LONDON MARKET REFORM DELINKING

AGENDA Background Contract Certainty What is Delinking? Market Closing Performance The Myths Current usage Summary

BACKGROUND Part of the International Process Compliance (IPC) Reforms (1998) Align the London market with international processes Improve flow of information to underwriters Incorporated into the LMP Programme Faster premium payment Enables earlier documentation to client Contract Certainty Early delivery of Signed lines Premium Payment Working Party

Current MRG Initiative Project started at 1st January 2007 aimed at doubling usage of delinking Identified what barriers exist to using Delinking and how these can be fixed MRG have agreed to provide each Broker with a monthly report showing what has been Delinked. MRG have set targets for usage: Q2: 50% Q3: 60% Q4: 80% - Mandatory as at 01/01/2008 Market Rollout Plan provided to MRG for consideration

LONDON MARKET CLOSING THE PROBLEM London Market closings are submitted on an LPAN Submission of the LPAN to XIS provides: advice of Closing details notification of signed lines authority for XIS to pay underwriters Broker submits the LPAN once client pays NOT when the information is available

Pre DELINKING 68+ -15 60 Over 80% of risks submitted ‘on time’ Only 20% of premium is received by SDD Latest date for PAN submission to XIS London Broker: - signs down - produces evidence of cover - produces debit note Risk inception date Funds transfer 68+ TOT date -15 60 Client pays Non-XIS (re)insurers advised of: - Closing note - signed lines XIS check and resolve queries XIS advise (re)insurers of signed lines and payment Producing broker receives: - evidence of cover (including signed lines) - debit note Client receives: - evidence of cover (Re)insurer writes risk

WHAT IS DELINKING? Post Placement separation of the Closing submission (technical account) to XIS (& underwriters) from the instruction to settle A two stage process Advice of closing details and signed lines (LPAN) Timing to meet the Contract Certainty/FSA targets Trigger settlement once the client pays At the same time as the old LPAN submission

DELINKED CLOSING -15 Broker signs down the risk Funds transfer Trigger date + 3 days London Broker: - produces evidence of cover - produces debit note Risk inception date -15 Client pays Non-XIS (re)insurers advised of: - Closing note - signed lines Broker triggers payment XIS advises Underwriters of payment Client receives: - evidence of cover - debit note Producing broker receives: (Re)insurer writes risk XIS check and resolve queries XIS advise (re)insurers of signed lines LPAN submitted to XIS Pending file

BROKER RELEASE OF FUNDS On Line Trigger Common facility for Lloyd’s/IUA business Available via the XIS screens Release items held on the pending file Electronic RESETT message Automatic trigger from Broker system Standard international ACORD message Money released into Settlement that evening

PAYMENT PERFORMANCE 27% 53% 20% 27% Figures include cash and first installments only Based on total in-scope premium signed for 2005 up to August. Data supplied by Xchanging

QUERIES/REJECTION RATES Closing Queries Items where the Closing submission is queried by XIS 22% Closing Rejections Items rejected back to the Broker for correction and resubmission 4%

SCOPE OF DELINKING Direct Facultative XOL Includes Excludes Original premiums Additional premiums Return premiums Excludes Proportional Treaties Reinstatement premiums Premium reserves May not be suitable for Short Terms of Trade periods Planned/Flexible Settlement schemes Direct Facultative XOL

Broker Signing Messages - BSM EVERYTHING SETTLED THAT DAY. Includes payment of previously Delinked items and cash (Non-Delinked) signings. - IPC BSM An EDI or CSV message in the same format as BSM showing EVERYTHING DELINKED THAT DAY applies to all transactions - DL5089 “CSV File” For A&S Repository submissions only shows EVERYTHING SIGNED THAT DAY – Delinked and Non-Delinked

DELINKING MYTHS Delinked risks are paid later than non Delinked Analysis of Delinked submissions disproves this commonly stated issue Underwriters cannot tell if a delinked risk has been paid Separate messages are sent to Underwriters by XIS to advise when a delinked risk has been submitted and of the subsequent payment Brokers just want to delink risks to keep them off the late payers list The XIS Signing Performance Report for delinked items is based on the payment trigger date - not the LPAN submission

DELINKING MYTHS – Cont’d Just another Market Reform requiring costly systems changes Brokers submit the existing LPAN with a ‘Delinked’ stamp on it Payments can be released using the XIS on-line trigger facility Underwriters will need to change their systems if they want to take advantage of the earlier Delinked message. Most Underwriter Software packages already support delinked messages

Convertible Currency Processing For convertible currency transactions a notional rate of exchange must be provided at the Delinking stage. When the premium is released for settlement, the rate of exchange may be updated with the actual rate which will apply Rate of exchange may be updated via RESETT or Delinking Trigger If settlement rate of exchange varies more / less than 10% of original rate of exchange then release is prevented. Contact XIS to release on your behalf

Miscellaneous Settlement Due Date (SDD) Premium Payment Warranty (PPW) Delinked risks may be released for settlement, before, on or after the SDD. If they are released after the SDD, you will be late signed. Premium Payment Warranty (PPW) Delinked risks may be released for settlement up to and including the PPW Date. Underwriter Proof Once date has been passed underwriter proof is required, they will accept the premium Evidence of underwriter proof should be sent to Xchanging who will release on your behalf

BENEFITS - Brokers A standard process for dealing with XIS and non-XIS insurers Queries resolved earlier Control of payment is retained Enables Contract Certainty requirement for Signed Lines to be achieved Consistent with A&S processes

BENEFITS - Underwriters Earlier advice of signed lines: Provide confirmation of exposure Assist credit control Eliminate effort in chasing broker for details Xchanging messages Closing queries and corrections should not delay settlement Consistent with A&S processes

BENEFITS - XIS The checking of Closings and resolution of queries is no longer time critical to premium payment Reduces processing peaks and enables better workflow management Should a processing backlog occur it should not impact premium payment Earlier policy preparation is possible

Getting Started Who will release funds? Will you use the RESETT or Delinking Trigger? Get Delinking trigger ID’s set up or your RESETT software configured Get “IPC Delinked” stamp made Consider whether you will require the IPCBSM Consider processing some test transactions

SUMMARY The Delinking process is beneficial to your organisation It supports the Contract Certainty and FSA requirements Closing queries and rejections are no longer on the critical path for premium payment This results in improved premium payment performance Premium performance and Delinking usage will be monitored over the next six months Eliminates “Londonisms”

Q & A

LONDON MARKET REFORM DELINKING