1. Risk Management – The view from Lloyd’s Andrew Gurney – Manager, Risk Analysis Risk Management Division, Lloyd’s 13 October 2004 – ISDA/PRMIA Seminar, London

2. 2 The Lloyd’s Market in 2004 Managing Agents (45) Syndicates (66) CLIENTS BUSINESS FLOW Reinsureds Personal Commercial Lloyd’s Brokers (168) Service Companies Members’ Agents (4) MEMBERS Corporate Groups (649) Individuals (Unlimited Liability Members) (2,045) Individuals (Limited Liability Members) (1,402) CAPITAL PROVISION Source: Lloyd’s Corporation

3. 3 Trends in syndicates & managing agents Source: Lloyd’s 2004 average syndicate capacity £227m 1983 2004

4. 4 Business mix: 2004 year of account Source: Lloyd’s, analysis of 2004 franchisee business plans Geographical source Class of business 48% 52% Direct Reinsurance 29% 11% 9% 8% 7% 36% Property Casualty Marine Aviation Motor Energy 27% 12% 8% 5% 3% 45% North America UK Europe Asia Pacific Latin America Africa/Middle East

5. 5 Franchise Goal “To create and maintain a commercial environment at Lloyd’s in which the long term return to all capital providers is maximised” Lloyd’s Franchise Board

6. 6 Franchise Board – Strategic Aim Outstanding risk management capability

7. 7 Risk Management Position within the Franchise  Governance  Competency  Capability  Resource

8. 8 Key Focus areas Develop a risk management framework Raise risk management awareness & capability Benchmark the standard of risk management Improve the accuracy of market level loss estimates

9. 9 Risk Strategy Objectives, Vision, Risk Policy, Appetite, Organisation & Governance Structure, Risk Glossary Risk and Control Assessment Identify & assess - Risks - Controls - Processes Measure (qualitative & quantitative) Appetite Owners Key Indicators Key risk indicators Key control indicators Key performance indicators Environmental monitoring Stakeholder monitoring Action Plans Actual Losses Identify and measure internal and external losses & near misses Classify Analysis Business StrategyCreditCapital Liquidity Financial Market Insurance Regulatory Operational Risk Groups Franchise Risk Management Framework

10. 10 Lloyd’s Risk Framework Initial workshops Iterative follow-up Quarterly Franchise Risk & Control Assessment Oversight and challenge Risk Management Assessment

11. 11 Raising Risk Awareness Risk conference Risk forum Workshops Communication Risk Management Assessment

12. 12 Risk Management Assessment Capability Survey Control self assessment

13. 13 RDS Guidance and Instruction Issued in April 2004  Key sections -Definitions -Calculation Principles -Recommended Best Practice -“Event Subset” Submissions -Scenarios and Events  Available on Risk Management Website -www.lloyds.com/riskmanagementwww.lloyds.com/riskmanagement

14. 14 DE-MINIMIS SCENARIOS 1USA Windstorm 2Marine Event 3North Sea – Loss of Major Complex 4Aviation Collision 5Major Risk Loss 6Satellite Risks 7Liability Risks 8Political Risks 9Alternative RDS: A 10Alternative RDS: B SPECIFIC SCENARIOS 11Second Event 12Florida Windstorm 13California Earthquake 14New Madrid Earthquake 15European Windstorm 16Japanese Earthquake 17Terrorism Scenarios and Events

15. 15 Conclusions Next steps and key challenges  ICA reviews  RDS Overhaul – stage 2  Risk Management Assessment – feedback  Risk Management Capability Model  Competency framework  Continued training, education and assistance  Embedding risk management throughout the Franchise