LLOYD S BROKER REGISTRATION

LLOYD S BROKER REGISTRATION A GUIDE FOR APPLICANTS

Foreword 3 1 Executive summary 4 2 The registration process 6 How do we become a registered Lloyd s broker? 3 The requirements 10 for registration What is required and what do we have to think about? 4 How business is processed 15 at Lloyd s What are the market processes and how do we comply? 5 Considerations for 20 non-eu brokers 6 Frequently asked questions 21 Appendices A Lloyd s legal framework 22 B The role of Xchanging 23 C Market Reform Initiatives 24 Lloyd s provides this document (the Document ) for general information purposes only. The information contained in this Document is correct to the best of Lloyd s knowledge at the time of publishing but may change over time. The Document is reviewed and updated from time to time. If you have further enquiries regarding this Document, please contact Lloyd s Admissions on +44 (0)20 7327 6415. Regulatory Disclaimer 1. The communication of information and services set out in this Document is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. In particular, the contents and/or subject matter of the Document do not constitute an offer of information, products or services to US persons or in the United States, or in any other jurisdictions where such an offer may be unlawful. 2. Furthermore, the Document does not represent a prospectus or invitation in connection with any solicitation of capital. Nor does it constitute an offer to sell securities or insurance, a solicitation of an offer to buy securities or insurance, or a distribution of securities in the United States or to a US person, or in any other jurisdiction where it is contrary to local law. Such persons should inform themselves about and observe any applicable legal requirement. 3. This Document provides information on Lloyd s and the application process in connection with Lloyd s registration of brokers to transact business at Lloyd s. This communication is not, and does not purport to be, a complete account of all matters that are or may be material to a decision as to any application. All applications will be considered on their own merits. 4. Lloyd s provides the material contained in this Document or communication for general information purposes only. 5. No responsibility or liability is accepted by the Society of Lloyd s, the Council, the Franchise Board or any other Committee or Board constituted by the Society of Lloyd s or the Council or any of their respective members, officers or advisors for any loss occasioned to any person acting or refraining from action as a result of any statement, fact, figure or expression of belief contained in this Document or communication. 6. Applicants and potential applicants should take steps to understand Lloyd s, the Lloyd s market and the implications of placing business in it. Applicants should understand that risk is the nature of insurance business and is inherent in the business underwritten at Lloyd s. Copyright notice Lloyd s 2007. All rights reserved. No part of this Document may be copied or reproduced in any material form, including being stored in any medium by electronic means, photocopying, recording or otherwise, or transmitted in any form by any means, whether electronic, mechanical or otherwise, without the written permission of Lloyd s.

Foreword Lloyd s and the global insurance industry Lloyd s plays a significant role in both the UK economy and the global insurance industry. It is the largest subscription market, a recognised leader of specialist underwriting and the world s third largest non-life reinsurer*: The Lloyd s Market comprised 66 Lloyd s syndicates with an overall market capacity of 16.1bn of gross premiums as at 31 March 2007. Most of the insurance business accepted by Lloyd s is placed through a registered Lloyd s broker, of which there were 166 as at 31 March 2007. Lloyd s currently enjoys A+ (Strong, Positive Outlook) and A (Excellent, Stable Outlook) ratings from Standard & Poor s and AM Best, respectively and A+ (Strong, Stable Outlook) rating from Fitch. Lloyd s transacts business in more than 200 countries and territories worldwide. Details of the countries in which Lloyd s is licensed to operate can be found at lloyds.com/lloyds_worldwide *Standard & Poor s Global Reinsurance Highlights 2006. Source of figures: Lloyd s, March 2007 Lloyd s vision and priorities The vision for Lloyd s is to be the platform of choice for insurance and reinsurance buyers and sellers to access and trade both specialist and large property and casualty risks. A key priority for Lloyd s in achieving this vision is to work on eliminating the actual and perceived complexity of operating in the market and make it easier for brokers to do business at Lloyd s. We are also determined to improve the accessibility of Lloyd s to brokers around the world. Lloyd s priorities for development may be found on our website at www.lloyds.com/about_us/strategy Lloyd s brokers Lloyd s offers brokers an insurance market with diverse participants with differing strategies and risk appetites, where policyholders benefit from Lloyd s reputation and service quality. Although based in London, Lloyd s is open to specialist insurance brokers irrespective of their physical location. Lloyd s welcomes applications from brokers, in the UK or overseas, who wish to become registered Lloyd s brokers in order to place business directly in the Lloyd s market and who maintain high levels of professionalism, integrity and customer service. The remaining sections of this guide explain how you can become a registered Lloyd s broker. Any queries on the matters covered in this guide should be directed to: Lloyd s Agents and Brokers Department Telephone +44 (0)20 7327 6415 Fax +44 (0)20 7327 6688 Email brokers@lloyds.com

4 Lloyd s Broker Registration 1 Executive Summary Introduction This guide explains the process you will need to go through to become a registered Lloyd s broker. It also highlights the information we will need and the key issues you will need to consider. The information in this guide is structured as follows: The registration process (Section 2) The requirements for registration (Section 3) How business is processed at Lloyd s (Section 4) Considerations for non-eu brokers (Section 5) Frequently asked questions (Section 6) The decision whether or not to accept you as a Lloyd s broker is made by the Franchise Board under the Intermediaries Byelaw. A summary of the contents of this byelaw is set out at Appendix A. Registered Lloyd s broker or approved coverholder? There are two principal ways that Lloyd s syndicates may access risks; through a registered Lloyd s broker or through a Lloyd s approved coverholder. You should therefore consider whether your firm wants to become a registered Lloyd s broker or an approved Lloyd s coverholder, or both. The main differences are as follows. A registered Lloyd s broker usually acts as a wholesale or retail broker, acts at all times in the best interests of its clients and can refer any type of business to any Lloyd s syndicate. An approved coverholder acts as the agent of specific Lloyd s syndicates under a contract called a binding authority (sometimes known as agency business ). This allows the coverholder to enter into contracts of insurance on behalf of the relevant syndicate(s). Therefore if you only intend to act as an agent for Lloyd s syndicates you may only need approval as a coverholder. For further information on Lloyd s coverholders please see our website at www.lloyds.com/coverholders Registration process The process and indicative timescales for a typical new broker application are set out in section 2 of this guide. In summary, this involves: Pre-application meetings with Lloyd s, to clarify the application process and requirements. Formal application to Lloyd s. Obtaining third party confirmations: from Xchanging that you are competent to process business at Lloyd s (see Appendix B for further details on Xchanging); and from a managing agent, that it will agree to enter into a Terms of Business Agreement with you. Registration as a Lloyd s broker, subject to Lloyd s being satisfied with the Xchanging and managing agent confirmations received.

Lloyd s Broker Registration 5 Registration requirements Our registration requirements are set out in section 3 of this guide. It is for you to demonstrate to us that you meet these requirements and are eligible to be registered as a Lloyd s broker. In summary, we require: Appropriate regulatory approval by the FSA or by the relevant authority in an EU member state (or, outside the EU, by an equivalent overseas regulatory authority). Adequate systems and procedures to conduct business in the Lloyd s insurance market. Support from at least one Lloyd s managing agent to enter into a Terms of Business Agreement ( TOBA ) with your firm. Suitable procedures to safeguard insurance monies. Professional indemnity insurance that meets our minimum requirements. No prohibited associations with Lloyd s managing agents. If your firm is established outside the EU, additional requirements apply. Lloyd s application fee for a new Lloyd s broker is 5,000, to be paid when you make your application (payable to the Corporation of Lloyd s ). We will not refund this fee if your application is unsuccessful. There is no ongoing Lloyd s charge to brokers for placing and processing business at Lloyd s. How business is processed at Lloyd s An overview of how business is processed at Lloyd s is set out in section 4 of this guide. Lloyd s is a marketplace made up of many separate syndicates and for this reason, various functions have traditionally been performed centrally on behalf of all Lloyd s syndicates: Processing premiums Checking or producing policies (where required) Agreeing and settling some claims Providing data on behalf of the market for regulatory purposes Operating a central settlement system between syndicates and brokers, with a single daily movement of monies between parties. While at present, these back office functions are performed by Xchanging, there is increasing scope for direct trading between parties. What does Lloyd s expect of a registered broker? If you become a registered Lloyd s broker you will be required to maintain and uphold high standards of service and professionalism. In particular, we will expect you to: Have signed TOBAs with each managing agent you do business with. Place business into the Lloyd s market. Take all reasonable steps to protect our reputation and brand. Conduct your business in a professional manner at all times. Comply with any relevant UK or foreign insurance legislation or regulatory requirements. A number of frequently asked questions are set out in section 6 of this guide.

6 Lloyd s Broker Registration 2 The Registration Process Overview of the registration process An overview of the application process to become a registered Lloyd s broker is summarised in the flow chart below. An explanation of each step in the process is set out in the following pages. 1 Broker pre-application meetings with Lloyd s and Xchanging to clarify the application process and requirements and understanding of how to process business at Lloyd s 2 3 Broker submits application form and application fee to Lloyd s Lloyd s reviews the application for appropriate regulatory authorisation, PI cover and client money protection and may give conditional approval of registration, subject to confirmation of a suitable TOBA and demonstration of business processing ability Lloyd s service level 1 week (UK/EU) (4 weeks for non EU territories) 4 (a) Broker prepares and submits Xchanging process manual, business scenarios and banking mandates to Xchanging & Lloyd s At the same time (b) Broker seeks and obtains confirmation of a suitable TOBA from a managing agent 5 Xchanging reviews suitability of broker systems to process business, procedure document, business scenarios and mandates Xchanging indicates if substantially complete OR identifies significant weaknesses with indicative remedial action Xchanging service level 1 week (plus 2 weeks to set up mandates) 6 Lloyd s, on receipt of a TOBA confirmation and suitable Xchanging sign off: a) confirms that registration conditions have been met; and b) adds the broker to the public register of Lloyd s brokers available on www.lloyds.com

Lloyd s Broker Registration 7 Pre-application meetings Before you apply, please contact Lloyd s Admissions to explain that you are interested in becoming a registered Lloyd s broker. You will then be invited to attend an initial meeting at Lloyd s. Initial meeting The initial meeting allows us to discuss with you at an early stage whether becoming a Lloyd s broker is right for your firm and gives you the chance to find out more about what you need to do to become a registered Lloyd s broker. At the meeting we will explain the registration process and requirements in more detail and will ask you to explain the status of your firm against the registration requirements. As a result of this meeting: We may decide that you have the potential to become a registered Lloyd s broker and invite you to proceed to the next stage and attend a preapplication meeting. Alternatively, there may be some areas which you would need to work on before you proceed or you may not be eligible to become a registered Lloyd s broker. We will explain why this is the case. Pre-application meeting At the pre-application meeting we will look more closely at whether your firm satisfies our registration requirements. In preparation for this meeting, you will be invited to complete the application form in draft and start work to obtain the necessary confirmations to support your application, including: Evidence of appropriate regulatory approval from your regulator Confirmation from your bank that client money is held in strictly segregated client money accounts PI insurance certificates (or quotes at this stage) evidencing compliance with our minimum PI cover requirements Confirmation from your external professional legal advisors that there are no divestment issues (where necessary) Confirmation from at least one Lloyd s managing agent that it would enter into a TOBA with your firm (see below) Confirmation from Xchanging that you have sufficient knowledge and ability to transact and process Lloyd s market business (see below) We expect the first 4 of these confirmations to be in place and that work will be underway on the latter 2 at the time of the pre-application meeting. Representatives of your senior management team should come to this meeting. We will be represented by staff from Lloyd s Admissions and from Xchanging. At the meeting, we will use your draft application form and supporting documentation as an agenda. We will ask you to talk us through each area of the form and, in particular, update us on the status of each of the areas requiring external confirmation. As a result of this meeting: We may decide that you are ready to proceed to the next stage and invite you to make a formal application. Alternatively, there may be some areas which you would need to work on before you proceed to formal application. We will explain why this is the case.

8 Lloyd s Broker Registration Xchanging and managing agent confirmations The ability to transact and process business in the Lloyd s market is a key factor in deciding whether your firm should be registered. Only applicants who can properly connect to the necessary systems and competently transact Lloyd s business (using their own systems or those of an outsource provider) will be eligible to be Lloyd s brokers. In practice this will be assessed by asking Xchanging (or other appropriate third party) to work with you to assess whether your firm (or its outsource provider) can operate the necessary accounting and settlement and claims advice and settlement processes to transact at Lloyd s (see section 4 of this guide for further details). You will need to make contact with Xchanging and provide all necessary information and documentation to enable an assessment to be made of your ability to place, process and service business. Such enquiries should be directed to: Kerry Rainer, Customer Services, Xchanging +44 (0)20 7780 6999 kerry.rainer@xchanging.com Xchanging will review your submission and indicate if it is substantially complete, or alternatively, identify any significant weaknesses with indicative remedial action. Xchanging will do this within 1 working week from the time it receives a complete applicant submission. You will also need to obtain written confirmation from at least one Lloyd s managing agent that it is prepared to enter into a Terms of Business Agreement ( TOBA ) with your firm, on successful registration as a Lloyd s broker. Obtaining the Xchanging and managing agent confirmations is typically the most time consuming part of the registration process. In view of this, we invite formal applications while work is still underway in these areas. Formal application Once a complete application pack, including the Lloyd s application form, associated documentation, supplementary information and application fee has been received, we will then do the following: Review your application to assess compliance with our requirements in respect of regulatory authorisation(s), professional indemnity insurance cover limits, client money arrangements and prohibited relationships (as defined in the Lloyd s Act 1982 see Appendix A). Tell the Lloyd s Market about your application through the Lloyd s Market Association. Check with the FSA, or your local equivalent regulator, to identify any regulatory issues affecting your firm or its directors and employees. If satisfied with your application, we will advise you that we would be willing to grant your firm registered Lloyd s broker status, subject to you providing us with written confirmations from: 1 a managing agent, agreeing to enter into a terms of business agreement with your firm; and 2 Xchanging, confirming that you have demonstrated a satisfactory standard of business processing ability. Alternatively, we will advise you of any other matters which need to be addressed before your application may proceed.

Lloyd s Broker Registration 9 Subject to your application being complete, we will give you this confirmation within 1 working week if your firm is based in the UK or a member state of the EU. If your firm is established outside the EU, we will normally need to undertake additional work (see Section 6, Issues for overseas brokers to consider) and will give you this confirmation within 4 working weeks. Applications which do not contain all the relevant documents and information will be treated as incomplete and returned to you to complete before we can start work on your application. Registration as a Lloyd s broker On receipt of suitable written confirmation from Xchanging (confirming your ability to place, process and service business, the allocation of a broker number and pseudonym and receipt of all necessary bank mandates) and confirmation from a managing agent (that it will enter into a TOBA with your firm), we will: Advise you and the Lloyd s market of your registration as a Lloyd s broker. Add your name to the public register of Lloyd s brokers. We have an expectation that as a new Lloyd s broker, you will place business at Lloyd s, although you may of course place business with other carriers. Permitted use of the Lloyd s Brand Use of the Lloyd s name and logo is only permitted under certain circumstances. Full details on how and when you can use the Lloyd s name are contained within a separate guide provided to all successful applicants once registered. In summary: Registered Lloyd s brokers may use the Lloyd s brand on their business documents, stationery and web site to market their firm, subject to the continued placing of business at Lloyd s and compliance with Lloyd s Broker Brand Guidelines. If you are not placing business at Lloyd s within a 6 month timeframe, we will consider whether it is appropriate for you to continue to use the Lloyd s brand to market your firm (you may nevertheless continue to brand Lloyd s specific products). In the event that you place no business at Lloyd s within a 12 month timeframe, we will consider whether it is appropriate for you to continue to be registered as a Lloyd s broker. Further review of business processing ability In the second year of your registration, we will ask Xchanging to carry out a review to assess your continuing ability to process business effectively within the Lloyd s market. This will include your performance in the areas of late premium payment, document quality, and meeting London Market Reform Standards.

10 Lloyd s Broker Registration 3 The Requirements for Registration Intermediaries Byelaw All Lloyd s brokers are required to comply with the Lloyd s Intermediaries Byelaw. A summary of the contents of this byelaw is set out at Appendix A. Under the Intermediaries Byelaw, Lloyd s new broker applicants must demonstrate that they meet the following requirements: Appropriate regulatory approval by the FSA or by the relevant authority in an EU member state (or, outside the EU, by an equivalent overseas regulatory authority). Adequate systems and procedures to conduct business in the Lloyd s insurance market. Support from at least one Lloyd s managing agent to enter into a Terms of Business Agreement ( TOBA ) with your firm. Suitable procedures to safeguard insurance monies. Professional indemnity insurance that meets our minimum requirements. No prohibited associations with Lloyd s managing agents. Each of these areas is considered in turn below, with a number of additional considerations. Appropriate regulatory approval UK applicants If your firm is established within the United Kingdom, you must be authorised as a general insurance intermediary to conduct the applicable regulated activities by the Financial Services Authority (FSA). You can obtain a copy of the relevant FSA handbook and application forms for authorisation from the FSA website www.fsa.gov.uk As part of your application we will ask you to provide a copy of your written authorisation from the FSA and details of any subsequent regulatory issues which may have arisen in respect of your firm as part of your application. Applicants from other European Union ( EU ) States If your firm is established outside the UK but within a member State of the EU you must be registered with the appropriate body responsible for implementing the provisions of the European Parliament and Council Directive of 9th December 2002 on insurance mediation (No 2002/92/EC) in that country. The conduct of insurance intermediation by a branch office, or subsidiary of an EU broker which is located in the UK, is permissible by virtue of the cross border services passport option enabling brokers to trade within other EU member states if authorised within their own country. Any application from non UK EU brokers must provide evidence of registration by the home state authorities and notification to the FSA of their intention to conduct business in the UK under the passport option. Applicants from outside the EU If your firm is established in a country outside the EU, you must be registered with the appropriate regulatory authority in that country (where required to do so by that country).

Lloyd s Broker Registration 11 We will look at the extent to which your local regulatory authority imposes similar requirements to those imposed under the Insurance Mediation Directive ( IMD ): If the local regulatory authority imposes similar requirements to those imposed under the IMD, then we may, at our discretion, choose to rely on that regulatory authority. If the local regulatory authority does not impose similar requirements to those imposed under the IMD, we will ask you to demonstrate your suitability and to complete a fuller application form that addresses such matters. In particular we will consider the following areas (see section 5, for further details): your knowledge and ability to conduct business at Lloyd s; whether your directors, partners, employees and controllers are of good repute; the adequacy of your capital and financial resources; your compliance with local laws and requirements. You will need to show that your firm does not need to be authorised by the FSA to trade in the UK. If you are an overseas subsidiary, holding company or under common control with an existing registered Lloyd s broker, we may, at our discretion, allow you to be subject to fewer suitability checks than would ordinarily be performed for overseas brokers (see section 5 for more details). Systems and procedures to conduct business in the Lloyd s market The ability to transact and process business in the Lloyd s market is a key factor in deciding whether your firm should be registered. You must demonstrate that you can properly operate the necessary accounting and settlement and claims advice and settlement processes to transact at Lloyd s (using your own systems or those of an outsource provider) in order to be eligible to become a Lloyd s broker. In practice this capability will be assessed by asking Xchanging (or other appropriate third party) to work with you to assess whether your firm (or its outsource provider) has the necessary competence. In view of the importance of this area, an overview of how business is processed at Lloyd s is set out in Section 4. Terms of Business Agreements We only want to register brokers who have Lloyd s market support and will actually bring business to Lloyd s. Your application must therefore include at least one letter from a Managing Agent confirming that they will sign a terms of business agreement with you once you are registered (to be signed by a director on behalf of that managing agent). When you become registered, you must sign a terms of business agreement with each Lloyd s managing agent you intend to deal with before you start trading with syndicates managed by that managing agent. The terms of business agreement must record the general terms and conditions you and the managing agent will do business under. You must negotiate the detail of the agreement with each managing agent, but it must cover at least the following areas.

12 Lloyd s Broker Registration Broker s authority The terms of business agreement must clearly set out what authority the managing agent gives you. Premium and claims The terms of business agreement must set out the broker s and managing agent s responsibilities regarding the holding and payment of premiums and claims monies (including the timing of such payments). Ownership of and access to records The terms of business agreement must set out what rights of access the broker and managing agent have to each other s records. Law and Jurisdiction The law and jurisdiction applicable to the Terms of Business Agreement must be stated. When you are negotiating a Terms of Business Agreement, both parties will need to consider the interests of their clients and principals. The Lloyd s Market Association and the London Market Brokers Committee have agreed model Terms of Business Agreements which can be obtained from: The Lloyd s Market Association Room 1085 Lloyd s One Lime Street London EC3M 7DQ Telephone +44 (0)20 7327 3333 Fax +44 (0)20 7327 4443 Email lma@lloyds.com Nevertheless, you may always negotiate a bespoke agreement with any managing agent. Procedures to safeguard insurance monies You must demonstrate to us that you have the necessary procedures in place to protect insurance monies in the event of insolvency. In practice this means that you must demonstrate that you operate strictly segregated client money accounts or have alternative equivalent arrangements in place that we believe are prudent and appropriate: If you are a UK broker this means demonstrating to us that you meet the FSA s client money rules (as set out in the FSA s Handbook at CASS). If you are an intermediary in another member state of the EU, you will need to show us that you meet the equivalent requirements set by your home state regulatory authority. We may additionally request confirmation from the managing agent with whom you have entered into a TOBA that it is satisfied with the client money arrangements in place.

Lloyd s Broker Registration 13 Professional Indemnity/Errors and Omissions Insurance You must demonstrate to us that you have taken out and will maintain professional indemnity insurance which meets the following requirements. Limit of Indemnity The minimum limit of indemnity shall be the greater of 3,000,000 or 4 times the annual net retained brokerage as shown in the most recent audited financial statements at the time of renewal of your policy. If your annual net retained brokerage is less than 15,000,000, the minimum limit of indemnity need be no more than 20,000,000. If your annual net retained brokerage is greater than 15,000,000 the minimum limit of indemnity need be no more than 30,000,000. Excess The insurance excess in respect of each claim must not be more than: 25% of your net tangible assets for the last financial year, as shown in your lasted audited accounts; or 2,500,000; Whichever is less. All the figures are stated in pounds sterling. Local currency equivalents will be used based upon the relevant exchange rate at the time of your application. While the above requirements represent Lloyd s minimum professional indemnity insurance requirements, a managing agent may require higher levels of PI cover for prudential reasons before entering into a TOBA with your firm. Prohibited associations You must also comply with section 10 of the Lloyd s Act 1982 (the divestment provisions) which states: the Council of Lloyd s shall not permit a person to act as a Lloyd s broker if that person is a managing agent or is associated with a managing agent. A summary of the relevant section of the Lloyd s Act 1982 is set out at Appendix A. If you have an association with a Lloyd s managing agent, you must provide a letter from your external professional legal advisors to show that the association does not breach the provisions of the Lloyd s Act 1982. Other considerations Admission to the Underwriting Room at Lloyd s Only people who hold a Lloyd s pass can enter the Lloyd s building and the Underwriting Room. You should complete the relevant section of the application form with details of the individuals who will need passes. We reserve the right to reject a pass application for any individual and in such cases will explain to you the reasons why. The Lloyd s pass is a photo identification containing the name of the person and the name of the employing firm. Therefore, the person the pass is for will need to come to Lloyd s for the pass to be issued. Only the person the pass has been issued to can use it.

14 Lloyd s Broker Registration Our pass administration team will contact you following registration with details of how to arrange for passes. A small processing fee is charged for each pass issued. Use of information submitted to Lloyd s When considering your application, we may disclose some or all of the information provided by you to: Lloyd s managing agents and underwriters The Lloyd s Market Association Xchanging The Financial Services Authority or other regulatory bodies Financial analysts We may also ask these parties for information to help us in reviewing your application to become a registered Lloyd s broker. We will also make the information available if requested, to Lloyd s managing agents and underwriters so you do not have to provide the same or similar information to each managing agent you may want to trade with. If you do not want us to pass on any of the information provided to us, clearly show this on the application form or supporting documents, giving reasons. We will then consider your comments. In accordance with Lloyd s obligations under the Data Protection Act 1998, you should note that personal data may be processed by Lloyd s for the purposes of the administration of insurance business, including but not limited to its regulatory activities. In the event that you are registered as a Lloyd s broker, such processing by Lloyd s will include all information collated in respect of registration. The processing of such data may also include using it as part of any review of your firm s ongoing eligibility to be a registered Lloyd s broker and the eligibility of individuals to be granted Lloyd s passes. Personal information relating to the directors, partners and/or shareholders of your firm may be transferred to individuals or organisations outside the EEA (for example to a Lloyd s overseas office or foreign regulator). In which event, this data may not be subject to the same level of legal protection as in the United Kingdom. Details of the individuals, organisations and countries in your case will be provided on request. De-registration A registered Lloyd s broker established within the UK will be de-registered if it ceases for any reason to be authorised by the FSA. Similarly, an overseas broker will be de-registered if it no longer complies with its local authorisation or regulatory requirements. A registered Lloyd s broker may also be de-registered if it ceases to comply with the conditions described in this guide, the provisions of the Lloyd s Intermediaries Byelaw, or if it has not transacted business in the Lloyd s market within a reasonable timeframe (e.g. 12 months). If we intend to de-register a broker we will always seek, where possible, to explain why and give the broker an opportunity to make representations. In the event of a broker being de-registered, the fee paid on registration and/or reregistration will not be refunded.

Lloyd s Broker Registration 15 4 How Business is Processed at Lloyd s Lloyd s is a marketplace made up of many separate syndicates writing different classes of business. For this reason, and because of the multiple number of syndicates participating on risks placed in the Market (also known as subscription ), various functions have traditionally been performed centrally on behalf of all Lloyd s syndicates: processing premiums checking or producing policies (where required) agreeing and settling some claims providing data on behalf of the market for regulatory purposes At present, these back office functions (also known as bureau functions) are performed on behalf of the London Market by Xchanging. Further details of the role of Xchanging are set out at Appendix B. Lloyd s also operates a central settlement system between syndicates and brokers where a single daily movement of monies removes the need for many individual transactions between parties for each premium or claim processed. Overview of Business Processing at Lloyd s Placement of insurance risks Placement of insurance risks currently requires you to have the ability to deal faceto-face with lead and following underwriters at Lloyd s, although there are initiatives in place which are beginning to address the adoption of electronic placing to provide a geographic location independent facility. The terms of the contract of insurance need to be set out in a contract called the slip, which should be prepared in line with market reform slip guidelines (see www.marketreform.co.uk for further details). You will need to prepare and present the slip to Lloyd s underwriters in order to receive a quotation or firm order. It is the responsibility of Lloyd s underwriters to ensure that the contract of insurance meets Lloyd s contract quality checks, prior to entering into the contract. In support of this, Lloyd s has developed a Quality Assurance tool (QA Tool) for both open market and binding authority business (available at www.lloyds.com/omqatool and www.lloyds.com/baqatool respectively). The leader may carry out these checks or may choose to outsource this task to a service provider (similarly, a follower may carry out these checks or may choose to rely on the leader). Lloyd s also provides international trading advice to market participants on +44 (0)20 7327 6677 or via email address LITA@lloyds.com and provides a searchable database of compliance information on www.lloyds.com known as Project Crystal. Contract documentation A contractual document evidencing insurance cover must be provided to the client within 30 days of inception (5 days for U.K. retail business, as defined by the FSA). To meet this requirement a managing agent may issue its own policy or one of the following three options may be chosen: 1 The Market Reform slip may be used as the sole contract document (to be clearly stated in the slip). In this case, you will need to send a copy of the complete slip to the client within 30 days of inception.

16 Lloyd s Broker Registration 2 A Lloyd s policy may be produced (to be clearly stated in the slip). In this case, you will prepare the policy, which must meet Lloyd s quality standards and be fully consistent with the contract details agreed on the MR slip. If this option is chosen, you should send the policy to Xchanging, who will check it on behalf of all the syndicates participating on the risk. Any resultant queries will be referred back to you to correct before the policy is signed. Once checked, Xchanging will sign and seal the policy and return it to you to send to the client within 30 days of inception. 3 Certificates of insurance are issued by a coverholder (operating under a binding authority contract) to the client within 30 days of inception. At present, Xchanging do not check certificates issued under binding authority contracts, but do check all binding authority agreements against the binding authority quality assurance tool available on www.lloyds.com/baqatool. In addition to the above contractual documents, you may choose to evidence cover to the client by means of a Broker Insurance Document (BID). It is important to understand, however, that a BID is provided by you as evidence of cover for the insurance contract solely in your capacity as agent of the insured and it is not an insurer approved document (this needs to be advised to your client). Premium processing Premium processing (also known as premium closing) is completed when you provide appropriate documentation (i.e. London Premium Advice Note and Market Reform Slip see Appendices B and C) to Xchanging either on paper or electronically using the Insurers Market Repository. Xchanging will then verify the premium closing on behalf of participating Lloyd s syndicates and pass an input file to central settlement: When you submit the risk to Xchanging for signing and accounting, it is your responsibility to prepare and supply the breakdown of the gross premium across all key factors that Lloyd s underwriters require for regulatory and fiscal reporting (including risk coding and tax coding). Each premium payment is allocated a signing date and number which is unique to that transaction. This reference provides an audit trail since it is the primary reference for the signing of future premiums and claims attaching to that risk. Xchanging provides an internet based enquiry system (Account Enquiry), which provides the ability for underwriters and brokers to view all transactions signed by Xchanging. Prior to using the Insurers Market Repository, you will need to sign up to the repository rules (refer to www.marketreform.co.uk for further details). Claims reporting Claims reporting is managed electronically using the Insurers Market Repository (to hold claim files electronically), supported by transactions loaded on to CLASS@Lloyd s (the Claims Loss Advice and Settlement System) which manages the routing of claims between agreement parties (see Appendix B): You will need to be able to interact with CLASS (either on-line or using bespoke London EDI messages) and the Insurers Market Repository (either on-line or using ACORD messages) and be able to receive bespoke London EDI messages output from Xchanging (confirming claim signing numbers and dates). Prior to using CLASS and the Insurers Market Repository, you will need to sign up to the relevant CLASS and repository rules.

Lloyd s Broker Registration 17 Xchanging provides a central agreement function on behalf of the following market, and is able to adjust the claim if required. Once all necessary agreements are achieved and captured on CLASS, if the transaction is a payment request, the authorised transaction is allocated a signing number and date and is passed to central settlement. Nevertheless, in some circumstances, you will need to present claims on paper and there may also be occasions when face-to-face negotiation is required. Central settlement Central settlement is a function operated by Lloyd s where all agreed premium and claim settlement transactions on a given day are added together to create a single cash movement between parties: Prior to using central settlement, you will need to agree to comply with the relevant rules and requirements set out in Lloyd s Central Accounting Byelaw (you do this by signing the declaration statement contained in the broker registration application form). Premium and claims related information is checked and processed by Xchanging, and a signing date and number is allocated. This, in turn, creates an electronic advice for each syndicate and broker which will show the syndicate s reference and the broker s unique number and pseudonym. This broker number and pseudonym is allocated to you by Xchanging as part of the broker registration process. Your bank account details must be lodged with Xchanging for each of the currencies that you wish to use to settle premiums and claims. You must provide bank mandates in favour of Lloyd s to handle these payments (to be completed as part of your application). Each day a Central Accounting Advice is produced for each broker and syndicate, which lists the business categories and processing dates to which it relates, the balance of monies due or to be paid, and the date on which the settlement will take place. The balance shown will be the total of all premiums less any claims for that settlement day and currency, which means that only one overall transaction is made. The net settlement amount and settlement date is also summarised in a separate daily high level Early Settlement Notification. The associated signing and settlement advices are electronic. You must complete the Bureau Signing Message, Electronic Settlement Advice and Early Settlement Notification registration forms as part of the application process to receive these messages. If you intend to place Canadian, Italian or US Illinois business, then you will need to be able to interact with a number of additional accounting and reporting systems, namely the Lineage, MOCHA or LIFT systems respectively. You should ask for further details of these systems, if relevant, from Lloyd s Admissions. Further information on current and future market reform initiatives which affect business processing in the Lloyd s market are set out at Appendix C. Lloyd s Claims Scheme The Lloyd s 2006 Claims Scheme sets out the subscription claims agreement process in the Lloyd s market where contracts of insurance are underwritten by two or more Lloyd s syndicates (unless each syndicate is managed by the same managing agent). It does not apply to certain classes of business.

18 Lloyd s Broker Registration Xchanging s involvement in the registration process In order to become a registered Lloyd s broker, you must demonstrate that you are competent to process business placed at Lloyd s: For this reason, we include Xchanging in the pre-application meeting. This allows you to ask them any questions which have not been answered by this document and for Xchanging to assess your understanding of London Market Processes. If Xchanging does not think that you have a reasonable understanding of London Market processing, any training needs can be identified and agreed at this stage (at your expense), before you make your application. Following the pre-application meeting, Xchanging may arrange a further meeting with you to review important documents and to assist you in their completion, to clarify Xchanging s requirements and the tests to be conducted and to provide further documentation that may help you to understand the London Market processes. Xchanging Application Information Pack This information pack provides an explanation of London Market Processing, Xchanging s involvement and its role within the Lloyd s broker registration process. You will be required to have read and fully understood the information contained within this pack. Xchanging Site Visit You will be required to visit at least one of the Xchanging sites, in Chatham, Folkestone or London depending on the type of business proposed. This will provide you with an overview of the activities carried out in the location and will highlight important processes and requirements. Broker Procedure Document You will be required to produce a concise technical procedure document to demonstrate your understanding of broker responsibilities in London Market processing. The purpose of this document is to demonstrate how your procedures will operate in practice. It must cover the following areas. 1 Your overall process flow and controls. 2 Your processes for dealing with processing queries raised by Xchanging. 3 Your process for creating MR slips and achieving contract certainty during the placing of the risk. 4 How you will pay premiums quickly and produce policies promptly for checking by Xchanging (where required). 5 Details of your procedures for claims broking and electronic claims handling. 6 Details of your claims diary system and knowledge of the applicable Lloyd s Claims Scheme.

Lloyd s Broker Registration 19 Business Test Documents You must provide with your application a full set of documents and electronic submissions (MR Slip, LPAN, ECF and LCCF or Treaty Statement) for each major type and class of business that you intend to place at Lloyd s (see Appendix B for further details). You will be required to complete the full set of documents and electronic submissions for the example risks provided in the information pack. The documents and electronic submissions you provide will be checked by XIS to ensure they comply with MR slip requirements, are complete and suitable for processing. Xchanging Critical Documents Xchanging provide documents, including bank mandates and registration forms which you must complete as part of your application. These forms are included in the Xchanging information pack. Once all of these areas have all been completed, Xchanging will confirm to us whether or not you are able to process transactions successfully. Xchanging will give this view within one week of receipt of your complete submission pack. Xchanging will continue to support you after registration and you will be provided with an Xchanging Customer Relationship Manager to assist you.

20 Lloyd s Broker Registration 5 Considerations for Non-EU Brokers If you are established outside of the EU you will need to show that you are registered with or authorised by an appropriate regulatory organisation and that their requirements similar to those required in the EU. You will also be required to demonstrate that you are suitable to be a Lloyd s broker in respect of the following criteria: 1 whether you have appropriate knowledge and ability to conduct insurance business in the London insurance market; 2 whether your firm and its directors, partners, employees and controllers are of good repute; 3 the adequacy of your capital and financial resources; 4 whether you comply with all laws, rules and fiscal requirements applicable to you as an insurance intermediary where your firm is established and where it conducts or will conduct business; and 5 your membership of any body, group or organisation the Franchise Board considers to be necessary or desirable. Registration of other group companies Lloyd s wishes to encourage overseas subsidiaries (defined below) of existing Lloyd s brokers who wish to access the market directly to apply to become registered Lloyd s brokers in their own right. Any applicant that is a subsidiary, holding company or under common control with an existing registered Lloyd s broker may, at Lloyd s discretion, be subject to fewer suitability checks than would ordinarily be performed for overseas brokers. In such cases, each overseas company will be treated as a separate broker and will still need to comply with our minimum criteria for broker registration (see Section 3 of this guide) in its own right. Practical issues Lloyd s is developing practical business solutions for overseas brokers who wish to place and process business at Lloyd s, mainly through a series of electronic trading initiatives (see Appendix 3 for further details). Nevertheless, there are a number of additional considerations if you do not have an office in London or the ability to transact face to face: How will you obtain quotes and place business with underwriters? Have underwriters indicated to you their willingness to trade by alternative methods (e.g. fax, email or other electronic advice)? How will you provide the information Xchanging need to pay premiums, issue policies and process claims? How will you obtain agreement to urgent claims? If you will use paper documents, how will you send them to London, or processing sites in other areas of the UK? If you are established in, or have your main place of business in a country where we have a General Representative, you may wish to contact the General Representative to discuss your plans to apply and to make sure that you are aware of any conditions appropriate to that country. A list of all Lloyd s General Representatives can be found at www.lloyds.com