Market bulletin

Ref: Y4311

Title

Service Companies Code of PracticePurposeTo inform the market that Lloyd’s has published the Service Companies Code ofPractice

TypeEventFromPeter Montanaro, Head of Delegated Authorities
Lloyd's Franchise Performance
020 7327 5971
peter.montanaro@lloyds.com

Date

09 September 2009

Deadline
Related links

Service Companies Code of PracticePurpose• To inform managing agents of the steps that Lloyd’s is taking to ensure that authorities delegated to service
companies are appropriately managed.
• To highlight the key risks associated with service companies and how those risks need to be mitigated/managed
against Lloyd’s minimum standards.
• To inform the market of Lloyd’s intention to create a source of information, tools and support regarding service
company activity within lloyds.com to encourage more consistency in processes and good standards in general.
• To confirm roles and responsibilities within Lloyd’s for the oversight of service companies.
• To provide managing agents with detailed guidance to encourage a consistent and appropriate standard ofmanagement of service companies covering their creation, ongoing management and (if necessary) theirclosure.
• To confirm the specific Brand guidelines for service companies

Background• Syndicate submissions for 2009 indicate likely premium income from service company business to be £1.46bn.
There are 200 service companies managed by 36 managing agents. Lloyd’s recognises that service companies
are very much part of certain managing agents’ strategies and there is no intention to restrict their use as longas they can be shown to be proactively managed.
• A ‘service company coverholder (referred to in the Code simply as a “service company”)’ is an approved
coverholder which Lloyd’s has agreed can be classified as a “service company” by reason of it being a wholly
owned subsidiary of either a managing agent or of a managing agent’s holding company and which is normallymarket bulletin_y4311.doc

Lloyd’s is authorised under the Financial Services and Markets Act 2000

Page 1 of 2

MARKET BULLETIN

only authorised to enter into contracts of insurance for members of its associated syndicate and/or associatedinsurance companies.
• The practical advantages to Lloyd’s classifying an approved coverholder as a “service company” include a
Lloyd’s approval process that adopts a more risk based approach to service companies, the ability if approved touse LMA 3078 wording and the ability to allow the service company to sub-delegate its authority to otherapproved coverholders.
• Lloyd’s, through the Delegated Authorities Team (DAT) in FPD, works closely with the market’s representatives
involved in the delegated authority sector and there is support for greater consistency in service company
oversight.
• It is recognised that more focus has been placed upon the establishment of service companies than on theirsubsequent performance in the past. This will not be the case in the future: one consequence will be to review
the authorities held by existing service companies to ensure that they remain appropriate.

Lloyd’s general expectations regarding service companies• Lloyd’s will create a new section of lloyds.com during 2009 to hold information relevant to the establishment andmanagement of service companies.
• All of Lloyd’s Franchise Standards apply to the formation of new service companies and to their ongoing
management, recognising that managing agents will shape solutions to meet the level of risk involved.
• Managing agents are expected to manage their service companies to the same standard as any other part oftheir business, regardless of location, lines of business or other factors.
• Lloyd’s will adopt a risk-based approach to the oversight of managing agents and their service companies.

Next steps• Lloyd’s will visit each managing agent with service companies during 2009 (and at regular intervals thereafter) to
confirm their service company activity, discuss the authorities delegated, and to understand how thoseauthorities are being managed.
• Lloyd’s will continue to work with the market’s leaders of delegated business to ensure that performance issues
and risks are managed.

market bulletin_y4311.doc

Page 2 of 2