London Market 101 Presented by Peter Montanaro, Head of Market Oversight and Delivery, Lloyd's - WSIA
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London Market 101 Presented by Peter Montanaro, Head of Market Oversight and Delivery, Lloyd’s WSIA’s U40 2021 Webinar Series July 12, 2021
Lloyd’s Peter Montanaro, Head of Market Oversight and Delivery Markets
Lloyd’s origins
Resulting from two human activities coming together
3
Classification: Confidential
Lloyd’s in the eighteenth & nineteenth century
• 1745 legal difference between insurance and gambling defined
• 1772 from Coffee House to Society
• 1843 Concept of “Lloyd’s member” introduced.
• 1871 Statutory recognition of Lloyd’s - Lloyd’s Act 1871
• Development of the non-marine market
4
Classification: ConfidentialLloyd’s in the twentieth century
• 1927 Lloyd’s Central Fund set up
• 1996 Reconstruction & Renewal
5
Classification: ConfidentialComplete confidence
Why Lloyd’s?
Robust financial strength
Excellent financial security Lloyd’s Chain of Security
AA- A+ £55bn £31bn
Fitch Ratings Standard & Poor’s Syndicate level Members' funds
(Very Strong) (Strong) assets at Lloyd’s
A AA- £3bn
A.M. Best (Excellent) Kroll Bond Rating Central assets*
Agency (Strong)
Gross written premium
2020 Annual Report, published March 2021 lloyds.com/annualresults2020 £35,466m
*Central assets exclude subordinated debt liability and the callable layer. For more
information please see the annual report.
© Lloyd’s 2021 6Writing international business
To write non-marine insurance internationally,
Lloyd’s needed to arrange:
• Licensing as a single entity (e.g.
“Underwriters at Lloyd’s, London”)
• Meeting local financial requirements
• Legal actions against Lloyd’s underwriters
• Payment of taxes
7
Classification: ConfidentialGlobal network
Serving clients in
200 countries and
territories
Cross border reinsurance only
US Cross border/onshore reinsurance
and surplus lines insurance
Cross-border/onshore reinsurance
Onshore insurance/reinsurance licence
© Lloyd’s 2021Lloyd’s in the twenty first century
• 2002 Chairman’s Strategy Group
• 2013 Regulation by the PRA & FCA
• 2019 Future at Lloyd’s Prospectus
9
Classification: ConfidentialHow the Lloyd’s market works
Business flow The market Capital flow
Customers Distribution channels 50 managing agents - managing syndicates Members
transferring risk (capital providers)
350 brokers 76 syndicates - writing insurance and reinsurance
Global commercial distributing business directly Trade capital
organisations
427 service company 12 special purpose arrangements set up solely to Institutional capital
Small and medium locations write a quota share of another syndicate
sized enterprises Private capital (via
4,030 coverholder 2 syndicates in a box: writing innovative new members agents)
Individuals locations business
Other insurance
groups
The Corporation – Supporting the market
2020 Annual Report, published March 2021 lloyds.com/annualresults2020
© Lloyd’s 2021 10
Classification: ConfidentialSharing risk with leading insurance brands
The Lloyd’s market is home to leading insurance brands
© Lloyd’s 2021 11
lloyds.com/annualreport2018
Classification: ConfidentialPartnering with global capital
by source and location
US insurance industry
2020 2019
Bermudian insurance industry
UK insurance industry
5.4% 5.5%
8.3% 17.3% 8.5% 19.1%
Japan insurance industry
10.5% 9.8%
European insurance industry
14.9%
14.0%
Private capital, limited & unlimited
9.2% 9.8%
RoW insurance industry
9.6% 14.6% 9.8% 12.2%
10.2% 11.3% Worldwide non-insurance
Middle/Far East insurance industry
© Lloyd’s 2021 12
Classification: ConfidentialMarket Oversight and Performance Management
• Delegated Underwriting Business
• Capital and Planning Group
• Market Oversight
• Standards to Principles
13
Classification: ConfidentialCoverholders: – an introduction Coverholder Community*
Coverholders ǂ
4,031
Service Companiesǂ
Who are they? No discretion
412 3%
• Coverholders are insurance intermediaries appointed by a managing agent to bind risks
on their behalf. Outside the Lloyd’s market they may be referred to as MGAs/MGUs. Coverholder Underwriting Permission*
• Service companies are in-house coverholders that are owned by a managing agent
• Coverholders can vary considerably in terms of size, product and complexity Prior submit
14%
• Many brokers are also approved coverholders
What do they do? Full authority
Pre-
determined
• Coverholders’ authority to underwrite (bind) policies or pay claims is set out in an 24%
rates
outsourcing agreement called a Binding Authority (i.e. ‘binder’) 59%
• Coverholders and Service Companies are primarily focussed on writing SME and
consumer business – but some will write commercial lines Lloyd’s Premium**
Lineslip… Coverholde
Why do they matter?
Treaty rs & Service
• Coverholders and Service Companies represent 38% of Lloyd’s premium. They are a 22% Cos
38%
local distribution channel and carry our brand US$44 bn
• They provide an excellent route to access SME/Consumer business that would be 2020
D&F
difficult or uneconomic to source via open market 37%
• They are also an effective fast-track route to market for innovative new entities (e.g.
parametric solutions)
Lloyd’s Involvement
Where are they based? 53 Managing Agents
• Coverholders are mainly based in our key markets – especially North America, UK,
Australia and Europe
• Service Companies, especially those based on Lloyd’s overseas platforms, tend to write Global Reach
local/regional reinsurance business – e.g. Asia and Middle East Operating in 60 countries/territories
*Delegated Authorities team showing office locations (PINS)
© Lloyd’s not legal entity count, May 2021 **Gross Signed Premiums
sourced by Xchanging and LDR ǂ PINs (Office locations), May
2021
© Lloyd’s 14
Classification: ConfidentialCoverholders are key distribution partners at Lloyd's
Coverholders write mainly insurance business, with c.70% of policyholders being based in North America. Business grew
steadily from 2015-2019 but reduced in 2020 due to performance management.
DA business is 73% Coverholders Overall DA business grew c.$4.5bn from 2015 to 2019, Policyholders in the Americas
and 88% insurance but fell by c.US$1.5 bn in 2020 account for c.70% of DA business
Lloyd’s DA premium trend Lloyd’s DA business by
Service
location of policyholder
Coverholder Compani… 7.3% CAGR
2015-2019 EMEA
73% 19%
-8.4% Americas
US$17 bn 20,000 2019-20 69%
2020 18,168 18,255
Unmatche 16,202 16,717
d Binder* US$17 bn APAC
16,000 14,774 2020
4% 13,752 12%
GSP (USD mn)
12,000
Facultative
Insurance… 7%
8,000
Location of policyholder: 5 year CAGR
US$17 bn Americas 7%
2020 Non- 4,000
Proportiona… EMEA -4%
0 APAC 4%
Proportional
Treaty… 2015 2016 2017 2018 2019 2020
© Lloyd’s Source: Gross Signed Premiums (GSP) sourced by Xchanging and LDR; by calendar year, based on the location of the policyholder. *Data Health Warning: Not all
delegated authority premium is processed via Xchanging and LDR (approx. 80-90% is) or can successfully be matched due to deficiencies in data entered manually. Those are indicated
as Unmatched Binder; Parts of Lloyd’s Asia DA business is not processed via Xchanging or LDR.
15
Classification: ConfidentialA single, seamless Delegated Authority ecosystem
7. Delegated Audit Manager (AiMS) 1. Delegated Oversight Manager (replacing ATLAS)
Scheduling, scoping & follow-up for Coverholder & DCA Smarter approval & data-based oversight of Coverholders & DCAs
audits. Will introduce risk-based optimization of audits &
provide insights on performance to market.
6. Future at Lloyd’s Middle & Back-office 7 1 2. Delegated Contract Manager (replacing BAR)
Vision to streamline accounting & settlement processes Consistent, transparent data-based registration of
– enabling reduced complexity, errors & delays contracts & optional construction of right-first-time
6 2 contracts
5 3
4
5. Delegated Data Manager (DA SATS)
3. Lloyd’s Coverholder Workbench (optional)
Will act as a centralised Coverholder reporting data store,
reducing burden of regulatory reporting (when fully adopted) Integrates quoting, binding, document generation,
billing & production of fully compliant data
NEW DA
system
Existing system 4. Future at Lloyd’s Claims
Vision includes automated straight-
through claims processing
© Lloyd’s 16
Classification: ConfidentialSyndicate Oversight Lifecycle
This view shows the end to end view of how oversight is applied to a syndicate from cradle to entry point to exit
Key Interventions Impose
Approve / Impose a Impose Approve / Remove
conditions on Approve /
reject a new
capital operational reject a permission to
syndicate appointment reject a RI
loading risk loading business underwrite
application of Board contract
plan
member
Year 3
Years 1-3: onwards:
high touch Monitoring & Market based on
Communications Scan
reporting Planning risk profile
Enter the Synd. Plan
Exit the
Decisions
Planning Annual Assessment Market*
Market* Approval
Oversight
Assessment Cycle Closure
Specific Performance
Communication Process
Reviews Monitoring
* Note
Entering and exiting the Market are not
annual processes, they are exceptional
New Synd Market Syndicate Performance Specific Decisions Comms Closure
Assessment Planning Plan Approval Monitoring Reviews New entrants Decisions to MAs
Synd run-off
Combined Ratio Oversight Plans
Market Messaging SBF Submission Thematic Review Business plan Synd retirement
High-Level Pitch Pricing MA Letter
Mkt Oversight Plan LCR Submission Min Standard Rev Capital plan Forced closure
Prelim Approval Written premiums Additional Oversight Thematic review
MA Letters CPG Process Change of control RITC
Making It Happen Paid claims Change of Control reports
MA Engagement MA Comms Authority to
Approval Claim reserves Survey Results Reg Reporting
MA Negotiation Reg Updates Regulatory Reviews underwrite
Communication Model changes Rating Agency
© Lloyd’s 17
Classification: ConfidentialKey Decision Processes
The following slides define the key oversight decision making processes with their high-level inputs, key
stages, approvals and outputs. In summary, those key decision-making processes are
Enter the Annual Exit the
Market Oversight Market
Cycle
New Entrants Business & Capital Change of Market Oversight Exit the Market
Approval Plan Approval Control Approval Planning The process to manage
The process to receive The process to receive, the exit and/or run-off of
The process to receive, The process to plan
and review applications review and approve syndicates and
review and approve any appropriate,
for new entrants into annual syndicate managing agents from
changes in control of proportionate oversight
Lloyd's from initial pitch business plans and the Lloyd’s market in a
syndicates, MAs, which is suitable to the
to full approval, capital requirements, controlled, managed
members agents and current risk environment
confirming that they ensuring they align to way to mitigate any risk
their parent and in accordance with
support the Lloyd’s Market Messages and to policyholders,
organisations, e.g. Lloyd's risk appetite and
brand and meet Lloyd’s strategy. investors or the Central
following a merger regulatory requirements.
Minimum Standards Fund
© Lloyd’s 18
Classification: ConfidentialThree key interlinking elements of the Oversight Framework have
been developed in parallel
Clear syndicate categories driven by Lloyd’s view of
performance against Principles and a syndicate’s
materiality
Syndicate
categorisation
High-level principles, across 13 dimensions, Oversight Growth and development
supported by guidance, that allows Lloyd’s to Oversight and Development
Principles opportunities for the best run
differentiate from non-compliance through to best interventions opportunities
businesses
practice
An escalating scale of interventions that
are linked to principles and overall
syndicates categorisation
© Lloyd’s 19
Classification: ConfidentialOversight Principles: A clear overarching principle is set for each
oversight area, supported by a small number of underlying statements
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 Overarching Principle Dimension Overarching Principle
Underwriting Managing agents should produce and execute syndicate business plans which Capital Managing agents should ensure syndicates Solvency Capital Requirement (SCR)
Profitability are logical, realistic and achievable and ensure long term sustainability including appropriately reflects their risk profile and is calculated using a SII compliant internal
expense management S model.
O
Catastrophe Managing agents should ensure syndicates maintain appropriate control of Investment Managing agents should ensure syndicate investment risk taking is effectively
L
Exposure Catastrophe risk (natural and non-natural) in line with agreed risk appetites controlled, informed by wider business strategy and adheres to the Prudent Person
V
Principle (PPP) requirements.
E
N
Outwards Managing agents should define and execute syndicate outwards reinsurance Liquidity Managing agents should ensure syndicates (and their members) they have contractual
C
Reinsurance strategy and purchasing plan which reflects the wider business strategy access to sufficient liquidity in order to withstand a severe liquidity event (defined by
P Y
Lloyd’s), underpinned by a robust liquidity risk management framework.
E
R
F
O Claims Managing agents should deliver a high quality claims service supported by Governance and Managing agents should have governance structures and internal risk management
R Management efficient and effective claims management solutions and underpinned by a clear Reporting (Subject to and control frameworks in place which enable well-informed, timely and effective
A claims commitment which ensures fair and timely claims handling and good ELG review) decision making and consistently accurate and timely reporting to Lloyd’s.
N customer outcomes. O
C P
E E Regulatory, Managing agents should have robust regulatory and financial crime frameworks in
R Compliance place to meet and adapt to relevant legislation and guidance. Frameworks should
Customer Managing agents should embed a culture and associated behaviours A and Financial Crime support well informed, transparent relationships with Lloyd’s and regulators.
Outcomes throughout their organisation to ensure they consistently focus on good TI
customer outcomes O
N Operational Managing agents should maintain robust and resilient operations, embedding cyber
A resilience resilience and effective third-party risk management.
L
Reserving Managing agents should ensure syndicates set reserves which are underpinned Culture Managing agents should be inclusive and representative, creating a high performance
by a robust reserving process. All Actuarial Function requirements should be culture.
met in line with Solvency II.
© Lloyd’s 20
Classification: ConfidentialQUESTIONS
Thank you for participating! A recording of this webinar will be made available at www.wsia.org. WSIA’s U40 2021 Webinar Series July 12, 2021
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