responsibility forunderstanding the risk
remains with the
managing agent.

Intermediate
Staff responsible for•
exposure
management
demonstrate goodunderstanding ofmodels and theirlimitations; external
resource is available
to support longer-termor strategic projects
where required

Established
Staff responsible for•
exposure
management are wellresourced for existingand some future
projects, and there isa wide mix of skills.
Key person
dependencies havebeen identified.

Advanced
Staff responsible for
exposure
management are
sufficiently andeffectively resourced
to allow research anddevelopment as wellas efficient day-to-day
activities; key personrisks are mitigated,and succession
planning consideredsuch that changes instaffing do not impact
delivery.

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CATASTROPHE EXPOSURE (NATURAL CATASTROPHE)

5 Define and maintain an appropriate cat view of risk methodology.
Foundational

Cat View of Risk Methodology

•

•

•

View of risk based on •simple actuarial
methods or derived
from an external
model with high-levelinternal validation
and/or adjustment.
If the view of risk is•determined byanother entity within
the group,
applicability to thesyndicate isunderstood andchallenged
appropriately.
Where used, material
expert judgement isdocumented andgoverned inaccordance with SII
standards, including
the consideration offalsification criteria.

Intermediate
Where view of risk is •external modeldriven, it isadditionally informedby some analysis ofsyndicate risk profileand loss history.
Expert judgements
are reviewed at an
appropriate frequency
and a wide range ofsuitable experts are•
consulted.

Established

Advanced

View of risk informed •by comprehensive
analysis of own
portfolio, andassumptions andmethodology are wellunderstood. View ofrisk develops with•loss experience andemerging market andportfolio issues.
Use of expert
judgement iscomprehensively
governed, withappropriate
justification andchallenge. There is aclear understandingby model users of
where expert
judgement is reliedupon.

View of risk develops
continuously, with aprogramme of work
linked to material
model limitations,emerging issues andnew research.
Expert judgements
are regularly
assessed for
accuracy andappropriateness,considering sensitivity
tests, past accuracy
and forward-looking
issues. Expert
judgements are focus
areas for future
modelling
improvements.

6 Implement appropriate risk-based validation of the cat view of risk.

Cat View of Risk Validation

Foundational••

Validation of external •model(s) is conducted
as required under SII
standards andrequirements
Model validation
process is clearly
documented

Intermediate
The use of alternative •models andassumptions isregularly considered,and model choicedecisions aredemonstrably
validated.

Established
Programme of modelchange frequently
updated, driven byvalidation work, andmaterial progress
made. Areas of
uncertainty andsensitivities of themodel(s) used are
well understood.

Advanced•Feedback fromvalidation is linked
back to other parts ofbusiness such as
pricing/reserving/riskmanagement to help
with decision making

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CATASTROPHE EXPOSURE (NATURAL CATASTROPHE)

7 Maintain a materially complete representation of cat in the syndicate view of risk.
Foundational

Cat View of Risk Completeness

•

•
•

•

Intermediate

Representation of•catastrophe risk in theinternal model ismaterially complete.
Definition of'materiality' is clearly
articulated
Methodology andassumptions meet
Solvency II standards.
View of catastropherisk reflects current(and near-future,•
appropriate to theperiod of risk
underwritten) climate
conditions

Modelling of•catastrophe risk in theinternal model ismaterially complete.
Adjustments or
supplemental
modelling are applied
for key perils, withsimpler approaches inother instances.
Approaches are•
documented.
Frequent review ofappropriateness of
methodologies, withresulting development

Established
Modelling or•
adjustment takes
place using exposure
management data for
all key perils to
address internal•
model completeness,
supported by robust
justification (includingof materiality).
Capital implications
considered in•decision-making.
Impacts of alternative
representations ofcatastrophe risk aremodelled beforechanges are made.

Advanced
Comprehensive,
forward-looking
process to address
data and internal
model completeness.
Regular review ofmodelled perils
considering changing
risk profile, emerging
risks and developing
issues.
Longer-term changes
to the risklandscape (including
climate-related) areconsidered

Adopt a robust risk-based framework for managing changes to cat view of risk and exposure

Cat View of Risk and Methodology Change

8 management methodologies.
Foundational•

Intermediate

Exposure•
management andcatastrophe modelchange managed
through generalinternal model change
process.
•

Specific exposure•
management andcatastrophe modelchange processes
feed into andcomplement the wider
internal model change
process.
Model changes,
timelines, and effects
are communicatedahead of release.
•

Established
Exposure•
management andcatastrophe modelchanges and theirimpacts arecomprehensively
documented anddiscussed in a timely
manner with
underwriters andmanagement.
View of Risk is
considered across thebusiness before
making decisions.

Advanced
Holistic view of impact
of model change on
different areas. Any
decisions that are
made that could be
impacted arereasoned with adetailed
understanding of thepotential impacts, theuncertainty of thechanges and thelimitations of any
associatedcalculations.

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CATASTROPHE EXPOSURE (NATURAL CATASTROPHE)

9 Maintain consistent understanding, use and continual development of cat view of risk outputs.

Cat View of Risk Use

Foundational
•

•

•

•

•
•

Simple modelled
output is used invarious ways acrossthe business
Any differences
between businessmodels areunderstood andacknowledged.
Catastrophe risk
portfolio management
reflects strategic
decisions.
Risk transfer
decisions made withreference to impact
on catastrophe risk
appetite
Capital re-assessed
when required.
Simple eventresponse plan inplace, including
exposure analysis

Intermediate
•

•

•

•

•

Established

Catastrophe risk•
analysed preunderwriting for allmaterial exposuresand underwriters havea basic understandingof model uncertainty.
Detailed catastrophe
model outputs•
available acrossbusiness functions
and on an ad hoc
basis.
Catastrophe risk•
portfolio management
informs underwriting,risk appetites, capital
allocation and•reinsurance purchase.
Internal model results
are reviewed regularly
and always when•
there are changes inrisk profile.
Event-response loss
estimates consider
model limitations and •are compared to viewof risk.

••Comprehensive
catastrophe risk
analysis integrated
with underwriting;underwriters feedback their own views
and/or commercial
factors.
Senior management
actively use exposure
management output
to facilitate portfolio
optimisation.
Culture of consideringcatastrophe risk
before making any
decisions.
Processes in place toidentify and addressinconsistencies
across the business.
Active feedback loops
between exposure
management, risk
appetite andreinsurance strategy.
Event response plan
integrates claims,
underwriting andexposure
management.
Lessons learnt
implemented withinview of risk
View of risk is
consistent and wellintegrated; feedback
loops apply across allareas and use cases.

Advanced
•

•

•

•

•

Event-response
considers
uncertainties and arange of outcomes.
Catastrophe models
are back-tested
against claims;
feedback loops
extend to other perils,
regions or coverages.
Detailed, consistent
exposure
management andcatastrophe modelling
facilitates all aspectsof risk selection,
portfolio optimisation,
capital setting andbusiness planning.
Capital implications ofcatastrophe risk arewidely understoodand can be modelled
ad-hoc andexpediently,
supporting integration
with otherapplications.
Catastrophe risk
within the internal
model reacts on a
forward-looking basis
to changes inunderwriting strategy.

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CATASTROPHE EXPOSURE (NATURAL CATASTROPHE)

10 Have robust governance and oversight of risk aggregations.

Governance and OversightFoundational
•

•

•

•

There is an•established risk
framework, which
includes catastropherisk and exposure
management.
Board and senior
management
regularly discuss•material issues.
High-level
independent andinternal review
occurs.
Exposures and model
output are regularly
reviewed against
Lloyd's thresholds
and Lloyd’s approval
is sought for any
actual or foreseeable
exceedances.

Intermediate
There is anestablished andspecific exposure
management
framework, with
reporting to senior
management and theboard.
Regular reviews aresupported by secondor third line. Resultsof reviews include
clear suggestedchanges.

Established•••

Senior management •and boarddemonstrably
understand the modeland its limitations,providing challenge
when making key
decisions. Exposure
management committ
ees meet regularly,
have comprehensive
coverage of regions
perils and relevantlines of business.
•
Reporting is highquality and regularcommittees include
forward-looking
considerations.
•
Reviews are riskfocused andsupported by strong
independent review
from the second andthird line, andsuggested actions arecompleted in a timely
manner.

Advanced
The modelled view ofrisk is widely used insenior management
and board decisionmaking. Senior
management and theboard understands,
challenges, andactively promotes thedevelopment of theview andmanagement ofcatastrophe risk.
The development of
exposure
management and theview of risk is actively
promoted.
There is a cycle oftargeted, forward
looking, deep-divereviews, with regularfollow-ups of relevant
findings to ensure
recommendations andimprovement points
are adopted.

60
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2b.
Catastrophe
Exposure
Non-Natural CatastrophePrinciple 2b: Catastrophe Exposure –Non-Natural Catastrophe
Managing agents should ensure syndicates maintain appropriate control of catastrophe risk (fromnon-natural perils) in line with their wider business strategy.

CATASTROPHE EXPOSURE (NON-NATURAL CATASTROPHE)Cat Risk Appetites and Tolerances

1 Manage catastrophe exposure in line with their agreed risk appetites and tolerances
Foundational••

Intermediate

Risk appetite•statements are inplace; exposures aremonitored against
appetite and reported
to seniormanagement and theboard.
Business plans reflectrisk appetites, andvice versa

Established

There is a clear link•
between risk appetiteand business strategy
and decision-making.

Advanced

Risk appetites are•cascaded to relevant
underwriting units andare supported bytolerances, limits, and •breach management
processes.

Detailed, granular risk
appetites inform
decision-making at
every level.
Risk appetites areforward-looking but
may be reactive toexternal events,
business planchanges andfeedback loops,
subject to effective
governance.

Employ appropriate tools to support effective and efficient exposure data capture, management

2 and use

Data and Tools

Foundational•••

Intermediate

Policies and•procedures cover all
aspects of data
standards. Data•
owners are defined,
and controls are inplace.
Exposure
management and risk
quantification•
solutions are typicallymanual processes
and spreadsheetbased.
Basic data elements
required for
aggregation andscenario analysis
are recorded.

Established

Policies and•procedures are moredetailed.
•
The same tools anddata management
approaches may be
used across multiple
business functions,aiding consistency.
•
Scenarios used forrisk quantification are
clearly documented
and justified.
•

Advanced

Data quality tools and •controls are in place.
The impact of data
quality on modelling isunderstood andoptions for mitigating
data limitations are
considered.
Additional data points •for understanding
hazard are used in
the exposure
management process. •Progress madetowards limiting
manual processing.

Data considerations
and limitations arecomprehensively
understood acrossbusiness functions;
options for mitigating
data limitations areactively remediated.
Advanced technology
solutions formodelling, data andMI are considered.
A full range of risk
quantification tools is
employed, including
deterministic andprobabilistic
methodologies.
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CATASTROPHE EXPOSURE (NON-NATURAL CATASTROPHE)
Adopt a robust risk-based framework for exposure quantification and monitoring, to support

3 downstream decision making

Exposure Monitoring and Reporting

Foundational
•

•

•
•

•

•

Procedures for risk•recording, loss
estimation, exposure
controls and limits
monitoring are clearly
documented.
Exposure is•measured against
limits on a regularbasis.
Simple, high-level
reporting is in place.
•
Simple scenario tests
are conducted as
required (e.g. using
Lloyd's RDS
framework).
•
Exposure presented
by prior years' policies(i.e. the "back book")
is routinely assessed.
Exposures toemerging risks
are regularly
assessed.

Intermediate
A well-definedmonitoring framework
exists, with exposure
controls linked to risk
appetite andunderwriting.
Internal reporting isappropriate, regularand consistent withthe risk appetite
framework.
External reporting isefficient, timely andaccurate with someinternal review
applied.
Regulators are
informed in advanceof issues or missed
deadlines.

Established•

There is a definedprocess for theidentification,
escalation andresponse to risk
appetite breaches,
which is consistently
followed.
Reporting is regular,
granular,comprehensive,
timely and wellgoverned.
There is clear
consideration of data
and modelling
uncertainties.
Additional scenarios
are designed arounddefined risk appetites
and own view of risk.
Implication of
scenario test results
are well understoodand acted upon.

•

•

•

•

Advanced••

Controls (including
stress and scenario
tests) are forwardlooking and consider
risk budgets, acomprehensive viewof perils covered aswell as emerging
risks.
The full suite of
scenarios
incorporates input
from other business
functions and senior
management and isreviewed frequently tocapture changes
in business strategy
and risk landscape.

Have the teams and expertise in place to meet the business needs, including strategic projects,

4 regular deliverables and research and development .

Resourcing and ExpertiseFoundational•••

Staff responsible for•
exposure
management havesufficient experienceto perform their role.
Resourcing isadequate to meet
regulatory deadlines.
Where operations areoutsourced,
responsibility forunderstanding the risk
remains with the
managing agent.

Intermediate
Staff responsible for•
exposure
management
demonstrate goodunderstanding ofmodels and theirlimitations; external
resource is available •to support longer-termor strategic projects
where required.
•

Established
Staff responsible for•
exposure
management are wellresourced for existingand some future
projects, and there isa wide mix of skills.
Key person
dependencies havebeen identified.
Exposure
management staff
with specific non-nat
cat experience andexpertise are
employed; there may
be a separate teamfor (e.g.) Cyber,
Casualty and/or nonnat cat exposure
management.

Classification: Confidential

Advanced
Staff responsible for
exposure
management are
sufficiently andeffectively resourced
to allow research anddevelopment as wellas efficient day-to-day
activities; key personrisks are mitigated,and succession
planning consideredsuch that changes instaffing do not impact
delivery.

63

CATASTROPHE EXPOSURE (NON-NATURAL CATASTROPHE)

5 Define and maintain an appropriate cat view of risk methodology.
Foundational

Cat View of Risk Methodology••

View of risk is based •on simple
aggregations,scenario results•
and/or loss history.
Where used, material
expert judgement isclearly documented,
reviewed and subject
to challenge throughthe governanceprocess.

Intermediate

Established

View of risk may be•
driven by a model,
suitably validated.
Expert judgements
are frequently
reviewed and a wide
range of suitable
experts are consulted. •Advanced

View of risk informed •by in-depth analysisof specifics of own
portfolio and losses,
and assumptions andmethodology are•
well understood.
There is a clear
understanding bymodel users of whereexpert judgement isrelied upon.

View of risk develops
continually with loss
experience andemerging market andportfolio issues.
Where appropriate,expert judgements
are focus areas for
future modelling
improvements.

6 Implement appropriate risk-based validation of the cat view of risk.

Cat View of Risk Validation

Foundational
•

•
•

•

Model validation is•conducted as required
under SII standards
and requirements.
The model validation
process is clearly
documented.
Internal modelis back-tested against
claims and validated
against emerging
risks and expectedchanges in the risklandscape.
The sensitivity ofinternal model results
to key assumptions
is tested andunderstood.

Intermediate
Areas ofuncertainty andsensitivities ofthe model(s) used
are well understood.

Established•

Alternativemodels andassumptions
are considered,and model
choice decisions
are demonstrably
validated.

Advanced••Feedback fromvalidation is linked
back to other parts ofthe business such as
pricing/reserving/riskmanagement to help
with decision-making.
The programme ofmodel change isfrequently updated,
driven by validation
work, and material
progress made.

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CATASTROPHE EXPOSURE (NON-NATURAL CATASTROPHE)

7 Maintain a materially complete representation of cat in the syndicate view of risk.
Foundational

Cat View of Risk Completeness

•

•

•
•

Intermediate

Representation of•
non-nat cat risk in theinternal model ismaterially complete,
including risk•
emanating from prioryears.
‘Materiality’ of non-nat
cat perils is definedand considered.
Methodology andassumptions meet
Solvency II standards.
Emerging risks are
identified andassessed for possible
inclusion in theinternal model.

The approach toensuring
completeness is
documented.
There is frequent
review of
the appropriatenessof methodologies,
with resulting
development.

Established•

Modelling or•
adjustment takes
place using exposure
management data for
key perils to addressinternal model•
completeness,
supported by robust
justification (includingof materiality).

Advanced
A comprehensive,
forward-looking
process is in place toaddress internal
model completeness.
There is regularreview of modelled
perils consideringchanging risk profile,emerging risks anddeveloping issues.

Adopt a robust risk-based framework for managing changes to cat view of risk and exposure

Cat View of Risk and Methodology Change

8 management methodologies.
Foundational•

Non-nat cat
methodology change
is managed throughthe general internal
model change
process.

Intermediate••

Specific non-nat cat•
methodology change
processes feed intoand compliment thewider internal modelchange process.
Methodology
changes, timelines,
and effects arecommunicated ahead •of release.

EstablishedNon-nat cat model•and methodology
changes and theirimpacts are
documented at anincreasing level of•detail and discussedwith underwriters andmanagement.
Impacts on view ofrisk are considered
across the businessbefore making
decisions.

Advanced
There is a view of the
impact of model andmethodology changeon all materiallyrelevant areas.
Decisions arereasoned with adetailed
understanding of thepotential impacts, theuncertainty of thechanges and thelimitations of any
associatedcalculations.

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CATASTROPHE EXPOSURE (NON-NATURAL CATASTROPHE)

9 Maintain consistent understanding, use and continual development of cat view of risk outputs.

Cat View of Risk Use

Foundational•••

Simple outputs are•used in underwriting,portfolio reporting,and risk transfer
decision-making.
Capital is re-assessed
when required.
Simple eventresponse plans are inplace, including•
exposure analysis.

Intermediate

Established

Aggregation risk is•
considered preunderwriting for allmaterial exposuresand underwriters havea basic understanding •ofexposure. manageme
nt outputs.
Event-response loss
estimates consider
model limitations and •are compared to viewof risk.

•

Processes are in•place to identify andaddressinconsistencies
across the business.
Active feedback loops
exist between•
exposure
management, risk
appetite andreinsurance strategy. •The event response
plan integrates
claims, underwritingand exposure
management.
Internal model results
are reviewed regularly
and always when
there are changes inrisk profile.

Advanced
Aggregation risk
analysis is integrated
with underwriting,portfolio optimisation,business planningand capital-setting.
Event-response
considers
uncertainties and arange of outcomes.
View of risk is
consistent and wellintegrated; feedback
loops apply across allareas and use cases.

10 Have robust governance and oversight of risk aggregations.
Foundational

Governance and Oversight

•

•

•

•

There is an•established risk
framework, which
includes catastropherisk and exposure
management.
Board and senior
management
regularly discuss•material issues.
High-level
independent andinternal review
occurs.
Exposures and model
output are regularly
reviewed against
Lloyd's thresholds
and Lloyd’s approval
is sought for any
actual or foreseeable
exceedances.

Intermediate
There is anestablished andspecific exposure
management
framework, with
reporting to senior
management and theboard.
Regular reviews aresupported by secondor third line. Resultsof reviews include
clear suggestedchanges.

Established•••

Senior management •and boarddemonstrably
understand the modeland its limitations,providing challenge
when making key
decisions. Exposure
management committ
ees meet regularly,
have comprehensive
coverage of regions
perils and relevantlines of business.
•
Reporting is highquality and regularcommittees include
forward-looking
considerations.
•
Reviews are riskfocused andsupported by strong
independent review
from the second andthird line, andsuggested actions arecompleted in a timely
manner.

Classification: Confidential

Advanced
The modelled view ofrisk is widely used insenior management
and board decisionmaking. Senior
management and theboard understands,
challenges, andactively promotes thedevelopment of theview andmanagement ofcatastrophe risk.
The development of
exposure
management and theview of risk is actively
promoted.
There is a cycle oftargeted, forward
looking, deep-divereviews, with regularfollow-ups of relevant
findings to ensure
recommendations andimprovement points
are adopted.

66

3.
Outwards
ReinsurancePrinciple 3: Outwards ReinsuranceManaging agents should define and execute syndicate outwards reinsurance strategy and purchasingplans which effectively support the wider syndicate business strategy and objectives.

Principles

1

Have outwards reinsurance strategies and purchasing plans which are robust and reflect theunderwriting, exposure and capital management appetites of each individual syndicate, and thebest interests of the members of the syndicate​.

Foundation
•

•

•

•

•

Intermediate

The syndicate has clearly •articulated anddocumented
reinsurance design
objectives, the content of
which reflects the scaleand complexity of thearrangements•
The Reinsurance
Strategy and Purchasing
Plans reflect thesyndicate's underwriting
strategies and appetite
for retained insurance
risk and acknowledges
any potential risks thatthe reinsurance itself
presents.
Reinsurance Strategy•
and Purchasing Plans
are approved by the
syndicate’s Board (ordelegated committee),with the Purchasing
Plans reviewed annually.
The syndicate’s
Reinsurance Strategy
and Purchasing plan
includes a clear strategy
for the selection andapproval of allreinsurance
counterparties.
Any material
amendments to theReinsurance Strategy
and Purchasing Plans
are approved by the
Board (or delegatedcommittee) withdecisions and authorities
clearly documented.

Established

Reinsurance Strategy •and Purchasing Plans
are demonstrably partof syndicate's wider
underwriting, risk andcapital management
strategies.
•
The Board reviewsthe high level
economic and capital
performance of the
syndicate's
reinsurance
arrangements and•reviews the overall
reinsurance
strategy atappropriate intervals.
Evaluation ofreinsurers’
performance andstrategic alignment
with the syndicate
is carried out at
appropriate intervals.

•

Advanced

Reinsurance Strategy •forms a critical part ofthe syndicate's
medium to long termbusiness and capital
strategies.
Reinsurance
coverage and•costs are embedded
into the syndicate’srisk selection andpricing decisionmaking processes.
The syndicate’s
Reinsurance Strategy
and Purchasing Plans
are subject to a strong
independent review
process from thesecond or third line,
conducted byappropriately
qualified persons.
Feedback loops from
review actions aredemonstrablycompleted.
Reinsurance financials are validated bydedicated specialist
reinsurance
resource as part ofthe business planningand capitalsetting processes.

Regular horizon
scanning towards
emerging risks andopportunities is
considered andreflected within the
Reinsurance Strategy.
There is a cycle oftargeted/ forward looking /deep-divereviews taking place,with regular followups of all relevant
findings
to ensure recommend
ations andimprovement points
are adopted.

68Classification: Confidential

Principles
Have outwards reinsurance strategies and purchasing plans which are robust and reflect the

1 underwriting, exposure and capital management appetites of each individual syndicate, and thebest interests of the members of the syndicate​.
Foundation
•

•

•

•

•

•

Intermediate

Reinsurance Strategy •and Purchasing Plans
are considered
consistently
across businessplanning, exposure
management,
accounting andcapital setting
processes.
Reinsurance financials are validated byreinsurance resourceas part of thebusiness planningand capital setting
processes.
The syndicate’s
Reinsurance Strategy
and Purchasing planconsiders andcomplies with all
Lloyd's publishedsupplemental
requirements andguidelines.
The Reinsurance
Strategy andPurchasing Plans isreviewed when there
have beenchange in the
syndicate’s
circumstances, its
underwriting strategy,
or the status of
its reinsurers.
Reinsurance Strategy
is set collaboratively
with engagement
and feedback loops
between the relevant
stakeholders.
The reinsurance
coverage is includedin the internal modeland referred to by
wider business
functions.

See previous page.

Established••

Advanced

The syndicate’s•
Reinsurance Strategy
is subject to a detailed
efficacy andeffectiveness review;
this will include
investigating if theactual reinsurance
arrangements have
performed within theoriginal design
criteria, have satisfied
the reinsurance
objectives, and have
had the expected
impact on the
syndicate profitability
and capital targets.
The key reinsurance
coverage and risk
elements are includedin the internal modeland are modelled
effectively, with theoutputs usedconsistently by wider
business functions.

See previous page.

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Principles

2 Have appropriate systems, controls, procedures and expertise toenable the effective management of outwards reinsurance purchasing and recoveries.
Foundation
•

•

•

•

Intermediate

Written policies,•
supported bydocumented processes, procedures andresponsibilities, are inplace for the
management of•reinsurance
placements,
administration,
payments andreinsurance
recoveries
Outwards
reinsurance contract
terms affirmed before
commencement,•
and contract
documentation isreceived
and reviewed for
accuracy in a timely
manner•Reinsurance
premiums payable by
the syndicate are•charged to it and paidout of funds held,
controlled or
managed on behalf ofthe syndicate, andthat reinsurance
recoveries that are forthe benefit of the
syndicate are credited
only to thesyndicate.
Processes and datasystems may rely onhigh levels of key
person knowledge,
manual manipulation
with limited
automation orsecondary validation.

Established

Reinsurance contract •documentation
reviewed, assessed
for accuracy andprocessed in a timely
manner.
Processes and datasystems largely
manual but supported
by automatedsolutions with somein-built validation.
Processes are•extensively
documented, followed
and evidenced
Governance andcontrols are manual
but recorded in detail •with their objective,
activity and ownerdocumented•
Regular attestation oncontrol effectivenessby control owner
Extensive analysis isconducted to assess
effectiveness ofexisting and planned
syndicate reinsurance
protections (e.g., test
cases, different
scenarios etc.)

System(s) hold all
existing contract
information with theability to manage themajority of the
syndicate's contract
accounting for
associated cededpremiums,
commissions, andclaims, and providing
business reporting
Regular control
testing is completedwith feedback loops
from review actions
demonstrablycompleted
Dedicated specialist
reinsurance resource/ teams are used
Frequent monitoringof reinsurance
coverage utilisation,
erosion andexhaustion.

Advanced•••

Dedicated systemallows syndicate
to manage themajority of its
reinsurance activities
on a single platform
Senior Manager
responsibilities
with dedicated special
ist outwards
reinsurance team(s)responsible for
executing theReinsurance Strategy,
managing all aspectsof reinsurance
placements,
payments andrecoveries and risk
management utilisingtested andestablished policies
and procedures.
Second Line ofdefense has skills andexpertise to provide
oversight andchallenge ofReinsurance Strategy,
policies andprocedures.

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Principles

2 Have appropriate systems, controls, procedures and expertise toenable the effective management of outwards reinsurance purchasing and recoveries.
Foundation
•

•

•

•

Intermediate

Analysis and review is •undertaken of
the effectiveness ofexisting and planned
syndicate reinsurance
protections, including
specific
consideration ofcoverage utilisation,
erosion andexhaustion
Governance andcontrols may be
manual, high level
and with limited
automation.
A risk-based
approach is used
to select a
representative range
of(i)reinsurance protecti
ons to ensure
consistency ofapproach with the
documented
reinsurance policies &procedures(ii) risks, policies andcontracts underwrittenby the syndicate
to check that they
comply with any
reinsurance terms
and conditions which
apply(iii) claims to checkthat effective
reinsurance
recoveries havebeen achieved.
Appropriate outwards
reinsurance resourcein place withresponsibility forreinsurance
placement andadministration. Workis typically carriedout as part of wider
responsibilities.

Established

Regular monitoring of •reinsurance coverageutilisation, erosionand exhaustion

Advanced

A risk-based•
approach isused to regularly
select arepresentative rangeof(i) reinsurance
protections to ensure
consistency ofapproach with the
documented
reinsurance policies
and procedures(ii) risks, policies andcontracts underwrittenby the syndicate tocheck that they
comply with any
reinsurance terms
and conditions which
apply(iii) claims to checkthat effective
reinsurance
recoveries have beenachieved.

See previous page.

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Principles

3 Identify, monitor, evaluate and mitigate live and potential financial, operational, counterparty,
contract and liquidity risks arising from their outwards reinsurance arrangements​
Foundation
•

•

•

•

•

•

Intermediate

Risks relating to•existing or planned
reinsurance are
identified, quantified
and managed
appropriately,
including specific•consideration ofcontract andcounterparty
risks, and associatedliquidity risk
The syndicate's reins •urance strategy andmonitoring of live
and potential
risks form part of thewider enterprise risk
management
framework
Analysis of reinsurer's
financial strengthand group ownershipis undertaken before
deemed acceptable
and assessedannually thereafter
Regular investigations
into the driversof reinsurance aged
debts and disputes,
and other identified
risks
The syndicate’s
reinsurance
contract(s) andfinancial treatmentcomply with allapplicable
external regulatory
and accounting
requirements
and guidelines.
The reinsurance
control and risk
framework is subject
to periodic review
including internal
audit review.

Established

Regular monitoring•of reinsurer's financial
strength, groupownership andfinancialconcentration levels•
Frequent investigations into the driversof reinsurance aged
debts and disputes,
and other identified
risks
Risk appetites and
KRIs for the levelof reinsurance risk
transfer, financial
dependency,
reinsurer
concentration,
financial strength,
aged debts and•disputes are clearly
documented, and risk
position and actionplans reviewed twice
yearly.

Advanced

Risk appetites for•reinsurergroup concentrations
clearly articulated and •managedRisk appetites and
KRIs for the levelof reinsurance
risk transfer, financial •dependency,
reinsurer
concentration,
financial strength,
aged debts anddisputes are clearly
documented, andrisk position andaction plans haveregular, in-depth
review
As part of horizon
scanning for
emerging andsystemic risk, the riskof potential mismatch
between primary andoutwards reinsurance
wordings, which could
lead to future
coverage disputes, isperiodicallyconsidered andunderstood by the
managing agent.

Regular reinsurer
stress testingundertaken
Live monitoring ofreinsurer’s financial
strength, aged debts
and disputes, andother identified risks
Regular horizon
scanning
towards emerging
risks is considered
and reflected within
Risk Appetites, KRIs
and leadto enhancements,
systems, controls andexpertise.

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Principles

4 Have robust and effective monitoring, reporting and governance frameworks employed over theiroutwards reinsurance arrangements.
Foundation
•

•

•

•

•

Intermediate

Amendments and•risks relating toexisting or planned
reinsurance aremonitored, evaluatedand notified to
relevant•business areas,
committees andindividuals and thatappropriate and timely
action is taken to
manage and mitigate
the risks identified
Monitoring is largely
manual, backward•
looking/reactive andnotification is ad-hoc
and/or on a by
exception basis
External reporting•is efficient, timely withsome internal review
appliedApproval is requested
in advance from
Lloyd's forany deviations to the •syndicate's plannedor actual reinsurance
arrangementsthat would materially
impact the syndicate’s
SBF and / orcapital requirements
Roles, responsibilities
and reporting lines,
including reinsurance
purchasing
and signingauthorities, areclearly defined,
approved by
the Board andreviewed periodically.

Well definedmanagement
information andmonitoring framework
in line with Risk
Appetite & KRIs
Regular internalreporting with thelevel of granularity
reflecting thecomplexity, financial
materiality or level ofvariance, andoutlining any potential
risks to the audience;
Regulators
are informed inadvance of issues or
the missingof deadlines.
Breaches of authority
are logged,
investigated, notified
to appropriate
committees andindividuals, andremediates
There is specificreporting tailoredfor each senior mana
gement individual/group or committeethat enables key
decisions to be made.

Established
•

•

•

•

Advanced

Early warning•
indicators, clear
escalation anddefined, governed
response in the eventof control failures,
breaches ofprocesses, policies orauthorities
Regular, timely
detailed internalreporting by line ofbusiness / class /portfolio / reinsurer
as deemed material,with views of multiple
metrics whereavailable. Technicalelements are clearly
explained to theintended audience.
External reporting is
an extension ofinternal reporting, iswell-governed andreviewed by multiple
levels ofmanagement.
A Committee of theBoard has been
appointed to oversee
the implementation of
the Reinsurance
Strategy, Purchasing
Plans and to monitor
and manage any live
or potential risks, andmeets quarterly.

Internal reporting,which can berefreshed quickly,
showing multiple
methodologies and/or
views of risk,
including projectionof future positions.

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4.
ClaimsManagement

Principle 4: Claims Management
Managing agents should ensure that they have a claims commitment in place which is designed todeliver a high-quality claims service which includes a prompt and fair customer service, efficient andeffective claims handling, and compliance with legal and regulatory obligations.

CLAIMS MANAGEMENT
Claims related information and knowledge is available and used pre-emptively in

1 business planning and wider syndicate performance management.
Foundational•

Intermediate

Managing agents can •demonstrate how theclaims function("Claims") supports
syndicateperformance/
preparation anddelivery of the
syndicate businessplan.
•

EstablishedThe syndicate•
business plan is
carefully assessed todetermine the impact
on Claims, including
consideration of
resourcing
requirements and theimpact on processes
and systems.
Claims planning is
synchronised to thesyndicate businessplan with clear
associated objectives •and targets, and withdetail of how claims
may contribute to
overall syndicate
performance.

Advanced

Claims management is •fully embedded within
all layersof management
activity and the
involvement of theclaims function in
the businessplanning process
and syndicate perform
ance is proactively
sought, formalised andappropriately governed.
Regular review
of progress against
business plan(s) is
conducted withthe claims function
and suitableclaims related
remedial actions aretaken swiftly
where necessary.

No guidance at
Advanced.

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CLAIMS MANAGEMENT
The claims environment and infrastructure enables effective servicing at an appropriate level of

2 sophistication, through the retention of adequately and suitably skilled resource, underpinned bya strong claims culture and continuous education.
Foundational•••

Intermediate

A simple resource•
model is establishedwhich supports
delivery of the claims
commitment andconsiders resourceand skills. A review ofthe model iscompletedperiodically. Provision
is made for adequate
contingency, surge
and succession
planning as•
appropriate for the
portfolio composition.
Adequate training toallow claims handlers
to fulfil their
responsibilities which
will include mandatory
training on relevantlaws, regulations and •market protocols.
Identification andsimple manual
segmentation androuting of claims is inplace (e.g. bycomplexity, class ofbusiness) and is
supported byassociated basic
management
reporting.

EstablishedA developed resource •model is in place andregularly measured
and monitored. The
model assesses
actual vs planned
resource and makes
adequate provision forservicing all aspectsof the claims function,
which may include
non-core claims
handling activities.
Training anddevelopment isreviewed and•assessed on a regularbasis which includes
gap analysis to
identify and address
training anddevelopment needs.
Identification androuting of claims
based on a definedsegmentation model, •with workflow andassociatedmanagement
reporting.

Advanced•
A dynamic
resource model isinformed by in-depth
analysis, and suitably
stress-tested. The
model
facilitates planning
using both historicalinformation andtrending analysis toforecast
for anticipatedresource needs –mitigating against
potential volatility.
Trainingand development pro
gramme is continuallyassessed anddelivered to ensurehandlers have therequisite skillsets andbehaviours to deliver
against the claims
commitment.
Refinedworkflow model
facilitates
the streamlined handli
ng/management ofclaims andrelated tasks toensure the task isbeing handled by theright person, in theright place at the righttime.

No guidance at
Advanced.

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CLAIMS MANAGEMENT
Claims are handled efficiently and effectively, ensuring active claims and lifecycle management

3 remains appropriate combined with a framework designed to facilitate continuous improvement.
Foundational
•

•

•

•

Intermediate

A framework covering •processes,
procedures andcontrols to supportdelivery of aneffective and•appropriately
customer focusedclaims service.
Core documented
processes andprocedures arerevisited periodically,
with adherence to•procedures monitored
using exception
reporting. A level ofquality assurance
programme (e.g. peer
review and claims
audit) is in place toprovide qualitative
oversight.
Documented
processes address
Lloyd's Claims
Scheme, local
regulatory
requirements andmarket protocols as
appropriate for thecomposition of theportfolio.
Claims processes,
controls and tools areappropriate for the
portfolio composition,and may be manual.

Established

Processes,•
procedures andcontrols support
lifecycle claims
management.
There is regularassessment of end-toend processes,•
procedures andcontrols to help
identify opportunities
for improvement inclaims service.
A wider level ofquality assurance•
programme is in place
to provide qualitative
oversight including
adherence to the
Lloyd’s Claims
Scheme.

Advanced

Processes, procedure •s and controls
advance policyholder
experience, shorten
claims lifecycle
and/or manage
operational costs.
Reporting output
is monitored
for meaningful
insights into
opportunities
for improving theclaims service.
Target driven
claims lifecycle overs
ight with a clear focus
onensuring meaningful
touchpoints of a claim
to deliver against
the claims commitment.

No guidance at
Advanced.

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CLAIMS MANAGEMENT

4 Delivery of accurate and timely case reserving through robust reserving processes and practices.
Foundational
•

•

•

•

Intermediate

A case reserving•
philosophy andsupporting casereserving procedures
are in place, outlining
broad expectations
around reserve
timeliness andaccuracy.
Case reserving data
provides insights into •the accuracy andtimeliness of reservesat an aggregate level.
Systems and controls
in place to monitor
large losses, use ofadditional case level •reserves (i.e. IBNR
and IBNER) andadherence toauthority levels. On
lead claims, followers
are advised of
relevant reserve
information on atimely basis.
Regular communicati
on between
underwriters, actuari
es and claims
occurs to identify casereserving risks, with
mitigating actions
implemented
effectively.

Case reserves areproactively managedwith regularassessment of theirappropriatenessthrough informative
case reservemeasures and aquality assurance
programme.
Case reserving
rationale which
adheres to the casereserving philosophy
is clearly
ascertainable onclaims files.
Controls extend toinclude a claims
watchlist which ismaintained andregularly monitored
and shared for large
claims and otherclaims of interest.

Established••

Advanced

Detailed case•reserving measures
are utilised andmonitored including
accuracy, timelinessand consistency(supported by acomprehensive
qualitative
programme) andare overseen by
relevant committees.
These allow fortargeted insights into
trends, themes,benchmarking andsystemic issues which
are shared within thebusiness on a crossfunctional basis withappropriate action
taken.

A relevant global viewof reserving trends
and themes is sought
and utilised, throughavailable external andrelevant industry data.

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CLAIMS MANAGEMENT
Claims management through third-party service providers and third-party experts delivers the

5 claims commitment and supports syndicate performance.
Foundational•••

Intermediate

Third-party service•
providers (e.g. third
parties handling
claims on behalf ofthe managing agent)and third-party
experts are only used
where this aligns to
the managing agent•
outsourcing strategy,
with documented
rationale. The
outsourcing strategy
is informed by thewider business•strategy and is kept
under review.​
Claims are involved
appropriately in thedue diligence (preplacement), theagreement of contract
terms and service
standards,
performanceoversight against
service expectations
as well as
remediation, regular
audit and termination
decisions.​
Key claims
expectations aroundthe appointment andmanagement ofexperts are
documented andunderstood by
impacted parties.
Composition of theexpert panel isaligned to thebusiness needs andregularly reviewed.

Established

Robust oversight•framework monitoringof third-party service
providers’performance against
clear and agreed
service levels, withtimely actions taken.
Effective audit
programme utilised to •monitor quality ofservice delivered (andany actions identified
quickly remediated).
Experts' performanceagainst expectations
and budget is actively
monitored with swift
action taken whereexpectations are notmet.

•

Advanced

A clear and•considered
outsourcing appetiteand strategy whichsets out the quality
required of any
assigned third-party
service providers andexperts.
Detailed management
information reportingfrom third-party
service providers
allows regularassessment of
performance against
agreed service levels
and utilises
comprehensive KPIs
and qualitative
insights. Evidence ofswift and proactive
performanceintervention if
required.
Regular reporting onthird-party service
provider costs andlegal costs withregular assessment
and reporting ofrelative value
delivered by thirdparty
service providers andthird-party experts.

Evidence of a clear
culture where thirdparty service
providers and experts
are considered andtreated as anextension of theclaims function; withthe providers
mirroring the claims
commitment of thebusiness, withcommensurate
onboarding andoversight processes.

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CLAIMS MANAGEMENT
Claims performance, customer experience and opportunities for improvement are regularly

6 assessed using both data and qualitative assessment.
Foundational•••

Intermediate

Performance•assessment andidentification of
improvement
opportunities is basedon high-level data
points and qualitative
insights.​
High-level monitoring •measures applied tothird-party service
providers typicallyfocus on volumes andvalues of claims andincurred development.​
Performanceassessment and•outcomes aremeasured quarterly
with resulting actions
taken within the
Claims function.

Established

Wider data points and •more detailed
qualitative insights areused for performanceassessment andidentification of
improvement
opportunities.
Third-party measuresextend to include abase line set of•
performance oriented
metrics andqualitative insights
linked to clear andagreed service levels.
Outcomes from•performanceassessment are
distributed via
feedback loops thatexist within thebusiness withappropriate action
taken.

Advanced

Comprehensive•
resources are used
for performanceassessment andidentification of
improvement
opportunities utilisingaccess to extensive•
data points and deep
qualitative insights.
Measures applied tothird-party providers
includecomprehensive KPIs
and qualitative
insights.
Performance ismeasured at least
every thirty days via a •clear programme
consisting of regular,
structured anddemonstrable
feedback loops withall relevant disciplines(including productdevelopment) andclear ownership exists
within the business atmanagement level to
implement therequired actions bothfor continuous
improvement
opportunities andaddressing outlying
performance.

External sources of
feedback and insights
are used to informtargeted andmeasured
improvement
strategies.
A direct connection
exists between theclaims commitment of
the business and the
KPIs and qualitative
insights utilised tomeasure performanceboth within thebusiness andassigned third-party
service providers.
Evidence of a clear
culture that supports
and drives continuous
improvement fromassessment andoutcomes with afrequent review andapplication oflearnings by executive
leadership to help
drive businessdecisions.

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5.
Customer
Outcomes

Principle 5: Customer OutcomesManaging agents should embed a culture and associated behaviours throughout their business toensure that they consistently focus on good customer outcomes and that products provide fair value.

CUSTOMER OUTCOMES

1 Ensure the conduct culture set by the board promotes good customer outcomes throughout the
product lifecycle and supports the protection of Lloyd's brand, reputation and regulatory
standing worldwide.

Foundational•••

Intermediate

Members of the board•
demonstrate their commitment
to the defined conduct culture
through their decision taking,and this is also promoted inappropriate presentations andcommunications both internallyand with third parties.
There is strong customer
challenge in connection withbusiness planning and strategy.
Suitable information is madeavailable to the board to enable
them to assess whether the
conduct culture is embedded
throughout the business.

No guidance at Intermediate.

Advanced•

No guidance at Advanced.

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CUSTOMER OUTCOMES

2 Design and oversee products through suitable governance structures that meet the expectationsof the target market.
Foundational

Intermediate•

The oversight and design /•assessment of a product and / orservices follows an established,structured process which ensuresthat the product/services provide
good customer outcomes. Where
products/services are delivered toconsumers, micro enterprises and/or
SMEs, procedures are suitably
designed and include adequatelevels of customer challenge.
•
Generally, this will be through a
product oversight group.
Oversight of products/services
provides challenge, covering but notlimited to assessment of;• fair value• the target market• product wording (easily
understood and suitable forthe target market)• the pricing structure including
rates and associateddistribution charges• the suitability of entities in the
distribution chain• sales process• posts sales services• the end-to-end customer
journey.

•

All products and services areoverseen through a suitable
governance structure whichfacilitates appropriate levels ofreview and reporting.
Product and service
design/assessment is driven
by the underwriting of larger
commercial risks using and/or
based around standard market
wordings.

Advanced
Product/service oversight isachieved through a formal
Product Oversight Group(POG) with responsibilities
assigned by and reporting to
the board. All appropriate
business areas are
represented, with suitably
broad responsibilities andauthority.
Thorough and robust
customer challenge isconsistently demonstrated
which may include forexample more regular review
of detailed MI by the board
and a culture of continuous
improvement is supported.

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CUSTOMER OUTCOMES

3 Ensure there are no barriers to easily accessing clear and fair sales and post sales services.
Foundational

Intermediate

Advanced•

Sales and post sales services are •overseen through an established,structured process which ensuresthat:• the product and services
provide good customer
outcomes• sales and post sales
processes are suitable for thetarget market• products are only sold to thetarget market• clear and understandable
appropriate information isprovided to policyholders in atimely fashion• marketing and financial
promotions are clear, fair andnot misleading• incentivised selling schemes
are suitably controlled (e.g.
incentives should promote
quality/customer value notvolume)No guidance at Advanced.

Processes are in place toensure that all customers anddistributors receive information
at the right time.

Deliver fair and prompt claims and complaints handling services in line with a clear servicing

4 commitment.

Foundational•

Intermediate

There are no barriers to•making a claim or complaint.
Claims and complaints
handling services are deliveredin line with a clear servicing
commitment.
••

Claims services are suitable•
for the product and the target
market, promoting good
customer outcomes at all
times.
Progress updates on claims
and/or complaints are readily
provided to appropriate parties.
Complaints are handled inaccordance with Lloyd's
complaints handling rules andrequirements.

Advanced
No guidance at Advanced.

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CUSTOMER OUTCOMES

Engage, manage and oversee third-party service providers in accordance with the outsourcing

5 strategy and the standard of service set by the managing agent
Foundational••

6

Intermediate

Processes are in place to•ensure that appropriate due
diligence is completed andperformance is suitably
monitored.
Terms of delegation andapplicable service standards,
reporting and audit obligations
and termination provisions are
established and clearlycommunicated to third-party•
service providers.

Pre-engagement assessments
used to establish that third-party
service providers have thecapabilities to sell and service
the specific products to theidentified target market and tomeet the service standards
expected both in relation tooperational performance andcustomer outcomes.
Suitable quality control
programmes are in place toensure that product and service
specific goals and performancetargets for operational andqualitative outcomes are met.

Advanced•

Frequent engagement withthird-party service providers
to, for example, share
information and provide
training to improve services
and ensure more consistentdecision making.

Ensure regular and robust oversight of customer outcomes is achieved, using data andqualitative assessment
Foundational
•

•

•
•

Intermediate

Regular qualitative and•quantitative MI and insights
relating to products andservices are available to thebusiness and used to informcustomer focused businessdecisions.
A risk-based approach should
be adopted to the frequency
and scope of audits of thirdparty service providers.
There is an effective conduct
training programme in place.
•
Underperformance isescalated through establishedchannels and corrective action
is taken in a timely manner.

••

Advanced

Regular monitoring of qualitative •and quantitative sales and post
sales, claims and complaints MI
is conducted covering the end to
end product lifecycle. This
includes analysis of the•performance of
products/services whether
provided in house or by thirdparty service providers with aparticular focus on customer
outcomes.
Effective feedback loops are•used to inform relevant areas of
the business and to ensure that
improvements are made to
products and services whereappropriate.
For high product risk businessaudits should generally be
conducted on a least an annual
basis.
Conduct training is tailored to thespecific requirements of theindividual's role.

Quality assurance
programme is in place tofacilitate process
improvement at all stages ofthe product lifecycle.
Managing agents are able toanalyse MI in a sophisticatedway including being able todrill down into specificactivities, third party service
providers, products, services
and/or risks.
Focused external audits toensure independent
challenge of processes.

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6.
ReservingPrinciple 6: 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.

RESERVING

1 Have clear governance and ownership of the reserves.

GovernanceFoundational•••

Intermediate

Roles and•
responsibilities inreserving process aredefined with sufficient
time built into process
for senior review andchallenge.
Documentation of
approach exists, is up
to date and covers all •material aspects.
Recommendations
from the actuarial
function are clearlypresented, enabling
the board to prioritise •the recommendations
under consideration ofother organisational
needs.

Established

There is a clear•
review framework for
setting reserves withowners of eachreview stage
highlighted at eachstage of the process
and sufficient time
allocated for review.
•
Key assumptions andmethodology are well
documented andthere is evidence ofchallenge frominternal review.
Documentation of•
approach covers all
aspects and is clearly
signposted.
•

Advanced

The owners of each•stage of the process
are regularly reviewed
to ensure sufficient
subject matter
expertise andchallenge is•being provided.
Review time with key
stakeholders including
those outside of thereserving function is
set in advance with
sufficient time to allow
for feedback loops.
Review of previous
challenges is
considered as part of
the next reserve
setting process.
Comprehensive
documentation exists
for key assumptions,selections andresponses to review
points.

There is discussion ofreserve estimateswith senior
stakeholders prior to(and post) committee
meetings.
Documentation is wellstructured, intuitiveand easy to follow.
Key actuarial
judgements are
justified appropriately
and there is clear
signposting ofmaterial
considerations,review points andsubsequent actions.

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RESERVING

1 Have clear governance and ownership of the reserves.

Ownership of reserves

Foundational•••

Intermediate

There is ownership of •reserves by the board
for financial
accounting andsolvency.
The board takes
direct action given
movements inhistorical reserves, inparticular seeking
assurance on reserveadequacy following
any material
movements. Where
appropriate thisextends to lessons
learned and changes
to the reserving
process andgovernance.
The board and otherfunctions use
reserving estimates toassist with strategic
business decisions.

Established

Timely and decisive•
action is taken by theboard in response toconcerns raised about
the adequacy ofreserves or allowing•
for potential
uncertainty.

Advanced

Actions taken by the •board are sufficient in
depth to prevent
similar issues fromreoccurrence.
Decisive action istaken or plannedby the board to help•
maintain a levelof reserve strength inline withthe syndicate’s risk
appetite.

The board demands
cross functional deep
dives on areas ofconcern prompted bymaterial movements
or significant
uncertainties.
There are well defined
feedback loops toallow for findings
raised as part ofownership of reserves
being applied more
broadly to drive
improvements inother business
functions.

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RESERVING

1 Have clear governance and ownership of the reserves.

Board challenge

Foundational
•

•

•

•

•

•

Intermediate

The board•understands
reasoning behind
level of reserves set,
drivers ofdeteriorations/reserve releases and •key uncertainties
including linkages
between reserving
and other parts of thebusiness.
There is appropriate
challenge on theappropriateness of
the reserves set.
There is good•understanding of themethodology andassumptions in thetechnical teams.
Training is provided tothe board tounderstand regulatory
requirements andrequests are raisedfor training where
there is an identified•
need.
The boardunderstands thematerial uncertainties
and potential impact
on reserves.
•
Where there arematerial differences
between the internaland external
estimates these areunderstood andchanges in view areconsidered.

EstablishedThe board has a wide •range of experienceand is able tounderstand technicalconcepts presented tothem.
The board is able toprovide strong
challenge on
information presented
in committees which
improves reserveadequacy andconsiders relevant
historical and external •information.
The board is adept in
picking up on
emerging issues. The
board understands•
how these impact theuncertainty of thereserves and how
these have been
allowed for in thereserve setting•
process.
The board engages athird-party (external orinternal) toindependently review
the reserve
estimates.
Where there arematerial differences
between the internaland external
estimates, NEDs
consider if a further
conversation with theexternal provider isrequired.

Advanced

The board has a clear •understanding of thereserving process,key actuarial
techniques andmarket issues.
Limitations are•understood andtargeted challenge isprovided onassumptions,
methodology andoverall results to help
make key decisions.
The board is proactive •in requesting
additional information
or exhibits to help
their understanding.
The board is able toprovide additional
insight based onwider views of thebusiness and the•market.
The board understandthe less material
uncertainties andpotential impact onreserves.

Pre-committee
challenge is clearly
documented and any
material changes arehighlighted to themain committee.
The board is able toprovide guidance on
future deep diveexercises to help
improve the reserve
setting process or
better understandpotential uncertainty.
Training is proactively
requested andprovided to ensure
the board can provide
effective challenge on
a broad range of risks
including both
emerging and lessmaterial risks.
NEDs undertake
closed conversations/sessions with internal
actuaries.

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1 Have clear governance and ownership of the reserves.

ReportingFoundational••

Intermediate

Committees are•scheduled regularly
with an appropriate
mix of attendees toensure sufficiently
senior oversight andtechnical experience.
Reporting to the•board on reserving isaccurate and provided
regularly;
accompanied byanalysis which
includes somediscussion in broad
terms of emerging
experience, key
assumptions,
uncertainties andmarket conditions;and includes relevant
external information.

Established

Reporting is efficient •and key metrics arereviewed regularly
and adapted in linewith feedback toensure sufficient
coverage and insight.
Quality ofmanagement
information enables
issues to be identified
quickly.

Advanced

Reporting to the•board includes
sufficiently detailed,appropriate andtailored information on
emerging experience,
key assumptions,
uncertainties, market
conditions andexternal information,in order for key
messages to behighlighted effectively •and facilitate board
challenge.

Advancedvisualisation
techniques are used
to highlight key
messages to theboard and focus
attention on mostmaterial issues aswell as allow flexibility
for the board tounderstand more of
the detailed results.
Board information
includes how analysis
has been impacted by
key metrics fromother functions.

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2 Make appropriate allowance for uncertainties when setting reserves.

Uncertainties

Foundational
•

•

•

•

Intermediate

Actuarial•
Function produce areasoned analysis on
the reliability andadequacy of thecalculation of theTechnical Provisions(TPs) and on thesources and degreeof uncertainty in the
TPs. This includes
parameter uncertainty •and process
uncertainty.
Explanation isprovided as to why
actual results may•
differ from point
estimates. This will
include market
conditions, general
uncertainties as well
as specific classuncertainties.
The drivers ofdifference between•
syndicate view ofreserves andStatement of Actuarial
Opinion(SAO) actuary/extern
al view are clearly
understood by the
Actuarial team withmaterial drivers
communicated to theboard.
Distribution analysis
is carried out at
appropriately regularintervals and is used
to understand theshape of the reserve
distribution and whatpercentiles the heldand best estimate
reserves sit at.

EstablishedA range of reasonable •best estimates oradditional high andlow point estimates
are produced at
appropriate intervals
with high level
discussion of thisanalysis between the •board and theactuarial function.
The calculation of therange ofestimates considers•
the most material
uncertainties.
The syndicate’s heldand best estimate
reserve relative to therange is clearlycommunicated to theboard as well as whatany ‘high’ and ‘low’
estimate represents in •percentile terms.
Additional distribution
analysis is carried out
after predefined
triggers are activated(such as after a shock
event).
•

Advanced

Detailed analysis is•performed tounderstand a wide
range of uncertainties
and where material,
distribution analysis isused to give context
around this.
Key expert
judgements used insetting the range areclearly documented
and justified.
•
Input from otherfunctions is used tohelp determine
relevant uncertainty
analysis, e.g. claims
team view on
potential downside on
existing claims orinsights from any
watchlist analysis.
The boardunderstands
limitations in theapproach to setting
the range and which
scenarios are notcaptured within therange.
Operational
uncertainties within
reserving process are
set out with additional
focus placed on thosewhich could cause
systemic process risk
across reserve
classes.

Processes are inplace to identify future
potential risks andanalysis is performed
to understand andquantify exposure tothese risks. A view ofthe likelihood andseverity of these risks
are formed and this isused to help feed into
uncertainty analysis.
Progressive
techniques (such asmachine learning) areconsidered toefficiently analyse
data and provide adeeper understandingof key risks thatshould beincorporated into
uncertainty analysis.

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Use assumptions to set reserves which are realistic, transparent and consider historical

Assumption setting

3 experience.

Foundational

Intermediate

•

•

•

•

•

Assumptions areclearly documented
and justified withconsideration tohistorical experience.
Assumptions are
realistic and do not
rely solely on pricing
analysis / planning.
Validation is
performed whereassumptions are notderived from own
data.
Where selectedassumptions deviate
from what is impliedby historicalexperience, this isclearly justified.

•

•

•

Established

Experience analysis•
or comparison tobenchmarks is used
to help understand if
assumptions arereasonable.
Deep dives arescheduled in advanceand consist of mixed
discipline teams.
Sensitivity testing is
performed on key•
assumptions withclear documentation
on materiality ofassumption onreserves and•validation for point
estimate selection.
Reserving team isable to categorise/rank assumptions
used relative tomateriality of impact
to the technicalprovisions calculation.
•

Advanced

A range of factors are •considered whensetting assumptions
including historicalexperience, emerging
experience compared
to expectations,market benchmarks,
pricing informationand external data
sources.
Third-party views aresought out for lines of •business where thereis particular
uncertainty.
Assumptions areappropriately tailoredto the syndicate's mix
of business and 'as-if'
analysis is carried out
to derive assumptions •where there has beena change in mix ofbusiness orremediation actions.
Input from thedifferent functions issought to ensure
consistency in views
across the business(or understanddifferences in view)and to ensure thatemerging risks areappropriately allowedfor (e.g. inflation
assumptions).

A range of diagnostics
is used to assess thereasonableness of
selected assumptions,making use ofadvancedvisualisation
techniques, forexample, to identify
trends in the historical
data or changes in themix of business.
There is a deep
understanding of thechanges in theportfolio over time.
Detailed portfolio
analysis is performed
to support assumption
setting whereappropriate.
Wide range ofexternal opinions aresought, in particular
for lines where Initial
Expected Loss Ratios(IELRs) are highly
uncertain or there ismaterial uncertainty
over certain
assumptions. This
may include
benchmarks,
broker/reinsurer view
and/or an external
consultancy view.

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Use assumptions to set reserves which are realistic, transparent and consider historical

3 experience.

Emerging Risks

Foundational••

Intermediate

The actuarial team•considers emerging
risks when selecting
reserve estimates.
Allowance is made for
emerging risks basedon market
information,
exposures and workwithin the business.

Established

Emerging risks are•
regularly monitored
and any new
developments are
considered as part of
the reserving process.

••

Advanced

Cross functional•
working parties are
set up to better
understand material
emerging risks andalso viewpoints whenselectingassumptions. A chair
is appointed with clear
actions and follow up.
External views on
emerging risks are
considered to assist•
with selecting
reserves.
Where casualty ismaterial to thesyndicate, the•actuarial teamconsiders crossfunctional deep diveson a regular basis toinvestigate known or
new emerging areasof risk.

Materialdevelopments andfindings in relation to
emerging risks are
discussed atcommittee
level ensuring thecross functional viewand differences are
considered whensetting reserve
estimates.
Summary of theworking party findings
on emerging risks arepresented to theboard.
The key emerging
risks and
uncertainties
identified by the
syndicate areconsidered as part of
the reserving process.
This is used to help
support best estimate
assumptions,
uncertainty analysis
and Events Not In
Data(ENID) allowances.
Justification isprovided for treatmentof emerging risks inestimates and why
the approach adopted
is appropriate.

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RESERVING
Identify, understand and justify any differences in assumptions between reserving and other4 functions.

Consistency of assumptions

Foundational•••

Intermediate

Feedback loops are•scheduledoccasionally andthere is somedocumentation
around thejustification for•differences in view.
Early insights oftrends or experience
not in line withexpectations being
seen by otherfunctions are
considered by thereserving team whensetting theirassumptions (e.g. anincrease in claims
notifications or notwriting business inline withexpectations).
Material assumptions
and differences
between crossfunctional views of
relevant assumptions
are discussed andjustified at committee
level.

Feedback loops arescheduled regularly
with sufficient timeembedded to allow
meaningful
discussion.
The differences inassumptions used
between different
functions across thebusiness is
documented andvalidated with a clear
owner, updated
annually.

Established••

Advanced

The reasons for any•
divergence inassumptions between
reserving and otherfunctions2 are clearlyjustified and isevidenced by data.
Where appropriate,•
additional data isrequested from otherfunctions to help
supplement thereserving analysis.

•

There is a continuous
feedback loop
between reserving
and other functions*2
to highlight key trends
that may impact
assumption setting.
Differences inassumptions used
between functions areclearly documented,
justified and assessedas part of theuncertainty
quantification.
The board is able tounderstand andaccept these key
differences andprovide challenge tothem.

2. Functions” may include, but are not limited to, Capital, Pricing, Planning, Underwriting, Claims, Reinsurance andExposure Management teams.
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RESERVING

5 Periodically and objectively challenge the reserving processes and assumptions.

Experience Analysis

Foundational•••

Intermediate

An actual versus•
expected and ultimate
loss ratio
development analysis
are undertaken as
part of the validationof technical provisions
at the appropriate
level of granularity(which takes into
account theheterogeneity of data
within class groups).
The breakdown of thechange in ultimate
claims compared toprior analysis isclearly understoodand the actuarial
function is able tocoherently describe
drivers of experience
over the period andother contributors to
the change.
Changes inassumptions
compared to prioranalysis are clearly
understood,
documented andcommunicated by theactuarial function.

Triggers are set atclass and aggregate
level to flag areas
which potentiallyrequire investigation
into theappropriateness ofassumptions. For
example, when theactual vs expected
analysis falls outsideof an acceptable
range,
an investigation isconsidered.

Established••

Advanced

Periodically, analysis •of actual versus
expected movements
over a longer periodof time are considered
to understandwhether there issystemic over orunder-estimation of•reserves. Similarly,
this is performed forcatastrophe
estimates.
Review of specific
IBNR provisions
compared to claims
watchlists
movements help
identify whether
exposure topotentially large
claims isappropriately allowedfor.

Diagnostic tools areused to efficiently
analyse data in aconsistent way suchthat emerging trends
are identified inadvance of reserve
setting.
Additional analyticalinsight into reserve
movements is
obtained from having
strong link ups
between the actuarial
function and theclaims andunderwriting teams.

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5 Periodically and objectively challenge the reserving processes and assumptions.

Process challenge

Foundational
•

•

•

•

•

•

Intermediate

Reserving process is •periodically reviewed
as part of external
audit withrecommendations/findings presented to theboard, with clear
actions, owners,
timeline and priority
categorisation foreach recommendation
to be addressed.
Internal audit have a •plan to periodicallytest the reserving
process and controls.
A clear action plan is
put in place toaddress any external
or internal audit
findings withproposed due dates.
The board periodicallyseeks a selfassessment by the
Actuarial Function of
the reserving processwith clear findings
included within the
Actuarial Function
Report.
An independent peer
review of the reserves
is undertaken as per
APS X2.
Appropriate training
requirement for theprocess reviewer toenable consistent
results andadequate process
challenge.

EstablishedFeedback is collated •after each fullreserving cycle tounderstand where theprocess is performing
well and where further
improvements could
be made. This covers
the full scope of thereserving processfrom planning to final
reporting.
Feedback is collected •from the reserving
team as well as usersof reserving output
and those inputting to
the reserving process.

•

Advanced

Reserving processes •are regularly reviewed
and challenged
holistically, i.e. all
aspects of theprocess are reviewed
beyond identificationof process
improvements as partof thequarterly/annual
process.
There is acomprehensive
understanding of•process limitations
and strengths which isclearly documented
along with potential
resolutions. Where
possible, the impactof any process
limitations arequantified.
An action plan is in•place to address
process limitations
and improve process
efficiency (whereappropriate).

The board engages athird-party (external orinternal) toindependently review
the syndicate’s
reserving process.
The scope of review
covers process,controls andgovernance with
sufficient time allowed
for the review andengagement with key
stakeholders
facilitated.
Recommendations
and key findings are
discussed andmanagement actions
set. Each
recommendation is
assigned a priority
level and proposeddue date.
The frequency of thisthird-party review isoutlined as part of the
syndicate’s risk
management process;including conditions
which would trigger
more frequent review.
It is expected that thefrequency of thesereviews would behigher where there
have been continual
deteriorations or
where there havebeen material findings
from previous reviews
or by Lloyd’s.

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5 Periodically and objectively challenge the reserving processes and assumptions.

Assumptions challenge

Foundational••

Intermediate

Reserving team can•clearly articulatechanges toassumptions and / orreserving
methodology and thisis clearly signposted
along with impact•
shown inmanagement
information supplied
to the board.
Assumptions arechallenged at eachstage of review andcover the mostmaterial aspects
relating to theestimation ofreserves.

Established

Diagnostics are•produced to help
senior management
understand andchallenge theappropriateness ofassumptions.
Sensitivity testing isundertaken to assess •the appropriatenessand materiality ofassumptions.

Advanced

Estimates and key•
assumptions arecompared to those of
the independent
reviewer and reasonsfor differences
understood andclearly articulated.
There iscomprehensive
challenge of all•
assumptions relevantto the reserve setting
process.

Assumptions
underlying classes
where there arematerial differences inview of reserves tothird-party arereviewed in detail andare a consideration
when selecting future
deep dives.
There is a continuous
process of monitoring
the reasonableness ofassumptions as new
information becomes
available withregularly scheduled
touchpoints for a deep
dive on assumptions
review.

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5 Periodically and objectively challenge the reserving processes and assumptions.

Validation

Foundational••

Intermediate

A robust procedure is •in place for thevalidation of reserves.
Assumptions areclearly justified withlimitations anduncertainties clearly
outlined.
Objective challenge isprovided considering
material
movements and key
reserving outputs(including theStatement of Actuarial •Opinion and Actuarial
Function Report).

•

Established

There is a clearly•
defined set ofprocedures to assess
the appropriatenessof the reserving
process andassumptions. This
includes but is not
limited to experience
analysis, review of
key diagnostics andconsideration ofmarket/emerging
issues.
Reserve risk
limits/tolerances(such as AvE
thresholds) are inplace and wherethese are materiallybreached, there isdiscussion and swift
action by theauthorised committee
to remediate.
The outcome of the
independent reserve
review is discussed at
audit committee. Any
material
differences between
the managing
agent and the
independent reserve
review arecommunicated to theboard with sufficient
information supporting
why their selected
reserves remain
appropriate.

Advanced

The outcome of the•
independent reserve
review leads to further
discussion of key
findings anduncertainties within
the risk function.

•

•

•

There is an extensive
framework in place forvalidating reserves
including structured
internal review as wellas independent
external review. The
scope of validation
covers process,controls, governanceand estimates.
Key thresholds to thevalidation metrics are
documented which
may drive changes inassumptions.
The outcome of the
independent reserve
review is discussed at
the audit and risk
committees with aclear action plan tofurther investigate oraddress any key
findings.
Risk committee chairs
are briefed in advanceby CRO enabling
constructive challenge
during Risk
committee meetings.

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Set best estimate reserves in line with Solvency II principles, with any allowance for UK GAAP

6 margins set explicitly in addition.
Foundational
•

•

•

•

Intermediate

Held estimates are no •less than theStatement of Actuarial
Opinion (SAO)
provider’s estimatedreserves for each
open year of account.
Approaches to assess
explicit margin and•margin requirements
are high level. Thereis some further
analysis performed tolink explicit margin topotential downsides in
the reserves.
The allocation of
margin (where held)
to class of businessand year of accountlevel is reasonable
and appropriatelyreflects the risk profileof the reserves.
Margin is regularly
monitored against thesyndicate’s margin
policy and preemptive action istaken to prevent a
breach of the
syndicate’s risk
appetite/limits.

Established

There is a well•defined policy forassessing margin
requirements andsyndicates are able tomonitor against thispolicy and take action
as needed.
Assessment ofmargin takes into
account material
uncertainties withboth qualitative andquantitative methods(e.g. scenarios) used
to assess this.

Advanced

There is a structured, •and coherent
approach toassessing marginwhich takes into
account both generaland specificuncertainties.

•

•

•
•

Reserving teamundertakes a range ofstress and scenario
tests. These can help
assess whether
margin is consideredadequate and allow
management tounderstand wherescenarios sit on
reserve risk modelled
distribution.
Extensive analysis isperformed tounderstanduncertainty in thereserves at a range ofdifferent granularities(e.g. class ofbusiness, division,
events, gross/net).
There are strong
feedback loops
between different
parts of the businessto help inform theactuarial function’sview of potential
downside in thereserves.
Margin policy clearlylinks to syndicate’srisk appetite.
Changes in the levelof margin held are
well justified andconsistent with thesyndicate’s margin
policy.

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CapitalPrinciple 7: CapitalManaging agents should ensure syndicates' Solvency Capital Requirement (SCR) appropriatelyreflects their risk profile and is calculated using a Solvency II compliant internal model.

CAPITAL

1 Maintain an internal model which captures all material risks that the syndicate is exposed to​ .

Model Scope

Foundational
•

•

•

•

Intermediate

Both the one-year and •ultimate SCRs arecalculated using a fullinternal model.
The scope of themodel is documented
and covers allquantifiable material
risks which thesyndicate is exposed
to. At a minimum the
SCR needs to cover
insurance risk, market
risk, credit risk andoperational risk.
Documentation of thedesign andoperational details of
the internal models iscomplete, wellstructured and up-todate. It is alsosufficient to ensurethat anyknowledgeable thirdparty would be able tounderstand it andform a view ofSolvency II
compliance.
The internal model
makes allowance for
future management
actions whereappropriate. They
need to be realistic
and consistent witheach other and the
syndicate’s current
business practice andstrategy. Any risk
mitigation techniques
are documented andsecondary risks
considered.

Established

Risks included in the •syndicate’s risk
register (or emerging
from its risk
assessment process)are listed andindividually identified
as being included
within the internal
model or not. Clear
justification isprovided if risks are
not captured.

Advanced

Process established•to ensure regularreview of modelledrisks including risk
profile considerations,emerging risks anddeveloping issues.

••

There is a clear
connection between
emerging risk
processes in otherfunctions of thebusiness and theinternal model. The
capital team is
integrated into risk
management and into
any working parties
around emerging
risks.
There is clear anddocumented
justification of theapproach to emerging
risks (on the horizon)– including whichrisks are explicitly
modelled with a
specific quantifiable
allowance. For risks
where that is not thecase it is clearlyjustified that themodel neverthelesscaptures the
emerging risk. The
data required toparameterise models
for the emerging risks
will be identified and,if necessary,captured.
The Syndicate clearly
assesses andevaluates nonmodelled risks (notlimited to natural
catastrophe risks).
This includes use of
scenario testing toevaluate materiality ofrisks not captured in
the internal model.
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CAPITAL

1 Maintain an internal model which captures all material risks that the syndicate is exposed to​.

Risk Drivers

Foundational
•

•

•

•

•

Intermediate

The internal model•
captures the relevantcharacteristics of therisk profile of the
syndicate. Capital isdriven by the key risksof the syndicate. The•
main dependencies aremodelled.
Risk analysis enables
identification of the mostmaterial risks in thebusiness – these arealigned with the risk
drivers of the model andare in the focus of risk
management actions aswell as the independentvalidation exercise.
Self loads/ management
adjustments areproposed by the
syndicate wherematerial risks have been
identified which cannot
be captured by theinternal model at thatpoint in time.
The methodology toallow for diversification
is justified anddocumented with key
variables driving
dependencies identified
which take into accountnon-linear dependencies
as well as the potential
lack of diversification
under extreme
scenarios. Postdiversified outputs fromthe model, as reported
to Lloyd's, arereasonable whenallowing for the
dependencies, following
the principle that riskneeds to contribute tocapital.
Profit & Loss (P&L)
attribution is
documented. It is used
to understand the key
drivers of profit (or loss)
and the reasons for
deviation fromexpectations.

EstablishedA clear development •plan is in place toincorporate any
capital add-ons andthese are only atemporary measure.
P&L attribution
process is welldesigned and canidentify risks throughactual experience that
had not been
captured by theinternal model.

Advanced

Dependencies•
between risks aremodelled in a waythat the output of
the model reflects
actual risk drivers(e.g. Social
inflation, recession,
UW cycle etc.) The
connections
between risks areunderpinned by risk •analysis and/or arobust expert
judgement process.

•Internal model
captures all material
risks. In situations
where material risk
has only recently
emerged (e.g. Covid19 pandemic) capitalmodellers should
show agility inprioritising the risk formodel development.
The dependencies in
the model consider
systemic risks andsecondary effects.
Tools have beendeveloped to assess
or directly model risk
drivers with allowance
for secondary
impacts.
All material risks canbe quantified andexplained - even if
they are implicitly
modelled (such as
non-natural cats,claims inflation, cyberrisks).

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CAPITAL
Use modelling assumptions which are realistic and justifiable, methodology which is

Data and Tools

2 adequate, and material limitations are understood​.
Foundational
•

•

•

•

Intermediate

Data and•assumptions are
consistent between
internal model andtechnical provisions.
Material limitations
with the data areunderstood and•documented.
The documentation of
the internal model
should include a
description of the IT
utlised and any
contingency plans.
Where data is limited
or not appropriate touse, expert
judgements/approxim
ations are used toovercome these.
External data is used
to supplement own
data (e.g. credit
ratings).

Established

Software/tools are•used to analysemodel outputs (e.g. toillustratedependencies) andhelp communication
to stakeholders.
Where data is not
representative of the
future, adjustments•
are made in line withexpert judgement
guidance•

Advanced

Data sources used•
are regularly
reviewed. Syndicate
actively seeks
external data
studies/sources tosupplement own data
(i.e. beyond thosereadily available).
Modelling classes areused consistently withother teams in orderto ensure that data isrepresentative of therisk.
•
Model runs relatively
quickly and efficiently
to enable model use
and ad-hoc runs.

••

Data sources are not
only considered forlarger risk types, butalso for minor ones.
For parameterisationthat is uncertain and/or
needs trend
adjustment a variety ofdata sources are used
and trends areprojected/articulated.
Different options foradjustments are
considered.
Software tools areused to break data
down in a
sophisticated way e.g.
using joined up views
with other teams tospot risk profilechanges in classes.
Model platform andcode are able toaccommodate
bespoke risks (e.g.
PPO modelling,
complex RI contracts,
desired dependency
structure) withbespoke code being
used where
necessary.
Model run timeenables model to betruly used across thebusiness and thecapital modelling can
respond to ad-hoc
requests quickly andefficiently.

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CAPITAL
Use modelling assumptions which are realistic and justifiable, methodology which is

2 adequate, and material limitations are understood​.

External Models and Data

Foundational
•

•

•

•

Intermediate

The role of external•
models and/or
external data in theinternal model(including materiality)
is explained including
how the board andsenior management
obtains comfort over
its limitations. Where
external vendor
models have amaterial impact on thecapital requirement,
key limitations of theexternal vendor
models are identified
and communicated tothe board.
The reasons for theuse of an external
model and/or external
data are clear. Senior
management haveconsideredalternatives,
explained theirdecision and are able
to demonstrateunderstanding of theexternal model.
The syndicate uses
the external model asparameterised with nochanges. However,they validate andreview the suitabilityof the models andmonitor the limitations
regularly.
External models ordata do notcompromise thecompliance of theinternal model andneed to pass the use
test, be validated andfully documented.
Model changes aregoverned in line withthe model change
policy using a lookthrough approach.

EstablishedThe syndicate uses•
the external modelvendors as
parameterised with nochanges. However,they validate andreview the suitabilityof the models andmonitor the limitations
regularly, considering
alternative views andparameters.

Advanced

Syndicate makes (or •considers)adjustments toexternal vendor
models to reflect theirown view of risk.
External models areadjusted where
necessary for loss•
experience andemerging market
issues.

••Syndicate has its own
view of risk which isconsistent across the
subject matter expert
teams (exposure
management/investm
ent teams) andcapital.
Views of risk that thesyndicate takes inother areas of thebusiness (e.g. withregards to inflation or
investment risk) arereflected in theinternal model.
The syndicate isresourced with theappropriate expertiseto carry out thevalidation andgovernance required
for adjusting external
models to their own
view of risk.
The utilisation of
external models anddata within theinternal model ismonitored regularly,
and models are
adapted in new areas
for material
exposures and if
appropriate a numberof different views are
considered (e.g.
through blending orcomparative
approaches).

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CAPITAL
Use modelling assumptions which are realistic and justifiable, methodology which is

2 adequate, and material limitations are understood.

Assumption Setting

Foundational
•

•

•

•

Intermediate

Assumptions are•
realistic andjustifiable, as
demonstrated throughan understanding of
circumstances when
the assumption
could be consideredfalse. They consider
historical experience
where available. They
are challenged at•each stage of thereview. They are
documented.
Where assumptions
are not derived fromown data then a clear
approach is laid out
with data sources
used, adjustments
made and whereexpert judgement wasnecessary. Where
selected assumptions
deviate from what is
implied by•historical experience,
this is clearly justified.
Comprehensive data,
including most recent,is used for material
risk areas.
Sensitivity testing is
performed on
key assumptions withclear documentationof the materialityof assumption formodel and validation.
There is adocumented process
outlining the approachto re-parameterisationof assumptions.

Established

Historical analysis or •comparison
to benchmarks isused tohelp understand if
assumptions
are reasonable. ​They
are documented so as
to be readily
understood by third
parties.
Materiality,
reasonable range and •uncertainty/sensitivityof assumptions isclearly set out andjustified. The impactof alternative
assumptions has
been tested via type 2
sensitivity tests. Thisis communicatedappropriately,•
including to the board(for material
assumptions).
Assumptions areparameterised using
most recent data forthe majority ofmodelled risk areas.

Advanced

A range of factors are •considered whensetting assumptions
including historicalexperience,
emerging experience
compared to
expectations, market
benchmarks,
pricing informationand external
data sources.
Assumptions are•appropriately tailoredto the syndicate's mix
of business and 'as-if'
analysis is carried out
to derive assumptions
where there has beena change in mix ofbusiness orremediation actions.
Parameterisation
follows a regularcycle, but some (realworld) triggers aredefined that drive reparameterisations.
The parameterisation
cycle hascomprehensive
coverage of allmaterial assumptions.
••

Data is used to set or
validate assumptions
even when it is notreadily available (e.g.
lack of internal loss
data for new classes
or areas like
operational risk or
areas likedependencies, wheredata might have to be
derived/adjusted).
Consideration of
external data andopinions, particularly
for lines
where parameterisation is highly uncertain or
there is material
uncertainty overcertain assumptions.​
Where data is usedthat is not
representative andadjustments arenecessary these arecarried out in anunderstandable way(e.g. volume adjustments). Emerging trends
are taken into accountand assumptions
adjusted whereappropriate.
There is a process
of monitoring thereasonableness ofassumptions as new
information becomes
available. A
comprehensive list ofclear (real-world)
triggers are definedthat drive reparameterisations ofassumptions.
Materiality is not only
considered forindividual assumptions
but also accumulationsof assumptions andtype 2 sensitivity tests
consider acombination ofalternative
assumptions as wellas individual ones.
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CAPITAL
Use modelling assumptions which are realistic and justifiable, methodology which is

2 adequate, and material limitations are understood.

Methodology

Foundational••

Intermediate

Methodology is•
documented andemployed based ontechniques that reflect
the risk, up-to-date
and generally
accepted market
practice and issuitable for dataused.
Any out of model
adjustments are
documented andgoverned in line withthe calculation kernel.

Established

Methodology•
employed is generally
accepted market
practice (widelyadopted) with some
adaptations where therisk profile suggests.

Model Limitations

•

•

•

•

Identification and•documentation ofmodel limitations anduncertainties. Material
model limitations
relevant to the model
use arecommunicated arecommunicated tomodel users.
•
Syndicatequantifies limitations
where possible andaction is taken whenmaterial
Limitations aremonitored regularly.

Areas ofuncertainty andsensitivities ofthe model(s) are
well understood with
communicationof these to relevant
stakeholders at
all levels.
Uncertainty isappropriately allowed
for with respect tolimitations.

•

•

•

Advanced

Methodologies•
employed follow theevolution of market
practice. Subject
matter experts use
the most up to datemarket knowledge toinform themethodology
employed for allmaterial risk areas.
Alternatively, thesyndicate justification
for using generally
accepted market
practice is strong andthe syndicate can•demonstrate it has
explored/tested othermethods. Regularreview ofappropriateness of
methodologies, withresultingdevelopment​.
A robust methodology
which is aligned to therisk profile of the
syndicate is employed
across all risk areas.

Regular first line
investigations into
alternative
methodologies toensure existing
methods remain mostappropriate for thesyndicate. There isdemonstration ofinternal model
development, or
continued
appropriateness of
methodology as aresult of thesereviews.
Alternative
methodologies aremodelled and tested
and the model is
flexible enough toenable methodology
changes be madeefficiently keeping themodel up to date andaligned to changes inrisk profile.

There is a formal•
process tocommunicate
uncertainties tostakeholders,
including the board.
There is a clear
process formonitoring andquantifying limitations
where possible.
The accumulation of
immaterial limitations
is monitored andcommunicated.

Model issues orlimitations raised byusers of the internal
model are fed throughto the Capital
Modelling team.
These will then be
added to the model
development log to beprioritised for model
enhancements or risk
accepted by the
syndicate withjustification andhaving followed theappropriate
governance/
escalation process.

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CAPITAL

3 Have strong feedback loops joining the business and the model.

Expert Judgements/ Consistency of Assumptions

Foundational•••

Intermediate

Material expert•
judgements are
justified, documented,
include falsifiability
criteria and are
regularly reviewed.
Those making thejudgements have therequisite skills,•
knowledge andexpertise.
Feedback loops
between the model
inputs and subject
matter experts exist•
with documentation of
the justification fordifferences in view. ​An expert judgement
log exists which
outlines the•materiality, underlying
rationale, justification,
uncertainty and ownerof each judgement.

Established

Expert judgements•
are justified anddocumented and arereviewed at an
appropriate
frequency withsuitable experts
being consulted.
List of individuals
providing expert
judgements isregularly reviewed toensure continued
appropriateness.
Feedback loops arescheduled regularly
with sufficient timeembedded to allow
meaningful
discussion. ​Expert judgement
policy and log exist
and are up to date.
•••

Advanced

Use of expert•
judgement iscomprehensively
governed, with clear
justification,
documentation, andfalsifiability criteria.
Type 2 sensitivity
testing is carried out
and documented,
where possible.
•
Challenge and inputs toexpert judgements froma range of subject
matter experts. Crossfunctional working
parties are set up tobetter understand therisks and viewpoints
which underpin expert •judgements and model
assumptions.
Actuarial teams
collaborate tounderstand any issues
or concerns. Senior
underwriting personnel
have established lines
of communication withthe modelling team andthe impact ofunderwriting decisions
on the model is•understood.
​Input from the different
functions is sought withclear feedback loops
into the model toensure consistency inviews across thebusiness (orunderstand differencesin view) and to ensure •that emerging risks areappropriately allowedfor (e.g. inflation
assumptions). The
reasons for any
divergence inassumptions between
capital and otherfunctions can be clearlyjustified and isevidenced by data.
​There is a clear
understanding by model
users of where Expert
judgement is relied
upon.

Classification: Confidential

Expert judgements
are regularly
assessed for
accuracy andappropriateness,considering sensitivity
tests, testing against
experience andforward-looking
issues.
Communication ofexpert judgements
and the uncertainty
around them includes
the ranges, presented
e.g. visually to
stakeholder forclarification of the
impact.
Expert Judgements
are focus areas for
future modelling
improvements. Thereis evidence of expert
judgement
assumptions
responding tofalsifiability criteria
triggers. Expert
Judgement log covers
all areas of theinternal model.
Capital modellingteam and validation
teams are joined up
with other parts of thebusiness and experts
from all areas feed
into theparameterisation andchallenge of themodel.
There is anestablished feedback
loop between capitaland other functions tohighlight key trends
that may impact
assumption setting.
​W orking groups are
set up to discuss
trends and model
development.

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CAPITAL

Model Use

3 Have strong feedback loops joining the business and the model.
Foundational

Intermediate

•

•

•

​The internal model
uses include
calculation of
economic capital;
capital allocation (atleast at risk category
level); and use in the
ORSA. Uses of themodel are tracked
and documented.
Use of the internal
model in senior
management andboard decisionmaking can beevidenced.

•

EstablishedThe model is used to •underpin relevantbusiness decisions
and robust
justification isprovided where use of
the model is notconsidered to beappropriate.
Model uses are notjust focused on the•regulatory capital
impact level (i.e. the
99.5th percentile), butalso other parts of the
distribution (e.g. in thecase of reinsurance•
purchasing).

•

Advanced

In addition to SCR,•
the internal model isused widely andregularly throughout
the business e.g. forassessing returns on
capital, risk appetite,
investment allocation
and reinsurance
purchasing decisions.
Model is used when
exploring potential
new classes ofbusiness or closing
existing classes ofbusiness.
Boards regularly
discuss model outputs
when making
strategic businessdecisions (e.g. M&A).
The model uses arereviewed andappropriateness ofthe model for the use
in question isconsidered andreported.

New model uses arelinked to thedevelopment plan of
the model. Where themodel has limitations
in a use those areunderstood andclearly
communicated.

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CAPITAL
Demonstrate robust governance and understanding of the model. This includes adequate

Ownership and Challenge, Governance

4 understanding and challenge at senior management level.
Foundational

Intermediate

•

•

•

•

•

•

Syndicate candemonstrate clear
governance aroundthe internal model,
including definition ofroles and
responsibilities withclear accountability
for decisions.
Documentation of themodel governanceprocess exists, iscomprehensive andregularly reviewed.
The board own themodel and must sign
off any Lloyd's Capital
Return(LCR) submissions
and major modelchanges.
Sufficient time ismade available forboard challenge after
SCR outputs areproduced.
Board training aroundthe major modelledrisks andassumptions as well
as model limitations
has been given. All
new board members
are enrolled intraining.

•

•

•

•

Established

Clear articulation of•roles and
responsibilities. Thereis transparency
around any delegationof responsibilities.
Owners of each stageof the process arehighlighted andsufficient time
allocated for review.
Internal reviews ofassumptions, expert
judgements andmodel changes are
documented.
A model inventory of
documentation exists
which covers all•
aspects of the internal
model.
Documentation isclearly signposted. ​.
Board has nonexecutive memberswith relevant
experience to allow
them to provide
detailed challenge tomodel outputs andmethodologies.
Board training isregularly conducted. It
includes new andemerging issues
relevant to thesyndicate risk profile.
Senior management’s
understanding of themodel and the board's
awareness of key
assumptions andlimitations of themodel is regularly
assessed.

Advanced

The model•
governance process
involves regularmeetings of model
governancecommittee which
includes a range ofactuarial skills andsubject matter experts
to enable challenge ofassumptions at atechnical level.
Previous challenges
are reviewed as partof the next capitalsetting process andresponses are
documented.
Senior management
and boarddemonstrably•
understand the modeland its limitations,providing challenge
when making key
decisions. There is aformal process to•communicate
uncertainties to board.

​Robust sign off
process exists by riskowners and subject
matter experts for key
assumptions andmethodologies. Clear
ownership and sign-off
of modelled risks(methodology andassumptions).
Decisions are being
made at the right levelof the organisation.
Time for discussion
with stakeholder ismade pre- and postcommittee meetings
and all feedback is
documented andaddressed.
The internal model isregularly reviewed anddiscussed at board
level outside of Lloyd's/ regulatory approval
periods.
Documentation is wellstructured, clear,intuitive and easy tofollow, with clear signposting and audit trail.
Key actuarial
judgements are
justified appropriately
and there is clear
signposting of material
considerations, review
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Demonstrate robust governance and understanding of the model. This includes adequate

Ownership and Challenge, Governance

4 understanding and challenge at senior management level.
Foundational

Intermediate

Established

Advanced

•

•

•

•

See previous page.

See previous page.

See previous page.

••

Senior management
and the board
understands,
challenges, andactively promotes thedevelopment of theinternal model. ​In
particular,senior management
has sufficientunderstanding of theworking of the internal
model to anticipate
how changes instrategy would likely
impact modelled risk
profile. Senior
management provides
sufficient challenge if
output differs fromexpectation and model
enhancements as
result of senior
management
involvement can beevidenced.
Board effectiveness
reviews consider theboard’s understandingof the model.
The board is active inrequesting specificissues to receive
training on based on
their view of risk. Thisis then set up andfollowed up on. Formal
assessment of training
to identify knowledge
gaps and improvetraining effectiveness.

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CAPITAL
Demonstrate robust governance and understanding of the model. This includes adequate

4 understanding and challenge at senior management level.

Resourcing

Foundational•••

Intermediate

The capital team is•resourced to meet theregulatory
requirements anddelivers reporting withno material errors.
The capital team may
draw on other teams •for parameterisation
and/or outsources
parts of themodel/ parameterisat
ion to external parties.
Technical challengeof the model isregularly
supplemented byexternal resource.
Staff demonstrateunderstanding andknowledge of themodel and justificationof assumptions (andmethods).

Established

Resourcing is•adequate to meet
regulatory
requirements withsome contingency
resource whenrequired.
If the capital teamcarries out
parameterisation
processes (e.g. forreserve risk) it isadequately resourced
and skilled for these•
additional processes.

••

Advanced

Team is well•resourced for existing
and future projects
including scope forstrategic work suchas extending the usesof the model ordifficult development
projects. There is anappropriate mix ofskills. Key person
dependencies havebeen identified.​
The mix of senior andjunior resource isregularly reviewed
and sufficient training
opportunities areprovided to staff.
Capital team candraw on additional
resource if required.
Actuarial resourceis sufficient toensure robust
challenge of themodel on a technicallevel.

Team is sufficiently
and effectively
resourced to allow
research anddevelopment as wellas efficient day-to-day
activities; key personrisks are mitigated,and succession
planning considered.​
The team can
respond to short
notice queries andrequirements from thebusiness andregulators.

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CAPITAL
Implement changes to the model which are reasonable and justified and their impact on the SCR

5 adequately explained​​.

ReportingFoundational
•

•

•

•

•

Intermediate

External and•regulatory reporting iscomprehensive,
timely and materiallyaccurate.
Committees arescheduled regularly
with an appropriate
mix of attendees toensure sufficiently
senior oversight and •technical experience. ​Board information isaccurate and provided
regularly;
accompanied byanalysis which
includes discussion ofchange in risk profileand the model, key•
assumptions,
uncertainties andmarket conditions.
The analysis ofchange of the model
output is materiallycomplete and covers
the movements in
one-year and ultimate
capital, including•
movements in key
metrics, contributions
to capital and keyclass movements. It isaligned to the modelchange template.
Queries on othermovements can be
answered.
The syndicate is
responsive to Lloyd's
feedback and shows
the ability tounderstand andprioritise feedback,integrating it into theirown development
plans.

Established

Reporting is efficient •and the content ofreports is reviewed
regularly and adaptedin line with feedback
to ensure sufficient
coverage and insight.
​It is adapted in light ofmarket conditions andrecent developments.
External andregulatory reporting is
critically reviewed
within the appropriate
forums and consistent
with internal reporting(with clear bridges fore.g. currency
differences).
Diagnostics are•produced to help
senior management
understand andchallenge theappropriateness ofassumptions.​ Key
messages are clearlycommunicated andsupported by exhibits.​ •The analysis ofchange of the model •includes a clear topdown perspective
which links modelchanges back to riskprofile and shows theability to step backfrom the model itself.
Movements are
explained also interms of thereasonability of themagnitude, not justgiving a reason for the
movement.

Advanced

Regular, granular,•
comprehensive,
timely and wellgoverned reporting.
Appropriate level ofreporting is provided
for different
stakeholders.
Signposting is clear inreporting (e.g. toaddress previous
feedback from
regulators/validation)and more technicaldetail is available.
Processes automatedto minimise manualintervention andscope for errors.
​Model output forms
part of regularmanagement
information which isutilised andchallenged intechnical working
groups and by theboard.
Regulatory dealings
are pro-active.
The analysis ofchange includes moredetailed validation ineach area. Additional
metrics are monitored
to be able to analyse
movements in detailand have good model
outputs/reports inorder to help explain
movements. Bespoke
analysis andvalidation is carriedout for each modelchange template stepand for all material
class movements.

Appropriate tools (e.g.
visualisation tools)
are flexible andtailored to allow theboard to focus
attention on material
issues and to form
clear opinions basedon the analysis/resultspresented.

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CAPITAL
Implement changes to the model which are reasonable and justified and their impact on the SCR

5 adequately explained​​.

Model Change

Foundational
•

•

•

•

Intermediate

Model change is•managed through themodel change
process which is set
out in a Model
Change Policy. Modelchanges are
documented. Major•
model changes are
signed off by theboard.
Model change
categorisation whenapplied is in line with
Lloyd's guidance (e.g.
identifying parameterand data changes
appropriately).
Model changes are
suitably validated,with reason for thechange andjustification ofadequacy of impact
on capital.
Model changes
undertaken toaddress validation
findings/regulator
feedback and risk
profile changes.

EstablishedSign-off process is•clear for both major
and minor modelchanges, with sign-off
by committees withability to challenge at
the appropriate level.
Model changes,
including the reason
for model changes
and the impacts, arecommunicated clearly
and at the sufficientlevel of granularity to
the various
committees. Any
uncertainties andlimitations are drawn
out.
•

•

•

Advanced

Model changes are•
driven by risk profilechanges andimproving theuse/accuracy of themodel, including
consideration of themateriality of known
limitations of themodel. They are set
out in a clearly
articulated•
development plan
integrating validation
findings/regulator
feedback and othermodel developmentswith the modelchange process.
Appropriate
contingency plans formodel changes exist
and several models
can be run in parallel
if necessary(development andproduction model).
Timelines set out for(major) modelchanges are generally
adhered to and theprocess is wellmanaged.
Validation of modelchanges takes place
hand in hand with themodel change,
allowing sufficient
time for validation
challenge and theresolution of findings
where necessary
before the finalisationof changes.

Model changes are
driven by a longerterm model strategy.
The annual
development planaligns to the longerterm strategy andthere is a clear
framework for theprioritisation of modelchange.
Further development
and enhancements ofthe model are actively
promoted with acontinuous drive formodel improvements
in order to makemethodology/paramet
erisations best market
practice. Technicalworking groups are
set up to challenge
and discuss model
development
incorporating
expertise fromrelevant functions.

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CAPITAL

6 Conduct objective challenge of the internal model through independent validation

Validation

Foundational
•

•

•

•

Intermediate

Independent model•
validation is carriedout for LCR
submissions andmajor model change
applications andcovers all relevant
components of theinternal model complying with
Solvency IIrequirements. Resultsof the model and key
assumptions aretested at least•
annually and aretested after major
model changes as
identified under themodel change policy.
In order to ensure thatthe material,
quantifiable risks arevalidated, the internal
model needs to beable to rank the risks
within the internal
model scope.
Minimum
requirements on
validation tools andvalidation tests in linewith Solvency II are
fulfilled (more details
in Lloyd's Validation
Guidance). Reverse•
stress tests aredeveloped which arealigned to syndicate’sview of risk.
Validation tools arewell designed- e.g.
using pass/fail criteriathat are robust.
The validation covers
the full scope of theinternal model (notjust the calculation
kernel) and is carriedout in line with the•validation policy,
which sets out how
the model is validated
and explains why theapproach isappropriate.

EstablishedA 3-year validation•
cycle is adopted withgood coverage of themodel through regulardeep dives. The
testing schedule isreviewed every year and is adopted in a
way to remove
irrelevant tests and•add new ones for
specific deep
dives/focus areas ofthe validation.
Independence
generally extends toreporting lines of•validation results andthe governanceframework facilitates
escalation ofvalidation findings
without any material
conflicts of interest.
Where reporting lines
are not independent•(e.g. capital team andvalidator reporting into
the CRO) measures
are in place to ensure
independence (e.g.
periodic external
validation,
involvement ofanother director etc.).
Clear escalation path •to the board/risk
committee formaterial model issues
raised. In the case of(material) validation
findings action istaken and the findings
are resolved or acapital add-on isapplied in the shortterm with resolution
planned in the longerterm.
Where validation
findings lead toagreed actions, these
are closed off in atimely manner.

Advanced

The validation•
process is integrated
into the model change
process with theprogramme of modelchange continuously
updated driven by thevalidation work andprogress made.
Sufficient time isallowed for validationand material findings •are addressed before
LCR submission (bycapital add-ons whennecessary).
Use of validation tools
at a level of
granularity that yields
useful insights (e.g.
on RST, P&L
attribution). Deep
dives show depth ofreview and are ofgood quality.
The line between firstand second line
validation is drawn•
carefully withefficiency of theprocess in mind, butalso giving validators
enough scope toprovide technicalchallenge.
Recommendations•
and key findings are
discussed and actions
are set, directly
impacting the model
development plan andthe limitations log.
Eachrecommendation is
assigned a priority
level and proposeddue date.​ Actions
taken in case ofvalidation findings
and/or regulatory
feedback consider
wider issues and how
to prevent reoccurrence.

Validation plans take
into account emerging
risks, areas of focus
and potential risk
profile changes.
Areas of focus are
discussed with thewider business (e.g.
in working groups)
and specific testing iscarried out.
Feedback fromvalidation is linked
back to other parts ofbusiness such as
pricing/reserving/riskmanagement to help
with decision making​.
The validation
process is integrated
in a value-adding way- i.e. validators areused to investigate
e.g. emerging risks or
specific model
limitations, driven by
the board.
Validation tools areused in an agile anddynamic way. E.g.
stress and scenario
tests incorporate input
from other business
functions and senior
management.
The independence
and effectiveness ofthe validation process
is reviewed regularly.
This will include
whether a turnover ofvalidators isnecessary, andwhether the balance
between internal andexternal validation isappropriate.

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6 Conduct objective challenge of the internal model through independent validation

Validation

Foundational••

Intermediate

The validation•
process is
independent from thedevelopment andoperation of theinternal model and•subject to objective
challenge. The risk
management function
has the responsibility
for testing andvalidating the internal •model.
Validation results are
documented in thevalidation report, to besubmitted to Lloyd's inline with the LCR
submission timetable.
Confirmation
statements are signed
off by the board.
•

EstablishedThe board (or board•
delegated subcommittee) input into
the reverse stress
test.
Limitations of thevalidation process arehighlighted and theirmateriality assessed,
individually and inaggregate.
The validation report
is structured in a waythat is fit for purpose with an executive
summary for theboard but more
technical underlying
documentation forother stakeholders.
Signposting is clear
and easy to follow.
Board reviews
validation report prior
to signing off the
SCR.

See previous page.

Advanced•

See previous page.

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8.
Investments

Principle 8: Investments
Managing agents should ensure syndicate investment risk is effectively controlled, informed by wider
business strategy and adheres to the Prudent Person Principle (PPP) requirements​.​

INVESTMENTS
Have a clear articulation of investment objectives and risk appetites, with rationale having regard

1 to high level business or solvency strategy ​.
Foundational

Established• High level articulation of investment
objective(s) consistent with syndicate
business plans• Link between objective and strategy
formally articulated and documented• Risk appetite statements are in place;position against appetite monitored andreported to senior management and theboard.

• Clear justification of investment objective(s)with regard to business and/or solvency
strategy• Clear investment objective(s) relating toquantitative risk targets and appetites, which
may be supplemented by return objectives• Investment risk analysis is embedded within
investment strategy and allocation decisions• Describe clear selection criteria for the
successful inclusion of alternative assets
and demonstrate that assets/strategy/fundmanagers have met this criteria

Have clear investment parameters and guidelines with robust processes to monitor and report

2 positioning against limits.
Foundational

Established• Constraints and limits around portfolio
concentrations allocation for broad asset
categories and key risk factors (e.g. rating,issuer, sector)• Process for identifying, correcting andescalating breaches of any specified limits• Outsourced arrangements fully documented• Periodic review of all the above• Limits around portfolio concentrations (e.g.
rating, geography, sector, single namecounterparty/issuer) linked to broader
syndicate risk exposures e.g. underwriting• Strategic Asset Allocation (SAA) and if
appropriate Tactical Asset Allocation (TAA)
limits and allowances defined in relation to
overarching portfolio constraints• Limits around mismatches between assets
and liabilities in respect of duration andcurrency

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3 Integrate investment stress testing into investment management ​.
Foundational

Established• Stress and scenario testing carried out
covering impact of ‘what if’ scenarios onmaterial exposures• Suite of stress and scenario tests (including
but not limited to investment, liquidity andcapital) covering range of different scenarios(e.g. interest rate shocks, credit spread
movements, equity market drawdowns,
climate) by severity and direction• Integration of testing in risk management
framework with clear actions in response toresults• Ongoing review of suite of testing withchanges in the external risk environment

Ensure investment performance and risk, including that of outsourced arrangements, are

4 effectively overseen through monitoring and reporting.
Foundational

Established• Monitoring of investment performance andrisk indicators reported to governancecommittees• Syndicate investments are properly
recorded, monitored and controlled in linewith Solvency II requirements• Asset valuations and calculations of own
funds comply with the Solvency II directive• A range of clear and logical performancebenchmarks used to assess performance• Robust framework for the selection,
monitoring and oversight of external fund orinvestment managers, retaining overall
responsibility• Monitoring of mismatches between assets
and liabilities in respect of duration andcurrency• Performance and risk indicators reported tosenior management and governancecommittees

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5 Develop and embed a Responsible Investment Policy.
Foundational

Established• Consideration of non-financial risk factors insome investment decision making (e.g.
exclusion-based integration)• High level Responsible Investment strategy
in place with application focussed on key
areas of the portfolio• Efforts are underway to gather necessary
data to understand, monitor and report on
ESG exposures.

• Responsible Investment strategy in placewith targeted application• Clear integration of non-financial risk factors(e.g. climate risk) in key investment decision
making (e.g. exclusions and positive
screening)• External fund managers’ integration of ESG
factors is assessed and monitored in someasset classes (e.g. private market credit andequity mandates).

6 Have Asset-Liability Modelling (ALM) capabilities consistent with Use Test Principles.
Foundational

Established• High level appreciation for interaction
between assets, liabilities and liquidity risk
management incorporated in investment
strategy• Internal model has some applications forinvestment related uses and complies with
SII standards and Use Test Principles• Assumptions used largely derived from anexternal model with minimal internal,
syndicate-specific adjustment,• If the assumptions used are determined byanother entity within the group, applicability
to the syndicate is understood andchallenged appropriately• Internal model is fully integrated withinvestment governance, risk managementand decision-making processes• Investment strategy integrated into liquidity
and solvency management• Assumptions used largely driven fromexternal model but use of alternative
assumptions is regularly considered, andmodel choice decisions are robust

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INVESTMENTS

7 Have robust investment governanceFoundational

Established• Investment strategy approved and reviewed
by board including evidence of board
responsibility for investment management
decisions• Senior management andboard demonstrably understand theinvestment strategy and risks, providing
challenge when making key decisions• Clearly defined investment management
responsibilities• Periodic review and challenge of investment
strategy• Processes in place to ensure compliancewith Investment related policies• Regular investment strategy reviews aresupported by second or third line
• Process and evidence of providing
challenge to key investment decisions e.g.
fund manager selection, changes to SAA• Demonstrate that their internal model isconsistent with their investment governance,risk management and decision-making
processes.
• Demonstrate that management and/or
decision makers (e.g. committee members)
have undertaken recent training specific torelevant asset classes (where this is nottheir area of expertise)• Demonstrate that management and/or
decision makers have sufficientknowledge/expertise and understanding of
the relevant asset classes

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9.
Liquidity

Principle 9: Liquidity
Managing agents should ensure syndicates have contractual access to sufficient liquidity in order towithstand a severe liquidity event (defined by Lloyd’s), underpinned by a robust liquidity risk
management framework​. ​LIQUIDITY
Identify and assess their key sources of liquidity risk​ and have appropriate monitoring and

1 reporting in place.
Foundational
•
•
•

•
•
•
•

Clear identification of all sources of risk and events which can cause risks to crystalise
Liquidity team consider implications of these risks in both normal and stressed conditions
Defined risk metrics relevant to own circumstances and risk profile with clear links to risk appetite andstress tests
Metrics are monitored over long and short term time horizons
There are early warning indicators of key sources of risk tracked​
Regular reports are provided to senior management and board/board committee
Frequency of reporting is appropriate to allow the effective identification, measurement andmanagement of liquidity risks

Conduct and consider the outcomes of stress tests, including Lloyd’s defined stress test and2 syndicates’ own 1:200 stress test​​.
Foundational
•
•
•
•
•
•

Suite of stress and scenario testing covering all relevant, material risks drivers
Teams consider varying degrees of stressed conditions
Teams consider separate and combined impacts of liquidity stresses
Stress tests cover events occurring over different time horizons
Justification for methods and assumptions are included in liquidity management policy
Results are integrated into monitoring and risk appetite framework​

3 Have clearly defined risk appetites​​.
Foundational
•
•
•
•
•

Syndicate level risk appetite linked to key source of risk ​and key business objectives and goals
Teams consider time horizons over which risks may crystalise
Liquidity risk appetites are embedded in other activities (e.g. reinsurance, investment)
Teams consider minimum level of liquidity buffer to hold relative to liquidity needs over consideredtime horizons
Risk appetites are reviewed at least annually

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LIQUIDITY

4 Conduct regular assessment of liquidity buffers above expected cashflow projections.
Foundational
•
•

•
•

Liquidity buffers are designed to withstand chosen strain or event​, i.e. linked to stress testing
The make up of the buffer is considered​ (nature, diversification of assets, appropriateness of haircuts,
accessibility to liquidity management function)
There is periodic testing of access to market for liquid assets
Robust assumptions in cashflow forecasting

Have thorough liquidity contingency plans in place including articulation of what management

5 actions and steps are open to alleviate liquidity strain​​.
Foundational
•
•
•
•
•

Clear step-by-step plan of actions taken including consideration of time period for implementation,
decision making process, roles and responsibilities, costs involved and applicability to different
scenarios
Set out process to invoke plan including links to risk appetite and early warning indicators
Separation of contractual and aspirational actions
Credible assessment of robustness of management actions in systemic liquidity scenario​
Periodic testing of key assumptions and accessibility of committed facilities

6 Have robust governance of liquidity.
Foundational••••

Risk appetite and all metrics (including frequency, timeliness and distribution) to be owned andapproved by the board
All metrics are regularly reported to senior management and the risk committee
Approach to stress testing regularly reviewed and approved by senior management and Risk
Committee
Stress testing results are reported to senior management and risk committee

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10.
Governance, Risk
Management andReportingPrinciple 10: Governance, Risk
Management and Reporting
Managing agents should have governance structures and internal risk management and control
frameworks in place which align to Solvency II requirements, enable sound and prudent managementof the business and support delivery of the business strategy​.
GOVERNANCE, RISK MANAGEMENT AND REPORTING
Manage a suitable board and committee structure which enables well informed, timely and1 accountable decision making​.
Foundational
•

•

•

•

•

•
•

Intermediate

An appropriate governance structure is in place •with clear reporting lines to ensureaccountable decision making. Where managing
agents are part of a wider group, appropriate
governance structures and reporting lines are inplace to ensure managing agent accountability.
The board sets and monitors the delivery of awell-articulated business strategy, which
includes the importance of the social,environmental and ethical impacts of thebusiness. The activities of all functions within thebusiness are aligned to the delivery of thestrategy.
Board and committee composition allows for
effective independent challenge. The chair of theboard is responsible for leadership of the board
and ensuring its effectiveness in all aspects.
The composition, Terms of Reference andefficacy of the board and committee structures
are regularly assessed through, for example,
board evaluation or effectiveness reviews to
identify gaps or areas
for development. Fundamental changes in thebusiness also result in a formal review ofgovernance structures to consider theircontinued appropriateness, taking into
account the size and complexity of the managing
agent. To maximise the effectiveness of such
reviews, the use of external resource may beconsidered where relevant or on a periodic cycle(e.g. every three years).
Compliance, risk management and audit
functions are well integrated into decision
making processes throughout the organisational
structure.
Potential conflicts of interest are identified,appropriately addressed and regularly reviewed
by the board.
Policies are in place in line with Solvency IIrequirements and other relevant key processes
within the business and reviewed and updated
at appropriate frequencies.

EstablishedNo guidance •atIntermediate.

Advanced

No guidance •atEstablished.

All technicalareas havedistinctboard or
executive
level
committees
withauthority to
makerecommend
ations to theboard.

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GOVERNANCE, RISK MANAGEMENT AND REPORTING

2 Operate a strong risk and control environment subject to appropriate challenge​.

Culture, strategy and risk appetite

Foundational••

Intermediate

A clearly•
articulated risk
management
framework is in place,including board
approved risk
appetites andtolerances which guiderisk acceptance anddecision-making
throughout thebusiness.
A desired risk culture
is identified with a planin place to bridge any
gaps between current
and desired state.

EstablishedThe risk culture has•
undergone developm
ent beyond theidentification of thedesired futurestate. Improvement•
plans are in place
which are regularly
monitored.

Advanced

Evidence of a no•blame risk culture
which encourages
the reportingof incidents.
Frequent proactive
engagement withoversight functions byfront line businessteams, for example
involving risk
management in key
strategic projects fromthe outset andthroughout.

Highly embedded risk
culture which leads tocontinuous
improvement, forexample where frontline business functions
engage freely andfrequently withoversight functions toprovide feedback onprocesses or shareideas forimprovements to theframework.

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GOVERNANCE, RISK MANAGEMENT AND REPORTING

2 Operate a strong risk and control environment subject to appropriate challenge​.

Risk Management framework

Foundational
•

•

•

•

•

•

•

Intermediate

Risks to the business are •identified and recorded
through a risk register,risk universe or similar.
Owners are in place forall risks and controls.
Risks are assessed,monitored andappropriately
mitigated, or there is•clear rationale for theiracceptance. Monitoring
may be led centrally by
the risk management
team.
A framework to quantify
impact and probability ofrisks is in place andis appropriate to thebusiness. Risk andcontrol assessments
include qualitative andquantitative measures•and are conducted at a
sufficient frequency toidentify any significant
changes to the impact
and probability of risks•
crystallising.
The internal and externalrisk environment ismonitored on an ongoingbasis and any changes
are reflected in the risk
management framework.
Business-wide emerging
risks are monitored on aqualitative basis. The
operation of the emerging
risk processes may fall torisk management teams
with limited involvementfrom technical front line
business functions.
Managing agents’ own
assessment of the risks
and associated economic
capital required to meettheir strategic objectives
are captured within the
ORSA report in line with
Solvency II requirements.
A clear and accessible
risk incident reporting
process enables accurate
and timely reporting of
relevant risk incidents.

Established

Risk and control•
assessment and risk
appetite monitoring isfacilitated by the risk
management team butwith ownership andengagement from frontline business
functions.
To ensure consistency •in the materiality
assessments of risks,a highlevel comparison
betweenmodelled risks andrisks captured in therisk framework should •be undertaken and theoutcomes reflected in
the risk management
framework.
Some quantification of
emerging risks isachieved with input
from front line
business functions.
Awareness andunderstanding of core
aspects of the risk
framework throughout •the business isenhanced throughtraining or othermethods ofcommunication.
•

Advanced

More complex•
analysis and use ofdata is applied inrisk and control
assessment
processes enablinga more meaningful
and comprehensive
view of risk.
Metrics to quantify •impact andprobability of risks
consider risk
appetite, modelledrisk and strategic
business
objectives.
Front line business
functions areembedded inemerging risk
identification andmonitoring which•
may including
setting triggers forfurther action.
Quantification andinvestigation of
emerging risks isundertaken.
Ongoing monitoring •of the internal andexternal risk
environment isforward looking tofacilitate a proactive
approach in dealing
with any changes.
Risks are identified •outside offormal risk manage
ment processes
which are thenincluded in further
risk assessment
discussions.
•

Risk and control
monitoring, risk
appetite reporting
and actions tomanage risks are
driven through frontline business
functions with strongrisk ownership.
A detailed
comparison between
material risks
captured in the risk
management
framework, the
ORSA report andmodelled risks takes
place to ensure
consistency andsupport a holistic
view of risk acrossthe business.
Risk appetite
metrics andcontrol assessments
are comprehensive
and driven byqualitative assessm
ents and/or quantitative data.
Risk incident reportingincludes feedback lo
ops to inform a betterview ofrisk and evolution ofmonitoring metrics
and processes.
Emerging risk
monitoring is a fully
realised, regularprocess with trigger
points for action andclear owners formonitoring.
Control frameworks
are developed
through activities
such as cyclical,
targeted, forward
looking, deep-divereviews with regularfollow-ups of findings
to ensurerecommendations
and improvement
points are adopted.
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GOVERNANCE, RISK MANAGEMENT AND REPORTING

2 Operate a strong risk and control environment subject to appropriate challenge​.

Oversight and challenge

Foundational
•

•

•

•

•

•

Intermediate

A clear separation•
exists between frontline business
functionsand the independent
assuranceand oversightfunctions.
Risk Management,
Compliance and Audit
functions arecentralised with any
outsourcing ofthese functions
articulated andcontrolled.
Additional objective
and fully independent
challenge of business
functions andprocesses including
risk management andcompliance isprovided by
the Internal Audit
function, which
maintains a riskbased approach
to audit planning.
Compliance and Risk
Management
functions must beable to communicate
directly with any staff
member on its own
initiative and be able
to access any records
necessary to fulfil
their roles.
Management actions
in response to internal
audit findings are fully
implemented withinreasonable
timescales.
Relevant internal
audits are undertaken
following any
significant changes to
the governancestructure or risk
framework.

No guidance atIntermediate.

Established

Advanced••

Interaction between
independent
assuranceand oversightfunctions is frequent
and wellconsidered, avoiding
overlap through acoordinatedapproach.

No guidance at
Advanced.

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GOVERNANCE, RISK MANAGEMENT AND REPORTING
Maintain appropriate oversight of operational processes for effective management of the

3 business.

Foundational

Intermediate

The board should oversee a•robust operational
environment through themonitoring of key operational
processes against regularly
reviewed performanceindicators.
Oversight of theappropriateness of theoperational environment
should include (but is not
limited to) consideration of:• The level of investment in
operational processes andarchitecture that is required
to ensure the business
operates at a high level of
efficiency.
• Whether any proposed
outsourcing arrangement
will unduly increase
operational risk
• Staffing levels undernormal and stressed
conditions to ensure thebusiness is appropriately r
esourced.
• The frequency and efficacy
of interaction between
business functions whenusing key operational
processes.
• The efficacy of change
management processes
and change portfolio
management.
• The appropriateness ofbusiness continuity anddisaster recovery planningNo guidance atIntermediate.

Established

Advanced••

No guidance at
Established.

No guidance at
Advanced.

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GOVERNANCE, RISK MANAGEMENT AND REPORTING
Employ and develop people with appropriate skillsets and ensure the business is appropriately

4 resourced.

Foundational

Intermediate

Established

Advanced•

The board is ultimately• No guidance at• No guidance at • Resource planningresponsible for ensuring that all
Intermediate.
Established.
anticipates medium toindividuals within the businesslong term strategic
maintain appropriate knowledge
aims and considers
and skillsets for their roles andthe outputs of the risk
operate with integrity.
management• The resource model is regularly
framework, forreviewed and gives
example emerging
consideration to staffing levels
risks.
under normal and stressed• Succession planning
conditions to ensure themay be extended
business is appropriately resour
beyond board levelced.
with consideration of• All regulatory requirements
training/mentoring forunder the FCA and PRA’s
future leaders.
Senior Managers andCertification Regime are met.
• Where managing agents arepart of a group, any reliance on
the group for resource isunderstood and appropriately
overseen.
• Board and senior positions
cover all technical areas, with anappropriate level of diversity ofknowledge and experience
which is continually developed
through personal and board
training.
• Duties are clearly allocated andappropriately
segregated
Ensuredecisionmaking isacrosssupported by appropriate data and qualitative assessment.
the business.
• Senior management promote an
open and transparent
culture where employees
understand how their work feeds
into the strategic objectives andoverall success of thebusiness. Employees feelsecure in developing ideas forcontinuous improvement of thebusiness.
• Succession planning for board
and senior management is inplace to mitigate potential
instability in times of change.
• Appropriate due diligence isundertaken with outsourced
service providers to ensure theirfinancial stability and operational
capability.
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GOVERNANCE, RISK MANAGEMENT AND REPORTING

5 Ensure decision making is supported by appropriate data and qualitative assessment.
Foundational
•

•

•
•

Intermediate

Internal reporting•
includes basic
qualitative
assessment and•analysis of high-level
data from front line
business functions
Executive summaries
or other analyses arepresented in aconsistent andrelevant format for theaudience, promotingease of use to inform
challenge or decision
making.
Internal reporting is
consistent with risk
appetite.
Independent reportingfrom Risk
Management,
Compliance and Audit
functions feeds into all
relevant board andcommittee
discussions.

Established

Granular data•
supports internalreporting.
Board and committee
packs are clearlysuitable to theaudience withsummary analysis
from front line
business functions
identifying points offocus for discussion
or decision making.

Advanced

Processes are in•place to regularly
review and improve
internal reporting tocontinually evolve theavailability andunderstanding of•management
information.

Complex data isanalysed andpresented in amanner whichfacilitates robust
decision making.
This is supported byreal time reporting,which can berefreshed andmanipulated easily for
different purposes.

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GOVERNANCE, RISK MANAGEMENT AND REPORTING

6 Maintain reporting, including all financial reporting, of a high quality and submit all reports in a

Reportingtimely, accurate and complete manner to Lloyd’s and to applicable regulators.
Foundational

Intermediate

Established

Advanced•

High quality financial reporting is ofupmost importance for every
successful business. The controls
around financial reporting must be
robust and form the base for theoverall control environment.
Timely, accurate and complete
business data is collected by thebusiness and provided to Lloyd’s andregulators, in order to meet Lloyd's
and managing agent prudential andregulatory obligations. ​Managing agents are transparent inmeeting their reporting requirements,
supplying necessary information
about their business.​
Reporting and regulatory deadlines
are met, in line with UK andInternational reporting regulations.

•

No guidance atIntermediate.

•

No guidance at
Established.

•

No guidance at
Advanced.

Expected delays in meeting deadlines
or errors are communicated to Lloyd’s/ regulators immediately. Causes ofreporting delays and/or errors should
be investigated and resolved, in atimely manner, to prevent further
instances. ​Robust processes are in place toidentify, assess and communicate
with Lloyd’s regarding any issue
which may impact on thecompleteness, accuracy or timelinessof reporting.​
Managing agents are responsive toreporting communications,subsequent queries or requests forthe submission of further information.

•

No guidance atIntermediate.

•

No guidance at
Established.

•

No guidance at
Advanced.

Appropriate processes, systems andcontrols are in place to ensure that
regulatory reporting accuratelyreflects local funding and asset
requirements in each of thejurisdictions where capital funds are
required to be held. ​Managing agents monitor any
changes that may occur in theserequirements from funding period tofunding period.

•

No guidance atIntermediate.

•

No guidance at
Established.

•

No guidance at
Advanced.

••

Communication

•

•

•

Fundingrequirements

•

•

•

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11.
Regulatory
and Financial CrimePrinciple 11: Regulatory and Financial
Crime
Managing agents should have robust frameworks in place to assess and address regulatory and financial crimerisks arising from their UK and international businesses. Frameworks should support compliance with law,regulation and guidance, and allow for well informed, transparent relationships with Lloyd’s and applicableregulators.
REGULATORY AND FINANCIAL CRIME
Embed a culture of transparency, regulatory and financial crime compliance, and an

1 understanding of the benefits of this across their managed businesses.
Foundational
•

•

•

•

Intermediate

Managing agents are open,•transparent, and cooperativewith Lloyd’s and regulators,
whilst recognising the need for
Lloyd’s to lead such
relationships with international
regulators on matters related tolicensing, conduct, data, funding,and reporting.
Managing agents notify Lloyd’s
of significant and/or non-routine
engagements with UK regulatorsand have a clear understandingof the types of issues that should
be reported to Lloyd’s. This
includes issues which may
generate complaints, receive
regulatory or significant press
attention, concern the misuse orpotential misuse of Lloyd’s nameor brand or undermine theconfidence in and/or integrity of
the Lloyd’s Market. Issues arepromptly identified and sharedwith Lloyd’s.
Managing agents respond to
regulatory issues and/or
requests within a reasonable
timeframe and support Lloyd’s in
its regulator relationshipmanagement. Relevant data
requests are responded topositively, to ensure Lloyd’s
regulatory obligations on behalfof the market are met.
Managing agents takeresponsibility for fostering aculture of compliance, with clear
commitment from senior
management and evidence of
proactive engagement in the
management of financial crimerisk.

No guidance atIntermediate.

Established

Advanced••

No guidance at
Established.

No guidance at
Advanced.

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REGULATORY AND FINANCIAL CRIME
Have a robust understanding of their regulatory and financial crime risk exposure and appetite,

2 which is subject to appropriate challenge.

Financial Crime - Risk Assessment

Foundational

Intermediate

Established

Advanced

Risk Assessment - Processes are deployed that allow a managing agent to determine its inherent andresidual risk levels in key areas of financial crime risk in compliance with all applicable financial crime
legislation and regulatory guidance.

•

•

•

There are processes •to establish amanaging agent’s risk
profile in accordancewith applicablefinancial crime
legislation andregulation. This risk
assessment process
should be an annual
exercise, be
appropriately scoped,
resourced and•mapped to andcompared against
pre-existing risk
appetite statement(s).
Risk assessment
should identify
inherent and residual
risk generated fromservices, jurisdictions,customer types,
complexity andvolume oftransactions anddistribution channels
and establish, througha variety of tools, risk
levels and business
functions which
present the managing
agent’s greatest risks
for each area offinancial crime.
Risk assessment
informs the systems
and controls that are
most appropriate to
mitigate risk.

Risk Assessment is•
supported bydocumented
methodology, covers
all six risk types
defined by Lloyd’s(see glossary) with•
inherent and residual
risk levels mapped
into specific business
Functions / Teams
and or activities.
Associated Persons
are identified and risk
rated.
•

A financial crime•
control library is
documented andincludes appropriate
Associated Person
controls.
Regulator thematics
or other appropriate•
sources are identified
and reviewed. Any
required
improvements
identified are tracked
to completion.
Independent financial
crime testing isundertaken
periodically andrequired remediation
work is tracked tocompletion andreceives senior
management
oversight.

Financial crime
controls form part of awider Risk andControl SelfAssessment (RCSA)
exercise on at leastan annual basis.
Specific risk metricmonitoring isundertaken on
identified high risk
activities,
relationships and or
business types.

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REGULATORY AND FINANCIAL CRIME
Have a robust understanding of their regulatory and financial crime risk exposure and appetite,

2 which is subject to appropriate challenge.

Financial Crime - GovernanceFoundational

Intermediate

Established

Advanced

Governance - Financial crime risk management is appropriately documented and the effectiveness of theframework is visible to senior management and includes individual or team accountability.
•

•

•

•

The financial crime•
risk management
framework should be
supported andendorsed by theboard or a committeewith the requireddelegation of
authority.
Board (or delegate
committee)
involvement in
Financial crime risk
management isevidenced and theframework shouldhave documented
escalation criteria andreporting lines.
Financial crime risk
management
responsibility isclearly defined in linewith Senior Managers
and Certification
Regime (SMCR)
requirements andother relevant
regulation.
Senior management
should demonstrate aclear commitment andproactive engagementin the management offinancial crime risk(e.g. setting of risk
appetite statements)and ensure that thecompliance function
has sufficientauthority, autonomy
and appropriately
skilled resources.
Financial Crime
related escalation
processes should
ensure effective
Suspicious Activity
Reporting to include
staff who possess theappropriate seniority
and experience.

No guidance atIntermediate.

•

Financial Crime is•regularly discussed atrisk committee orother appropriate
equivalentCommittees.

••

The managing agent
has a dedicatedFinancial Crime rolewith overall financial
crime responsibility
and is able to produce
regular MI (prepared
for appropriate seniorcommittee e.g. ExCo.
or Risk Co).
Additionally the
managing agent has astand-alone
committee foroversight of financial
crime andcompliance, throughwhich a strategy
exists for self
improvement on
financial crimematters.
Senior management
set the right tone anddemonstrateleadership on
financial crime issues.

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REGULATORY AND FINANCIAL CRIME
Have a robust understanding of their regulatory and financial crime risk exposure and appetite,

2 which is subject to appropriate challenge.

Financial Crime - Monitoring and Assurance

Foundational

Intermediate

Established

Advanced

Monitoring and Assurance – Periodic monitoring and testing, possibly independent, provides assurance
as to control effectiveness and effective risk mitigation activity.
•••

The financial crime•
risk framework is
subject to anindependent andobjective audit. Wherea deficiency or
weakness is
identified, action to•
implementcompensating
controls is taken. The
root cause of theissue is determined
and remediated as
appropriate
Risk framework is
subject to routine
tests which assessand document theappropriateness andeffectiveness offinancial crime
systems and controls.
Systems and controls
implemented
by coverholders todeliver contracted
activities, are at an
appropriate standard

Financial crime
control reviews andrisk framework audits
are reported to theaudit committee orsimilar committee ofthe board.
Outsourced
arrangements are
subject to regularmonitoring withassociated internalreporting. These
include thoseregarding sanctions
compliance and thoseclassified as
Associated Persons
for the facilitation oftax evasion andbribery and corruption
purposes.

•
•

•

•

Monitoring and•assurance testing isrisk-based
In addition to aregular scheduled
Audit, financial crime
controls are subject toindependent testingby e.g. a monitoring
and assurance teamor within an
appropriate
framework.
Any findings fromindependent testing or
self-disclosed control
failures are fully
remediated.
All actions arisingfrom financial crime
audits in delegatedauthority entities aretracked to completion
with regular senior
management
reporting andsupervision.

Self-testing andevaluation of business
controls is evident on
a routine basis. Thismay or may not form
part of a wider selfassessment process.
Any such selfassessment isappropriately
challenged by anindependent
resource.

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REGULATORY AND FINANCIAL CRIME
Have a robust understanding of their regulatory and financial crime risk exposure and appetite,

2 which is subject to appropriate challenge.

Regulatory

Foundational
•

•

•

•

Intermediate

Regulatory risk is•
considered andmonitored throughrisk appetite andreported withevidence to board orcommittee level.
Managing agentsrecognise different
levels of regulatory
risk which they are
exposed to, acrosstheir managed
businesses. High risk
regulatory
jurisdictions are
identified and are
given focused
attention throughgreater monitoring or
escalation internally.
Periodic Internal
Audits or independent
testing (where
deemed relevant) isused as anopportunity toincrease
understanding andimprove against areasof regulatory
exposure.
Actions identified
through Internal
Audits, independent
testing or selfdisclosed control
failures are tracked toensure full
remediation.

No guidance atIntermediate.

Established

Advanced••

No guidance at
Established.

No guidance at
Advanced.

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REGULATORY AND FINANCIAL CRIME
Have appropriate systems and controls, including training, in place to manage regulatory

3 responsibilities and financial crime risk.

Financial Crime – Reporting and MI

Foundational

Intermediate

Established

Advanced

Reporting and MI – Senior Executives and other stakeholders are routinely informed of financial crime
risk levels, incidents and other appropriate management information to allow for meaningful oversight andinput into the financial crime risk framework.

•

•

•

•

Managing agents•should haveprocedures in place topromptly reportincidents to Lloyd’s
and the relevant UK
competent authorities
Managing agentsshould have a•process in place toreport to the Office ofFinancial Sanctions
Implementation(OFSI) immediately ifthere is a target
match with anindividual or entity on
the UK Consolidated
List.
Managing agentsshould notify Lloyd’sof any suspected,
potential or actual
violations andincidents of financial
crime (including
Suspicious Activity
Reports (SARs) madeto any regulator)
An annual report on
financial crime isprepared for theboard and/or risk
committee. The reportdetails risks, control
effectiveness and an
overall assessment of
the financial crime
risk framework at the
managing agent.

The annual report•
prepared considers
risks posed by any
delegated authority
arrangements and the
local and oversightcontrols that mitigate
the risk.
Regular MI of adetailed nature isgathered and reported
from within the
managing agent e.g.
Politically Exposed
Persons, Customers
from high risk
jurisdictions, numbersof sanctions alerts
etc.

KRIs are reviewed•
and considered aspart of wider tracking
to stated risk appetite.
Significant deltas are •investigated andresolved with, if
appropriate, risk
acceptance being
provided by anaccountable
executive.

Detailed MI forms partof a regular reporting
pack for senior
management
Regular MI isgathered from thedelegated authority
entities in respect offinancial crime.

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REGULATORY AND FINANCIAL CRIME
Have appropriate systems and controls, including training, in place to manage regulatory

3 responsibilities and financial crime risk.

Financial Crime – Training

Foundational

Intermediate

Established

Advanced

Training – Staff with exposure to financial crime risk are trained at an appropriate level to identify andmitigate financial crime risk.
•

•

•

•

Managing agents•should ensure thatpolicies andprocedures areembedded throughinternal and external
communication and•training, proportionate
to the risks it faces.
There should be clear
accountability for
regular andaccessible training
which has been•
tailored to the
managing agent’s risk
profile. The training
outlines
responsibilities
employees have forcompliance andshould clearly set out
procedures for
escalation andreporting risk matters.
The training program
should adequately
consider content, theaudience,
requirements for rolespecific training, thefrequency and theachieved completion
rates.
The training program
should be assessed
for effectiveness on aregular basis.

The program should •comprise of annual
mandatory specificfinancial crime
training provided to all
staff.
Training content isreviewed andrefreshed annuallyand completion rates
are tracked andoutstanding items
followed up.
Training should cover
the six risk areas of
Fraud, AML,
Sanctions, Market
Abuse, Bribery &Corruption andFacilitation of Tax
Evasion and detailindustry specific risk
scenarios.

Additional appropriate •financial crime
training is delivered to
identified populations
e.g. senior
management etc. andhigh risk roles.
•

Training materials areprovided to entities
within any delegatedauthority model andthe managing agent
maintains oversight ofcompletion of this.
The managing agent
also reviews andinputs into any
training implemented
or developed by thedelegated authority.

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REGULATORY AND FINANCIAL CRIME
Have appropriate systems and controls, including training, in place to manage regulatory

3 responsibilities and financial crime risk.

Financial Crime – Systems and Controls

Foundational

Intermediate

Established

Advanced

Systems and controls Documented policies, procedures, systems and controls allow for a managing
agent to identify and mitigate financial crime risk appropriately, including from delegated underwriting•••

Managing agents should •have proportionate andrisk-based systems andcontrols to meet
regulatory requirements
and effectively manage
risks. This will include, on
a risk-based approachand in line with policies
and procedures,
appropriate levels of
Customer Due-Diligence(CDD) when establishingor renewing a business
relationship. The extent of
CDD will depend on
applicable legal
requirements and thelevel of risk posed, as
informed by a risk
assessment.
All contributary policies
and procedures should be
documented andenhanced as required
and financial crime risk
management, issue
escalation and reporting
and remediation aredemonstrably embeddedin the managing agent's
operations.
The financial crime risk
management framework
meets the test of‘reasonable procedures’
under applicable UK
legislation. Where relying
on a third-party to perform
services, managing
agents should ensure thatthe third-party performs toa high standard and isaccountable. Managing
agents remain
accountable foradherence to applicablefinancial crime obligations
and should evidence
oversight over their third
parties and relevant
financial crime controls.

•
The six risk types
identified by Lloyd’s
are incorporated into
policies andprocedures andsupported bydocumented
guidance. Additionally,high level supporting
financial crime
guidance for
employees e.g.
Reporting Suspicious
Activity, is provided•
and housed in nonspecific materials e.g.
employee handbooks.

A developed•
financial crime
policy exists withperiodic refreshand approvalframework. This
Policy is supported
by detailed
guidance for all
staff and, whererequired, specificguidance for highrisk areas or•activities.
All relevant
procedures reflect
different
responsibilities as alead/follow•
syndicate.

A comprehensive
Financial Crime Policy
exists with periodic
refresh and approvalframework and is
supported by detailed
Risk Frameworks,
Standards orProcedures, covering
specific risk typologies
and associatedcontrols.
Policies andprocedures include all
points of the insurance
policy lifecycle - frompre-bind, post-bindincluding claims.
Localised business
function procedures
detail control,
ownership, evidence,
frequency, roles andresponsibilities etc incontrol execution.

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REGULATORY AND FINANCIAL CRIME
Have appropriate systems and controls, including training, in place to manage regulatory

3 responsibilities and financial crime risk.

Regulatory

Foundational
•

•

•
•
•
•

•
•
•
•

•

•

LIC

•

Intermediate

Set and review regularly, clear underwriting•
guidance as to what and how business can be
written in accordance with Lloyd’s licensing,with reference to Lloyd’s regulatory tools.
Establish and regularly review clear escalation
procedures and criteria, for use in underwriting
decisions or where a potential breach is
identified once a risk is bound.
Conduct horizon scanning to anticipate andrespond to changes in regulatory guidance andlegislation.
Ensure regulatory compliance training isprovided to all staff and on a regular basis forunderwriting and compliance staff
Regulatory training is part of new employee
onboarding process
Ensure all those carrying out insurance
business should do so equipped withappropriate levels of regulatory knowledge.
Ensure training covers Crystal and QA Tool
(DCOM) and the Risk Locator tool forinternational risks
Regularly assess staff training requirements
are regularly assessed
Ensure training modules are regularly
reviewed and updated to reflect regulatorychanges
Regulatory compliance training recognises any
additional international regulatory risk arisingfrom exposures to multiple territories andclasses and provides underwriters withknowledge of license requirements in exposed
territories and classes
Regulatory compliance training recognises the
additional international regulatory risk arisingfrom exposures to highly regulated territories
and classes
Tailor training to provide underwriters with
relevant knowledge of regulations and license
requirements in highly regulated territories andclasses
Underwriting and Compliance staff champion
the use of Lloyd’s regulatory tools within thebusiness

EstablishedNo guidance •atIntermediate.

No guidanceatEstablished.

Advanced•

No guidanceat Advanced.

THIS SECTION IS APPLICABLE FOR ALL BUSINESS WRITTEN THROUGH THE LIC PLATFORM•

Systems and controls are in place to reflect the requirements as set out in the LIC Financial Crime
Requirements Guide for Underwriters (see Lloyds.com) to manage the financial crime risk arising fromunderwriting through the LIC platform.

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12.
Operational
ResiliencePrinciple 12: Operational Resilience
Managing agents should maintain robust and resilient operations, embedding cyber resilience andeffective third-party risk management​.

OPERATIONAL RESILIENCE

1 Operate a robust operational resilience framework
Foundational
•

-

-

-

-

-

-

Intermediate

An Operational•
Resilience framework
is in place which meetsrelevant regulatory
requirements andincludes:The identification andmanagement ofImportant Business
Services (IBS).
Defined Impact•
Tolerances for all IBS
recognising the risk tothe safety andsoundness of the
managing agent andthe potential for
consumer harm.
IBS and Impact
Tolerances are
regularly updated andconsider changes
to business strategy
and mix.
The use of (severe but
plausible) scenario
testing and incident
response exercises.
The management ofrisks associated withkey suppliers andoutsource providers.
Mapping of criticalresources to relevant
IBS, including third
parties.

Established

The Operational•
Resilience framework
is further developed toenhance its maturity
and effectiveness, forexample, throughincreased
sophistication and•complexity of planned
scenarios.
Operational Resilience
is considered whenstrategic initiatives andbusiness changes arebeing developed.

Advanced•
The Operational
Resilience framework
is continuously
reviewed to identify
development needs.
Plans are in place todeliver improvements.
Examples of moremature processes
could include, forexample, defining
intervention points forthe point at which
operational
issues/events should
be reported to therelevant Operational
Resilience teams andthe manner in whichthose reports should be
made.

There is a high level ofunderstanding andintegration of the
Operational Resilience
framework at all levelsof the organisation.

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OPERATIONAL RESILIENCE

2 Maintain oversight of operational resilience through appropriate governance processes andrisk and control environments

Foundational
•

•

•

•

Intermediate

The Board and senior •management haveoversight andownership of the
managing agent’s
Operational Resilience. •Operational Resilienceis monitored throughthe risk management
framework and control
environment.
Senior management
have a clear
understanding of what
external
communications may
be required as a resultof operational
disruption.
Senior management
have a clear
understanding of whatescalation andremediation may berequired in the event of
any operational
disruption prior to any
breach of impact
tolerances.

Established

The internal committee •reporting requirements
on Operational
Resilience are definedand understood.
Scenario testing plans
are subject to review
and amendment at•
appropriate
governancecommittees to ensure
that, for example, they
consider a timescale
beyond 12 months andconsider lessons
learned from previous
scenario tests.

Advanced•
Reporting on
operational or risk
incidents togovernancecommittees includes
Operational Resilience
impacts.
The Operational
Resilience selfassessment ispresented in aconsistent andaccessible format
which facilitates
thorough review andchallenge by senior
management and theBoard.

The Board and senior
management are highly
engaged in Operational
Resilience withappropriate senior
management
accountability andownership of changes,
issues anddevelopments that
impact the Operational
Resilience framework.

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OPERATIONAL RESILIENCE

Information Systems & Reporting

3 Maintain appropriate cyber resilience
Foundational

Intermediate

•

•

•

•

Availability, integrity
and confidentiality of
information isprotected.
The presence ofunauthorised code or
persons on any
information
technology systems
for which theorganisation is
responsible isreported to Lloyd’s
within 72 hours ofdetection.
Cyber security
incidents that could
impact otherparticipants on the
Lloyd’s Market arereported to the LMA
immediately upon
identification.

•

Established

Information systems•
which are critical tothe operation ofimportant businessservices areunderstood anddocumented.
Cyber security
function(s) at theManaging Agent•demonstrate ongoing,
active involvement in
Lloyd’s Market cybersecurity groups suchas at Limoss, DXC,LMA etc.

Advanced

Almost all information •systems are fully
documented within acentralised asset
register with very few
exceptions such as
non-critical end user
developed
applications
The Managing Agent•initiates
communications with
Lloyd’s regarding any
cyber security areasof concern such as
residually red risks
within theirorganisation.

There is fullunderstanding of all
information systems
within theorganisation as they
are documented in an
Asset Register whichis constantly
maintained to remaincurrent.
Asset and information
owners control
access via a clear
process withentitlements
periodically reviewed.

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OPERATIONAL RESILIENCE

3 Maintain appropriate cyber resilience

Data Protection and GovernanceFoundational
•

•

•

•

Intermediate

Loss or leakage of•
Personal Data (akaPersonally Identifiable
Information, or PII) for
which theorganisation isconsidered a Data
Owner is reported to
Lloyd’s within 72
hours of detection.
Loss or leakage of•any data which could
affect the Lloyd’sMarketplace isreported to the LMA
immediately upon
identification.
Data Subject Access
Requests (DSAR) areappropriately
responded to.
•Members of staff
receive training on
Data Protection
obligations.

•

Established

Data Protection is•governed by aformally documented
framework of policies
and standards,aligned with a cybersecurity strategy,
owned by an•accountable senior
executive.
Policies andprocedures ensurethat DSAR are dealt
with effectively and ina timely manner
appropriate to theircomplexity (e.g.
requesting extended •response time forcomplex DSAR).
There is goodunderstanding ofsensitive information
held by theorganisation because
it is documented in an
Information AssetRegister.
There are policies
and standards on theretention and disposalof information.

Advanced

Procedures and data •governance teams
are sufficiently
resourced to respondeven to complex
DSAR within initial(28 day) timeframes.
Facilities allow data to•
be electronicallymarked with aclassification basedon its sensitivity andall data has beenmarked to at least ageneral tide mark foreach type of data ordata set.
There are policies
and standards on the •retention and disposalof information, theeffectiveness of which
undergo periodic
assurance.

All staff are aware of
Data Protection
obligations, withmandatory periodic
refresher training
backed up by pass/failtests ofunderstanding.
Data is electronicallymarked by authorsand owners to a levelof maturity such thattechnical controls caneffectively control the
movement of data
between internal
systems as well as toexternal recipients.
There is total
confidence that alldata held across theorganisation meetswith internal andregulatory policy on
retention andprocessing.

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OPERATIONAL RESILIENCE

3 Maintain appropriate cyber resilience
Foundational

Cyber Governance & Identification

•

•

•

•
•

Intermediate

A cyber security•
strategy has been
defined for theorganisation.
External and internalrisks to cyber security •are understood andarticulated by theorganisation.
IT systems which are
critical to theoperation of importantbusiness processes
are identified and•protected from cyberrisks.
Vulnerabilities are
identified andremediated.
Obsolete and end oflife hardware andsoftware is identified.

Established

Cyber security risks•
are formally
documented andrated with regular
reports to leadership.
Vulnerabilities are
identified by periodic
penetration testing or •vulnerability scanning
either by internalteams or external
partner (e.g. BitSight,
SecurityScorecard).
An independent•internal function (e.g.
third line audit)
provides periodic
review of theimplementation ofcontrols for cyberrisks.

Advanced

Threat intelligence is •used to inform thecyber security
strategy, theidentification andrating of risks, andcontrol objectives.
•
The generaleffectiveness of cybersecurity controls are
periodically tested,e.g. by internal orexternal red team.
An effective internalfunction (e.g. second •line) provides
constant oversightand challenge to theimplementation ofcontrols for cyber risk.

••

There is a formalised
three lines of defence(3LoD) model withdefined anddemarked
responsibilities (e.g.
in a RACI).
The organisation has
a fully joined-up cybersecurity strategy andframework with clear
linkage between
policies, standards
and controls.
The effectiveness of
individual cybersecurity controls is
rated with assurance
gained through testingand independent
review.
The cyber security
maturity of theorganisation isevaluated using
industry standards orbenchmarking.
Cyber security
capability is subjected
to formal independent
external evaluation(e.g. Red Team
testing, CBEST,STAR FS, FS-ISAC).

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OPERATIONAL RESILIENCE

3 Maintain appropriate cyber resilience
Foundational

Cyber Protection

•

•

•

Intermediate

Systems are•
hardened against
cyber compromise bytechnical and nontechnical controls.
Staff at all levels are
mindful of cyber•security threats
through periodical
security awarenesstraining.
Sensitive data anddocuments are•
subject to aclassification or
marking system whichfacilitates theirprotection bytechnical controls or•
policies.

EstablishedObsolete and end of •life hardware andsoftware isremediated before
causing any increase
to the risk profile.
Root cause analysis
following incidents ornear-misses is used
to identify protective•
control gaps or
weaknesses.
New services andsystems consider andincorporate cyber•security throughout
design andimplementation.
Vendor security
patches are applied to
all IT systems within
one month of release •and patch status
metrics are reported
to appropriatetechnical groups orcommittee.

Advanced

The effectiveness of•protective controls are
rated using aconsistent andobjective process withresults mapped
against the likelihoodof related cyber risk
events.
Protective controls•
are subjected toperiodic assurance
activity (e.g. internalor external testing).
Data is protected byencryption at rest orin transit such thatphysical loss,
misplacement or mis- •sending does not leadto a data breach.
Protection of systems
is corroborated byobtaining industry
recognised
certification (e.g.
Cyber Essentials
Plus, ISO27001,
NCSC CAF, NIST
CSF etc).

Changes to control
effectiveness ratings(e.g. following an
incident or assurance
activity) is
immediately andautomatically
represented in cyberrisk reporting.
Privileged access ismanaged such that
there is no ability forad hoc administrative
access (e.g.
credentials are breakglass or linked toservice or change
control systems).
Data loss prevention
systems warn or
enforce based onclassification
markings or dynamic
policy rules (e.g.
content scanning)when users transfer
data either
electronically or
physically.

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OPERATIONAL RESILIENCE

3 Maintain appropriate cyber resilience

Cyber third-party management

Foundational•••

Intermediate

There is a register of •third-party suppliersor partners which arevital to the operationof critical businessprocesses.
There is a risk•
assessment of thirdparty suppliers vital tothe operation ofcritical businessprocesses along with
substitution,•
succession orcontinuity planningwhere appropriate.
Any third party thatprocesses company
data is subject toappropriate legal
contract or dataprocessing
agreement.

EstablishedAll third party•
suppliers or partners
are subject to a
specific cyber risk
assessment on initial
engagement.
Data processing
agreements with third
parties are
periodically reviewed •to ensure they remain
fit for purpose.
Accounts granted tothird parties in orderto access internal
systems are
periodically reviewed •to ensure JML
processes involving
external resources
are appropriate.

Advanced

The cyber risk•
assessment for third
party suppliers isperiodically reperformed on aschedule based on
the level of criticalityof services they•
provide.
Accounts granted tothird parties in orderto access internal
systems are
periodically audited toensure level of•access is appropriate.
Any data transfer
between the firm anda supplier isperformed securely,
utilising both technicaland non-technicalcontrols (e.g. securedata transfer systems
and data transfer
procedures).

Physical or technicalaudits are performedon the cyber controlsof third-party
suppliers vital to theoperation of criticalbusiness processes.
Data processing
activities by third
parties is periodically
audited to ensure they
adhere to dataprocessing
agreements.
Strong legal contracts
ensure that theinternal cyber controlsof third parties matchor are closely alignedwith those of the firm.

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OPERATIONAL RESILIENCE

Cyber detection

3 Maintain appropriate cyber resilience
Foundational

Intermediate

•

•

•

•

•

Capability to detect
indicators of attack orcompromise which iscomprised of both
endpoint andperimeter detection.
Alert monitoring andincident response ismainly duringbusiness hours only.
In addition to onaccess alerting,periodic at-rest filescanning provides acapability to detect
the presence ofunauthorised code
Alerts are tuned toreduce false-positives
whilst ensuring
genuine incidents aredetected.

•••

Established

Alert monitoring is•
24/7 by either internalor external capability
although response outof business hours
may be call tree
escalation or ad hoc.
Abnormal activities•
such as bulk data
exfiltration or extreme
I/O (e.g. encryption)
activity is detected
and alerted•
immediately.
Use and escalation ofprivileged and service
accounts is monitored
and alerted.
Alert tuning is•periodically tested byinternal security team(e.g. by limited purple
team detection control
testing).
•

Advanced

Advanced detection•
techniques such as
user behaviour andinternal/cloud network
traffic analysis
provide additional
alerting capability.
Alerts are collated
centrally (e.g. to SIEM
tooling) to facilitate
thematic analysis of•interrelated events.
Real-time perimeter
network analysis iscapable of detecting
unauthorised traffic(e.g. C2 or stealthdata exfiltration).
Alert monitoring is
24/7 with capability
for immediate incident
response and•forensics.
Detection isperiodically tested byexternal partners (e.g.
Red Team testing,
FS-ISAC, Star-FS).

Threat analysis
includes themonitoring ofcommunications fromthreat actors (e.g.
Darkweb message
boards) which may
give warning ofcurrent targeting orcompromise.
Advanced detection
tooling such as nonsignature based
machine learning, AI,
use of geographic or
chronographic data
(e.g. impossible
travel, abnormal
logon time), unfamiliar
IP/ISP
honeypot/tarpits etc.
Proactive andthematic analysis of
metrics (e.g.
perimeter-detected oruser-reported
phishing emails,
presence and volumeof DDoS traffic,
vishing activity) todetect potential
targeted campaigns.

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OPERATIONAL RESILIENCE

3 Maintain appropriate cyber resilience

Cyber response and recovery

Foundational
•

•

•

•

Cyber information sharing•

Intermediate

Incident management •procedures exist for
the effective response
and management ofcyber events.
Business continuity
plans help ensure thecontinued operation ofbusiness processes inthe event of system•
disruption.
Communication plans
are available and canbe both accessed andenacted via separate
systems so that
effective internal andexternal notifications
can continue in the•event of system
disruption.
All critical systems areprotected by backup
and restore
technology which are
subject to periodical
testing to maintainconfidence in theireffectiveness andcoverage.

The organisation
receives and reviews
information on cybersecurity particular to
the Lloyd’s Market
community (e.g. from
Lloyd’s the LMA or
DXC) and/or has
dialogue with cybersecurity functions ofother market
participants.

•

Incident
management
procedures andbusiness
continuity plans
have been tested(e.g. by tabletop
or physicalexercises).
Alerts that occur
out of businesshours can beeffectively
responded to (e.g.
via call escalation
paths, defineddecision/trigger
points etc).
There areplans/proceduresfor performing
post-incident
forensic analysis(e.g. via external
partner or throughcyber insurance)
which would
supportconclusion oferadication phaseof incident
response.

Established
•

•

•

•

Cyber security•
information (e.g.
threats,
vulnerabilities,
indicators of
attack /compromise,incidents, lessons
learned) is sharedwith internal
stakeholders andexternal market
participants (e.g.
via the Lloyd’sMarket closed
CiSP group)
where
appropriate.

Advanced

Incident management•
procedures and business
continuity plans are
regularly tested (e.g. bytabletop or physicalexercises).
Ability to perform•
immediate internal orexternal forensic analysis
of log data and machine
images has been tested.
There is a 24/7 capability
to respond materiallyfollowing an alert (e.g.
•quarantining machines,
disabling accounts,changing perimeter email/ firewall rules).
There are playbooks andcapability to perform
graduated response tosuspected cyber events(e.g. shutting or locking
down machines or
networks based on data
sensitivity or maintaining
operation of individual
business criticalsystems).

Response andrecovery is
periodically tested byexternal partners (e.g.
Red Team testing,
FS-ISAC, Star-FS).
There are playbooks
for the green field
restoration of theentire environment
from either off-sitebackup or source
media.
Business Continuity /Operational
Resilience planningincludes capability torecover operations
should core systems
be unavailable (e.g.
through substitution or
manual processes)
and this capability has
been tested (e.g. bytabletop or physicalexercises).

•

The organisation
actively participateswith the Lloyd’s cybercommunity (e.g.
through membershipof the LMA CISO
group or participationin market cyber
exercises such as
Phishing or
Operational
Resilience).

The organisation has
playbooks which havebeen pre-agreed withlegal functions tofacilitate the immediatesharing of cyber incident
or breach information
with Lloyd’s and wider
market participants (e.g.
via Lloyd’s market
associations or CISO
community).

Classification: Confidential

152

13.
CulturePrinciple 13: Culture
Managing agents should be diverse and create an inclusive and high-performance culture.

CULTURE
Demonstrate leadership focus on fostering an inclusive and high-performance culture at all

1 levels.

StrategyFoundational
•

•

•

•

Intermediate

Culture is considered •a priority for the Boardand senior leadershipand is proactively
communicated acrossthe business to show •intent.
The desiredorganisational culture
is defined (e.g. incultural values /principles) to provide
clarity of theorganisation’s identityand vision.
•
The Board and seniorleadership understandand input into thepriorities required to•achieve the desired
culture.
There is minimum
annual reporting on
culture to the Boardand senior leadershipto drive responsibility
and ownership.

Established

A Culture Strategy•
has been defined withan action plan tosupport developmentof the desired culture.
A Diversity andInclusion (D&I)
Strategy has beendeveloped to drive
focused, evidencebased impact andchange (can be partof a broader culture•
strategy).
Progress is reviewed
annually by Boardand senior leadershipto assess impact.
Employees acrosslevels and businessareas (not justLeadership and HR)
input into theorganisation’s culture
strategy and actions,involving theorganisation indeveloping
organisational culture.

Advanced•
There is strategic
business-wide
leadership andgovernance of culture,
diversity and inclusion(e.g. culture council,
D&I advisory group)
to increase reach andownership across theorganisation (topdown, bottom up andacross).
The D&I Strategy
considersintersectionality andbelonging to better
understand uniqueexperiences andopportunities thatenable talent to thrive.

Cultural variances
between teams,
functions, businessareas etc. aresupported,
recognising there may
be cultures withincultures, but there is acollective cultural
direction being
worked towards. Any
pockets that don’talign to the culture
ambitions are
addressed.

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CULTURE

1 Demonstrate leadership focus on fostering an inclusive and high-performance culture at alllevels.

Engagement

LeadershipFoundational

Intermediate

Established• There is visible• Leadership capability
support for an
is developed that isinclusive and highaligned to the desired
performance culture
culture and includes
from the Board andinclusive leadership.
senior leadership• Leadershipevidenced by leading
accountability forby example and roleculture, diversity andmodelling behaviours.
inclusion is linked to• A leadershipcompensation.
behavioural
framework or
expectations are inplace, measured andreferred to in decision
making.
• There is leadershipaccountability forculture, diversity andinclusion throughperformance metrics.

•• There are intentional
efforts towards an
inclusive culture that
leads to tangible
impact.

• No guidance at
Established.

• No guidance atIntermediate.

•

Advanced

Inclusive leadership•development extends
to anyone with people
management
responsibility
Leaders and•managers proactively
sponsor talent(including underrepresented talent) todevelop and progresse.g. createconnections,advocate, provide
visibility.

Senior leadersdevelop the next levelof leaders to drive an
inclusive, highperformance culture
The firm uses its
scale and reach to
advocate for and leadinitiatives that
positively change
market-wide culture,
diversity andinclusion, amplifying
impact and results.

• No guidance at
Advanced.

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CULTURE

2 Foster inclusive behaviour, with zero tolerance for inappropriate behaviour

Learning

Policies

Foundational

Intermediate• Appropriate policies to •set behaviour
expectations areevidenced andenforced (e.g.
Grievance, Bullying
and Harassment,
Drugs and Alcohol).
• Behaviour
expectations areclearly communicated •to employees (e.g.
code of conduct,
employee handbook).

Established

Adherence to• No guidance at
behavioural standards
Established.
(including values andD&I expectations) are
included in material
supplier / third party
contracts (e.g.
vendors, partners,
recruitment
providers).
Behavioural related
policies, processes,
procedures and tools
are reviewed andanalysed toincorporate employee
feedback andenhancements.

• D&I training is• Inclusive behaviour•
mandatory for all
training is mandatory
employees to ensure
for all employees andfundamental
includes broader
understanding
education (e.g. lived
includingexperiences). Training
discrimination andis acted upon andharassment.
leads to severity of• Training on inclusive
behavioural incidents
behaviours is
reducing over time.
available.
• Leaders and• Employees feelmanagers arerespected, understoodrequired to undertakeand supported by their
inclusive leadershipcolleagues andand behaviour
leaders.
training.

Advanced• No guidance at
Advanced.

Professional and role- • No guidance at
specific learning
Advanced.
reinforces inclusive
behaviour
expectations.

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CULTURE

2 Foster inclusive behaviour, with zero tolerance for inappropriate behaviour

Performance

PracticesFoundational

Intermediate• Disciplinary, grievance •and investigation
processes areadhered to at all times
and operated in a waythat provides timely
and fair outcomes that
support inclusive
behaviour.
•• Appropriate due
diligence is carried out
on new hires, andhiring and recruitment
decisions align tobehaviouralexpectations.
• Leaders role model•
the behaviour
expectations anddemonstrate a ‘zero
tolerance’ approach toinappropriate
behaviour.
• Employees haveconfidence thatleaders will address
inappropriate
behaviour in theirorganisation, no
matter how small.
• Methodology forsupporting employeeswith behaviour related
incidents can bedemonstrated, taking
seriously all concerns
raised in an
appropriate manner.
• Performance isassessed based on
behaviour
expectations andbusiness results andthis is linked tocompensation.
• Positive behaviour isrecognised and there
are consequenceswhere behavioural
breaches occur.

Established

Advanced

Formal or informal• Culture is•
feedback mechanisms
proactively
help to identify andreviewed acrossanalyse trends in inclusive
business areas,or non-inclusive behaviour
functions and teams
so that root causes can beto identify
understood andopportunities or•addressed.
areas of concern.
There is proactive• Employee relations
inclusive behaviour within
are proactively
and across teams rather
used to advise andthan simply reacting
support on ways toretrospectively to
improve behaviour
grievances. E.g.
and the working•
colleagues proactively
environment, notsharing learning.
just in punitive
Employees feelsituations.
empowered toappropriately address andresolve behaviour that is
not inclusive.

• A behavioural frameworkhas been defined to alignbehaviours with values,
Culture Strategy and D&I
Strategy.
• There are consequences
for non-inclusive
behaviour as well as
rewards for inclusive
behaviour which is tied to
culture related employee
objectives / KPIs in orderto drive accountability.

• No guidance at
Established.

Classification: Confidential

Teachable moments
are shared fromrelevant situations
and experiences tofacilitate learning andtransparency.
Inclusive behaviour
leads to challenging
of the status quo andchanging
perceptions about
behaviour across themarket.
Teams constructively
check and challenge
each other to be
inclusive e.g. through360° feedback, andproactively identify
instances where
behaviour can
improve. They also
amplify positive
examples for othercolleagues andteams to learn from.

• No guidance at
Advanced.

157

CULTURE
Foster psychological safety to encourage speaking up, access diverse perspectives and focus on

3 continuous improvement

Policies, Practices and Tools

Foundational

Intermediate

Established• Policies and• Employee training•
processes for
related to effective
speaking up are incommunication,
place (e.g. Grievance,
speaking up andWhistleblowing,
fostering
Health and Safety)
psychological safety
and employees aresupports inclusive
trained where
behaviour.
appropriate.
• Employees are• Appropriate tools are
involved in continuous
available toimprovement of
employees to report
processes, practices
issues andand performance.
communicate any
concerns. Employees
demonstrateawareness of andconfidence in them.
• There are formal orinformal channels andways for people toshare and contribute
ideas and feedback
e.g. via employee
surveys, employee
forums.

Tools for employees
to report issues aremonitored for usage
and patterns,
identifying any
potential adverse
experiences for
demographic groups.

Advanced• No guidance at
Advanced.

158
Classification: Confidential

CULTURE
Foster psychological safety to encourage speaking up, access diverse perspectives and focus on

3 continuous improvement

Culture and Engagement

Foundational

Intermediate• Speaking up is•
positioned as afoundation of a healthy
culture, where
employees are
comfortable to put
forward ideas, learn,ask questions andchallenge, not justreport inappropriate•
behaviour.
• Employees areencouraged and safe
to express
disagreement orchallenge opinions
without fear ofnegative
consequences.
• Whether informal orformal, there is aculture of action toaddress concerns andfeedback raised by
employees. Concerns
are taken seriously,building trust in doingso.
• There is dialogue
between leaders andemployees and rigour
around listening andacting on employee
feedback and ideas.

Established

There is a healthy•
culture aroundmistakes, andemployees areencouraged to usethem as opportunities
for learning for how to
do things differently /better.
Leaders andmanagers encourage
curiosity andinterpersonal risktaking by modelling
this behaviour (e.g. by
acknowledging theirown gaps, admitting
mistakes, asking forhelp) and celebrating
it in others toencourage
contributions andengagement acrossemployees.

Advanced

A variety of people,• Diversity of thevoices and views
Leadership Team(broader than
(Executive and Nonprotected
Executive Directors)
characteristics – e.g.
includes varied
tenures, departments,
industry backgrounds,
backgrounds etc.) are
breadth of experience,
actively sourced andskillsets andengaged in the
demographics todevelopment ofenrich boardroom / Cproducts and services
suite discussions,in order to innovate
solutioning, decisions
through inclusion.
and execution.
• Leaders andmanagers create ways
(formal and informal)
to bring diversity ofthought into teams
and businessdecision-making.
Collaboration acrossteams is encouraged
to mitigate the risks ofgroup think and drive
continuous
improvement.

159
Classification: Confidential

CULTURE
Ensure diverse representation in their workforce and leadership levels, reflecting society. Be

4 inclusive in hiring and retention and contribute to the market being a destination of choice for

Recruitment

Diversity

talentFoundational

Intermediate

Established• Diversity of theworkforce and inleadership ismonitored, with firmspecific goals set
where there is underrepresentation.
• The managing agent
can demonstrateprogress towards
Lloyd’s Gender andEthnicity targets andtheir own goals.

• Firm-specific D&I
goals or targets are
set and monitored,
considering broader
demographics andinclusion. Indicatorsshow improvement
towards them.
• Market-competitive
policies and practices
that consider diverse
needs are in place,e.g. parental leave,
flexible working.

•• Steps are taken to
attract diverse andunder-represented
talent (e.g.
consideration of
Lloyd’s talent pools).
• Policies, processes
and practices are inplace which support
inclusive hiring for all
roles (e.g. debiased
selection process).

• Recruitment partners •undertake diversity
monitoring and apply
inclusive recruitment
practices (e.g. AA•
accessibility standard
websites, reducing
barriers to entry,
proactive use ofcommunity
engagement).
• Hiring managers aretrained in inclusive
hiring practices andapply this in their role.
• Action is taken to
attract underrepresented talent andleads to diverse hires
and placements.

Advanced

D&I requirements are • Time, effort andincluded in material
resources aresupplier / third party
invested into initiatives
contracts.
that have social
impact. This is
strategically aligned tosustainability goals.
• Action is taken to
broaden access to
suppliers toopportunities aligned
to the Culture and D&I
Strategy.

Recruiters have D&I
related KPIs andinclusive recruitment
accreditation.
There is a proactive
employer branding
strategy to broaden
awareness and reachof talent pools.

• There is a culture-add
approach torecruitment, seeking
candidates thatenhance the culture
rather than ‘fit’ thecurrent culture to
support growth.
• There is a scaled
approach to talentsourcing, leveraging
direct channels andengaging at volume
with different schools,
universities, partners /third parties etc.

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Classification: Confidential

CULTURE
Ensure diverse representation in their workforce and leadership levels, reflecting society. Be

4 inclusive in hiring and retention and contribute to the market being a destination of choice fortalentOutreach

Talent and Succession

Foundational

Intermediate

Established• There is proactive• The employee•
talent management oflifecycle is reviewed
diverse talent throughthrough a diversity
the business e.g.
and inclusion lens anddevelopment roles
insights are built intoand programmes,
talent management
mentoring.
and monitored,• Succession planningleading to retention of •is carried out totalent.
identify future leaders, • Diversity of the talentconsidering
pool is understood andbehaviours, skills andthere is action todiversity.
develop and diversify
the talent pipeline (e.g.
development
programmes) to•address underrepresentation anddisproportionate
outcomes.
• Pay gaps aremeasured and•monitored tounderstand andaddress any
challenges (250+
employees).

• No guidance atFoundational• There is participationin outreachprogrammes (ownfirm, with partners ormarket-wide) toincrease access todiverse talent.

Advanced

Processes to de-bias •outcomes throughout
the employee lifecycle
can be evidenced(performance,
promotion,
development, reward). •Proactive talentmanagement
considers outcomes at •function-level or in
specific roles andleads to proportionality
in development andprogression.
Leaders takeaccountability toprogress and retain
diverse talent (e.g. via
sponsorshipprogrammes).
Lived experience ofdiverse talent isunderstood byleadership andmanagers and as aresult, flight risks are
identified.

At all levels there isworkforce
representationreflective of society
with understanding of
the customer base.
Turnover of diverse
talent is proactively
avoided.
Targets are set for pay
parity at all levels
across multiple
demographics and are
actively worked
towards. There istransparency at Board
level.

• Leaders contribute• The managing agent
industry thought
convenes, shapes
leadership to drive
thinking and / or leads
awareness, education
initiatives to foster aand engagement.
diverse, inclusive andhigh-performance
culture, and takes aleading role in marketwide / cross-industry
outreach initiatives
that change
perceptions of themarket and industry
and make it adestination of choicefor talent.

161
Classification: Confidential

CULTURE
Understand their employee population, use data and insights to inform action to create an

5 inclusive employee experience

Culture and Engagement

Data and Analysis

Foundational

Intermediate• Diversity data is• A broad range ofcollected including
diversity data is
Gender and Ethnicity
collected (where local
at a minimum (whererequirements allow)
local requirements
and analysed,
allow), with steps
includingtaken to collectintersectional
broader diversity data.
dimensions to inform• Disclosure of diversity
proactive action,
data is increasing.
positively enhance• Diversity data is
experiences andanalysed toreduce any negative
understand trends
indications.
• A variety of qualitativeand quantitative
feedback sources areused to understandand improve theemployee experience.
• Culture, diversity andinclusion data is
discussed at Board
and ExCo at least
annually and action istaken to continuously
improve.

Established•

Advanced

Employee experience •data shows minimal
variance for diverse
groups and acrossdifferent levels of theorganisation.

• There is transparency • The employee• D&I informs decision •on insights from theexperience ismaking and impacts
Culture Survey andreviewed through adesign of newother employee
D&I lens, and action /initiatives, products
feedback as well as
adjustments are taken
and/or services tocommunication of
to address any
enable and drive
resulting actions.
concerns or gaps (e.g.
accessibility to all.
• Employee Network
reasonable• Culture efforts areGroups (either within
adjustments, flexible
connected regionally /the firm or wider
working).
globally (asindustry) and• Senior leaders play aappropriate) to
employee forums arerole in Employee
support cohesion,
encouraged andNetwork Groups,
connection andpromoted to facilitate
either within the firm
collaboration.
connection building.
or wider industry.

No guidance at
Advanced.

There is an alumni
network to foster
positive relationships
and sentiment in themarket.

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Classification: Confidential

CULTURE
Understand their employee population, use data and insights to inform action to create an

Policies, Practices and Tools

External Accreditation

5 inclusive employee experience
Foundational

Intermediate

Established

Advanced• No guidance atFoundational.

• No guidance atIntermediate.

• External assurance•
can be evidenced
through D&I Audits orrecognised
Accreditation such as
Clear Assured Bronze/ Silver level, Investors
in Diversity or National
Equality Standard.

• Appropriate support
for employee
wellbeing is available
and communicated toall.
• There aremechanisms to checkthat employees havethe tools and support
they need to work
effectively andcomfortably.

• Identifying,• No guidance atunderstanding andEstablished.
acting on root issues
and causes that
undermine wellbeing
occurs (e.g. workload,
job design, resource
levels).
• There is anunderstanding of thebarriers employees
face and action plansto address.

At least one higher
level accreditation
has been achieved(e.g. Clear Assured
Gold/Platinum level,
Masters in Diversity
or other approved
accreditation).

• No guidance at
Advanced.

163
Classification: ConfidentialGlossary

Approved person

An individual who has been approved by the Financial Conduct Authority (FCA) toperform a FCA controlled function for an authorised person.

Benchmark Premium

The price for each risk at which the managing agent is expected to deliver theirrequired results, in line with the approved syndicate business plan.

Binding Authority

An agreement between a managing agent and a coverholder under which the
managing agent delegates its authority to enter into a contract(s) of insurance (to beunderwritten by the members of a syndicate managed by it) to the coverholder inaccordance with the terms of the agreement.

Case Reserves

Contingent financial provisions based on available information, which do notnecessarily indicate a coverage position or expected outcome unless and until the
managing agent(s) accepts coverage without reservation.

Catastrophe Modelling (also known as cat modelling) is the process of using computer-assisted calculations toestimate the losses that could be sustained due to a catastrophic event such as a
hurricane or earthquake.
Coverholder

A company or partnership authorised by a managing agent to enter into a contract(s) ofinsurance (to be underwritten by the members of a syndicate managed by it) inaccordance with the terms of a Binding Authority.

Customer Challenge

Fair and proportionate challenge and input from the perspective of the customer.

Customer Due
Diligence (CCD)

The act of assessing your customers' background to determine their identity and thelevel of risk they possess.

Cyber Incident

Refers to an event that threatens the confidentiality, availability or integrity of networks,
information systems or data of managing agents. It includes a cyber-attack (forexample: DDoS, ransomware, website defacement), any Personal Data Breach or asimilar breach of non-personal (commercial) data which includes underwriting data.

Data Protection
An independent public authority which is established by a Member State pursuant toSupervisory Authority Article 51; (as defined in GDPR Article 4(21))
Delegated
Delegated underwriting refers to an arrangement under which a managing agent of a
Underwriting Authority syndicate delegates its authority to a coverholder to enter into contracts of insurance(DUA)
on behalf of the syndicate.
Delegated Authority

All forms of business where underwriting and claims authority has been delegated toanother entity (e.g. binding authorities, consortia, lineslips etc.).
164
Classification: Confidential

Expert judgement (EJ) Where insurance and reinsurance undertakings make assumptions about rules
relating to the valuation of assets and liabilities, technical provisions, own funds,
solvency capital requirements, minimum capital requirements and investment rules
based on the expertise of persons with relevant knowledge, experience andunderstanding of the risks inherent in the insurance or reinsurance business.
Financial Conduct
Authority (FCA)

Financial regulatory body in the United Kingdom with the operational objectives ofprotecting customers and financial markets, and promoting competition.

Follower

A syndicate participating on a risk other than the Lloyd’s Leader.

General Data
Regulation in the EU and UK (through the Data Protection Act 2018) controlling how
Protection Regulation personal data is used by organisations, businesses or governments.
(GDPR)
Incentives

Oversight activity used for businesses that have been categorised at the top end of
the performance scale. There are a range of incentives that can be applied tosupport growth and development to help the better performing businesses thrive.

Incurred But Not
Enough Reported(IBNER)

Amount set aside in respect of the expected cost of claims in excess of the caseestimate held. It is to meet the development on case estimates as further information
becomes known on open claims.

Incurred But Not
Reported (IBNR)

Incurred but not reported (IBNR) is a type of reserve account used as the provision for
claims and/or events that have transpired but have not yet been reported.

Interventions

Remediation activity used within Lloyd’s Oversight for businesses that have been
categorised on the lower end of the performance scale. There are a range ofinterventions that can be applied to remediate businesses and ensure they return to
expected financial and non-financial performance.

Key Performance
Indicators (KPIs)

Qualitative and quantitative measures that support the managing agent in assessing
their business performance and progress against its objectives. Each measureincludes documented success criteria and performance thresholds.

Lloyd’s Claim Scheme A set of principles and arrangements for the determination of every claim made on(LCS)
policies underwritten by two or more syndicates (with some limited exceptions).
Lloyd’s leader(underwriting)

The first or only Lloyd’s syndicate on a slip/contract and/or a syndicate that has
authority to bind other syndicates to a risk.

Logical, Realistic,
Achievable (LRA)

Criteria against which all business plans are assessed.

Management
Information (MI)Information compiled by a managing agent and reported upwards through governanceManaging agent (MA)An underwriting agent which has permission from Lloyd’s to manage a syndicate andcarry on underwriting and other functions for a member.
165
Classification: Confidential

Material Cyber
Incident

Material Cyber incident refers to a Cyber Incident which may be material if it:•
results in significant loss of data, or the availability or control of yourIT systems•
affects a large number of customers•
results in unauthorised access to, or malicious software present on,
your information and communication systems.

Maturity Matrix

Technical level guidance setting out indicators and examples of different
ways that the Principles and Sub-Principles could be met across aspectrum ranging from the lowest to the highest materiality.

National Cyber
Organisation of the United Kingdom Government that provides cyber security guidance
Security Centre (NCSC) and support. Part of Government Communications Headquarters (GCHQ)
Non-Natural
Catastrophe Risk

All risks which are not classified as natural catastrophe risks; also referred to as manmade risks. Includes, but is not limited to, Cyber and Liability exposures.

Operating Expense(OPEX)An expense a business incurs through its normal business operations.

Own Risk andInternal process undertaken to assess the adequacy of an insurer or insurance groups
Solvency Assessment risk management and current and prospective solvency positions under normal and(ORSA)
severe stress scenarios.
Personal Data Breach A breach of security leading to the accidental or unlawful destruction, loss, alteration,
unauthorised disclosure of, or access to, personal data transmitted, stored or otherwise
processed. (As defined in GDPR Article 4(12))
Portfolio Management Portfolio management is the optimisation and control of a managing agent's activities
and capabilities to ensure that portfolios deliver performance in line with its businessplan and strategic objectives. Active portfolio management involves bringing the different
functional areas of the business together in a coherent way, implementing a suitably
granular framework for proactively looking for opportunities as well as issues, translating
the strategy into a detailed action plan, and then executing against it quickly.
Portfolio Manager

An individual responsible for overseeing the Portfolio Management framework acrossthe organisation.

Pre-Bind Quality
Assurance (PBQA)

Assessing the completeness and quality of contracts before they are entered into.

Principles for Doing
Business(“The Principles”)

Brief statements setting out the fundamental expectation expected of all managing
agents in order to support the market’s overall performance, capital strength financial
and reputational credibility. The suite of 13 Principles are outcomes based and allow
for differentiation according to syndicate materiality.

Product OversightGroup (POG)

A group or committee established or designated by the board of a managing agent
responsible for the delivery of appropriate Customer Challenge, the analysis andreporting of conduct Management Information (MI) and the review of regulatory
developments with regard to Conduct Risk.

166
Classification: ConfidentialPrudent Person
Principle (PPP)

Prudent Person Principle (PPP) is based on Article 132 of the Solvency II Framework
Directive, that sets out the requirements to investments and the associated risk
management of primary insurers and reinsurers subject to Solvency II.

Prudential Regulation UK financial services regulatory body, responsible for the prudential regulation andAuthority (PRA)
supervision of banks, building societies, credit unions, insurers and major investment
firms.
Reinsurance (RI)

A contract under which a reinsurer agrees to pay specified types and amounts ofunderwriting loss incurred by an insurer or another reinsurer in return for a premium.

Risk Appetite

The level of risk that an organisation is prepared to accept, before action is deemednecessary to reduce it.

Six Risk Types

Fraud, Anti Money Laundering (AML), Sanctions, Market Abuse, Bribery & Corruption
and Facilitation of Tax Evasion.

Solvency Capital
Requirement (SCR)

Solvency Capital Requirement is the amount of funds that insurance and reinsurance
undertakings are required to hold as defined under Solvency II regulation.

Solvency II (SII)

Solvency II is an EU legislative programme implemented in all 28 Member States,
including the UK, by 1 January 2016. It sets out regulatory requirements for insurance
firms and groups, covering financial resources, governance and accountability, risk
assessment and management, supervision, reporting and public disclosure.

Standard of Service

The standard of service which a managing agent commits to deliver to each of its
Customers. Other commonly known terms include: service standards, customer
promise, customer charter, claims philosophy.

Stress and Scenario
Testing (SST)The process of evaluating the impact of specified scenarios on the company's financial
position.

Sub-Principle

A number of statements that set out the key areas supporting the overarching
Principle.

Sustainability

Considerations that take into account the impacts of climate change, and a justtransition to a low carbon economy, now and in the future’

Syndicate Business
Forecast (SBF)

Information provided by syndicates to enable Lloyd's to support the business plan
approval and capital processes. The SBF Return collects data that is common to eachsyndicate.

Syndicate Business
Plan (SBP)

A business plan prepared by a managing agent for each active syndicate inaccordance with paragraph 14A of the Lloyd’s Underwriting Byelaw.

Syndicate
Categorisation

The process of allocating syndicates to one of five categories based on consistent
approach to assessment against the Principles, both on a qualitative and quantitativebasis, across the 13 Principles.

Technical Price
167
Classification: Confidential

Acronyms:
AML

Anti-Money Laundering

APS

Actuarial Profession Standard

CCD

Customer Due Diligence

CISO

Chief Information Security Officer

CRO

Chief Risk Officer

CUO

Chief Underwriting Officer

DA

Delegated Authority

DCOM

Delegated Contract and Oversight Manager

DUA

Delegated Underwriting Authority

EJ

Expert Judgement

EM

Exposure Management

ENID

Events Not In Data

ExCo

Executive Committee

FCA

Financial Conduct Authority

GAAP

Generally Accepted Accounting Principles

GDPR

General Data Protection Regulation

GWP

Gross Written Premium

IBNER

Incurred But Not Enough Reported

IBNR

Incurred But Not Reported

IEULR

Initial Expected Ultimate Loss Ratio

IT

Information Technology

KPI

Key Performance Indicators

KRI

Key Risk Indicators

LCM

Lloyd’s Catastrophe Model

LCS

Lloyd’s Claim Scheme

LCR

Lloyd’s Capital Return

LIC

Lloyd’s Insurance Company

LMA

Lloyd’s Market Association

LRA

Logical Realistic Achievable

MA

Managing gent

MCR

Minimum Capital Requirement

MGA

Managing General AgentMIManagement Information

NCSC

National Cyber Security Centre

NED

Non-Executive Director

NWP

Net Written Premium

OFSI

Office of Financial Sanctions Implementation

168
Classification: Confidential

OPEX

Operating Expense

ORI

Outwards Reinsurance

ORSA

Own Risk and Solvency Assessment

P&L

Profit & Loss

PEP

Politically Exposed Persons

PBQA

Pre-Bind Quality Assurance

POG

Product Oversight Group

PPP

Prudent Person Principle

PRA

Prudential Regulation Authority

RARC

Risk Adjusted Rate Change

RCSA

Risk and Control Self-Assessment

RI

Reinsurance

SAA

Strategic Asset Allocation

SAO

Statement of Actuarial Opinion

SAR

Suspicious Activity Reports

SBF

Syndicate Business Forecast

SBP

Syndicate Business Plan

SCOB

Syndicate Class of Business

SCR

Solvency Capital Requirement

SII

Solvency II

SM&CR

Senior Managers and Certification Regime

SME

Subject Mater Expert

SST

Stress and Scenario Testing

TAA

Tactical Asset Allocation

TPA

Third-Party Administrator

UW

Underwriting

169
Classification: Confidential

Disclaimer

This document is not intended for distribution to, or use by, any
person or entity in any jurisdiction or country where such
distribution or use would be contrary to local law or regulation. It
is the responsibility of any person communicating the contents ofthis document, or any part thereof, to ensure compliance with allapplicable legal and regulatory requirements.
The content of this document does not represent a prospectus orinvitation in connection with any solicitation of capital by Lloyds.
Nor does it constitute an offer by Lloyd’s to sell securities orinsurance, a solicitation of an offer to buy securities or insurance,or a distribution of securities in the United states or to a U.S.
person, or in any other jurisdiction where it is contrary to local law.
Such persons should inform themselves about and observe any
applicable legal.
This document has been produced by Lloyd’s for general
information purposes only. While care has been taken ingathering the data and preparing this document, Lloyd’s does notmake any representations or warranties as to its accuracy orcompleteness and expressly excludes to the maximum extent
permitted by law all those that might otherwise be implied.
Lloyd’s accepts no responsibility or liability for any loss or damageof any nature occasioned to any person as a result of the acting
or refraining from acting as a result of, or in reliance on, any
statement, fact, figure or expression of opinion or belief containedin this document. This document does not constitute advice ofany kind.

170

Classification: Confidential