A warm Welcome to The Control framework broker conference 17 th September 2013

1. A warm Welcome toThe Control framework broker conference17th September 2013

2. Luke SavageLloyd’s directorof finance & operations

3. 9:00 Arrival and breakfast9:15 Welcome and background to control framework9:25 International regulation and the Control Framework9:45 Tax and the Control Framework10:00 Delivery roadmap and project tools 10:20 BREAK10:35 Data quality and coverholder audits 10:45 Hiscox – Lloyd’s Control Framework: A managing agents’ view11:00 Integro– Brokers’ view into the Control Framework11:15 Q & A11:35 CLOSE11:45 Find out more – Crystal, Risk Locator Tool, the Exchange Luke Savage Andrew Gurney Helen Halliwell Jaana Rouvari Peter Montanaro Mandy Horne Dan Lott All Ali Dove Control framework broker conference

4. International regulation and the control framework Andrew Gurney, Senior Manager, International Licences

5. The global regulatory environment

6. Key regulatoryconcerns Modern Solvency Regulation Calibrated to local exposures Ensure level playing Field and Use of Local Rules Our Local Rules Much Stronger Consumer Protection Rule out Intermediary Conflict of Interest

7. Threats to Lloyd’s competitive market access 53Regulatory Issues Across licensed territories

8. lloyd’s market access challenges Existing licences Existing licences New licences

9. Lloyd’s Prudential challenges More data More reporting More local assets

10. Where does the Control Framework fit into this? • Regulators seeking ever more information • Lloyd’s data increasingly subject to audit or other assurance work • Best defence is good underlying data, and systems and controls around data that inspire confidence and a trust relationship with regulators

11. Tax and the control Framework Helen Halliwell, Senior Manager, Lloyd’s Taxation

12. Changing Environment • Fiscal crises • Tax authorities getting smarter and sharper • Starbucks, Amazon, eBay, Google, …. • Greater international cooperation • Greater exchange of information All these equal more active and more aggressive approaches by tax authorities

13. What are we seeing in practice? • Increasing number of audits – e.g. French income tax, Canadian provincial premium tax, German premium tax and more • Recurring audit programme • Ad hoc queries from tax authorities on particular transactions • Insureds taking greater interest in ensuring taxes are being handled correctly

14. Where does the Control Framework fit into this? • Lloyd’s adopts a low risk approach to tax • We make every reasonable effort to be compliant and be seen to be compliant • We are subject to tax audits from time to time • Best defence is good underlying data, systems that inspire confidence and a relationship of trust with the tax authorities

15. What is the impact of bad data? • Unexpected tax to pay • Drop in profitability • Undermines tax authorities’ confidence in Lloyd’s data and systems • Increased risk of further audits, more time spent dealing with queries • Increased risk of penalties • Increased international cooperation means an issue can spread to other territories

16. Delivery road map and project tools Jaana Rouvari, Project Manager, Market Operations

17. What is it? • Identifies for the first time explicit minimum information requirements covering tax and regulatory reporting. • A structured, documented process that allows managing agents to demonstrate they have adequate controls in place. • Nothing new!

18. WHOdoesit affect? Control Framework is the managing agents’ responsibility Phase I – Completed 39 managing agents successfully signed off on time! Phase II – Commenced in July 2013 • Coverholder business. • Key stakeholders- managing agents, London brokers and coverholders worldwide. • Presentations at Market Forums to focus on ensuring quality of information. • Our own page on Lloyds.com. • Monthly Breakfast Group for managing agents and brokers.

19. Coverholder risk rating Nature of operations Complexity of business written Use of Lloyd’s Tools? Single vs. Multiple Territories? Regional Complexity? Coverholders resources? Lloyd’s reporting standards? Lines of Business? Premium written? Historic Issues?

20. How it’s implemented Process for continuous improvement to ensure data quality

21. The risk model RISK How it may transpire 1 Requirements are not understood There are many reasons why this risk may crystallise. It could be that the person interpreting the requirements does not have the requisite skills or experience, human error, or the requirements being unclear or ambiguous 2 Data capture is inadequate This may relate to data not being captured, being captured more than once (duplicate) or that the data captured is erroneous. It may also be that data is not refreshed at the appropriate point (if relevant). 3 Data is processed incorrectly Between capture and reporting data will undergo some form of processing. In some cases this will be about using different elements of data to compute other information, but it also relates to things such as erroneous report definitions. Typically, this risk can also be used to cover security and continuity risks, but given the specific focus in the Operating Principles these have been broken out. 4 Data is corrupted Data may be corrupted accidentally or on purpose. Typically this involved inadvertent or erroneous changes to data when it is being adapted outside of core processing systems. 5 Data is lost and cannot be recovered This is most likely to crystallise where historic information is not contained in core processing systems that are subject to a robust backup regime, but in end user computing facilities such as spread sheets or user maintained databases.

22. Risk in the distribution chain Existing controls Further mitigation?

23. Coverholder audit

24. Managing agent Delivery road map • Assess risks • Develop remediating controls • Test controls & procedures in operations 6 Month Analysis Phase for each MA to size the project Confirmation of project delivery timescale • Identify controls and gaps • Implement controls • Confirm evidence for sign off • SIGN OFF!

25. Board Sign-off…

26. Lloyd’s project structure Executive Sponsor Luke Savage Project Board Helen Halliwell - Tax Andrew Gurney- International Regulatory Affairs Peter Montanaro- Delegated Authorities Rob Humphreys- Market Operations Ali Dove- Market Operations Programme Manager Ali Dove Project Team Jaana Rouvari- Project Manager John Hibbert- Stakeholder Manager Laura Fletcher- Business Analyst Lucy Evans- PMO

27. BREAK …Continues at 10:35

28. Data quality and coverholder Audits Peter Montanaro, Head of Delegated Authorities

29. KeyTopics • Coverholder Audits • Frequently asked questions

30. Dataquality • How does the Coverholder determine and record the risk location for a risk from a regulatory perspective for entry into their system? • How does the Coverholder determine and record the risk location for a risk from a tax perspective for entry into their system? • How does the Coverholder determine the relevant taxes to apply? • How does the Coverholder determine the tax liability for the insured or insurer? • What controls are in place to ensure that data does not become lost? • Does any data transformation take place? • Does the coverholder conduct sample data entry and reporting quality control checks?

31. FrequentlyAskedQuestions • Isn’t this going to upset our coverholders ? • Why don’t we just mandate the standards ? • What about restricted coverholders ? • Any other questions ?

32. Lloyd’s Control Framework:A Managing Agent’s View Mandy Horne – Head of HSL Broker and Data Governance – Hiscox Group September 2013 presentation for Lloyd’s Control Framework Broker Conference

33. Introduction Who am I?

34. Why are we doing this? • Lloyd’s Managing Agents are ultimately directly responsible for multiple territory regulatory and tax compliance when using Lloyd’s licences • Coverholders, acting on our behalf, have a duty to us and to Lloyd’s to ensure that they are acting compliantly and collecting and reporting correct data • Brokers, especially those who play an active part in the enrichment of coverholder data, have a duty to us and to Lloyd’s to effectively manage the coverholder relationship and ensure we receive accurate coverholder data

35. What happens when ANY OF US get it wrong? = = =    • Location • of risk  • Tax authority • payment • Regulatory • reporting • Licence • reporting • Tax • Regulatory • country • Territory regulator • Tax authority • Lloyd’s      Incorrect data is the root cause of many regulatory and tax issues

36. And what are the potential impacts for ALL OF US? Country regulatory and tax issues resulting in fines Lossof privileges to write in specific territories Reputation tarnished in the market and within Lloyd’s Loss of Lloyd’s licences for certain territories Impact on the clients or our relationship with the clients Reduced profits and loss of competitive advantage Our ability to write business effectively and profitably could be compromised

37. Phase 1 – Why did it work so well? • Lloyd’s included managing agents in discussion from the start and explained the rationale behind their requirements • We were able to discuss approach, issues and solutions with Lloyd’s and our managing agent colleagues at the monthly breakfast forums • Lloyd’s used the breakfast forums to bring in relevant speakers and encouraged managing agents to share their experiences • We engaged in regular updates and query sessions on a one-to-one basis with Lloyd’s • Tools and guidance documents were provided to us by Lloyd’s • Information page was set up on Lloyds.com • COLLABORATION WAS KEY TO PHASE 1’s SUCCESS

38. Phase 2 – What does it mean for Hiscox? • Now dealing with the assessment of controls outside of our own operations • With limited access to detailed information • And a need to engage with multiple stakeholders:- • c.300 (Lloyd’s business) coverholders worldwide • c.400 (Lloyd’s business) binding authorities across multiple classes • c.50 (Lloyd’s business) TPAs worldwide • c.60 Lloyd’s placing binder brokers • Through several different internal business units and distribution models • Via service companies or directly with Box underwriters in Lloyd’s • Written by multiple internal class underwriters We need to keep work to a manageable level and avoid upsetting anybody!!

39. Phase 2 – How will we all do that? • Consultancy and consensus approach between MAs, Lloyd’s and Brokers • Open communication; sharing and discussion of concerns • Attendance at the breakfast forums • Maintain awareness of developments • Avoid unnecessary disruption and information gathering exercises • Project to manage activities • Analysis between managing agents’ books to ensure coverholders do not get bombarded with multiple approaches from different sources • Pragmatic, workable, proportionate, risk-based solutions • Solution is focussed on audit scope and scheduling • WE NEED BROKERS TO SUPPORT US • COLLABORATION WILL BE KEY TO PHASE 2’s SUCCESS

40. Integro – Dan LottBrokers’ view into the Control Framework

41. Lloyd’s Control Framework The Control Framework is a positive step in the right direction for Brokers and for Coverholders…

42. What is our role? • It is the Managing Agent’s responsibility to comply with the Control Framework but, as Lloyd’s Brokers, we have an important role to play: • Communication • Co-ordination • Pace-making

43. What do we need to do? • Understand the Control Framework - Phase II FAQs; Website • Be prepared: • Are you a Coverholder? Do the right people in your organisation know about the CF?! • As a Lloyd’s Broker, what (if any) processes do you undertake? e.g. validating data / supplementing data / holding data • Expectation management is key! How will you introduce this to your Coverholders? • Audits are likely to be carried out on many Coverholders • Start the dialogue early. Remember – this is nothing new!

44. Who can we talk to? • In the first instance, talk with your Managing Agent(s) • Mark Knight at LIIBA • The Project Team at Lloyd’s • It’s good to talk!

45. Q & A

46. close • www.lloyds.com/controlframework • controlframework@lloyds.com • Monthly Market Breakfast Group • Lloyd’s Project Team • Crystal & Risk Locator Tool – sandra.sherlock@lloyds.com • Electronic Distribution – james.bobbitt@lloyds.com For more information…

47. UPCOMING Lloyd's TECHNOLOGY EVENTS in THE OLD LIBRARY Technology Thought Leadership Sessions Venue: Lloyd’s Old Library (08:45 – 09:30) • Tuesday 1st October – Northdoor – “Implementation and migration of a new UW system in under six months” • Friday 8thNovember – IBM –“Are you making the most of social media in business?” Technology Day: e-Trading and Distribution • Tuesday 3rd December More information: www.lloyds.com/the-market/communications/events Contact: Paivi Marshall - paivi.marshall@lloyds.com James Bobbitt - james.bobbitt@lloyds.com