Lloyd's Brussels subsidiary: Market Toolkit V1.0. Lloyd's

Transcription

1 Lloyd's Brussels subsidiary: Market Toolkit V1.0

2 Lloyd's Brexit Toolkit Table of contents Section Chapter Content overview Page Introduction Operational impact assessment Executive summary 3 Introduction to the Brussels subsidiary and how to use the Toolkit Brussels subsidiary overview 9 Operational impact assessment 18 Open market placement An impact assessment across the insurance value chain documenting: 21 Open market claims High level current market process 49 Delegated authority binder placement High level future state market/brussels subsidiary process Scenario based guidance 58 Delegated authority bordereau placement Further considerations 71 Accounting and Settlement 88 Reporting available to managing agents 100 Additional guidance Finance and tax considerations 104 Regulatory considerations Finance, tax, regulatory and oversight considerations have also been included in the Toolkit. 108 Further guidance and a comprehensive FAQ set can be found on Crystal Oversight considerations 115 Outstanding content - Areas still under design, or to be agreed, are captured to make clear what we are still working on 117 Glossary - Glossary of terms 120 Appendix 1: Open market placement 128 Appendix 2: Open market claims 138 Appendix: Detailed current market process maps Appendix 3: Binder placement Level three processes are included in the appendix documenting current market processes as a 145 Appendix 4: Risk and premium bordereaux baseline to measure change against 155 Appendix 5: Claims bordereaux 167 Appendix 6 & 7: Accounting and Settlement 173 2

3 Executive Summary The Toolkit This toolkit is intended for managing agent (MA) and broker operational practitioners, responsible for implementing the necessary changes to ensure they can continue to place business in the European Economic Area (EEA) after the UK leaves the European Union (EU). Contact us For general enquiries about this toolkit please contact: This document has been developed through extensive consultation with the Lloyd s market. It provides a comprehensive overview of the Lloyd's Brussels subsidiary (the subsidiary) and guidance on what managing agents and brokers need to do to be ready to place business in the EEA post Brexit. The Toolkit is a living document that will be updated with new content as outstanding items are finalised. The latest version of this document will be distributed to an agreed contact within each managing agent/broker for dissemination. 3

4 Overview Background Since the UK voted to leave the European Union, Lloyd's has been working to provide the market with an effective solution that ensures customers can continue to access Lloyd s underwriting expertise for EEA risks. We have been working closely with the Lloyd's market to ensure that our Brexit solution is commercially viable, easy to use, future-proof and will maintain our commercial relationships and strong financial ratings. The Lloyd's Brussels subsidiary will be a fully regulated insurance company, with a robust corporate structure, compliant with the regulator s requirements and capitalised according to Solvency II rules. This structure will provide you with a solid platform on which to continue to trade with, and grow in, the Single Market. The Lloyd s Brussels subsidiary will: Maintain the subscription model and current market principles, retaining underwriting capabilities and the security of the Lloyd's market behind policies Maintain the current distribution network. That means the business relationships with brokers and coverholders will remain the same Minimise changes to your existing processes and systems Support continued trading under the Lloyd's brand and benefit from Lloyd's robust financial ratings Provide the market with a solid solution for future growth in Europe 4

5 Lloyd s Brussels subsidiary How will it work? Society of Lloyd s Business reinsured to syndicates 100% owned by The Corporation Capital injection (equity) Lloyd s Brussels Subsidiary (Credit rating to be maintained) Managing Agent (UK) Broker Policy holder Syndicate + Branches + UK Branch Coverholder (EU Country) Incorporation and structure Lloyd s Brussels subsidiary will enter into an Outsourcing Agreement with managing agents allowing them to underwrite on behalf of the Brussels subsidiary. In this capacity managing agents will be outsourced underwriting service providers to the Brussels subsidiary. For the sake of consistency this document will continue to refer to outsourced underwriting service providers as managing agents Lloyd s Brussels subsidiary will authorise managing agents to appoint coverholders and service companies on its behalf, within agreed European business plans Brokers will undertake negotiation of Coverholder Appointment Agreements (CAAs) between managing agent underwriters and coverholders, thus allowing the current relationships between these entities to continue. The only visible change between the original binder/new CAA will be the underwriting entity, which will be Lloyd s Brussels Subsidiary instead of the managing agent Key: Business flow Under the terms of the Outsourcing Agreement business will be reinsured back to the syndicates 5

6 Lloyd s Market Timeline to March 2019 Both the market and Lloyd's must have solutions in place ready for go live 01/01/19 The Lloyd's Brussels subsidiary will be operationally ready from July 2018 and able to write business from 1st January Market players will need to consider changes to their process and undertake steps in order to be prepared. Phase Phase 2 Q Phase 3 Q Phase 4 Q Start Up Get Ready Prepare For Go Live Go Live Understand model and impacts to your firm, activate your Brexit team Meet with Lloyd s to understand how to use the Toolkit and implement changes and prepare for Market Acceptance Testing Complete testing and training. Start binding risks for 1/1/19 renewals. Submit high level business plans to Lloyd s. Start to incept business from 1/1/19 October 2017 Regulatory application submitted Q Company set-up Q Market Acceptance Testing begins July 2018 Operationally ready and regulatory Authorisations received (subject to National Bank of Belgium (NBB) approval) 1 Jan 2019 Q Market onboarding begins March 2019 UK exits EU 6

7 On-boarding checklist If using Lloyd s Brussels solution, managing agents will need to complete the following activities Understand the Lloyd s Brexit solution and associated impacts Plan and implement operational change activity for placing and managing Lloyd s Brussels subsidiary business post Brexit Communicate change and conduct internal training and external testing Sign up to mandatory 3 rd party services SDC, DA SATS and non-mandatory PPL if using Sign the Lloyd s Brussels Outsourcing Agreement and agree syndicate business plan Ensure syndicate EEA binders are transitioned to Brussels subsidiary binders in time for 01/01/19 go live 7

8 I am a Navigating the Toolkit The index below will help you quickly navigate to the areas that interest you the most I am interested in Placement Claims Endorsements Binder placement Bordeaux submission Accounting and Settlement Managing Agent Slide 26 Open market placement impact assessment managing agents Slide 54 Open market claims impact assessment Slide 39 Open market endorsements impact assessment managing agents Slide 62 Delegated authority binder/caa transition Slide 78 DA bordereau handling impact assessment Slide 95 Accounting and Settlement impact assessment managing agents Broker Slide 42 Open market placement impact assessment brokers Slide 54 Open market claims impact assessment Slide 62 Delegated authority binder/caa transition Slide 78 DA bordereau handling impact assessment Slide 97 Accounting and Settlement impact assessment brokers Coverholder Slide 62 Delegated authority binder/caa transition Slide 78 DA bordereau handling impact assessment Service Company Slide 81 Delegated authority service company (non-bureau) submission 8

9 Brussels subsidiary Overview Section Introduction Chapter Executive Summary Brussels subsidiary Overview Operational Impact Assessment Open Market Placement Operational Impact Assessment Open Market Claims Delegated Authority Accounting and Settlement Reporting Finance and Tax Considerations Additional Guidance Regulatory Considerations Oversight Considerations Lloyd's Brexit Toolkit

10 Lloyd's Brussels subsidiary High level operating model overview Operating model Business will flow via existing distribution channels Managing agents/coverholders/service companies will write EEA business on behalf of the Brussels subsidiary The Brussels subsidiary will require managing agents to use Structured Data Capture (SDC) and Data, Submission, Access and Transformation Services (DA SATS) as data submission channels The Brussels subsidiary will capture contract level data required for operations processes, reporting and oversight requirements The Brussels subsidiary will largely outsource the placement and administration of risks to managing agents, subject to regulatory approval, but will have its own operations function to carry out the critical administrative activities of an insurance organisation. This team will oversee placement/claims/endorsement handling processes, credit control, technical and non-technical query handling Claims handling will be outsourced and performed by managing agents/coverholders/service Companies, subject to regulatory approval, via existing process and systems. Queries generated by the Brussels subsidiary s data/business validation will be resolved by managing agents Current settlement processes provided by Lloyd s Settlement and Trust Fund Office (STFO) will be leveraged for collection and settlement of premiums and claims Risks are automatically reinsured to the syndicate, less reinsurance commission and premium taxes 10

11 Lloyd's Brussels subsidiary High level operating model overview Operating model Data Capture & Transformation Regulatory, Financial Reporting, Tax & Audit MA administration (as OSMA) and reporting (as OSMA and re-insurer) Syndicates Outward Reinsurance SDC DA SATS Validated, structured data EU Settlement confirmation Cash Movements Local Broker Managing Agents Data typically from London Broker or Service Coy Risk Premium ECF LDR Brussels Subsidiary Lloyd s STFO Client Lloyd s Broker Coverholder Service Coy Claims Accounting & Settlement Claims Payments (via intermediary) EBOT ECOT Central accounting Client LPAN ECF Delegated underwriting and claims adjusting Data & information flow (various formats) LM TOM and Lloyd s data services Premium & claims back office processing Central Settlement Premium and claims payment 11

12 Working with the Brussels subsidiary An introduction to open market (OM) placement and claims handling I am an underwriter, how will I place open market business on behalf of the subsidiary? 1 Broker prepares quote 2 Underwriter quotes for risk on behalf of the subsidiary 3 Risk is bound with the subsidiary stamp The broker will present you with risks as they currently do. If the risk has EEA and non-eea components the placing slip will need to be split. You will quote for the risk just as you currently do, but on behalf of the Brussels subsidiary. If the risk has EEA and non-eea components you will need to provide two quotes. Once terms have been negotiated you will bind the EEA risk on behalf of the subsidiary using your subsidiary stamp. This stamp will be unique to each syndicate. 4 Market reform contract (MRC) sent to Brussels subsidiary 5 Brussels subsidiary capture and validate 6 Brussels subsidiary make data available You will need to send the signed and stamped MRC to the subsidiary, you will do this by scanning and submitting to SDC. This will be automated if you already use Placement Platform Ltd (PPL) and SDC. The subsidiary will receive the risk data as structured data from SDC. The subsidiary will validate this data, any queries will pass back to you. Once validated the direct insurance policy will be captured. Further detail regarding open market placement can be found from slide 21. The subsidiary will provide you with a report detailing information regarding the business you have placed on behalf of the subsidiary. I am a claims professional, how will I handle open market claims on behalf of the subsidiary? 1 FNOL and claims handling 2 Receiving RI SCMs 3 Queries from the subsidiary You will be notified of new claims to be handled on behalf of the subsidiary via ECF, as per your current process, ECF will be accessed with your current log in. All SCMs produced by CLASS during the claims adjusting and payment process will be sent to the subsidiary. As the reinsuring party you will receive RI SCMs. The subsidiary will validate the direct SCMs it receives against policy data held, any queries will be passed back to you to resolve. Further detail regarding open market claims can be found from slide

13 Working with the Brussels subsidiary An introduction to delegated authority submissions and the Accounting and Settlement(A&S) process How will I place business through a coverholder/service company on behalf of the subsidiary? 1 Bordereau production 2 Bordereau submission 3 Subsidiary validation and capture On the agreed reporting date a V5 compliant bordereau is produced by the coverholder/service company and may pass to the broker/ma for validation and enrichment. The coverholder/service company, broker or MA will submit the bordereau to the DA SATs tool. DA SATs will perform validation and translate into a common data standard. The subsidiary will receive and store the data as well as performing validation, any queries will be passed back to the MA to resolve. The MA will receive DA RI risk data report. Further detail regarding risk/premium/claims bordereau submission can be found from slide 71. Detail regarding binder placement can be found on slide 57. I am a broker, how will I handle Accounting and Settlement for subsidiary business? 1 A&S submission 2 Queries from XIS 3 Queries from the subsidiary You will create accounting submissions for EEA business as you would currently, ensuring the subsidiary stamp is used where required. You will need to create two submissions if a global policy. Any queries generated during the A&S process will be returned to you to resolve. Once any queries are resolved a USM is issued to the subsidiary. The subsidiary will capture the USM and check it against the policy record held. Any queries will be passed back to the MA to resolve. 4 RI USM sent to MA 5 Settlement triggered 6 Brussels subsidiary make data available At the same time as a USM is issued to the subsidiary a RI USM is issued to the MA based on the original submission/usm. This is less RI commission. The USMs trigger settlement as per current process. Resulting in ESA/ESNs and cash movement. Further detail regarding premium and claims A&S can be found from slide 88. The subsidiary receives BSMs associated to the reinsurance. 13

14 The Brussels subsidiary will outsource a number of key activities Outsourcing The Brussels subsidiary will outsource a number of key activities both to managing agents and to the Corporation of Lloyd s, to ensure minimal disruption to operations, to avoid duplication of services, and to benefit from the experience and expertise within existing teams. The Outsourcing Agreement will define what activity each party will be accountable/responsible for and contractually obliged to do: Managing Agents Lloyd s Insurance Company Corporation of Lloyd s Underwriting of subsidiary (re)insurance contracts CAA negotiation Claims handling Complaints resolution Credit control Query handling Outsourcing Agreement Oversight of outsourced activity SII and Belgian regulatory reporting Capture direct insurance Generate reinsurance Return data to the market Outsourcing Agreement Coverholder approval Underwriting and claims oversight IT services management Complaints oversight The Outsourcing Agreements are subject to regulatory approval, especially in respect of end client activity 14

15 The Outsourcing Agreement in practice Outsource to managing agents key areas Regulation Underwriting The Outsourcing Agreements will be compliant with all applicable regulatory requirements, including Solvency II and conduct regulations Managing agents will underwrite EEA business on the Brussels subsidiary s behalf, subject to certain conditions (e.g. that the amount and type of EEA business written is within the agreed section of the Brussels subsidiary s business plan to be delivered by that agent) Claims Coverholders and claims handlers Oversight Complaints Managing agent will handle and settle claims on behalf of the Brussels subsidiary The Outsourcing Agreement will: authorise the managing agent to appoint claims handlers to operate on the Brussels subsidiary s behalf authorise the managing agent to appoint coverholder to act on behalf of the Brussels subsidiary, the terms of such appointment to be governed by a Coverholder Appointment Agreement; require managing agents to oversee the activities of coverholders and claims handlers appointed to act on behalf of the Brussels subsidiary in a similar basis as at present The Outsourcing Agreement will summarise the oversight processes that apply to underwriting, claims and the appointment of coverholders and claims handlers The Outsourcing Agreement will set out the managing agent responsibilities in respect of complaint handling The Outsourcing Agreements are subject to regulatory approval, especially in respect of end client activity 15

16 Key points to consider Key considerations Brussels subsidiary scope of business/operations Brussels subsidiary's counterparty Identification of the risk location Brussels subsidiary will operate as a fully functional insurance company, able to write risks from the 27 EU countries, the 3 EEA countries and the UK via managing agents and current distribution channels of brokers, coverholders and service companies. Business will be 100% reinsured back to Lloyd's syndicate The counterparties under the insurance and reinsurance policies that are written by managing agents on the subsidiary s behalf are the policyholders. Under the outwards reinsurance and retrocession policies that the subsidiary enters into, the counterparties will be the member(s) of the Lloyd s syndicates managed by those managing agents An insurance risk is located in a European Union or European Economic Area member state if it is for: A building (and its contents issued under the same policy) situated in that member state A motor vehicle, ship, yacht or aircraft registered in that member state A travel policy for four months or less taken out in that member state Other types of insurance are an EU/EEA risk if the insured is habitually resident in an EEA/EU member state or, in the case of a business/organisation, if the establishment to which the contract relates is situated in that member state. The Risk Locator Tool and Crystal are tools that can be used to consider risk locations Financial information provision Importance of the risk location EEA/EU-specific information required for business planning and Standard Formula calculation in relation to 2019 underwriting, to be provided in H This will include volume and profitability information by territory. Reserving will be undertaken in aggregate for the Brussels subsidiary, managing agents may need to provide information on any large claims incurred Failure to identify the correct territories may lead to: delays in premium processing Invalid insurance contracts Inaccurate regulatory reporting and funding Incorrect tax returns and payments Fines and damage to Brussels subsidiary s reputation For general guidance on identifying the location of a risk please refer to the Risk Locator Tool 16

17 Key points to consider Key considerations Reinsurance commission Outsourced managing agent FAC RI Reinsurance commission will be a fixed percentage for all lines of business. It is important that MAs use the right stamp, UMR and underwriting reference to enable reinsurance to be processed and accounted for correctly and into the right account Outsourced managing agents will not need to issue FAC RI records to the subsidiary as the subsidiary will issue to the reinsurer from the primary placement 17

18 Operational Impact Assessment Section Introduction Chapter Executive Summary Brussels Subsidiary Overview Operational Impact Assessment Open Market Placement Operational Impact Assessment Open Market Claims Delegated Authority Accounting and Settlement Reporting Finance and Tax Considerations Additional Guidance Regulatory Considerations Oversight Considerations Lloyd's Brexit Toolkit

19 High level impact assessment overview 1/2 A high level impact assessment has been conducted to support the market s planning An impact assessment has been conducted across the insurance value chain assessing potential impacts and resulting change activity required by market participants as a result of the subsidiary solution. The impact assessment follows the four part structure below: A high level process view of the How the subsidiary will operate in Suggested change scenarios, 4 current and future market processes respect of this area, focussing on its interaction with market participants options and/or considerations for market participants to work effectively with the subsidiary Further information and guidance we feel useful in each area to further help understanding Detailed current state processes in the appendices 19

20 High level impact assessment overview 2/2 A high level impact assessment has been conducted to support the market s planning Each area of the insurance lifecycle has been considered in turn: Open Market Risk (London) If the EEA risk can be written on a non-admitted basis (as with the majority of reinsurance risks) then the syndicate stamp or the Brussels subsidiary stamp can be used. If it cannot, the Brussels subsidiary stamp has to be used Managing agents have to decide how to use their internal systems as they are placing on behalf of the Brussels subsidiary In respect of placement with EEA (Brussels subsidiary) and non-eea (syndicate) elements the slip has to split Delegated Authority Claims FNOL & Movements All new EEA delegated authority business will need to be placed on a Brussels subsidiary binder from 1/1/19 Existing binders can be transitioned to the Brussels subsidiary binders wording and must be in place for 1/1/19 Coverholder clients whose policies operate under a tacit renewal will need to have been notified of the transition to a Brussels subsidiary binder according to the minimum notice period required by the territory in which the risk is located. In most scenarios non-eea coverholders will not be able to establish Brussels subsidiary binders; the resulting 'orphaned' risks must be managed The Brussels subsidiary will own the contractual relationship, however binder negotiations will be outsourced to managing agents Claims resolution will be outsourced to the managing agent minimising impact to current market process Brussels subsidiary claims will be handled through ECF following market process, accessible through adjuster s existing sign on The Brussels subsidiary s data requirements will be satisfied by Syndicate Claims Messages (SCM) but will not receive writeback The Brussels subsidiary will receive SCMs whilst outsourced MAs will simultaneously receive the corresponding RI SCMs Claims that are out of scope of ECF can be processed by /paper as they are currently The RI Agreement will work on the basis that if the inwards claim is accepted by the Brussels subsidiary then the outwards RI will respond Accounting & Settlement Separate LPANs/eBOTS will need to be created for the Brussels subsidiary component of global policies Managing agents will no longer be the primary recipient of direct insurance USM, ESAs and ESNs. The Brussels subsidiary, as the insurer, will receive all direct messages, the direct message information can be made available to outsourced MAs if required Non-cash service company submissions will no longer be permitted and will need to move to a bureau cash basis Subsidiary Reinsurance Managing agents will need to consider how they wish to handle inbound reinsurance within their systems, processes and crucially reporting The handling of the reinsurance received by MAs is considered throughout the document, rather than within a distinct section of its own 20

21 Open Market Placement Section Introduction Chapter Executive Summary Brussels Subsidiary Overview Operational Impact Assessment Open Market Placement Operational Impact Assessment Open Market Claims Delegated Authority Accounting and Settlement Reporting Finance and Tax Considerations Additional Guidance Regulatory Considerations Oversight Considerations Lloyd's Brexit Toolkit

22 Open Market Placement Process -Current -Future Lloyd's Brexit Toolkit

23 Current market placement process This section documents a generic market process spanning the placement lifecycle The generic placement process was produced with market input. Each managing agent will have variations on this process but broadly the process is similar. Detailed process maps supporting this taxonomy can be found in section one of the appendix. Generic placement taxonomy HIGH Placement MED Submission Quote Pre-bind Bind Post bind Receive and log broker submission Assess risk appetite Regulatory, Lloyd's and MA requirements Accept/decline quote One off post bind checks Process submission Establish quote Quality checks Stamp and issue Ongoing post bind checks LOW Prepare and negotiate quote Technical checks Evaluate requirement for reinsurance Submit quote 23

24 Future high level open market placement narrative The process of placing risks through the Brussels subsidiary will require changes to current processes 2. 2 Underwriter quotes for risk 4. 4 MRC is sent to SDC 6. 6 Risk reporting Underwriters complete pre bind checks and prepare quote for the risk, acting on their authority provided by the subsidiary. If the risk has EEA and non-eea elements, separate quotes need to be prepared for each section. The underwriter submits the MRC to the Structured Data Capture Service. This is done automatically if placed via PPL* and by portal if not. SDC convert the MRC to a data message and forward to the subsidiary with a pdf copy of the MRC. The subsidiary will receive a separate MRC for each line. Risks are added to a report that is fed back to the underwriter. The risk is also added to the report generated for the regulator Broker prepares quote Broker prepares quote as per current process and decides which underwriters should be approached, agreeing and appointing the lead. The market reform contract (MRC) is provided to the lead and the follow market. If a risk has EEA and non-eea elements, the MRC will have separate sections Risk is bound Terms are negotiated between broker and underwriters. Once concluded the final MRC is presented to managing agent. The underwriter binds risk using the subsidiary stamp (syndicate stamp for any non-eea sections). For policies bound by more than one MA on behalf of the subsidiary, the Claims Scheme will apply in a modified form to the handling of claims under those policies The subsidiary uploads risk The subsidiary upload the Global Placement Message (GPM) into the subsidiary s administration system. Various business validation checks are carried out against the risk data (such as risk location) and if this generates any queries these are raised and resolved with the MA. Any differences in MRC s (between lead and follow) are also resolved. Pre bind/bind Post bind Things to consider No rekey of the risk into subsidiary but upload of data in the subsidiary. To Brussels subsidiary there is only one risk so any difference in T&C s will be harmonised, usually to lead position. Same participants and authorities as pre-brexit. Risk does need to be split if EAA and non-eea risk are both present on the slip *PPL will only send MRCs to SDC if the managing agent in is already using SDC for non-eea contracts. If the managing agent is just using SDC to submit MRCs to the subsidiary the managing agent will need to download the MRC from PPL and submit to SDC manually. 24

25 Brussels Subsidiary SDC Managing Agent Broker Future high level open market placement process End to end future Brussels subsidiary and market process 1 Prepare EEA placing slip Approach Syndicates Negotiate terms Prepare/ present MRC Separate sections if multinational Using subsidiary stamp Pre-bind checks Prepare quote Negotiate terms Bind risk Submit EEA risk to SDC Resolve queries 6 Handle inbound report Separate quote if multinational Only lead places subjectivities Convert MRC to data message Query handle Receive MRC data & image 5 Process in subsidiary systems Report back to syndicate Business and data validation Key: Process step Key interface PPL process 25

26 Open Market Placement Impact Assessment Managing Agents Lloyd's Brexit Toolkit

27 Level of detail Open market placement impact assessment Scenario based advice has been created based on an impact assessment of the placement process Impact assessment overview H Placement Managing agents current state open market placement processes will be impacted M Submission Quote Pre-Bind Bind Post Bind as a result of the Lloyd's Brexit solution. The greatest area of change will be the L Receive and Log Broker Submission Process submission Assess risk appetite Establish quote Prepare and negotiate quote Regulatory, Lloyd's and MA requirements Quality checks Technical checks Accept/decline quote Stamp and issue Evaluate requirement for reinsurance One off post bind checks Ongoing post bind checks Credit control quote to bind stages. Quotes will no longer be translated into insurance policies but ultimately to reinsurance policies. The following pages outline scenarios that you may wish to adopt to mitigate this impact, depending on your existing European business, systems and processes. Regardless of the approach adopted by Submit quote managing agents to store data internally, MRCs must be submitted to the Key impact area subsidiary via SDC. Impact area Scenario name Consider this scenario if you.. People Process System 1 Use re-insurance system Have a common insurance and reinsurance underwriting system Reporting/ Data Low Med Med High 2 Use NTU functionality Have a heavily integrated quote and (re)insurance process/system 3 Use DA system Have a DA system and wish to minimise system development cost and complexity in other systems Low High Med High Low Med Low High 4 Manage primary off system 5 Use insurance system but decouple from GL Already manage off system, anticipate low volumes of subsidiary business or wish to develop a subsidiary contingency option Have an insurance underwriting system in which the European business can be ring-fenced/separated from GL Low Med Low High Low Low High High Lloyd's 27

28 Universal impact considerations There are some impacts that will be experienced by all players regardless of their chosen approach Whilst each of the scenarios will have specific impacts on people, process, technology and data/reporting with variable impact depending on the maturity of existing systems and processes there are a number of universal considerations. At a high level data and reporting will be the area of greatest impact. People Change Process Change Technology Change Data/Reporting Change Some degree of people impact The stamp used when binding Technology changes will be Reporting will be the greatest will be caused by the need to Brussels subsidiary business will be determined by the specific impact, e.g. existing reports train underwriters, administrative different to the current syndicate solution a managing agent must be reviewed to teams and management in new stamp. This will drive process adopts, informed by the scenario include/exclude the Brussels processes, procedures and change (additional checks and based advice in this document subsidiary reinsurance in reporting. controls) as well as operational (re)insurance reporting No team structure change anticipated as a result of the Lloyd's Brexit solution behavioural change Any existing auto renewal processes will be impacted by the new Brussels subsidiary reinsurance process A new process to notify the Brussels subsidiary of any endorsements/changes to the primary insurance captured on local systems Whilst the brussels subsidiary reinsures 100% to the managing agent the impact of tax and the Brussels subsidiary charges on reinsurance will need consideration and the value booked appropriately The Brussels subsidiary sections of multinational policies may need to be matched to the primary policy to report on the full exposure, as necessary 28

29 Revised open market placement process scenario 1 Use integrated re-insurance system/component Scenario overview The overall submission, pre-quote, quote and bind and pre-bind process can be used virtually without change if at the points of interaction with the policy administration system (usually at bind or post bind) a re-insurance record is created rather than insurance, as this is ultimately what is being written in respect of your syndicate. This record will initially be fed by systems within the quote system and kept up to date as endorsements are validated and processed. Finally the RI payments in respect of premium and claims (coming from the subsidiary) can be matched up with record. Who does this scenario work for? Managing agents who have a FAC RI capability in their (re)insurance system. It will better suited where the Insurance and re-insurance (FAC) processing is completed in the same teams and the (re)insurance system from quote to bind is manual/simple automation. Key impact area Submission Quote Pre-Bind Bind Post Bind A&S = Process change Accept/decline quote Stamp and issue Evaluate requirement for reinsurance = System change Sign and stamp Capture MRC data Create policy Book premium Quality reviews Sanctions checks Rather than an insurance policy being created in the insurance system, a reinsurance policy will need to be created in the reinsurance system and signed under the subsidiary All post bind activity will need to be handled in the reinsurance system against the reinsurance policy 29

30 Revised open market placement process scenario 1 Use integrated re-insurance system/component People Change Process Change Technology Change Data/Reporting Change Some managing agents may wish to consider bringing together insurance and reinsurance processing teams (where not already) for Brussels subsidiary business to streamline the conversion There may be an uplift in activity within the reinsurance processing teams as volumes of reinsurance grow Renewal processes will be For non-integrated For most managing agents L impacted by the new Brussels subsidiary reinsurance process and there will need to be a process to stop any syndicate European business L (re)insurance systems, redirecting quotes from insurance to RI and handling any variance in data requirements between the two L the data impact of this scenario will be moderate beyond those listed in the universal considerations which will be high L automatically rolling onto a new systems will need to be Alignment of data M insurance contract A new process will be required to match the policy data in the M considered Technology reconfiguration to adjust the quote to reinsurance M granularity between reinsurance and insurance systems M reinsurance system with routing and particularly auto Patching of insurance and inbound Brussels subsidiary renewals reinsurance data for reinsurance reporting reporting, especially across H H H H multinational policies 30

31 Revised open market placement process scenario 2 Record as Bound NTU at bind and record policy in reinsurance system Scenario overview The overall submission, pre quote and quote activity is followed as per normal process. The main change is stopping the quote moving to the insurance system by recording the risk as not taken up (NTU). A distinction will need to be made between actual NTU quotes and new bound NTU quotes for reporting purposes. This change will mean that any automated activity to take a risk into the insurance system is halted, as far the process is concerned the direct risk has not been written. This will allow existing quote process/systems to persist and granular details maintained while a thinner record is recorded on the RI system and kept up to date via Brussels subsidiary reinsurance reporting. Who does this scenario work for? This scenario would be of interest to managing agents whose existing quote and insurance systems are heavily integrated or whose insurance and reinsurance are sufficiently different in configuration and/or data requirements. Key impact area Submission Quote Pre-Bind Bind Post Bind A&S = Process change Accept/decline quote Stamp and issue Evaluate requirement for reinsurance = System change Receive written approval Update quote file to accepted Accepted quotes for the subsidiary business will have to be recorded as bound NTU, rather than accepted Sign and stamp Capture MRC data Create policy Book premium Rather than an insurance policy being auto generated from the quote a reinsurance policy will be generated 31

32 Revised open market placement process scenario 2 Record as NTU at bind and record policy in reinsurance system People Change Process Change Technology Change Data/Reporting Change Potential reduction in the volume of activity within the primary insurance admin team, potentially matched by increase in reinsurance admin team activity A new process for creating a If you cannot create a Ability to differentiate actual L thinner Brussels subsidiary reinsurance record within the L reinsurance record you must ensure it is in a repository or L NTU' from Bound NTU records L reinsurance system/ system which you are able to Using Bound NTU status component will have to be established record risk details, update them if amended, associate any claims activity as well as ultimately recording premium to track risk and premium written via the subsidiary Maintaining accurate M M and claims payment You will also need to keep a record of Bound NTU risks in your reinsurance system or other repository to allow the validation of any on-going M reporting from your quote system. (e.g You may want to show bound NTU as bound on some reports, so your conversion ratios remain correct M H H Considering linking Bound changes to the risk H NTU quotes with the (endorsement) and to H reconcile the information and premium from the subsidiary associated reinsurance policy 32

33 Revised open market placement process scenario 3 Record Brussels subsidiary reinsurance using DA system Scenario overview The overall submission, pre-quote and quote activity is followed as per normal process. At point of bind risks are logged as bound-ntu rather than proceeding to policy creation and the risk is captured in a bordereau record, using existing binder management systems. A thin reinsurance policy will also need to be established in the reinsurance system to support accounting, settlement and endorsements. The key benefit of this scenario is that the detailed bordereau entry can be linked to the thin reinsurance policy data to enrich managing agent reporting with updated granular data. Who does this scenario work for? Managing agents looking for richer reporting throughout the lifecycle of the policy and do not have or would be unable to reconfigure an integrated (re)insurance system within the time frame. This scenario will significantly reduce the cost of processing Brussels subsidiary business and will incur minimal development expense. Key impact area Submission Quote Pre-Bind Bind Post Bind A&S = Process change Accept/decline quote Stamp and issue Evaluate requirement for reinsurance = System change Sign and stamp Capture MRC data Create policy Book premium Rather than capturing the policy individually in a PAS the risk is captured as a bordereau line item within the binder management system 33

34 Revised open market placement process scenario 3 Record Brussels subsidiary reinsurance using DA system People Change Process Change Technology Change Data/Reporting Change Potential reduction in the volume of activity within the primary insurance admin team, potentially matched by increase in reinsurance admin team There will be no FDO for the Routing of bound-ntu quotes Reports will need to be able L binder contract, this can be resolved by entering the parameters of the Brussels L from the quote system into the binding system L to patch together data within the reinsurance system and binder L subsidiary business plan into Exclusion of bound-ntu the binding system as attributes of a master binder risks from within the binder system s reporting M FDO There will need to be a new control process to handle Brussels subsidiary risk being held outside of the usual control framework of a PAS M M M H H H H 34

35 Revised open market placement process scenario 4 Record primary off system Scenario overview In this scenario some/all risk data is stored off system for example, through Access databases, Excel spreadsheets etc.. The lack of integration to other applications could enable the ring-fencing of Brussels subsidiary data, making it easier to control and report on. This scenario is a simple, cost effective and easy to implement solution to the Brussels subsidiary data problem. Who does this scenario work for? Manging agents who don t expect to write a large volume of Brussels subsidiary business should consider this option. It could also be a prudent contingency measure for larger DA MAs who may struggle to implement their strategic solutions in time for Brussels subsidiary go-live. Key impact area Submission Quote Pre-Bind Bind Post Bind A&S = Process change Accept/decline quote Stamp and issue Evaluate requirement for reinsurance =System change Sign and stamp Capture MRC data Create policy Book premium No information is entered into primary systems but held in separate databases 35

36 Revised open market placement process scenario 4 Record primary off system People Change Process Change Technology Change Data/Reporting Change No material people/team impact beyond those listed within the universal considerations Additional resource may be required due to increased manual processing New processes to manually Core systems will still need The impact to reporting L capture and transform data may be required in lieu of a PAS workflow capability L to support reinsurance Accounting and Settlement process to avoid any gaps in L reconciliation will be greatest within an off system scenario. Whilst the L data collected and reported There will need to be new removal of Brussels M control process to handle Brussels subsidiary risk being held outside of the usual control framework of a PAS M (Ultimately impacting accounting, cash reconciliation, exposure management, syndicate M subsidiary reinsurance from some reports will be avoided the reconciliation of, for example, M New off system processes to support Accounting and Settlement requirements returns to Lloyd's etc) multinational policies will be far greater and liable to translation errors and requiring the establishment of data validation and reporting procedures. H H H H 36

37 Revised open market placement process scenario 5 Use insurance system but decouple from general ledger Scenario overview The overall submission, pre quote and quote activity is followed but the associated data is isolated on system. Once bound, the managing agent automatically creates a copy of the direct policy within their RI system. By ring-fencing the direct data no general ledger entries or management information reporting is impacted but risk maintenance and credit control activities can persist within the managing agent. Who does this scenario work for? To operate this approach managing agents will need to have the ability to logically or physically isolate policy data within their insurance system. Key impact area Submission Quote Pre-Bind Bind Post Bind A&S = Process change Accept/decline quote Stamp and issue Evaluate requirement for reinsurance = System change Sign and stamp Capture MRC data Create policy Book premium A direct policy will be created and ring-fenced before being duplicated in the reinsurance system Any endorsement activities will be managed against the direct policy in the ring-fenced system 37

38 Revised open market placement process scenario 5 Use insurance system but decouple from general ledger People Change Process Change Technology Change Data/Reporting Change No material people/team impact beyond those listed within the universal considerations All Brussels subsidiary Notable technology change Providing the isolation of L business will need to be identified and handled within L required to ringfence primary insurance data and de-couple L direct insurance has been effective there will be little L M the ringfenced area of the carrier s system M from the general ledger and any MI reporting Carrier will need to have the capability to duplicate the direct policy into reinsurance once bound and maintain the risk in this state M to no additional impact to reporting beyond the transition of current EEA direct business into the reinsurance system M H H H H 38

39 Open Market Endorsements Impact Assessment Managing Agents Lloyd's Brexit Toolkit

40 Level of detail Open market endorsement impact assessment All endorsements need to be sent to the Brussels subsidiary Impact assessment overview H M Placement Submission Quote Pre-Bind Bind Post Bind Accounting and Settlement Risk Maintenance If endorsements are not sent, reporting to regulators will be inaccurate and accounting information received from L Receive and Log Broker Submission Process submission Assess risk appetite Establish quote Prepare and negotiate quote Regulatory, Lloyd's and MA requirements Quality checks Technical checks Accept/decline quote Stamp and issue Evaluate requirement for reinsurance One off post bind checks Ongoing post bind checks Credit control Technical account Financial account Settlement Endorsement handling the Bureau will be incorrect resulting in query which the syndicate will be asked to resolve in a query back to the managing agent. This query loop and any resulting rework will potentially delay the payment of premium or claims. Submit quote Key impact area Below are alternative routes for a managing agent to notify the Brussels subsidiary of an endorsement. Impact area Scenario name Overview People Process System Reporting Revised GPM Via PPL Via eendorsement Via direct submission If the managing agent has the capability they can submit a revised GPM. SDC will be developing a service to convert endorsements to GPM Ensure the Brussels subsidiary receives endorsement data from PPL. The Brussels subsidiary will reconcile against a PPL endorsements report Send the Brussels subsidiary endorsement data within eendorsement as provided by broker Endorsements can be forwarded directly to the Brussels subsidiary detailed process to be agreed. Aim is over time develop a workflow process to manage these submissions Med Med Med Low Low Low Low Low Low Low Low Low Med Med Low Low 40

41 Additional open market endorsement information Endorsements currently have multiple formats in the market The Brussels subsidiary will have coherent data sources for placement, claims and delegated authority information but no coherent single source exists for open market endorsements. The Brussels subsidiary will therefore need to accept multiple methods of endorsement submission until such time a single coherent source exists. The Brussels subsidiary will not be evaluating whether the endorsement is valid and should be processed, this is the responsibility of the managing agent as they have the business context and have underwritten the underlying risk for the Brussels subsidiary. It is therefore also important that only endorsements that have been reviewed and approved by the managing agent are sent to the Brussels subsidiary. Scenario Provide GPM Via PPL Via eendorsement Via direct submission Some managing agents may be able to process the endorsement and provide the revised GPM to the Brussels subsidiary. SDC has on its 2018 road map to deliver a service to provide endorsements in a GPM structure via the conversion of MS Word docs or MS Excel spreadsheets in pre agreed formats. Once this is in place using the service will be strongly encouraged by the Brussels subsidiary Managing agents will be sent data regarding any endorsements handled via PPL. Managing agents should ensure this data is shared with the Subsidiary once accepted. PPL will also provide the Subsidiary with a report of the endorsements handled on it s behalf via PPL. The Brussels subsidiary will use this report to reconcile the endorsements that have/have not been provided by managing agents Broker will submit emrc with ACORD structured data to the managing agent in normal manner (as they have to review and approve change). The managing agent will then forward the unpackaged endorsement data to the Brussels subsidiary to process Direct submission is likely to be via exchange (with required information attached) between agreed parties in the managing agent and the Brussels subsidiary. In respect of endorsements a report format will be agreed so multiple endorsements can be provided in a single submission. The aim is to replace this manual process with a workflow system that syndicates can log on and/or integrate to, to submit endorsements and also manage general Brussels subsidiary queries 41

42 Open Market Placement Impact Assessment Brokers Lloyd's Brexit Toolkit

43 Level of detail Open market placement impact assessment A high level impact assessment of the placement process from a broker s perspective has been conducted Impact assessment overview H Placement Brokers current state open market placement processes will remain M Submission Quote Pre-Bind Bind Post Bind Accounting and Settlement largely the same for wholly EEA risks. In contrast, risks with a L Receive and Log Broker Submission Process submission Assess risk appetite Establish quote Prepare and negotiate quote Regulatory, Lloyd's and MA requirements Quality checks Technical checks Accept/decline quote Stamp and issue Evaluate requirement for reinsurance One off post bind checks Ongoing post bind checks Credit control Technical account Financial account Settlement combination of EEA and non-eea risks will be impacted as a result of Brexit. Changes to processes will be required across submission, quote and bind as EEA risks will need to be identified and quoted for separately to non-eea risks. Lastly, during the subsequent A&S process the broker Submit quote will be paying the Brussels subsidiary as the insurer. The following pages Key impact area outline the various areas of impact and key change activities for brokers to consider. 43

44 Revised open market placement process Identifying and submitting EEA risks Change overview The submission of 100% EEA risks will remain unchanged for brokers, however, further consideration will be required for global contracts where part of the risk is located in the EEA and part is located outside the EEA. For all business brokers will need to identify where the risk is located, including whether there are risk locations in both EEA and non-eea countries. The location of a risk is determined by several factors including class of business, the location of the insured and the location of the insured object. Brokers should use the Risk Locator Tool for guidance on this and further advice on this tool is included in the further regulatory advice section. Key impact area Key impact area Submission Quote Pre-bind Bind Post bind A&S Receive and log broker submission Process submission = Process change = System change Submission to underwriter Capture quote slip submission in UW system Check for duplicate submission Decide to quote/not Any EEA risk will need to be identified (using the Risk Locator Tool) and highlighted separately to the underwriter who will need to assess and capture this as the Brussels subsidiary s, separating out from non-eea risks. 44

45 Revised open market placement process Handling Brussels subsidiary quotes Change overview Managing agents will assess and quote for EEA risks within their Brussels subsidiary authority on behalf of the Brussels subsidiary. If accepted the risk will not be recorded as an insurance quote on behalf of the syndicate but on behalf of the Brussels subsidiary. Underwriters may also make an early record of the reciprocal re-insurance. Brokers will be notified as currently, the rest of the process remains relatively unchanged. Brokers will need to ensure that they advise their clients that the Brussels subsidiary is the insurer of the risk, a Brexit briefing document will be made available for distribution to clients. Part of this communication will highlight the fact that the direct risk security is solely the Brussels subsidiary, and following discussions with rating agencies it is expected that the organisation shares Lloyd's rating. Key impact area Key impact area Submission Quote Pre-bind Bind Post bind A&S Assess risk appetite Establish quote Prepare and negotiate quote Submit quote U/W assesses risk Calculate rate Set T&Cs EEA risks will be recorded as an insurance quote on behalf of the Brussels subsidiary. U/Ws may also be making an early record of the reciprocal re-insurance. Provide Quote to broker Receive quote from U/W If the risk is partly EEA then sufficient information is required to quote the EEA element and the rest of the risk separately. If the risk is multinational with an EEA element two quotes will be provided. 45

46 Revised open market placement process Adopting the Brussels subsidiary stamp and wording Change overview Each slip will include lines placed by each managing agent (on a 100% EEA risk) but all on behalf of the Brussels subsidiary, global risks will have to be split into multiple sections. The new Brussels subsidiary stamp used by the underwriter will be unique to the reinsuring syndicate, but will tie back to the Brussels subsidiary. There are two key drivers for the use of a Brussels subsidiary stamp. Firstly it enables a lead to be identified, and therefore supports the continuation of the lead follow approach. Secondly all managing agents will be required to write within the limits of their Brussels subsidiary business plan established through an Outsourcing Agreement, the stamp will also facilitate this process. Key impact area Key impact area Submission Quote Pre-bind Bind Post bind A&S Accept/decline quote Stamp and issue Evaluate requirement for reinsurance Broker response U/W updates to Accepted Broker provides MRC Provide MRC U/W signs and stamps U/W submits MRC If the risk is part EEA part non-eea the MRC must have separate sections for the EEA element. Importantly managing agents will need to use their Brussels subsidiary stamp to bind the risk 46

47 Open Market Placement Further Information Lloyd's Brexit Toolkit

48 Further information - open market placement Gathered through engagement with the market, responses from Crystal and the Brexit programme Key considerations Global Contracts A global contract is an insurance contract that covers risks situated in more than one territory. A global contract may arise when, for example: There is more than one insured on the policy, and those insureds are located in more than one territory, or, The policy covers property at more than one location, and those locations are in more than one territory, or, The policy covers more than one aircraft, ship, boat or vessel and the insured items are not all registered in the same territory, if registration is used to determine the legal location of a risk Global Contracts impact on Brussels subsidiary processes Use of Brussels subsidiary s stamps USM/SCMs routing Local brokers queries routing Line Conditions Claim Agreement Parties For global contracts that involve EEA risks that need to be written via the Brussels subsidiary, EEA risks will need to be identified and quoted for separately to non-eea risks The Brussels subsidiary s stamps will be separate stamps to distinguish the activities of each managing agent acting on behalf of the Brussels subsidiary. The Brussels subsidiary s stamps will enable the Brussels subsidiary business to be routed correctly and ensure that Manging agents write business within the capacity agreed in their Brussels subsidiary business plan Content of primary SCMs/USMs can be provided to manging agents. Manging agents will receive simultaneous SCMs/USMs as the Reinsurers for the purpose of the RI payment Local brokers will not engage directly with the Brussels subsidiary. They will still need to liaise with Lloyd's brokers. All local brokers inquiries will be addressed to Lloyd's brokers and not to the Brussels subsidiary. There are no anticipated changes to the existing interaction model The Brussels subsidiary will be insuring a risk on a 100% basis. Therefore post bind it is not possible to have conditions that only apply to part of the risk. If there is a line subjectivity that is still outstanding post bind it should be considered to apply to the entire risk, we believe it is common practice to present subjectivities to clients in this manner Where a risk written by the Brussels subsidiary is reinsured by more than one syndicate, the Claims Scheme will apply to determine which of those syndicates will be authorised to determine the claims. Split markets will not be an option in the handling of any such claims as there must be only one claims agreement decision on all Brussels subsidiary claims across all syndicates reinsuring that risk 48

49 Open Market Claims Section Introduction Chapter Executive Summary Brussels Subsidiary Overview Operational Impact Assessment Open Market Placement Operational Impact Assessment Open Market Claims Delegated Authority Accounting and Settlement Reporting Finance and Tax Considerations Additional Guidance Regulatory Considerations Oversight Considerations Lloyd's Brexit Toolkit

50 Open Market Claims Process -Current -Future Lloyd's Brexit Toolkit

51 Current open market claims process This section documents a generic claims lifecycle The generic OM claims process was produced with market input. Each managing agent will have variations on this process but broadly the process is similar. Detailed process maps supporting this taxonomy can be found in section two of the appendix. Generic OM claims taxonomy HIGH Claims MED FNOL Claim investigation and negotiation Settle and manage recoveries Close and service claim Manage FNOL Confirm coverage and liability Settlement Close Claims file Investigate and evaluate Manage recoveries Administer claims file LOW Negotiate Litigation Documented Not documented 51

52 Future high level open market claims narrative The processing of open market claims remains largely unchanged 2. 2 Managing agent processes FNOL Adjuster logs onto claim via link or search. Separate logons not required for subsidiary claims. Adjuster will follow their normal process of reviewing claims, reviewing eligibility, setting reserve etc. Once the initial process is complete CLASS will produce and send an SCM to the subsidiary Claim moves to resolution Adjuster continues to handle the claim consistent with their existing managing agent process. Each change to the claim will generate a SCM and a simultaneous RI SCM. These messages will be processed by the subsidiary and syndicate respectively Broker records First Notification of Loss. A broker will record a first notification of loss (FNOL) on the ECF system. How this is recorded and the information that is entered is the same as the current FNOL recording. This will generate a message to the agreement party (usually the lead) claims adjuster Subsidiary receives SCM Xchanging create RI SCM The subsidiary receives SCM and this is validated against risk record held, any queries are routed to the managing agent for resolution. Simultaneously Xchanging create a RI SCM and issue to the syndicate which is processed by them against the reinsurance Claim moves to payment. Broker will submit a claims payment remittance that will trigger claims payment process which is covered under Accounting and Settlement. FNOL and assessment Decision and payment Things to consider The subsidiary can support the paper/ process rather than ECF for classes outside ECF The actual assessment process is unaltered Same participants and authorities as pre-brexit 52

53 Brussels Subsidiary Xchanging Managing Agent ECF Broker Future high level open market claims process End to end future Brussels subsidiary and market process 1 Record FNOL on ECF Message agreement party Set reserve/ adjust claim Submit payment remittance Review claim 2 Assess eligibility Set reserve/ adjust claim Against RI policy Process RI SCM 4 Resolve queries Repeat for every adjustment Single system sign on Generate RI SCM Generate SCM 5 Submit claims remittance Query handle 3 Receive SCM Validate and store SCM Key: Process step Key interface 53

54 Open Market Claims Impact Assessment Lloyd's Brexit Toolkit

55 Open market claims impact assessment The open market claims process will experience minor impact as a result of Brexit Impact assessment overview H Claims M FNOL Claim investigation and negotiation Settle and manage recoveries Close and service claim The current state open market claims processes will remain fundamentally the same for any claims attaching to Brussels subsidiary policies. The Manage FNOL Confirm coverage and liability Settlement Close Claims file broker will submit to ECF using the correct UMR/section. This will generate L Investigate and evaluate Negotiate Manage recoveries Administer claims file a notification to the claims adjuster who will log on to handle the risk in the normal manner. This will then follow the standard claims payment process in the Bureau. Litigation Documented Not documented Key considerations Claims out of scope for ECF Brussels subsidiary s role in Claims Management For classes of business where ECF cannot be used, the usual process of paper/ submission into DXC should be used The Brussels subsidiary will maintain an appropriate level of oversight of the claims function which will be defined in the Outsourcing Agreement. The Brussels subsidiary will perform a level of automated checking of claims information (based on SCM) if any issues are identified a query will be raised with lead managing agent Conduct risk management ECF writeback Managing agents will be expected to continue to adhere to the Lloyd s minimum standards in respect of conduct risk management. In respect of DA, conduct data is covered in the V5 standards and this is what will be required by the Brussels subsidiary. The Brussels subsidiary will not be making changes to the conduct data collected in the V5 standards The Brussels subsidiary will not be taking ECF writeback information, however, writeback information will still be provided to managing agents who take up the service 55

56 Open market claims impact assessment The open market claims process will experience minor impact as a result of Brexit Key considerations Dispute resolution Brussels subsidiary SCMs Accepting the RI claim Brussels subsidiary is the insurer and therefore will be accountable for any claims dispute. However, the managing agents responsibilities in respect of dispute resolution will be set out in the Outsourcing Agreement and is subject to regulatory approval As the insurer, the Brussels subsidiary will receive the direct insurance SCM from Xchanging, MAs will simultaneously receive the reinsurance SCM. The information in the direct SCMs can be made available to the managing agent if required The RI Agreement will work on the basis that if the inwards claim is accepted by the Brussels subsidiary then the outwards RI will respond 56

57 Delegated Authority Section Introduction Chapter Executive Summary Brussels Subsidiary Overview Operational Impact Assessment Open Market Placement Operational Impact Assessment Open Market Claims Delegated Authority Accounting and Settlement Reporting Finance and Tax Considerations Additional Guidance Regulatory Considerations Oversight Considerations

58 DA Coverholder Agreement Arrangement (CAA) Placement Process -Current -Future Lloyd's Brexit Toolkit

59 Current market binder placement process This section documents a generic market process spanning the placement lifecycle The delegated authority binder placement process constitutes four mid level process steps from initial negotiation through bind to ongoing post bind activities, this document presents the current processes within each of these areas. In addition the process of handling of endorsements is documented. Detailed process maps supporting this taxonomy can be found in section three of the appendix. Generic FDO/binder placement taxonomy HIGH DA FDO Placement Endorsement MED Negotiate Binder (CH/SC) Pre-Bind Bind Post Bind Endorsement Agree binder T&Cs Regulatory, Lloyd's and MA requirements Agree binder One off post bind checks Handle endorsements LOW Create binder MRC Quality checks Stamp and issue BAR application Technical checks Ongoing post bind checks Note: The following maps include third party coverholder and service company binding authority processes. Any variations for service companies are highlighted in comment boxes on the relevant maps. 59

60 Future high level CAA placement narrative All new or renewing EEA DA risks must be written on a Brussels subsidiary CAA from 01/01/ CAA is negotiated Terms are discussed between syndicate, coverholder and broker. Syndicates and coverholders will ensure they are happy with terms and required internal compliance and approval checks are completed as required. Agreement as to which party will submit bordereaux to DA SATS. Terms will include that these bordereau (BDX) must be Lloyd s V5 compliant Coverholder preparation Coverholders will amend any documents or schedules produced under the CAA to show Lloyd s Insurance Company S.A as the insurer. Letters issued to current insured about change in insurer sent as per tacit renewal requirements EEA CAA is prepared Using the new subsidiary Coverholder Appointment Agreement (CAA) wording a new CAA is created based on the existing MA binder terms. The MA is fully authorised to negotiate the CAA but contract is between the subsidiary and coverholder. The existing syndicate binder will either be extended to 01/01/19, renewed short to 01/01/19 or run off with no EEA risks attached to it post 01/01/ CAA risk is bound Regulatory, internal and subsidiary (Lloyd s) checks are completed. Terms and conditions are finalised. AMRC is processed via PPL or open market to the point of agreement and bind. CAA MRC is bound using the subsidiary stamp and sent to Structured Data Capture (SDC) CAA ready for go live CAA is registered or amended in the BAR and in DA SATS systems. The subsidiary receives CAA MRC data via SDC and loaded into the subsidiary administration system. Negotiation and set up Pre-live Things to consider CAAs can be negotiated and agreed in advance but cannot be effective until 01/01/19. The commercial terms and conditions are between the MA (acting under the Outsourcing Agreement) and coverholder/broker Negotiation of CAAs should be as early as possible to allow tacit renewal activity to be completed in good time The subsidiary will be outsourcing coverholder management & compliance to MAs so process and systems are unchanged 60

61 Brussels Subsidiary SDC ATLAS and BAR Managing Agent Broker DA Future high level DA CAA placement process End to end future Brussels subsidiary and market process 1 Create new CAA Discuss/ agree terms Agree who will submit to DA SATS Manage Extend or shorten current binder existing binder Amend documents Documents or schedules under the CAA to show Lloyd s Insurance Company S.A as the insurer Using existing terms and subsidiary wording BDX must be V5 compliant Notification letters Letters issued to current insured about change in insurer sent as per tacit renewal requirements. Discuss/ agree terms Create CAA MRC Using subsidiary stamp Discuss/ Pre bind Sign and agree terms checks Upload MRC stamp Resolve queries Handle inbound report Captured in BAR ATLAS Checks 5 Uploaded to SDC Query handle Receive MRC data & image Process in subsidiary systems Business and data validation Report back to syndicate Key: Process step Key interface PPL process 61

62 Delegated Authority Binder/CAA Transition Lloyd's Brexit Toolkit

63 Revised CAA placement process transitioning existing binders to CAA for 01/01/2019 It is important to understand the impact to each level of contract associated with CH business As of 01/01/2019 all existing fully* EEA coverholder binders must be transitioned to Brussels subsidiary Coverholder Appointment Agreements (CAA). Endorsement wording is being developed and will be made available to make this transition straight forward. There are three levels of binder contracts that will need to be taken into consideration. *Multinational binders are covered later in this section Binder contract (UMR) Syndicate Subsidiary Insurance contract Syndicate Subsidiary - Coverholder appointment agreements between Brussels subsidiary and CH - Policy level contract on syndicate/brussels subsidiary paper 2018 (Existing syndicate binder) 2019 (Brussels subsidiary CAA) Binder agreement and binder contract renewal There are three options for renewing a binder to Renew the binder agreement early Renewal Early renewal ensure that all syndicate binder/caa agreements are transitioned in time. Delay the renewal of the binder to end of 2018 Normal renewal Delayed renewal Existing renewal dates can be maintained by shorting or extending the initial agreement Replace binder at end of 2018 Renewal Cancel contract New contract Insurance contract renewal Individual insurance contracts attached to a binder will be in force on syndicate paper until expiry Underlying policies will incept/renew onto the new Brussels subsidiary CAA as per usual Policy 1 Policy 2 Policy 3 63

64 Tacit policy renewals will require additional consideration Brussels subsidiary CAAs must be in place early enough to provide policy holders with tacit renewals an adequate notice period 2018 (Existing syndicate binder) 2019 (Brussels subsidiary CAA ) Tacit renewals For insurance contracts with tacit (automatic) Place CAA Client comms Notification period renewals the managing agent will be required to notify the insured (template letter to be provided) Policy 1 that their contract will not be renewed by Lloyd s underwriters at next renewal and that a new contract Policy 2 will be offered by the Brussels subsidiary. The length of notice period will be dependent on the country in which the insured is domiciled, see below. Policy 3 Key: Binder contract with UMR (CAA) Syndicate Subsidiary Insurance contract: Syndicate Subsidiary First policy inception/renewal Binder renewal/inception Indicative EEA tacit renewal notification periods in months (Not verified, please refer to Crystal to understand the formal tacit renewal notification periods) Austria 1-3 Denmark 1-3 Greece - Lithuania 1 Poland - Spain 2 Belgium 3 Estonia - Hungary 1 Luxembourg - Portugal 2 Sweden 1 Bulgaria - Finland 1 Ireland - Malta - Romania - UK - Czech Republic 2 France 2 Italy - Netherlands 2 Slovakia - Republic of Cyprus - Germany 1-3 Latvia - Norway 2 Slovenia - Key considerations: 1. Engage coverholders 2. Negotiate early 3. Incept binders by 1/1/19 4. Consider tacit renewals 64

65 Delegated Authority Binder/CAA Risk Placement (Multi-National) Lloyd's Brexit Toolkit

66 Multinational binders Writing EEA business from outside of the EEA & non-eea business from within the EEA Impact assessment overview Currently many binders are on a worldwide basis, either insurance or reinsurance. This results in EEA risks being written from outside of the EEA by non-eea coverholders and the reverse with EEA coverholders writing non-eea Business. It is estimated that this represents million in Lloyd's, but could be higher as some risks may not have been split correctly. Following Brexit and the introduction of the Brussels subsidiary the above scenario will require two distinct binders, two distinct licenses and some potential ways of writing this business: A syndicate binder which will be able to write business where Lloyd's is licensed (this will no longer include the EEA) A Brussels subsidiary CAA which can only write EEA business A combined binder that has a wrapper around essentially what would be two contracts The obvious solution is to have a dual binder approach. A list where this is possible will be provided, but in most areas it is not allowed. Any insurer who has been relying on passporting to write in this manner is going to face challenges, unless they have a single entity licensed in all the countries or regions required. The EEA risk (presented outside the EEA) will need to get to the Brussels subsidiary stamp and for the non-eea risk (presented in the EEA) we need to get the risk to the syndicate stamp. The following are scenarios that can be pursued to achieve this, work is ongoing to see if we can develop these options further to clarify the approach and make easier to use. We are also exploring if there are any additional options we can provide as we understand the importance of this issue. Scenario Refer EEA risks to a master line slip Refer EEA risk to existing EEA CAA Set up Brussels subsidiary EEA CAA Description Write risk as a part of an orphan master CAA or line slip for EEA risks Instead of writing via the local coverholder write via an existing EEA CAA Set up a duplicate binder to write Brussels subsidiary risks, not allowed in many areas In the scenarios the term orphan risk will be used to represent risks that cannot be written where presented, so either an EEA risk presented outside EEA (to syndicate binder) or a non-eea risk presented inside the EEA (to Brussels subsidiary CAA). 66

67 Writing orphan EEA risk binder business scenario 1a Write in London via lineslip Scenario overview In this scenario the ophaned EEA risk presented to a non-eea coverholder is referred into the MA via a London broker and placed on a dedicated MA master lineslip on the Brussels subsidiary stamp. The change required in this scenario will include a one off excercise to establish a dedicated Brussels subsidiary master lineslip for orphaned EEA risks. Any orphaned risks then submitted to a coverholder will be refered onto the managing agent for acceptance and bound on the Brussels subsidiary lineslip using the Brussels subsidiary stamp. Other considerations Need to understand what actions the coverholder can still perform. Is a local policy required? Process needs to be confirmed for premium and claims Binder placement Key impact area DA risk placement Key impact area Binder placement Broker Submission Quote Pre bind Referral Bind Post bind processing = Process change = System change MA Broker Master line slip Client/premium /risk mgnt. Accept/ decline Process and submit data to Lloyd's non-eea CH Process new risks and refer to MA Broker/syndicate will need to set up a master orphaned risk lineslip A new capability to flag all EEA risks on non- EEA binders will need to be established Broker/syndicate will need a process to handle orphan risk referrals, including premium and claims handling. 67

68 Writing orphan non-eea risk binder business scenario 1b Write in London via lineslip Scenario overview In this scenario the orphaned non-eea risk presented to a EEA coverholder is referred into the managing agent via a London broker and placed on a dedicated managing agent master lineslip on the syndicate stamp. The change required in this scenario will include a one off excercise to establish a dedicated syndicate master lineslip for orphaned non-eea risks. Any ophaned risks then submitted to coverholder will be refered onto the managing agent for acceptance and bound on the syndicate lineslip using the syndicate stamp. Other considerations Need to understand what actions the coverholder can still perform. Is a local policy required? Process needs to be confirmed for premium and claims Binder placement Key impact area DA risk placement Key impact area Binder placement Broker Submission Quote Pre bind Referral Bind Post bind processing = Process change = System change Syndicate Broker Master line slip Client/premium /risk mgnt. Accept/ decline Process and submit data to Lloyd's EEA CH Process new risks and refer to syndicate Broker/syndicate will need to set up a master orphaned risk lineslip A new capability to flag all non-eea risks on EEA binders will need to be established Broker/syndicate will need a process to handle orphan risk referrals, including premium and claims handling. 68

69 Writing multinational EEA business scenario 2 Write orphan risks via a coverholder (or service company) licensed for the risk Scenario overview In this scenario orphaned risks are referred to a coverholder with the appropriate territorial authorisation on its binder. The syndicate or Brussels subsidiary (depending on direction of referral) will need to amend an existing service company/coverholders binder to accept the orphaned risks and agree referral process. Once complete EEA risks can be referred to the existing binder for acceptance or rejection by the recipient, based on risk appetite. The coverholder would then report Bordereaux information to London in the usual manner. Other considerations Need to manage the mapping/relationships between the coverholder receiving the orphan risk and the coverholder the risk is referred to. Need to ensure the matching process includes areas such as line of business. Is there consideration for referring coverholder? Binder placement Key impact area DA risk placement Key impact area Binder placement Submission Quote Pre bind Referral Bind Bordereaux processing* Post bind = Process change = System change Receiving CH/SC Amend binder Accept/ decline Process and submit data to Lloyd's Original CH Process new risks and refer to syndicate SC/CH will need to have amended binder(s) to accept orphaned risks Original CH require capability to flag and refer all orphans risk Receiving CH/SC, will need processes to handle orphaned referrals capturing pre-bind data and managing reporting 69

70 Writing multinational EEA business scenario 3 Write in EEA from outside the EEA via a companion binder Scenario overview In this scenario a second binder is put in place for the Brussels subsidiary, a mirror of the syndicate binder. The coverholder places non-eea risks on the syndicate binder and the EEA risks on the Brussels subsidiary binder. Only three territories have been identified in which this is allowed. Even in theses territories conditions apply. See Additional Guidance Regulatory for additional information. Other considerations This solution is simpler to put in place but has limits where it can be used, see Additional Guidance Regulatory for additional information. binder Placement Key impact area DA risk placement Key impact area Binder placement Submission Quote Pre Bind Bind Bordereaux processing Post bind = Process change = System change non-eea CH Establish CAA Write risk to binder A new Brussels subsidiary CH appointment agreement, containing the same business permissions as the existing syndicate binder, will be required The only impact to risk placement will be a new process to split EEA risks from ROW risks and placing this business through the Brussels subsidiary CH appointment agreement 70

71 DA Bordereau Handling Process -Current -Future Lloyd's Brexit Toolkit

72 Current market risk and premium bordereau submission process This section documents a generic market process spanning the bordereau placement lifecycle The delegated authority bordereau submission process constitutes three mid level process steps from bind through bordereau processing to ongoing post bind activities, this document presents the current processes within each of these areas. In addition the process of handling of endorsements is documented. Detailed process maps supporting this taxonomy can be found in section four of the appendix. Generic DA BDX submission taxonomy HIGH DA BDX submission Endorsement MED Bind Bordereaux processing Post bind Endorsement Accept/decline quote Create bordereau One off post bind checks Handle endorsements LOW Stamp and issue Bordereau processing On going post bind checks Note: The following maps include third party coverholder and service company BDX submission processes. Any variations for service companies are highlighted in comment boxes on the relevant maps. 72

73 Future high level risk & premium BDX submission narrative Premium BDX need to be Lloyd s V5 compliant, risk BDX will be a subset of premium BDX 2. 2 Risk BDX created and sent to DA SATS On the agreed reporting day, a risk BDX is created of all risks written since the last BDX. This may be submitted direct to DA SATS or London Market broker or managing agent who would then send, depending on agreement. It may be the case that the broker or managing agent do an element of data or business validation prior to submission to service Risk BDX processed by the Brussels subsidiary The Brussels subsidiary will perform an agreed level of business validation on the BDX (is it correct business class, is effective date inside CAA terms? etc.) Any queries generated by this process are passed back to managing agent to investigate and resolve. BDX data is made available to managing agent 1. 1 Risk bound on CAA Quote accepted and risk (declaration) bound on the CAA and risk data captured. This is held on system until risk BDX is reported, usually monthly. Risk information captured covers the Brussels subsidiary requirement in respect of risk reporting, some of which is conditional Risk BDX processed by DA SATS DA SATS will check the submission contains all the data that is required in respect of risk reporting to the Brussels subsidiary. If not it will either be rejected and returned to submitter or processed with queries flagged tolerance between reject or process with query to be agreed. File will be transformed to common data standard and made available to the Brussels subsidiary for upload Premium BDX created and processed A premium paid BDX is created based on all premium received or returned since the last report. This BDX is V5 compliant. It follows the same process detailed in steps 2 to 4 but is on a different reporting cycle (premium usually received after risk bound) and different data requirements. When premium BDX is received by the Brussels subsidiary it will additionally match premium movements with risk records and cash movement will be checked against these records. Recording and reporting Processing and validation Things to consider BDX need to contain the agreed information to ensure regulatory reporting is at the correct level If the information provided is not to the agreed content BDX will be rejected or queried Business validation will be based on comparison with CAA agreement Premium/cash movements are separate to this reporting process and covered in Accounting and Settlement section 73

74 Brussels Subsidiary DA SATS Managing Agent London Broker DA Future high level risk & premium BDX submission process End to end future Brussels subsidiary and market process Risk Bound V5 Compliant Data captured Prem. BDX created Risk BDX created Submit BDX Data validation May be submitted to DA SATS by SC/CH/broker or managing agent depending on agreement Data validation Error handling Resolve queries Handle inbound report Checks the submission contains all the data required by the subsidiary Data validation N Y Pass checks? Transform data Match premium and risk bordereau data Perform business validation including comparison with CAA Process in subsidiary systems Query handle Report back to syndicate Key: Process step Key interface PPL process 74

75 Current market claims bordereau submission process This section documents a generic market process spanning the claims bordereau lifecycle The delegated authority claims bordereaux submission process constitutes four mid level process steps from FNOL through investigation and processing to recovery activities, this document presents the current processes within each of these areas. Detailed process maps supporting this taxonomy can be found in section five of the appendix. Generic DA claims BDX submission taxonomy HIGH DA claims BDX Submission MED FNOL Investigate Claim Process bordereau Manage recoveries Manage FNOL Confirm coverage and liability Create bordereau Manage recoveries LOW Investigate and evaluate Claim bordereau processing 75

76 Future high level claims BDX submission narrative Claims BDX need to be Lloyd s V5 Compliant Claims BDX created and sent to DA SATS On the agreed reporting day, a claims BDX is created of claims movements agreed since the last BDX. This BDX is required to be V5 compliant. This may be submitted direct to DA SATS or London Market broker or MA who would then send, depending on agreement. It may be the case that the broker or MA do an element of data or business validation prior to submission to service. The broker will also be required to submit the bordereau data to ECF for MA review MA agrees the BDX in ECF The MA is notified on ECF of the bordereaux and agrees the submission or queries back to the broker. Claims SCM received by the Brussels subsidiary and checked against claim/risk information held. Any queries are fed back to syndicate Claims BDX processed by the Brussels subsidiary The Brussels subsidiary will perform an agreed level of automated business validation on the BDX submitted into DA SATS (is claim within claims authority? Is date of claim inside CAA effective dates? etc.) Any queries generated by this processed are passed back to MAs to investigate and resolve. BDX data is made available to managing agent Claim payment agreed Claim has been received by coverholder and processed under the claims authority by the coverholder or agreed third party. Following assessment, a claims payment is due. Details of this payment are recorded on the coverholder system Claims BDX processed by DA SATS DA SATS will check the submission is V5 compliant. If not it will either be rejected and returned to submitter or processed with queries flagged tolerance between reject or process with query to be agreed. File will be transformed to common data standard and made available to the Brussels subsidiary for upload Claims BDX validated against risk record The Brussels subsidiary will also match the individual claims records in DA SATS with the underlying risk records. When claims payment requests are received, they will be checked against these records. SCM data will be reconciled against data captured through DA SATS. Again, any queries will be passed to managing agents to investigate and resolve. Recording and reporting Processing and validation Things to consider BDX need to contain the agreed information to ensure regulatory reporting is at the correct level If the information provided is not to the agreed content BDX will be rejected or queried Business validation will be based on comparison with CAA agreement Premium/cash movements are separate to this reporting process and covered in Accounting and Settlement section 76

77 Brussels Subsidiary DA SATS Managing Agent Broker DA Future high level claims BDX submission process End to end future Brussels subsidiary and market process Handle claim Capture payment due Create claims BDX Submit BDX V5 compliant Data validation Maybe submitted to DA SATS by SC/CH/broker or managing agent depending on agreement Data validation Error handling Resolve queries Handle inbound report Data validation N Y Pass checks? Transform data Match claims records with underlying risk records Perform business validation including comparison with CAA Process in subsidiary systems Query handle Report back to syndicate Key: Process step Key interface 77

78 DA Bordereau Handling Impact Assessment Lloyd's Brexit Toolkit

79 Level of detail Delegated authority risk/premium submission impact assessment An impact assessment of the coverholder risk/premium submission process has been conducted Impact assessment overview H DA risk placement The delegated authority bordereau process will be unaffected up to the M L Submission Capture Risk details Quote Assess Risk Appetite Establish Quote Prepare and negotiate quote Pre Bind Regulatory/Lloy d's/binder requirements Quality checks Technical checks Bind Accept/decline quote Stamp and issue Bordereaux processing Create bordereaux Bordereaux processing Key: Impact Post Bind One off post bind checks On going post bind checks No Impact creation and processing of the bordereau itself. All bordereaux attaching to Brussels subsidiary CAAs must be submitted directly to the subsidiary, via DA SATS. In addition to this all bordereaux must comply with the market agreed Version 5 (V5) reporting standards. To minimise level of data in submissions, risk data will be a subset of the premium bordereau. Submissions can be made by the broker, MA or coverholder as agreed in the CAA. Submit quote DA risk placement Key impact area Submission Quote Pre Bind Bind Bordereaux processing Post bind = Process change = System change Coverholder Produce BDX Broker* Enrich/validate BDX Submit BDX to DA SATS Submit Claims BDX to Xchanging Submission is shown here as broker but could be coverholder or MA depending on agreement Rather than submitting the bordereau to the MA as is current process all subsidiary bordereaux will need to be submitted to the subsidiary via DA SATS Submitting the validated DA SATS claims bordereau to Xchanging should minimise queries *Submissions can be made by the broker, managing agent or coverholder as agreed in the CAA. 79

80 Delegated authority risk/premium submission impact assessment An impact assessment of the coverholder risk/premium submission process has been conducted Key considerations Management of outstanding bordereau Legacy multinational syndicate business Volume of bordereau submitted Non-V5 compliant data submission Claims bordereau submission to Xchanging (via ECF) DA data reporting Conduct risk management Managing agents will be notified of outstanding bordereaux and will be expected to follow up with the broker/coverholder. Outstanding bordereau reports will be produced by DA SATS Coverholders/service companies will continue to service their legacy (pre-2019) EEA business through normal channels whilst splitting any new (post 2019) business and passing to the Subsidiary Three bordereaux (risk, premium and claims) will be submitted. Risk is a subset of the premium BDX and can be submitted in this format identified as a risk BDX. The risk sub set of data will be made available shortly Should the data submitted not be V5 compliant, depending on the final agreement, either the BDX will be rejected or part processed and missing information requested The submission to ECF remains the same Outsourced managing agents will receive DA Data from the Brussels subsidiary as part of the reporting process Conduct data is covered in the V5 standards and this is what will be required by the Brussels subsidiary. The outsourced managing agent will still need to adhere to conduct requirements as set out in the minimum standards, which is adopted by the Brussels subsidiary. Working assumption is that complaints will be collected via the existing Lloyd's process, however detailed analysis needs to be completed 80

81 Delegated Authority Service Company (non-bureau) Submission Lloyd's Brexit Toolkit

82 Level of detail Service company CAA placement impact assessment An impact assessment of the service company CAA placement process has been conducted Impact assessment overview H DA FDO Placement Endorsement The existing contractual relationship between service companies and M Negotiate Binder Pre-Bind Bind Post Bind Endorsement managing agents will be greatly impacted as a result of accessing EEA business through the Brussels subsidiary. Service companies will need to Agree binder T&Cs Regulatory, Lloyd's and MA requirements Agree binder One off post bind checks Handle endorsements transition their current delegated authority arrangements with MAs to L Create binder MRC Quality checks Stamp and issue Bar application formal contracts with the Brussels subsidiary. This will require a new FDO placement and endorsement process for managing agents and service Technical checks Ongoing post bind checks companies that will require greater consideration than for coverholders owing to the absence of brokers in the model. Key considerations Create MRC Brussels subsidiary stamp Service companies/managing agents will need to agree, create and process an FDO MRC without the assistance of a London Broker. MRCs can be created and submitted to the Brussels subsidiary manually or submitted through PPL The new FDO will need to have used the appropriate subsidiary stamp to be placed under the Brussels subsidiary FDO processing The managing agent will need to process the FDO through the Bureau without the assistance of a London Broker, including the handling of BSMs and any associated queries 82

83 Level of detail Service company (non-bureau) submission impact assessment An impact assessment of the service company risk/premium/claim submission process has been conducted Impact assessment overview H SC risk placement Service company claims and premium bordereau submissions via M L Submission Capture Risk details Quote Assess Risk Appetite Establish Quote Prepare and negotiate quote Submit quote Pre Bind Regulatory/ Lloyd's/Binder requirements Quality checks Technical checks Bind Accept/decline quote Stamp and issue Bordereaux processing Create bordereaux Bordereaux processing Key: Impact Post Bind One off post bind checks On going post bind checks No Impact LDR or non-xis reporting will be impacted when underwriting EEA risks on behalf of the Brussels subsidiary. The primary considerations for managing agents and service companies include the fact that risk data will need to be submitted along with premium and claim data, all cash will be required to be passed to the Brussels subsidiary as the insurer and all claims and premium data will need to be submitted to Xchanging, generating queries and messages that the managing agent will be expected to handle. Key considerations Risk submission Premium submission to XIS Service Companies will provide risk, premium and claims, most likely in a Bordereau format All premium and claims accounting information will need to be submitted Bureau. Managing agents will need to be able to handle the resulting queries and messaging that will be generated as a result of additional Bureau processing Messaging Cash movement All Bureau submissions will result in additional Bureau messaging (USM/BSM/SCM) back to the managing agent. managing agents will need to consider whether they wish to process this messaging and if so how they will handle inbound messaging associated with their service company book The managing agent will need to behave and be recognised by SFTO as a broker, to enable accounting submissions and settlement, ensuring they have a broker number, an identified bank account and allowing STFO to debit/credit their account once settlement has been triggered 83

84 Delegated Authority Further Information Lloyd's Brexit Toolkit

85 Further information - delegated authority 1/2 Gathered through engagement with the market, responses from Crystal and the Brexit programme Key considerations Lloyd's broker risk placement Lloyd's broker will not be able to place business directly with the Brussels subsidiary. All business with the Brussels subsidiary will be underwritten through outsourced underwriting services from Lloyd's managing agents in London, and by delegation from the subsidiary to coverholders based in Europe (including the UK as the subsidiary has a UK branch). Managing agents will have a separate stamp for the subsidiary business Coverholder approval process In general, Brussels subsidiary coverholder approvals will broadly follow the same process as Lloyd's coverholder approvals currently, requiring sponsorship by a Lloyd's broker and at least one managing agent. Coverholders already approved by Lloyd's do not need to reapply to be approved for the Brussels subsidiary Binding Authority wordings All CAA policy will have to use Brussels subsidiary specific wording. The wording will be formally instated via the subsidiary s Outsourcing Agreement with each managing agent authorised to appoint coverholders for the subsidiary Binding Authority Agreement submission to Xchanging? Will the Brussels subsidiary require risk, premium and claims bordereaux (BDX)? The subsidiary template wording is mandatory and must be used for the binding authority and therefore the full wording may not need to be submitted to Xchanging. The binding authority slip must be submitted to Xchanging for quality assurance checking and for the allocation of FDOs (For Declaration Only signing number and dates) Coverholders binding business for the Brussels subsidiary will be required to submit a risk, premium and claims bordereaux 85

86 Further information - delegated authority 2/2 Gathered through engagement with the market, responses from Crystal and the Brexit programme Key considerations Placement of orphaned risks Three solutions have been identified for setting up Brussels subsidiary binders outside the EEA (for writing business outside the EEA); Refer EEA risks to a master line slip Write EEA risk via existing EEA service company or coverholder CAA Set up duplicate Brussels subsidiary EEA CAA to write Brussels subsidiary s risk. Further details are available in the Binder/CAA Risk Placement (Multi-National) section of this document Public tender business Brussels subsidiary s scope of business UK coverholders The Brussels subsidiary, acting via its delegates, will be permitted to underwrite European public tender business Brussels subsidiary will establish a UK branch and will have authorisation in the UK. UK coverholders will therefore be able to have binding authorities with the Brussels subsidiary for UK and EEA risks UK coverholders will need to ensure that they have the appropriate licences or passporting permissions for any EU regulated activity that they carry out 86

87 Further information - EEA and non-eea binders/caas Common statements applicable regardless of approach by managing agent Can a non-eea coverholder write an EEA risk under a Brussels subsidiary CAA? Unfortunately this is not a straight forward answer. In some circumstances an EEA risk can by written (via the subsidiary) by a non-eea coverholder, but the circumstances are complex and alter region by region or in the U.S. state by state, Lloyd's will be providing further guidance of what is permissible. Where it is not permitted for a coverholder to hold a binding authority on behalf of the subsidiary, our recommendation is that the risk is brought back to London, or to a coverholder/service company in the EEA with a binding authority from the subsidiary. The risk would then be written as a stand-alone Brussels subsidiary risk following the open market process or submitted via the coverholder/service company Brussels subsidiary CAA. In those countries where the Brussels subsidiary is unlicensed and where it is permitted for a coverholder to hold a binding authority for EEA business, a parallel subsidiary CAA for EEA risks may be arranged. Can an EEA coverholder write an non-eea risk under a Brussels subsidiary CAA? The Brussels subsidiary is not going to write any insurance contracts for risks located outside the EEA. Consequently, an EEA coverholder with a CAA from the Brussels subsidiary will not be permitted to write non-eea insurance risks under that CAA. All non-eea insurance risks must be written by Lloyd s underwriters, provided they are permitted to do so under local regulations. An exception to this rule exists in some EEA countries, were it will be permitted for an intermediary to hold a CAA from underwriters solely for non-eea risks. Key considerations EEA risks need to attach to a Brussels subsidiary CAA from 01/01/19 Amend world wide definition in syndicate binders EEA coverholders/binders will enjoy benefits of Lloyd's via the subsidiary To avoid confusion all risks incepting from 1/1/19 mush attach to a Brussels subsidiary CAA From the 1/1/19 if your syndicate binder is designated worldwide it needs to be amended to reflect that the binder cannot write EEA risks. EEA binders with Brussels subsidiary will reflect they can only write EEA risks Coverholders will still be available for central audit and benefit from central compliance checks. CAAs will still be recorded in BARS, ATLAS will still be used for coverholder details. Support will still be available to coverholders but with additional local Brussels subsidiary resource 87

88 Accounting and Settlement Section Introduction Chapter Executive Summary Brussels Subsidiary Overview Operational Impact Assessment Open Market Placement Operational Impact Assessment Open Market Claims Delegated Authority Accounting and Settlement Reporting Finance and Tax Considerations Additional Guidance Regulatory Considerations Oversight Considerations

89 Accounting and Settlement Process -Current -Future

90 Current market Accounting and Settlement process This section documents a generic market process spanning the Accounting and Settlement lifecycle The generic A &S process was produced with market input. Each managing agent will have variations on this process but broadly the process is similar. The detailed maps supporting each of these can be found in sections six and seven of the appendix. Generic A&S taxonomy HIGH Accounting and Settlement MED Premium Accounting and Settlement Claims Accounting and Settlement Credit control Technical Account Technical Account Credit control Bureau processing Bureau processing LOW Financial Account Financial Account Settlement Settlement 90

91 High level Accounting and Settlement narrative - premium The submission and processing of primary premium accounting messages is fairly unchanged 2. 2 Xchanging process submission 4. 4 STFO creates settlement advices 6. 6 Xchanging produce BSM Xchanging will perform normal (EEA) accounting checks, accessing risk information as required. Any queries will initially be fed back to the broker as per the current syndicate Bureau process. Once queries are resolved USM issued to the subsidiary. The USMs trigger the issuance of cash movement instructions to STFO. STFO aggregate instructions by settlement party and produce Electronic Settlement Advices (ESA) which are issued. The subsidiary receives a Broker Signing Message (BSM) based on the RI USM. This contains information on net (less RI commission and taxes) movement. This is processed by the subsidiary. Reporting of activity to managing agent in respect of direct and reinsurance activity is performed Brokers submits premium account Broker is in a position to pay the subsidiary client premium. They prepare an accounting submission in normal manner, either EBOT, EAccounts or LPAN. Submission is the same as a syndicate message in format and content. Submission needs correct UMR and (subsidiary) stamp to process correctly USM processed by the subsidiary RI USM produced by Xchanging USM received. Message checked against risk information held. Any queries are fed back to managing agent via query process for resolution. Simultaneously a RI USM is produced by Xchanging and issued to syndicate. The RI USM will be generated based on the information in the original submission/usm STFO process settlements The day after the overnight batch, STFO process the payment generating the bank instructions to move cash two working days later. Broker submission of account is unchanged. It will need to split by market if EEA and non-eea risks are on slip RI commission and local taxes will be deducted by the subsidiary so RI USM will be a different value to direct USM The USM, RI USM and ESA are all part of the same overnight batch and are therefore synchronous The RI USM will contain the original risk syndicate risk reference from the managing agent so it can be matched 91

92 Brussels Subsidiary STFO Xchanging Managing Agent Broker High level Accounting and Settlement process - premium End to end subsidiary and market process Prepare accounting submission Using correct subsidiary stamp Split if multinational Resolve queries Receive RI USM Resolve queries Receive A&S reporting Perform normal accounting checks Query handle Generate RI USM Generate USM Less commission Generate BSM Trigger settlement Aggregate instruction by synd. Generate ESA Generate instruction to move cash Query handle Receive and validate ESA Update GL Receive USM Validate and store Receive RI BSM Validate against MRC and store Report back to MA Key: Process step Key interface 92

93 High level Accounting and Settlement narrative - claims The submission and processing of primary claims accounting messages is fairly unchanged 2. Xchanging process submission Managing agent adjuster reviews ECF transaction and either agrees or rejects transaction. Xchanging will perform normal (EEA) claims checks, accessing claim information as required. Any queries will initially be fed back to the broker as per the current Bureau process. Once queries are resolved claims USM and SCM issued to the subsidiary STFO complete cash movement The USMs trigger the issuance of cash movement instructions to STFO. STFO aggregate instructions by syndicate and produce Electronic Settlement Advices (ESA) Brokers submits Claims Settlement Advice Broker is in a position to pay the subsidiary client claim. They prepare a ECF submission in normal manner Claims USM processed by the subsidiary, RI USM produced Claims USM and SCM received and checked against claim information held. Any queries are fed back to syndicate via query process for resolution. Simultaneously a claims RI USM message is produced by Xchanging and issued to syndicate. The RI USM and SCM will be generated based on the information in the original submission/usm/scm STFO process settlements The day after the overnight batch, STFO process the payment generating the bank instructions to move cash two working days later. Broker submission of claim detail is unchanged The managing agent will no longer receive the direct SCM/USMs 93

94 Brussels Subsidiary STFO Xchanging Managing Agent Broker High level Accounting and Settlement process - claims End to end subsidiary and market process Prepare accounting submission Using correct subsidiary stamp Resolve queries Split if multinational Rather than Direct USM Receive RI USM Resolve queries Receive A&S reporting Perform a normal accounting check Query handle Generate claims RI USM Generate claims USM and SCM Generate BSM Trigger settlement Aggregate instruction by Syndicate Generate ESA Generate instruction to move cash Generate instruction to move cash Bank moves cash 2 day later Query handle Receive and validate ESA Update GL Receive USM and SCM Validate and store Receive RI BSM Validate and store Report back to MA Key: Process step Key interface 94

95 Accounting and Settlement Impact Assessment Managing Agents

96 Level of detail Accounting and Settlement Managing Agents will need to consider the impact of no longer receiving direct accounting messages Impact assessment overview H M Accounting and Settlement Premium Accounting and Settlement Claims Accounting and Settlement Credit control The Accounting and Settlement messages received by managing agents will be impacted as a result of placing business on behalf of the subsidiary. Primarily this will manifest in the Technical Account Technical Account Credit control receipt of RI USMs, rather than direct USMs, resulting in managing agents needing to L Bureau processing Bureau processing attach messages to the appropriate reinsurance policies within their systems and reconcile this within their reporting. Financial Account Financial Account In addition to the core Accounting and Settlement process managing agents will need to Settlement Settlement consider new credit control processes for which he Brussels subsidiary will now be accountable but for which the responsibility of execution remains with the managing agent. 96

97 Accounting and Settlement Impact Assessment Brokers

98 Level of detail Accounting and Settlement impact assessment Brokers will need to consider the impact of the Brussels subsidiary on their internal A&S systems and processes Impact assessment overview H Accounting and Settlement The process of creating accounting entries for EEA risks will be impacted as a result M Premium Accounting and Settlement Claims Accounting and Settlement of placing business through the subsidiary. Because the MA that brokers currently place business with will be writing on behalf of the subsidiary under their Brussels Technical Account Technical Account subsidiary stamps this will have to be reflected in the broker administration system L Bureau processing Bureau processing configuration and LPAN creation process. Two potential scenarios have been identified that brokers may wish to pursue to handle this change. Below is a high level Financial Account Financial Account view of the impact areas brokers may wish to consider. Brokers should consult with their system vendor to understand which scenario best suits their individual operation. Settlement Settlement Impact area Scenario name Scenario description People Process System Reporting /Data Consider the Brussels subsidiary as a master MA Establish the Brussels subsidiary as a managing agent within the business administration system with each outsourced managing agent attached Low Med Low Med Create 3 rd bureau entity Create a new Brussels subsidiary entity within the broker Admin system based on the Lloyd's entity structure with all of the associated MAs Low Low High Med 98

99 Accounting and Settlement impact assessment Brokers will need to consider the impact of the Brussels subsidiary on their internal A&S systems and processes Consider the subsidiary as a master managing agent In this scenario the broker establishes the subsidiary as a master managing agent within the business administration system and then attaches each outsourced managing agent as a carrier under this profile. Advantages: To create the subsidiary stamp entries will only require system configuration to add a new insurer Disadvantages: The broker will be required to map each outsourced managing agent to the subsidiary stamp. Back office training to ensure the new process of selecting the subsidiary underwriter is embedded. When reporting, brokers may wish to consolidate subsidiary business to the respective MAs. Broker Administration System Lloyd's Company Synd. 1 Co. 1 Synd. 2 Co. 2 Lloyd's Insurance Co. 3 Company - Sub. Stamp. 1 - Sub. Stamp. 2 - Sub. Stamp. 3 Create subsidiary syndicate Create 3rd bureau entity In this scenario the broker creates a new Brussels Subsidiary Entity within the Broker Administration System by cloning the Lloyd's entity with all of the associated MAs. Advantages: Less error prone to users placing subsidiary business with the native syndicate by accident Disadvantages: To create a separate entity will involve greater cost and complexity as a result of the development work required to alter the Broker Administration System and clone the existing Lloyd's entity Broker Administration System Lloyd's Company Subsidiary LOL Synd. 1 LOL Synd. 2 LOL Synd. 3 Co. 1 Co. 2 Co. 3 Sub. Stamp. 1 Sub. Stamp. 2 Sub. Stamp. 3 Clone Lloyd's Entity 99

100 Reporting Section Introduction Chapter Executive Summary Brussels Subsidiary Overview Operational Impact Assessment Open Market Placement Operational Impact Assessment Open Market Claims Delegated Authority Binder Placement Delegated Authority Bordereau Placement Accounting and Settlement Reporting Finance and Tax Considerations Additional Guidance Regulatory Considerations Oversight Considerations

101 Reporting Available to Managing Agents

102 Reporting available to managing agents Three types of reports will be available to managing agents The Subsidiary will make risk/premium/claims information available to managing agents as agreed within the Outsourcing Agreement. Data provided to MAs will support accurate reporting by all parties within a timely manner. Reporting type Direct insurance Reinsurance Queries Overview Managing agents will receive data regarding all business they have placed on behalf of the subsidiary. This will provide a single coherent source of all activity, will also include follow activity and any information provided from other sources such as DA or broker submission Managing agents will be able to receive risk, claims and premium re-insurance data at risk level for all subsidiary business that they reinsure Queries will be generated in multiple areas of the overall subsidiary placement and claims processes. Queries to managing agents will be generated by both direct and reinsurance activity. The subsidiary will produce regular reporting of outstanding and new queries What information will be provided? While we will look to provide some dashboard summary reporting, the aim is to provide the information at the same level of granularity as received by the subsidiary Re-insurance reporting will be similar to direct reporting. Re-insurance reporting will include clear links back to the corresponding direct reporting Sufficient information will be provided in order for the managing agent to investigate and resolve the query. For example if the query relates to an open market placement, a copy of the relevant MRC may be included In what format? Format is still to be agreed but for granular information we will look to use relevant ACORD standards As per direct insurance Longer term a dedicated query management tool will be investigated, however initial queries are likely to be via to dedicated s and to avoid excessive traffic likely in a daily summary report format 102

103 Additional Guidance Section Introduction Chapter Executive Summary Brussels Subsidiary Overview Operational Impact Assessment Open Market Placement Operational Impact Assessment Open Market Claims Delegated Authority Binder Placement Delegated Authority Bordereau Placement Accounting and Settlement Reporting Finance and Tax Considerations Additional Guidance Regulatory Considerations Oversight Considerations

104 Additional Guidance - Finance and Tax

105 Finance guidance Key finance considerations for managing agents Key points Funding model The Brussels subsidiary will generate income through the reinsurance commission it receives. The commission charged to managing agents will be matched by a reduction to their overseas levy. This funding model will be reviewed over time based on market participation Premium and claims Managing agents will receive reinsurance premium from the Brussels subsidiary following its receipt of the associated direct premium (less local taxes payable and reinsurance commission). Similarly claims will be paid out following the transfer of these funds from reinsurers (syndicates). Managing agents will need to consider the impact to their customers, financial systems and processes as a result of the business that they currently carry out for syndicates being transacted in the future by the Brussels subsidiary, which will receive the premiums from and pay claims to the insureds Recording as reinsurance Syndicate will no longer be the primary insurer of the EEA business that managing agents underwrite, instead the insurer will be the Brussels subsidiary. As a result it is important that finance systems and processes are reviewed to account for the change and to properly capture proportional RI business ceded from the Brussels subsidiary Reinsurance commission The Brussels subsidiary will receive an agreed commission percentage, applied when the reinsurance transaction is generated. As a result the direct and reinsurance premium value will be different. Managing agents will need to consider the impact of this and how they wish to record, reconcile and report on these variances within their internal finance systems Lloyd s 105

106 Lloyd s process Brussels subsidiary process Lloyd s process Finance guidance Brussels subsidiary - capitalisation Key points Information provided to Lloyd s Capital diversity Capital coverage EU-specific information required for business planning and Standard Formula calculation in relation to 2019 underwriting, to be provided in H This will include volume and profitability information by territory. Reserving will be undertaken in aggregate for the Brussels subsidiary, managing agents may need to provide information on any large claims incurred The Brussels subsidiary s capital benefits from diversification across the entire portfolio of business underwritten by its various outsourced underwriting service providers Capital will need to cover: Technical provisions even with maximum reinsurance, there are S II liabilities SCR - Standard Formula approach Solvency coverage ratio Tiering test Tier 1/Tier 2 capital Illustration of the Brussels subsidiary s capital model Syndicate Business Plan Initially the Brussels subsidiary will be capitalised by an injection from Brussels subsidiary Business Plan Central Fund. Further capital, as required, will have subsidiary funds Standard Formula SCR Brussels subsidiary Solvency Margin Brussels subsidiary Capital Requirement Brussels subsidiary Initial capital injection from Society of Lloyd s The Society of Lloyd s supplemented by use of syndicate loans, based on use of existing solvency assets, to the Central Fund. In the longer term this may be replaced by capital from those Member Allocation Model members reinsuring the subsidiary. Member Collections This assessment is expected to be made for underwriting in Lloyd s 106

107 Tax guidance Key tax considerations for managing agents, coverholders and brokers Key points Premium taxes Insurance contracts are subject to premium taxes and parafiscal charges on insurance premiums in the country in which the risk is situated. The risk location will not differ from now if the policies are written by the Brussels subsidiary in Belgium so there should be no change to the amount of premium tax payable when business is insured by the subsidiary. It is important to be aware that certain countries have different rules for business written by a non-eaa insurer and therefore this must be considered when writing any EEA risks in London on a non-admitted basis. Please liaise with the tax and regulatory departments to ensure you understand the position if business is being placed on a non-admitted basis with syndicates Corporate income tax & VAT Reinsurance premium and commission The Brussels subsidiary will be liable to corporate income tax in Belgium. The Brussels subsidiary will also have to make an assessment as to whether it has corporate income tax filing obligations elsewhere in respect of the business which it underwrites. The Brussels subsidiary will also be responsible for its own VAT position, including VAT recoveries on claim costs It should be noted that the reinsurance gross premium will always equal the gross direct premium and will have the reinsurance commission applied to it. As such the LIDS 100% gross premium entry (box 18 on the LPAN) should be used by brokers when populating A&S submissions 107

108 Additional Guidance - Regulatory Please note: Content on Crystal will continue to be updated as the regulatory context becomes clear. As such, not all of the content referenced in the following section will be available at release one of the Toolkit. This includes the Lloyd's Stamp Decision Tool.

109 Regulatory considerations Location of coverholders Lloyd s underwriters will only be able to grant binding authorities to coverholders in the EEA in certain territories where legislation permits binding of non-eea risks for a non-eea insurer. Similarly, as the subsidiary will not be authorised in countries outside the EEA, it will only be able to grant binding authorities to coverholders outside the EEA where local rules do not require the insurer to be locally authorised. The binding of a risk by a coverholder on behalf of an unlicensed foreign insurer will usually constitute regulated activity by that insurer in the country where the coverholder is located. This means that the insurer would be acting in breach of local regulatory requirements. In addition, the coverholder might be in breach of local requirements for insurance intermediaries. Lloyd s is aware of some exceptions to the above, which are listed below. Coverholders in the following EEA countries can hold binders from Lloyd s underwriters for risks located outside the EEA Coverholders in the following non-eea countries can hold binders from the subsidiary for insurance risks located in the EEA Cyprus New Zealand Netherlands South Africa (only if the insured and the risk are located in the EEA) Norway Switzerland (only if the insured and the risk are located in the EEA) NOTE: Coverholders in these countries can only place a non-eea risk with Lloyd s underwriters if Lloyd s underwriters are authorised to write the relevant class of business from the territory in which the risk is located or are permitted to do so on a non-admitted basis. This would require a separate binding authority contract to any subsidiary binder (CAA). Please refer to Crystal for details. NOTE: Coverholders in these countries can only place an EEA risk with the subsidiary if the subsidiary is authorised to write the relevant class of business from the territory in which the risk is located or is permitted to do so on a non-admitted basis. This would require a separate binding authority contract to any syndicate binder. Please refer to Crystal for details. 109

110 Regulatory considerations Reverse solicitation Reverse solicitation or non-solicitation refers to transactions initiated by the insured. Following Brexit, Lloyd's underwriters will not be authorised to write EEA risks. However, there are some risks which may be written by unlicensed insurers if the insurer does not actively promote itself or its products or interact with potential or actual insureds in the territory. The rules regarding reverse solicitation are complex, and also territory and class specific. In some cases the involvement of a local intermediary may be prohibited, in other cases anything more than occasional business is automatically regarded as solicitation by the insurer. Contrary to popular understanding, it is not the case that all MAT business is accessible on a non-admitted basis. Only certain territories have legislated an explicit exemption that permits MAT business to be written by unlicensed insurers. NOTE further consultation with the market is underway to agree if all EEA MAT should be insured with Lloyd s Brussels subsidiary. Managing agents should refer to Crystal regarding what type of business can be written by Lloyd s underwriters on a reverse solicitation or exempt basis post-brexit, and if necessary obtain their own legal advice on a case by case basis or alternatively the business should be underwritten by the subsidiary which will be licenced. 110

111 Regulatory considerations Lloyd's Stamp Decision Tool ( SDT ) A stamp decision tool has been created to enable underwriters to determine whether a policy can be underwritten by Lloyd's underwriters and/or Lloyd's Insurance Company S.A. (LIC) based on the risk location for regulatory purposes, the class of business and the nature of the placement chain. How the tool works The underwriter answers six questions in order to provide the appropriate action for the circumstances described. The questions relate to the following: Whether the risk is a global policy. Whether it is located within, outside or both within and outside the EEA. Whether it is MAT business. If it is MAT, whether it is possible to write the risk on a non-admitted basis in the territory(ies) where the risk is located. Whether there is a coverholder in the placement chain. If there is a coverholder, which insurer the coverholder has a binder from. The specific wording of a question will change depending on what answers have been provided to previous questions. Incompatible answers are highlighted with a warning. Appropriate Crystal and Risk Locator Tool ( RLT ) checks will appear next to each question and the action. Links to Crystal and the RLT are embedded within the SDT for ease of access and to encourage checking, as is an link to LITA. The possible answers to each question are in a drop-down option and these are the only cells that can be changed by a user. Other cells in the SDT are locked to users. 111

112 Regulatory considerations Lloyd's Stamp Decision Tool how to use it The SDT will generate guidance for the user on how the risk may be written based on the selected answers to the listed questions How to use the tool: 1. Access the SDT on Crystal 2. Review each of the six questions 3. Use the recommended reference material where appropriate 4. Respond to the questions for the risk in question 5. Take the appropriate action based on guidance provided by the tool If you have any questions about how to use the SDT or about an action that is generated, please contact LITA. Tel: +44 (0) LITA@Lloyd's.com 112