Update on Market Reform John Harvie, Andy Brookes Market Reform Forum 28 September 2006

Market Reform Page 1 Market Reform Update Contract Certainty – todays special topic Contract Documentation Processes Back office electronic infrastructure –Accounting and Settlement –Design work –Tools to aid A&S performance (Stage 1) –Repository for claims and A&S: Live –ECF, Insurers market repository, IUA pilot Forward agenda for reform – Headline: Claims and A&S infrastructure live

Market Reform Page 2 Contract Documentation Pilot Checking contract up front –Published set of checks to be completed before the contract is entered into. Rationalised set of checks in pilot QA tool Choice of who does the checks –Allow each managing agent to perform the checks themselves or to place reliance on a leader or a suitable service provider Contract ready to use –At minimum to produce and issue a client copy within 30 days Discretion on branding –Allow managing agents and brokers to agree on branding of the client copy, provided it includes agreed Lloyds branding. Validation by Lloyds –All pilot risks should be submitted

Market Reform Page 3 Contract Documentation Pilot Pilot (NA Property, Marine Hull and Aviation Liability) –Risk volumes very low; LMBC raising awareness to drive up participation Broadening classes added to pilot to increase volumes –International property; D&O; other liability XIS planning to align to QA checks –To be implemented post October release of Pilot QA tool for all CoBs. QA tool –Third phase (of 4) of QA tool released 28 th Sept. –Rest of COBs due to rollout end of October. Testing going well. MR Slip addendum – under discussion –Proposed changes required to be made to a Market Reform slip for pilot

Market Reform Page 4 Accounting and Settlement strategy A&S P2P Overview Design –Outstanding issue around the requirement for a placement message for risks that were not placed electronically. Resolution under review. A&S Detailed Premium Processes –Output to be published at the end of September – subject to placement issue. A&S Detailed Claims Processes –Behind schedule; aiming for this week (end-September). The document is currently under review. A&S Detailed Technical Document –Had intended to publish end August. Held off to enable all to be published at same time; and subject to placement issue. Franchisor Data Requirements –Required for any Lloyd's managing agent to go P2P. Still aiming for end September, but will be tight.

Market Reform Page 5 Resources to support the raising of standards in accounting submissions Data on performance LPAN Guidelines Checks applied by XIS to Lloyds business –LPAN –Taxation –Treaty Statements –Accounting information IUA checks will soon be added To help brokers get it right first time

Market Reform Page 6 Benchmarking Performance

Market Reform Page 7 Benchmarking Performance The following graph shows the proximity of TA submissions to inception date

Market Reform Page 8 Example from LPAN Guidelines on MRPO SIte LONDON PREMIUM ADVICE NOTE PM/AP/RP (1) Broker No. (3) M/NM/AV (7) No. of Lines (12) 100 % Gross Premium (18) Orig. Ccy (22) 100% Gross War Premium (27) Broker (4) Broker Contact: (5) Name: Ext. No.: SPECIAL SETTLEMENT (6) YES/NO Signed: Title: Bureau Original Ref. (8) Bureau Total Line (13) Stage 1S&A Line Type (14) Broker Reference 1 (10)Broker Reference 2 (11) Def/Res (15) No of Insts (16) For Future Use (17) DEFERRED INSTALMENTS Month/Year (30) Brokerage (19) Tax (20) Other Deductions (21) Rate of Exchange (23)Sett. Ccy (24)Bureau NA Premium (25)PSD (26) Bureau NA War Premium (28)For Future Use (29) FOR BUREAU USE For Bureau Use NA Instalment Premium (31) Separation (9) Bureau (2) BOX 17 = AMOUNT OF UK OR OVERSEAS PREMIUM TAX THAT IS DUE TO BE PAID TO UNDERWRITERS IF APPLICABLE (CONDITIONAL) I.E. ANY TAXES OR CHARGES THAT ARE PAYABLE BY THE INSURED IN ADDITION TO THE PREMIUM AND WHICH ARE TO BE COLLECTED AND/OR ADMINISTERED BY UNDERWRITERS. THE FIGURE SHOULD BE THE BUREAU AMOUNT IN THE SETTLEMENT CURRENCY.

Market Reform Page 9 Example From Accounting Checks on MRPO Site RefCheck DescriptionSubject Area Submission Type R/IR/I Trans Type MarketClass of Business For premiums in respect of an off slip the year of account to be applied must be clearly indicated. Either the signing number and date of the year of account facility must be quoted or the following statement completed and advised "Closing off of a slip incepting dd/mm/yy". Year of Account Off Slip Premium Where underwriter lines are affected by a syndicate change any amended lines must be agreed by the relevant underwriters on an LPO301. If a policy has been signed an endorsement to the policy must be submitted. Market Change Where UK terrorism is being covered all underwriters who are members of Pool Re should have premium presented under BD risk code. Premium Terrorism

Market Reform Page 10 Example From Accounting Checks on MRPO Site RefCheck DescriptionSubject Area Submission Type R/ITrans Type MarketClass of Business Where typed signed lines are presented these must either state "agreement obtained in respect of uninitialled lines" or a copy of the original slip must be supplied. Copy Slips Non Marine Where the period is extended the premium should be calculated on a pro rata basis, taking into account all previous accounting entries. Period Change Endorsement Additional Premium Where the bordereau identifies the period for each declaration the inception date must fall within the period of the cover or lineslip. Bordereau Where a risk is Not Taken Up and a signing has occurred then all underwriters must agree to the cancelling transactions. Not Taken Up Cancellation Return Premium Where Pool Re terrorism business is being covered it must be clear that all Pool Re underwriters on risk have been advised the relevant zonal Pool Re information to enable them to make their quarterly returns to Pool Re. This may be supplied in the form of an agreed LPO528G for open market business or an LPO529G for binding authority declarations. Pool Re Terrorism

Market Reform Page 11 A&S – the electronic van Successfully delivered and now live –Meatloaf: 2 out of 3 aint bad – and direct load –200+ submissions already –DRI – held over, still in testing Contractual framework being sorted – this week? –Ditto ECF Further phases –ECF and A&S together – one repository –November; February (utility repository) Implementation info on MRPO website Associations and MRG pushing ramp-up

Market Reform Page 12 ECF Successfully delivered and now live –First for 15 years? –1 broker and 3 managing agents using in anger –no paper file for some transactions 111 early electronic claims partnerships underway –Using the live system, even though paper file as well; 1120 new claims –IUA pilot – extended to end-Q4 Contractual framework being sorted – this week? –Key to initial up take; more firms committed to 100% applicable new claims –When it comes out, sign it! Remember this is the initial delivery –Bug fixes in November; more to come in Q1 next year (Binders) Implementation info on MRPO website Optional – really? –Ramp up major priority for Q4 06 and 2007

Market Reform Page 13 MRG forward looking agenda 2007 laminate Keep doing the blindingly obvious –FSA will not go away on CC and legacy –New infrastructure: ramp-up use; oversee changes What else? –Talk to your Association and MRPO Use new discussion forum on MRPO website