Control Framework Breakfast Group agenda 9:00Arrival, Breakfast & networking 9:20 Welcome and The gold star awards- Ali Dove 9:25Hardy – control framework in a business as usual environment – post implementation – Kirsten Charlton 9:45Phase II roadmap – Jaana Rouvari 9:55Survey responses – Jaana rouvari 10:05 HCC – A managing agents approach to phase II – Caroline Stanley 10:20Q & A 10:30Close

Control Framework Lloyds market gold star awards… ALTERRA MARKEL ASCOT Control Framework LIBERTY

3 SERVICE COMPANY CONTROL FRAMEWORK Kirsten Charlton, April 2013

4 The Challenge Guiding Principles Simple Repeatable Embed into business as usual operations Challenges Limited resources and other critical projects on going Backlog of premium and claim transactions No single view of the Service Company world Goal: Implement and provide evidence for Service Company Control Framework compliance for Board sign-off by 30 Jun 2013

5 Delegated Underwriting How We Tackled It Underwriting ClaimsFinance 1.Eliminate premium backlog 2.Redefine premium process 3.Jointly train Underwriting, Finance, and Delegated Underwriting 4.Eliminate claim backlog 5.Redefine claims process 6.Jointly train Claim, Finance, and Delegated Underwriting Cross-functional Steering Group: Claims, Compliance, Delegated Underwriting, Finance, Internal Audit, International Operations, IT, Operations, Risk Management, Cross-functional Steering Group: Claims, Compliance, Delegated Underwriting, Finance, Internal Audit, International Operations, IT, Operations, Risk Management,

6 Aspirational Evidence Diagram

7 Evidence Diagram – Underwriting Focus on Risk Entry Developed risk entry indicators on scorecard Review of scorecard built into process Connections with Compliance, Risk Management, and Internal Audit

8 Evidence Diagram – Claims Very similar to Underwriting controls, but in development Focus on process Developing claims quality indicators Same connections with Compliance, Risk Management, and Internal Audit

9 Evidence Diagram – Finance Focus on separation of duties and enhanced reports Better understanding of Underwriting and Claims processes Connections with Compliance, Risk Management, and Internal Audit

10 Critical Success Factors Hardy management recognised importance of this project and dedicated resource to it Early decision to capture all data requirements into Subscribe –All data in one spot –Importance of getting the data right from the start at the source –Long-term view: pre-requisite for Direct Reporting Risk entry refresher training –Small, defined, internal group of underwriters, underwriting assistants, and finance –New measurements of risk entry quality –Provided context for why the changes were being made –Made a case for benefits of the new process and details

11 V6 Oct 12 LONDON GUERNSEYBERMUDASINGAPORE 1 st Floor Fitzwilliam House 10 St Mary Axe London, EC3A 8BF T: +44 (0) F: +44 (0) PO Box 155 Mill Court, La Charroterie St Peter Port Guernsey GY1 4ET T: +44 (0) th Floor, Park Place 55 Par-la-Ville Road Hamilton, HM11 Bermuda T: F: Marina View #15-01 Asia Square Tower 1 Singapore T: F:

Control Framework Phase II March Challenge & provide alternative solution Managing agent working Group Feedback & Volunteers April DUM DUC Breakfast Group BIG changes Lloyds

Control Framework Managing agent working group Managing agentRepresentative ACESue Burn ArgentaStuart Taylor BarbicanSteven Green BritLeena Ekman Alex Smith CatlinCharles Rowley ChaucerChris Rees HCCCaroline Stanley HiscoxSteve Burns James Chaplin KilnCharlotte Boardman MarkelMartyn Lucas TalbotRichard Faulkner Andrew Howse XLVicky Draper

Control Framework Phase II Roadmap 2013 Pre-project consultation Develop Lloyd's project tool kit Understand Phase II requirements and apply risk matrix to coverholder data Design and plan implementation Q2 Q3Q4 Lloyds and managing agents joint broker engagement Carry out audits and review findings Phase II kick off

Control Framework Phase II Roadmap 2014 Review and monitor Sign off Assess risk, identify controls & gaps Develop / Implement controls Develop / Implement/ test controls Q1 Q2Q3 Q4 Lloyds and managing agents joint broker engagement Carry out audits and review findings

It was suggested that a conference be held by Lloyds and managing agents for brokers. Do you support this suggestion? 83% - Yes 17% - No Lloyds are investigating feasibility of a Launch event in July. Control Framework Survey Feedback

How can Lloyds assist with your broker engagement dialogue? Lloyds to drive all Phase 2 communication Centralised/standardised messages Provide materials to managing agents to reinforce message Ali Dove, Andrew Gurney and Mark Edwards to speak at a forum for brokers Representation at various market broker meetings Managing agents to liaise with the brokers, with guidance and steer from Lloyds Control Framework Survey Feedback

What are the foreseeable issues from brokers relative to managing agents achieving sign-off for Phase 2? Too many managing agents providing a different message to each broker Brokers avoiding doing business with managing agents who are out in front with regards to compliance – more work, additional costs As agents of coverholders, no incentive to engage with managing agents to achieve sign-off Lack of understanding of the requirements Smaller brokers will not maintain adequate data records Control Framework Survey Feedback

Would you support Lloyds coordinating the audit activity? 81% - Yes 19% - No Comments: Yes: Avoid duplication of effort and cost No: Managing agents should retain control over selection of auditors and timing of audits Should be on an optional basis Delegated Authorities team at Lloyds running a pilot with 6 managing agents Control Framework Survey Feedback

What are the obstacles for delivering Phase 2? Distortion of the message from individual managing agents. Broker engagement. The key is to identify several key people from each broking firm. Resistance to change from coverholders without a clear Lloyds mandate. Managing the audit process – responsibilities of lead vs. follow. Coverholders having inadequate systems. Time. Control Framework Survey Feedback

Suggested future topics: Managing agent presentations on both process for Phase 1 and approaches to Phase 2 How to create the right message for Phase 2 How to manage/control the audit process Re-development of ATLAS – what can we expect? General view on market progress/readiness Overview of Crystal Control Framework Survey Feedback

Control Framework A managing agents approach to phase II Caroline Stanley

Control Framework HCC - A managing agents approach to Phase II Clarification on the number of Coverholders Confirmation of data elements Collaborative approach with other Managing Agents who have same Coverholders Communication strategy Internally Externally with brokers and coverholders –Mixed messages –Duplication –Loss of reputation –Loss of business

Control Framework Gap analysis –How can we avoid duplication work within Managing Agents –Where should the information be stored to enable Managing Agents to access Risk Assessment Approach –Is it a one size fits all approach or do we split them into the Good, The Bad and the Ugly –Can scope of existing audits be expanded to provide the additional information required? What are the consequences if the 2014 deadline is not met? HCC - A managing agents approach to Phase II

Control Framework Q & A session & Close