Service companies
code ofpractice
08 September 2009

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Contents
Service companies – market bulletin to managing agents
Service companies code of practice – Lloyds.com
AppendicesA. Service company Definition
B. Model binding authority wording for service companies
C. Service company application process
D. Service company management – risk management
E. Service company management – underwriting
F. Service company management – claims
G. Regulatory issues, reputation and brand
H. Financial crime
I. Lloyd’s reporting requirements
J. Lloyd’s contacts

3
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6
7
8
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13
14
16
22
24
25

Attachments
1
2
3
4
5
6
7
8
9
10
11
12
13
14

Service company - history of our approach
Request for Information Document
Service Company Coverholder undertaking to Lloyd’s
Regional extensions
Setting up a service company
Setting up a service company in Australia
Setting up a service company in Hong Kong
Setting up a service company in Asia
Service company questionnaire
Brand Guidelines for Service Companies
Overseas Underwriting Byelaw
LMA 3078
Market Bulletin for LMA 3078
Guidance notes for LMA 3078

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3Service companies – market
bulletin to managing agents –September 2009 – Y4311
Purpose• To inform managing agents of the steps that Lloyd’s is taking to ensurethat 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 toencourage more consistency in processes and good standards in general.
• To confirm roles and responsibilities within Lloyd’s for the oversight ofservice companies.
• To provide managing agents with detailed guidance to encourage aconsistent and appropriate standard of management of service
companies covering their creation, ongoing management and (ifnecessary) their closure.
• To confirm the specific Brand guidelines for service companies.

Background• Syndicate submissions for 2011 indicate likely premium income fromservice company business to be £2.39bn. There are 230 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 long as they canbe 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 normally only authorised to enter into
contracts of insurance for members of its associated syndicate and/or
associated insurance companies.
• The practical advantages to Lloyd’s classifying an approved coverholder
as a “service company” include a Lloyd’s approval process that adopts amore 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 other approved coverholders.
• Lloyd’s, through the Delegated Authorities Team (DAT) in FPD, works
closely with the market’s representatives involved in the delegatedauthority sector and there is support for greater consistency in service
company oversight.
• It is recognised that more focus has been placed upon the establishmentof service companies than on their subsequent 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 theyremain appropriate.

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Lloyd’s general expectations regarding service
companies• Lloyd’s will create a new section of lloyds.com during 2009 to holdinformation relevant to the establishment and management 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 thesame standard as any other part of their 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 continue to work with the market’s leaders of delegatedbusiness to ensure that performance issues and risks are managed.

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5Service companies code of practice:
Lloyds.com
Introduction• Market Bulletin Y4311 set out Lloyd’s intentions regarding the future
oversight of service companies.
• Service companies have an important role in the development of businessin the Lloyd’s market and Lloyd’s expects that they will be effectively
managed.
• This site has been created to share good practice and provide a readily
accessible source of information and assistance.

Setting up a service company• Lloyd’s has developed a specific process for managing agents applying toestablish new service companies. These details are set out in Appendix
C.
• The Lloyd’s Delegated Authorities Team (DAT) will review all new
applications taking account of the proposed business plan, experience ofthe syndicate and key staff to meet that plan, and ability of the service
company to meet the standards whilst at the same time seeking feedback
from other teams in the Franchise Performance Directorate (including
Underwriting Performance, Claims and Exposure Management) and fromthe Lloyd’s International Representative.

Managing an existing service company• The Performance Framework sets out minimum standards that Lloyd’s
expects managing agents to meet, including oversight of its service
companies. Lloyd’s expects managing agents to be able to demonstratesufficient oversight from its main office.
• It is important that managing agents are able to demonstrate that theirlevel of oversight is designed and implemented to minimise theunderwriting or reputational risk to Lloyd’s from their service company
locations.

Closing a service company• The managing agent needs to demonstrate that following any decision tocease writing business from a particular service company, there is aneffective plan for the run-off of that business with key staff remaining inplace to meets reporting requirements, service outstanding underwriting
and claims matters and protect Lloyd’s reputation.

Lloyd’s works closely with delegated authority
stakeholders• This document will continue to be developed through consultation with the
LMA Delegated Underwriting and Compliance Committees.

Useful Lloyd’s contacts
Within Appendix J there is a list of key contact points within Lloyd’s who
can provide assistance on request.

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Appendix A: Definition of a service
company
The definition was agreed following consultation with the Market in 2008.
It has been approved by Council and incorporated into the byelaws.
Service company coverholder means an approved coverholder that:a Is associated with a managing agent by reason of:

It being a wholly owned subsidiary of the managing agent
It being a wholly owned subsidiary of the managing agent’s holding
company, orSuch other matters as the Franchise Board may determine in any
particular case or generally, andb Will be authorised by the managing agent referred to in a above (theassociated managing agent) to enter into a contract or contracts of
insurance in accordance with the terms of a service company agreement
where the expressions “wholly owned subsidiary” and “holding company”
shall have the meanings provided in the Companies Act 2006.
Service company agreement means a binding authority whichauthorises a service company coverholder to enter into a contract orcontracts of insurance only to be underwritten by:
a Members of a syndicate managed by the associated managing agent (asdefined at paragraph b of the definition of “service company
coverholder”).
b an insurance company which is a member of the same group as theassociated managing agent (as defined at paragraph b of the definitionof “service company coverholder”)
c Such other person or persons with the prior consent of the Franchise
Board.

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Appendix B: Binding authority
wording for service companies
Service companies need to be granted authority under a binding authoritythat is a “service company agreement”. This means in practice a binding
authority that is only entered into by the service company’s associatedmanaging agent (or any insurance company within the managing agents’group). In some circumstances Lloyd’s may agree that third party
managing agents/insurers can be a party to the binding authority. This isdiscussed below.
A model Service Company Agreement (LMA3078) was released in theMarket bulletin LMA 08-030-DP of November 2008. There is norequirement to use this model wording and managing agents are free to
use other model binding authority wordings or their own bespoke
wordings (so long as the wording meets Lloyd’s requirements for binding
authorities). However, LMA 3078 may be considered beneficial for two
reasons:d The language recognises the ownership relationship between theservice company and the managing agent.
e The wording allows for managing agents to permit the service company

to sub-delegate its authority to other approved coverholders.
For further information please see the LMA 3078 Guidance notes.

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Appendix c: Service company
application process
Background
Lloyd’s will approve new service companies to an extent commensuratewith the service company’s agreed business plan. DAT will also review
the scope of approval granted in the past to existing service companies.
In liaison with the managing agent we will consider whether certainclasses of business and/or regional approvals might be retracted (as they
are no longer required).

Current process
DAT works to a service standard of 8 weeks for new coverholder andservice company applications. Any contact with a local regulator should
only be undertaken with the prior consent of Lloyd’s. Early engagementwith the Lloyd’s International Representative will usually help toexpedite the process.
a Initial meeting with the managing agent.

This meeting is designed to ensure that the managing agent has
considered all important matters pertaining to its application and, subject
to information still required, to agree a timetable for the approval. Service
company applications are not managed through the Atlas system.
Managing Agents will be expected to:
Confirm that the ownership is consistent with the service company
definition. (If not, the applicant will be required to follow thecoverholder approval process and submit an application throughAtlas).
Confirm whether the applicant is a service company branch or a newservice company. (For example, in Europe, the IMD enables abranch to be set up via ‘passporting’ rather than incorporating a newcompany).
Provide a copy of the Service Company Coverholder Undertaking
to Lloyd’s and explain that this will have to be signed by anauthorised representative of the service company before approval
can be granted. (Note: undertaking cannot be dealt with as an
approval condition).
For its part DAT will use the meeting to:Understand progress to date, any genuine deadlines, and when all
information required from the managing agent is expected to beavailable to Lloyd’s.
Discuss and provide the Request for Information document(“RFI”).
Explain the format of the information required, i.e. a letter, providing asummary of each topic, supported by a business plan and structure
chart
Understand progress made regarding service company licensing.
Explain the importance of providing the business plan and clarify that
it will be:o Used by DAT to supplement the letter and to provide
comfort that the managing agent has undergone athorough planning process (we will not do a line by line
critique).
o Copied to Underwriting Performance (UP) to review theunderwriting proposals.

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Ensure that the managing agent is aware of the need to provide
completed Regional extension information.
Talk through the document ‘Setting up a service company’ guide toensure all matters have been considered.
b Review the completed RFI and carry out due diligence

DAT will need to be satisfied that the managing agent has the necessary
oversight in place to ensure that the service company will meet therequired Franchise Standards.
DAT or the Lloyd’s International Representative (LREP) may require aninterview with the Principal Officer and/or other key staff. It may be thecase that a new Principal Officer has no previous Lloyd’s experience. The
key purposes of this interview will be to confirm that the individual has theauthority to represent and manage the service company and to assess
whether the individual(s) have the requisite working knowledge of the
Lloyd’s environment, in particular:
Trading status (for Lloyd’s generally and the conditions/restrictions
specifically in place for the service company).
Expectations with regard to minimum standards (to include dealing
with Regulators, use of the Lloyd’s Brand).
It is extremely unlikely that Lloyd’s will challenge the recruitment decisions
already made by the managing agent. However, this interview process
may be used by Lloyd’s to highlight specific areas of training or attention
that is required for the Principal Officer.
c Seek feedback from interested parties

DAT will provide details of the business plan to UP. It is the
responsibility of UP to review all syndicate business plans and how
any new coverholder or service company arrangements will impactthat Plan. UP will undertake its review and raise any issues with DAT
within 3 working days. DAT will arrange a meeting with the managing
agent and relevant UP Executive to discuss any issues raised.
DAT will forward the RFI to the LREP. The LREP will report within 3
weeks, advise on the progress made on regulatory matters (such as
registration, licensing, reporting, qualification requirements for staff or
key staff) and any concerns or conditions that the LREP may identify
as appropriate. It is often the case that the managing agent will seeka meeting with the LREP prior to starting the application process.
This can help to raise any country specific issues early and can also
help to accelerate the process. For certain territories (Australia,
Hong Kong and Asia), set-up guides have been written to assist the
managing agent through the process.
d Follow up meeting(s)Follow up meeting(s) with managing agent to fill any gaps and/or agree
action where concerns remain.
e Approval notice

A notice of approval is sent by email highlighting authorities granted andany restrictions or conditions of approval. The name of the service
company will also be included in the public register of approved
coverholders. The approval will also highlight how the Lloyd’s Brand canbe used for the service company. Post-approval explanation of regulatory
requirements relevant to the approved territory scope are available on

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Post-approval explanation of regulatory requirements relevant to theapproved territory scope are available on Crystal. In addition to Crystal,
Lloyd's has developed Crystal Assist, an on line tutorial that provides
market participants with an induction to Lloyd's licences and regulatory
and fiscal requirements that need to be considered when writing
international insurance business. However, it remains the managing
agent’s responsibility to ensure that all regulatory requirements are met.

Post Approval Changes
Once approval is complete, DAT will load the service company
information onto Atlas. Any subsequent post approval changes(regional extensions, additional classes of business) must be initiated by
the managing agent through Atlas.
The process for post approval changes will include feedback requests asdetailed in c. above.

Lloyd’s Asia
The application process for service companies operating in Lloyd’s Asia
can be found on Crystal

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Appendix D: Service company
management – risk management
The Performance Framework sets out minimum standards that Lloyd’s
expects managing agent’s to meet, including oversight of its service
companies. This report seeks to highlight those areas particularly
relevant to service companies.

Risk management standards
There is an expectation that the key risks associated with service
companies will be identified in the managing agent’s risk register
covering, but not limited to, the following:• Key risk and its likelihood• Impact of the risk if it were to materialise• Causes and influencing factors• Controls and actions in place to mitigate the risk
• Ownership and responsibility
The Risk Management Toolkit, available on Lloyds.com provides arange of tools, techniques and templates for key aspects of risk
management.
Examples of risks associated with service companies include:• Loss of key personnel• Failure to maintain effective underwriting controls• Inadequate documents / policy issuance delays• Ineffective management of third party service providers• Failure to maintain a reliable infrastructure (premises, systems)• Financial crime• Failure to comply with local regulatory requirements• Failure to manage claims• Failure to manage complaints• Failure to protect the Lloyd’s brand• Failure to highlight in a timely manner to Lloyd’s any issue that may havean adverse effect on Lloyd’s reputation or brand

Procedures document
It is expected that each managing agent will maintain a procedures
document which sets out the overall approach to managing andmonitoring of the service company. This document will cover the following
areas:• Staff structure with a clear outline of responsibilities.
• Guidance and training for staff to cover Lloyd’s standards, clarity on eachunderwriting platform (where relevant), anti money-laundering, managing
conflicts of interest.
• Underwriting guidelines. To cover underwriting review, risk and peer
review, planning, rating and pricing, aggregate monitoring, reinsurance
purchase and management.
• Underwriting and claims authorities.
• Appropriate controls over broker relationships to include approval
process, contractual arrangements and terms of business.
• Approval and monitoring of coverholders.
• Policy issuance and evidence of contract certainty.
• Claims handling and management of any TPAs.

Service Company Code Of Practice September 2009 V2.Doc12• Dealing with complaints (ensure that service company procedures comply
with Lloyd’s internal procedures for the handling of complaints, inaccordance with DISP 1.11 of FSA rules).
• Production of M.I.
• Credit control and cash reconciliation.
• Expenses and commissions.
• Reporting, monitoring and managing performance (underwriting, claims,
credit control, complaints, and operations).

Service company audits
There needs to be a clear audit plan for all service companies. Carefulconsideration needs to be given as to who undertakes and controls theaudit. Where the service company is operating on a dual platform, themanaging agent must be seen to have a clear influence in the scope andfrequency of the audit. The scope of the audit would be expected toinclude the following:• Underwriting: compliance with standards, policy documentation,compliance with binding authority agreement, accurate records, andcompliance with approvals (classes/regions) given by Lloyd’s.
• Claims: compliance with applicable processes and standards (including
accurate records, customer service, and timely reserves and settlements).
• Dual platform: review of how underwriting platform is decided and how
any conflicts are managed. Transparency to the policyholder of the risk
carrier.
• Finance: payment authorisation, bank reconciliations, accurate and up todate records.
• Systems: fully support business requirements, compatible feed of databack to managing agent, system and data security, back-up.
• Compliance: compliance with regulatory, legal and reporting
requirements, appropriate and timely dealings with regulator(s),management of complaints, notification to Lloyd’s of issues, complianceof any approval conditions set by Lloyd’s, awareness / processes tocombat the risk of money laundering / financial crime.
• Credit control: process, reporting, bad debt reserving, escalation
procedures.
• Management of: SLA’s, oversight, contract, brokers’ TOBAs, TPA
management third parties and audits.
• Staff: succession plan, awareness of Lloyd’s standards, clarity on
different underwriting platforms (where appropriate).
The audit report needs to be presented to the appropriate audit committeewith actions and responsibilities highlighted and timetabled highlighted
and reported until resolved.

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Appendix E: Service company
management – underwriting
Underwriting management standards
It is important that a managing agent can demonstrate that a service
company’s underwriting is subject to the same level of oversight asbusiness underwritten in ‘the room’. Where a managing agent manages anumber of service companies through a ‘hub’, Lloyd’s considers this agreater risk to oversight failing to meet the required standards. The
managing agent must be able to demonstrate that the oversight at boththe ‘hub’ and the managing agency meets the standards.
All underwriting management standards apply to the operation of aservice company. This report highlights those areas that are particularly
relevant to service companies.
• Each service company works to a plan that has been agreed by theManaging Agency Board. A designated underwriting committee monitors
progress and performance against this plan.
• All service company underwriters have clarity on underwriting limits andguidelines and any referral procedures required before deviation fromthose guidelines. These limits and guidelines are documented.
• All service company underwriters have pricing guidelines on all classes ofbusiness and a clear process for approving and documenting any
deviation from benchmark rates.
• The managing agent is able to demonstrate that catastrophe exposures,
emanating from service company business, are assessed andincorporated into the syndicate’s RDS.
• The managing agent can demonstrate the relevance of the reinsurance
program to the service company business and have documented
processes for the service company’s own purchase of reinsurance. The
service company underwriters can demonstrate a clear understanding of
the impact of the reinsurance program on the business written by theservice company.
• There is a documented process for how data is captured, checked andmonitored. In the cases of a stand-alone system, there is a documented
process as to how the data is integrated into the managing agent’s data.
• Processes are in place to identify potential business that is offered to theservice company that has already been offered to the managing agent in‘the room’ or at any other location.
• Processes are in place to identify potential business offered in ‘the room’or at any other location that has already been offered to the service
company.
• A reporting regime is in place to ensure that the appropriate underwritingboard is able to assess underwriting performance at service company /underwriter level and is able to demonstrate that the business written
complies with the syndicate business plan agreed by Lloyd’s.
The Service Company Questionnaire is used by DAT when assessing
the oversight of underwriting by the managing agent. This can be used asa reference for the managing agent to help to ensure that standards havebeen complied with.

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Appendix F: Service company
management – Claims
Claims management standards
All claims management standards apply to the operation of a service
company. This report highlights those areas that are particularly relevant
to service companies.
There must be a consistent approach to the management of claims for all
offices, including the measurement of claims management performanceagainst required standards and annual plans. The documentation of all
offices' claims processes and procedures should also be consistent andshould include identification of the roles and responsibilities within theclaims function.
A reporting regime is in place to ensure that the appropriate
underwriting/claims board is able to assess claims management
performance at service company level.

Delegation of claims handling
If claims handling services are to be provided by a service company ordelegated to a third party administrator (TPA), the quality and adequacyof the proposed TPA’s claims function should first be assessed, including
the following:• Management of claim funds, detail of bank accounts and controls applied
to prevent fraud and money laundering.
• Evidence of regulatory compliance, including any appropriate licenses.
• Appropriate human resources e.g. with relevant experience,
qualifications, and in sufficient number in relation to the volume of claims.
• Use of documented claims handling procedures that meet required
service standards of managing agents and Lloyd’s.
• Confirm that the claims and underwriting functions are segregated where
the coverholder also handles claims. If not, confirm what conflictprocedures are in place.
• Existence of controls to enforce adherence to authority levels.
• Documentation requirements that allow effective and proactive
management of claims, including a document retention policy.
• Effective management tools including peer review or audit of claims
function.
• Systems to ensure that policyholder requests and complaints are dealt
with promptly and appropriately, claims are proactively managed, andreserves are established, monitored and reported in a timely and regularfashion. For example diary and workflow systems.
• The panel of experts used to meet the requirements of the claims being
delegated. Check that terms of engagement are in place andperformance is monitored. Confirm transparency over how the panel isselected and how regularly it is reviewed.

Service Company Code Of Practice September 2009 V2.Doc15• Does the third party operate working practices to share claims knowledge
and experience in order to assist with underwriting e.g. trends or issues
with accounts or classes of business?
For all TPA arrangements, the service company must have a satisfactory
TPA agreement, rolling audit programme and standard audit template.
Audit outcomes need to be documented and actions (with owners) must
be managed through to completion.

Lloyd’s Asia
Refer to Market Bulletin Y4253 for the Statement of Best Practice for the
Handling of Claims.

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Appendix G: Regulatory issues,
reputation and brandAs service companies are often wholly owned subsidiaries of managing
agents, they may be viewed by the local regulator / local market as anextension of Lloyd’s. Consequently, the effects of acts or omissions ofservice companies can create an increased reputational and/or regulatory
risk for Lloyd’s. Whilst Lloyd’s relies on the managing agents to supervise
the activity of its service companies, regulators may consider Lloyd’s tohave ultimate responsibility, particularly as the authorisation/licencegranted falls to Lloyd’s centrally.
Some of the key regulatory risks identified are as follows;

Lloyd’s trading status
Managing agents must seek approval from Lloyd’s before expanding theirservice company’s business into new territories / classes of business.
Issues can arise between Lloyd’s and the relevant regulator, where theterms of the Lloyd’s licence do not permit such business expansion.
Managing agents are required to ensure underwriters are fully conversant
with the terms and parameters of Lloyd’s licensing status prior toaccepting business. Lloyd’s may be licensed or authorised to underwrite
business in a particular territory but there may be restrictions.
Amongst the questions that should be asked before committing to a risk:• Is Lloyd’s licensed or authorised to underwrite business, e.g. does it holda direct and/or reinsurance licence?
• Are there any restrictions by class of business?
• Are there any requirements with regard to compulsory insurances?
• Are there any restrictions with regard to solicitation of business?
Underwriters will be familiar with business they underwrite in the territoryin which the service company is based but when underwriting businessoutside of the immediate territory, it is particularly important to understandthe terms of and any restrictions relating to Lloyd’s licensing position withwhich underwriters may not be familiar.
Approval to underwrite outside of the service company’s own domicile
must be obtained from Lloyd’s using the ‘Regional extension’ form on
Atlas.
It is extremely important that managing agents and service companies areaware of changes to Lloyd’s trading status by registering as users of
Crystal which details the requirements regarding Lloyd’s trading status
and provides alerts to any changes in these authorisations.
Breaches of Lloyd’s trading status are taken very seriously; not only might
the managing agent / service company be subject to a possible penalty orfine but breaches may threaten Lloyd’s overall trading rights and licence
thereby affecting all managing agents trading in that territory andpotentially cause damage to Lloyd’s brand and reputation.
In the past, some service companies received blanket approval for all
territories and classes of business. These approvals are now subject toreview to ensure that the above risk has not been exacerbated by thisblanket approval.

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It is the managing agent’s responsibility to ensure that the service
company responds to and complies with any relevant changes to relevant
local legislation or regulations.

Service company’s trading status – conditions /restrictions
The managing agent must be able to demonstrate that its service
company has met and continues to meet any conditions that were applied
as subject to their approval by Lloyd’s.
The managing agent must be able to demonstrate that its service
companies have not written outside the class and region authorities
granted to it by Lloyd’s.
For any authorities held but not currently used by a service company, themanaging agent must be able to demonstrate that adequate oversight isin place to manage these authorities should they be activated in the
future. In the absence of clear demonstration, these authorities will be
removed. Additionally, any authorities ‘not taken up’ will be ‘lapsed’.
Future authorities will only be granted for those classes and regions thatare required.

Dealing with Regulators
One of the underlying principles of Lloyd’s market access objectives isthat licensed or authorised status gives every Lloyd’s syndicate the rightto carry on business in or from a territory. In order to achieve this, Lloyd’s
engages with local regulators on behalf of all managing agents in the
Lloyd’s market to achieve the same trading terms for all participants.
Given the unique structure of Lloyd’s it is essential that in any
negotiations with regulators, which can often be complex, that messages
are consistent and meet the overall objectives of Lloyd’s trading strategy
to:• Enable syndicates to underwrite business from London or via local
independent coverholders or local service companies.
• Operate with no funding or minimal funding requirements.
• Provide central reporting returns and keep managing agents input to aminimum.
For this reason Lloyd’s deals with regulatory authorities on behalf of thewhole market. Discussions between a managing agent or service
company with the regulator may jeopardise the benefits negotiated by
Lloyd’s on behalf of the market and possibly lead to confusion with theregulator.
Lloyd’s recognises that some managing agents may have a relationshipwith local regulators via their company operations. In such instances wewould encourage managing agents and service companies to liaise with
Lloyd’s prior to contacting a regulator as we may be in a position toprovide additional information and context which may be useful in any
discussions and to the mutual benefit of both parties.
We would however kindly request that any enquiries relating to Lloyd’s
overall trading terms and conditions or the operation of the service
company in relation to Lloyd’s be directed through Lloyd’s, via the local
representative or Lloyd’s International Trading Advice in London.

Conflicts of Interest
Managing agents need to be aware of when the interests of othercompanies within their group, who may also be represented by theservice company, may conflict with the interests of Lloyd’s. Any potential
conflicts need to be advised to Lloyd’s immediately. For example

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Where reciprocity of Group relationships may influence the decision towrite particular business for the syndicate.
Where a service company may be influenced by local pressure/customs
to underwrite business which might conflict with the view of others e.g.
contrary to the standards expected in the UK. Similarly, the scope ofeach managing agent’s anti-bribery and corruption policy should be
extended to include service companies. Further information on bribery
and corruption may be found in Market Bulletin Y4278 (“Bribery andCorruption”).

Local requirements and sanctions
Service companies may be subject to local requirements, such ascompliance with local business practice and licensing issues. Due to theperceived closer relationship with Lloyd’s, non-compliance creates
increased regulatory risk for Lloyd’s, including reputational risk. It is the
responsibility of the managing agent to ensure that the service company
is properly licensed locally where appropriate and that it complies withany wider regulations; breaches are often viewed by the regulator as an
issue for Lloyd’s to resolve and thus generate increased regulatory risk.
Managing agents, coverholders and service companies must comply withthe requirements of any relevant sanctions, be they local or international.
There should be adequate processes and controls in place with access tothe information necessary to make an informed decision before
underwriting a risk. It is important to take particular care when renewing
risks where new sanctions may have been applied.
The responsibility for monitoring and advising underwriters of sanctions
should be clearly defined between the managing agent and service
companies with effective communication between compliance teams andunderwriters.
Lloyd’s provides information to the Lloyd’s Market on the application ofinternational sanctions, [however, responsibility for the ultimate decision
whether to write a risk rests with the managing agent/service company.]
Further information on sanctions may be found in Market Bulletin Y4117(“International Sanctions Guidance”) and the section What are
sanctions? Detailed country information is also included within the
sanctions section of Crystal.

Lloyd’s licences and market conduct requirements
All contracts must comply with applicable regulatory and market conduct
requirements.
To assist managing agents and service companies, Lloyd’s hasdeveloped Crystal, a web-based tool that provides primary information
regarding international regulatory requirements, licensing and tax details
identifying Lloyd’s ability and any restrictions, to transacting specificclasses of business in each country.
Key sections with which service company staff and underwriters should
be familiar include:• Pre-placement considerations.

• Routes into Lloyd’s (particularly ‘Coverholders’ & ‘Intermediary
regulation’).
• Financial considerations.
• Processing and servicing of risks.
All important amendments and updates to Crystal are included within the‘What’s New’ e-mail alert issued monthly to users of Crystal. To receive

Service Company Code Of Practice September 2009 V2.Doc19these important updates users must be individually registered. It isessential that managing agents and service companies have a process inplace with clear responsibilities to promulgate changes to relevant parties.

Reporting requirements
Regulatory issues have been encountered due to the failure of service
companies to submit accurate and timely data in certain territories inorder that Lloyd’s may file regulatory returns.
Lloyd’s trading status is dependant upon submitting the requisite
regulatory returns to local regulators on behalf of all market participants.
The submission of returns that do not meet deadlines or are inaccurate
has the potential to prejudice Lloyd’s trading status or for specificrequirements to be imposed upon it.
Lloyd’s aims to produce all returns centrally and without additional input
from managing agents or service companies by using the data processed
via Lloyd’s central accounting process operated by Xchanging.
In some territories this is not possible where returns are to be made to theregulator directly or where data is not processed via Lloyd’s central
accounting process. As such Lloyd’s relies on the co-operation of allparties in meeting these deadlines.
Managing agents are ultimately responsible for ensuring that their service
companies establish, create and maintain complete records in respect of
their activities including in respect of all insurances bound, premiums
received, expenses and claims paid.
Where returns are required to be submitted, it is essential that
responsibilities for producing the return, its validation and ultimate sign off
are clearly defined between the managing agent and the service company
and submitted within the applicable timescales defined by Lloyd’s to meet
regulatory deadlines.
Where the production of returns has been outsourced it is essential thatroles, accountabilities, expectations and reporting requirements for all
relevant parties are all clearly defined.
Crystal contains full details of returns that managing agents and theirservice companies are required to provide to Lloyd’s or to the regulatory
authorities directly however minimal or complex the input. The deadlines
for these returns can be found in the Business Timetable.

Branding Considerations for Service Companies
Care needs to be taken to ensure that documentation issued by service
companies properly reflects the underlying security.
For example, it is vital to ensure that policyholders are not given theimpression that a policy is written by Lloyd’s underwriters where thesecurity is in fact provided by its associated (non-Lloyd’s) insurancecompany.
Poorly branded documentation or inaccurate marketing by a service
company can result in clear risks to both the managing agent (as well as
to Lloyd’s generally).
Lloyd’s has recently created the Brand Guidelines for Lloyd’s service
Companies. All service companies will be required to meet the branding
requirements set out for their specific operating model (as stated below).

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The agreed branding controls will be included in the conditions ofapproval for a service company at the outset of establishment or, if
amendments are made to the existing operating model, the managing
agents will be required to make DAT aware and meet the branding
requirements for that operating model.
• Model 1: Service Company writing 100% for their own Lloyd’s Syndicate(the majority of Service Companies fit within this model).
In exceptional circumstances, these other models may beconsidered:• Model 2: Service Company writing for more than one Lloyd’s Syndicate.
• Model 3: Service Company writing for a Lloyd’s syndicate and a third
party insurance company.
• Model 4: Service Company writing for their own Lloyd’s Syndicate and agroup insurance company.
Service companies under models 1&2 will be able to use the samebranding permissions as a managing agent, which are set out in thecurrent published guidelines subject to the following
They must provide a clear statement which outlines who they are and,
who they are regulated by:‘We [name of service company], are a service company that is part of the[ ] group of companies. [We are regulated by [ ] in our capacity as [ ]. We
have authority to enter into contracts of insurance on behalf of the Lloyd’s
underwriting members of Lloyd’s syndicate [ ] which is managed by[managing agent].’
The service company should not use the “underwriters” descriptor.
The service company may not describe itself as a Lloyd’s managing agent
nor as a Lloyd’s syndicate.
Service companies under models 3&4 will be able to use the samebranding permissions as a coverholder, which are set out in the current
published guidelines subject to the followinga A clear statement which outlines who they are, who they are regulated by,their ownership and a clear explanation of what the Lloyd’s and nonLloyd’s business is:‘We [name of service company], are a service company that is part of the[ ] group of companies. We are regulated by [ ] in our capacity as [ ]. We
have authority to enter into contracts of insurance on behalf of the Lloyd’s
underwriting members of Lloyd’s syndicate [ ] which is managed by[managing agent]. We also do business on behalf of other insurers [within
the group]. When we offer insurance products to you (the policyholder) we
will make sure we will tell you which insurer [in our group] will underwrite
the policy.’
This statement must be included in general corporate brochures and on
the company website (only on a webpage within a site that talks
specifically about a product 100% underwritten at Lloyd’s)b A clear statement that clarifies who offers the product – the Lloyd’s or

non-Lloyd’s entity, (This statement is to be approved by the leadunderwriter and is in addition to, and not a substitute for, therequirements relating to the content of Lloyd’s policies/certificates
including the use of appropriate several liability clauses)

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Lloyd’s example: ‘We [name of service company], are a service company
that is part of the [ ] group of companies. [We are regulated by [ ] in ourcapacity as [ ] ]. This insurance product will be entered into by us on
behalf of the Lloyd's underwriting members of Lloyd’s syndicate [ ] which
is managed by [managing agent]’.
Non-Lloyd’s example: ‘We [name of service company], are a service
company that is part of the [ ] group of companies. [We are regulated by [] in our capacity as [ ] ]. This insurance product will be entered into by us
on behalf of [insurer].’
Where policies/certificate represents both Lloyd’s and non-Lloyd’s
security: the lead Lloyd’s underwriter shall ensure that Lloyd’s guidance
regarding “combined certificates” is followed.
This statement must be included in the following areas:
On the proposal and claims forms
On the documentation of insurance for new and renewal businessOn specific product brochures
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Appendix H: Financial crime
Service company staff must have clear guidelines and training with regard
to anti-money laundering and other financial crime risks, including bribery
and corruption.
Money laundering is ‘the process used by criminals to disguise the origin
and ownership of the proceeds of their criminal activities in order to avoid
prosecution, conviction and confiscation’.
In the UK, legislation covers most financial sectors which include:• Criminal offences around engaging in money laundering and/or assistingothers to launder the proceeds of crime.
• Disclosure/reporting requirements in respect of suspicious
activities/transactions.
• Tipping off offences: ensuring that law enforcement is not hampered in its
investigations by the subject of the suspicion becoming aware of theallegations.
Similar legislation with related requirements & offences will also be inforce in the jurisdictions within which service companies operate. Lloyd’s
does not provide this information centrally but expects managing agentsto ensure that their service companies are aware of any local
requirements or guidelines and to comply with these in addition to UK
requirements.
For countries in which Lloyd’s has a ‘trading centre’, namely China, Japanand Singapore, this information is being made available within Crystal.
Activities that might trigger a suspicion for a service company include:• Difficulty in obtaining information about, or doubts over the bone fides of,the policyholder or other parties involved.
• Transactions set up and then quickly cancelled for no identifiable reason.
• Transactions involving business routed via intermediaries in different
jurisdictions, for no discernible purpose.
• Return premiums, overpayments or claim payments where a third party
appears to benefit.
• Transactions where insurance does not appear to be the primary object ormake no economic sense.
• Over-inflated insurance requests, e.g. high value specie/fine art coverage.
All suspicions should be reported to the managing agent’s Money
Laundering Reporting Officer “MLRO” (often also the Compliance Officer)
in London for consideration and documented accordingly. Managing
agents might wish to consider, where appropriate (i.e. due to the locationor size of the service company), designating a senior employee of theservice company as a regional MLRO, to fulfil local and group money
laundering reporting and training requirements.
The managing agent’s MLRO will require the service company’s MLRO toreport their suspicions to local authorities in the prescribed manner andmay also choose to report any such matters, via Lloyd’s, to the UK
authorities.
Further information is available in Market Bulletin Y4161 (“Money
Laundering”).
Other anti-financial crime controls and policies adopted by a managing
agent, such as anti-bribery & corruption and international sanctions
compliance procedures, should also be implemented for service
companies. In addition, managing agents should ensure that any
financial crime matters (e.g. the fraudulent misuse of Lloyd’s name)Service Company Code Of Practice September 2009 V2.Doc

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identified by service company employees are reported to the managing
agent’s compliance officer for their consideration, action and as
appropriate, reporting to Lloyd’s.

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Appendix I: Lloyd’s reporting
requirements
Syndicate business forecast
The SBF process allows for all service company business plans to beconsolidated into one total for each managing agent’s return. This total
will include any managing agent’s Lloyd’s Asia service company, forwhich a separate ‘SBF-lite’ is also required.

Central services
Lloyd’s is responsible for managing certain central services on behalf ofmanaging agents. These include:• Producing and filing regulatory and fiscal returns to various regulators
around the world.
• Collecting and monitoring tax payments.
• Operating a central clearing house settlement facility.
• Analysing individual managing agency business performance to ensure
the Lloyd’s Market conducts its business within guidelines.

Xchanging
Xchanging acts as an outsourced service provider engaged by managing
agents to process their transactions and then report the necessary
information to Lloyd’s. Each managing agent is responsible for the
production of data to Xchanging and there is no format prescribed by
Lloyd’s for that data.

Performance management data
Performance Management Data (PMD) is required to allow Franchise
Performance Directorate (FPD) to identify and challenge underwriting
management and performance which is not in line with a managing
agent’s business plan.
For each service company the data required must be provided on one of
the following bases.
• Data is aggregated and separate entries are made for each material risk
code, syndicate class of business, currency code and risk location code
written through the service company.
or• An individual entry is made for each risk written through the service
company.

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Appendix J: Contact within Lloyd’s• Delegated Authorities Team:
General enquiries about Service companies or specific enquiries about
the application process.
Stephen Burns 020 7327 6126
Stephen.Burns@lloyds.com• Underwriting Performance:
Agreement of business plans and reporting of underwriting performance.
David Indge 020 7327 5716
David.Indge@lloyds.com• Underwriting Standards:
Kieran Flynn 020 7327 5739
Kieran.Flynn@lloyds.com• Claims Management:
Helen Ashenden 020 7327 5781
Helen.Ashenden@lloyds.com• Regulatory Issues:
Mark Channell 020 7327 5608
Mark.Channell@lloyds.com• Financial Crime matters:
Andy Wragg 020 7327 6387
Andy.Wragg@lloyds.com• Brand:Matt Drage 020 7327 5485
Matt.Drage@lloyds.com• Risk Management:
Neil Griffiths 020 7327 5729
Neil.Griffiths@lloyds.com• International Representatives:
Kevin Reeves 020 7327 6264
Kevin.Reeves@lloyds.com• Policy Holder and Market Assistance:
Handling of policy holder complaints.
Mark Smith 020 7327 6252
Mark.Smith@lloyds.com

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