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					Topic                         Date                                                        Question                                                                                                                              Answer



3rd party FAL                 Oct-10   We are looking at the third party FAL spreadsheet and have entered the value of the third party FAL and   Spread risk assessment requires government bonds split as follows:
                                       derived the various splits for the QIS 5 forms. However, we do not know from this sheet how to complete   (i) EEA
                                       section 1.1 of the Assets tab on the QIS 5 workbook. On this tab, we are required to split the borrowings (ii) Non-EEA (issued in domestic currency)
                                       guaranteed by a national government between exposures in the currency of the government and exposures in (iii) Non-EEA (issued in non-domestic currency).
                                       other currencies. This is for each of the countries. However, the third party FAL spreadsheet doesn‟t
                                       appear to give us this information. It shows us, for example, EEA govt (domestic) and the currency but we The third party spreadsheet provide the above information and the currency code indicate the currency of the investments. In the case of
                                       don‟t know which country the stock has been issued in. For example, we know there are holdings in Swedish Non-EEA government bonds (domestic currency), the currency code would also indicate the country that has issued the bonds. The issuer
                                       Kroner, but we don‟t know whether the Swedish government issued it or not. Also, the holdings in USD, we  of the Non-EEA government bonds (non-domestic currency) is USA.
                                       don‟t know whether this was issued by the US or another country. Please can you help?
                                                                                                                                                 For concentration risk, we have assessed the 3rd party FAL assets centrally and none exceeds the threshold. Hence, assume a "0" capital
                                                                                                                                                 charge in relation to concentration risk on the 3rd Party FAL assets.


Agency bonds                  Oct-10   It appears that most, if not all of the Agency bonds in the OSDs, have been classed by Lloyd‟s as        The agency bonds in the OSDs are "straight" bonds i.e not covered or structured bonds and that‟s how they have been treated for stress                          AP       ###### Yes              Yes
                                       Government (or Government Guaranteed) in the spreadsheets. Presumably it means that these are explicitly testing. Most of the agency bonds are explicitly guaranteed by the Government and the proportion that is not explicitly guaranteed has also
                                       guaranteed in the prospectus, as Lloyd‟s has previously advised managing agents that this is a           been included in the government guaranteed category because we believe that the government would honour them incase of any default (as
                                       requirement? A number of these bonds are structured products, but I presume that they can be treated as  demonstrated during the financial crisis).
                                       government bonds in the Spread Risk helper tab, rather than as simple or complex structured products? I
                                       presume this is how Lloyd‟s treated them in the OSD stress tests, provided in the spreadsheets?



ASL                           Sep-10   Will Lloyd‟s be providing the look through investment information required on Lloyd‟s centrally held assets         This information was provided to the market on 1 October, along with details of overseas trust funds and third party FAL.
                                       such as ASL?

ASL                           Oct-10   The ASL breakdown spreadsheet that Lloyd‟s produced last week does not have a breakdown for Bahamas                 Bahamas funding was first collected in 2010, hence it is not applicable for QIS5 which applies to 31/12/2009 year end.
                                       securities – how should we treat these securities?


Asset classification          Sep-10   Item 3, information on spreads aggregates - is this section for non-EEA governments, issued in their own            The helper tab spread risk calculation spreadsheet is used for all non-EEA bonds. This should be completed as follows:
                                       currency and then converted to the reporting currency? For example, we have a lot of US Gov‟t Bonds,                (i) Covered bonds, select "covered"
                                       issued in USD but no US Bonds in GBP (the reporting currency)                                                       (ii) Sovereign bonds issued in domestic currency (i.e currency of the issuing country), select "Non-EEA sovereign"
                                                                                                                                                           (iii) Sovereign bonds issued in currency of an EEA state (e.g EURO, GBP), select "Non-EEA sovereign"
                                                                                                                                                           (iv) All other Non-EEA government bonds and corporate bonds, select "No"



Asset classification          Sep-10   We are entering on the helper tab for spread risk our exposures to US Government stock issue in it's                This should be used for all Non-EEA government bonds, covered bonds and corporate bonds. In the case of US Government stock issued
                                       domestic currency of US$, we are entering this as "Non EEA Sovereign, which produces no capital                     in US$, select "Non-EEA sovereign"
                                       requirement. However reading the Lloyd's Q+A for September 2010 under Topics "asset classification" an
                                       answer states that; "If the syndicate is reporting in GBP, then this section should be populated with bonds
                                       that are issued in GBP by non EU country governments." Therefore under which section should we enter
                                       US Government stock issue in US$, "No", "Covered Bond" or "Non EEA Sovereign".


Assets                        Sep-10   Are the balance in the CICR, CILF etc that are reported on line 1 of QMA form 002 “Listed” or “Unlisted”?           CICR is unlisted while CILF is listed



Asset valuation               Oct-10   Regarding risk asset valuation – is this should be the market value of the assets plus the accrued interest?        When assessing the spread risk, "clean" market value should be used because it would be the capital amount that would be affected by a
                                        You can purchase and sell the accrued interest, there is an inherent risk that its value could fall to zero if     change in spread. However, the "dirty" market value should be used in the concentration risk module.
                                       the assets default, also there is the risk that the issuer will not pay the coupon on it. The accrued interest is
                                       included on the balance sheet, so shouldn't this should be included?

Asset valuation               Oct-10   If we are to use the market values as reported in the valuation tab, do these market values need to be              The market values reported in the valuation tab should be used for stress testing.
                                       recalculated based on the risk-free rates provided by CEIOPS first and then these new market values
                                       stressed? As they currently are obviously not based on the CEIOPS risk-free rates



Bonds                         Sep-10   Please will you clarify the following in relation to the detailed QIS5 guidance for provided by Lloyd's:   These are forms of structured products, hence they should be included in columns J to AB.
                                       Allocation of ABS, CMO and CMBS bonds. The ABS, CMO and CMBS bonds disclosed in line 2 of form
                                       QMA2 should be used in the "spread" helper tab in the bond calculation (columns B to H) and not structured
                                       credit calculation (columns J to AB) .


Bonds                         Sep-10   Having reviewed the Technical specification (TP 5.88 & 5.124), it appears that Agency bonds and                     Agency bonds issued by a US Government-sponsored agency are backed by the US government, but not guaranteed by the government
                                       Government Guaranteed Corporate Bonds actually carry no capital requirement if they are demonstrably                since the agencies are private entities. In the case of banks partly owned by the government, their bonds are not guaranteed by the
                                       guaranteed by the national government of an EEA state, issued in its own currency, so shouldn‟t be treated          government. Only those bonds that are demonstrably guaranteed by a national government should be treated as government bonds. Hence
                                       as Corporate bonds as you mention below. Would you be able to confirm this for me please? Also, why can             agency bonds and those bonds issued by banks partly owned by the government should be treated as corporate bonds in the determination
                                       the same not apply to those holdings guaranteed by governments such as the USA, given that their credit             of capital charge.
                                       rating is higher than some of the EEA state members? It appears counter-intuitive that a bond that yields far
                                       less than a Corporate and carries far less risk than a Corporate, should carry the same capital requirement
                                       as a Corporate bond. Essentially, if we are going to be penalised in this way, we may as well transfer all of
                                       our holdings out of the “safe” investments and into “risky” Corporate investments. Is this something we can
                                       address to CEIOPS?



CICR funds                    Sep-10   We have funds that are held in CICR, these are reported in QMA2 Line 1. According to the instructions               CICR should not be reported under participations. CICR and CILF should be treated in the valuation tab as cash and cash equivalents.
                                       under QIS5 they are to be reported under assets as participations. Are you expecting to see this in the
                                       participations tab, if so how do we classify it?

Counterparty risk             Sep-10   In the assets tab for Counterparty default risk are you expecting the values to be based on the helper tab from If you use the helper tab to complete this section, then yes.
                                       CEIOPS ?


Counterparty risk             Sep-10   This is section 5 on the Assets tab and there is a helper tab to help you complete. More guidance for the           For completeness, the recoverables from reinsurance arrangements for the purpose of the SCR calculation should include all amounts
                                       helper tab would be good e.g. What is the definition of recoverable, I assume RI on premiums and claims             due from counterparties and so, unlike the technical provisions, should include paid RI accruals. QIS5 does allow for simplifications on the
                                       provisions (but what about paid RI accruals?). Also in QIS4 we were able to use a simplification putting            counterparty default module and so banding by credit rating would be acceptable (assuming an equal probability of default within the rating.
                                       reinsurers in the 6 banding groups rather than listing each one separately, are we allowed to do this again?        Note SCR.6.57 - default probabilities used must be the highest of those within the group).


Counterparty default          Oct-10   Please could you confirm the source of input for the following:- On the Assets tab, section 5 :Information on       1). Yes, this is sum of "Col V" in the helper tab and this should equal "cell D23" in the T1_Exposures tab.                                         Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please
                                       the counterparty default risk. 1. For section 5.1 Sum (loss given default risk) - Col F From the helper             2). Variance of the loss distribution of type 1 Exposures is the "Type 1 Variance y'Uy+v'zsheet" (cell 6)                                                    could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you   this is      party              could you
                                       sheet, is this - Sum of "Col V" for each category? 2. Variance of the loss distribution of type 1 exposures                                                                                                                                                                      confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm     sum of       default            confirm
                                       (cell F163) From the helper sheet, is this "Type 1 Variance y'Uy+v'zsheet" (cell 6)? If this are not the                                                                                                                                                                         the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the         "Col V" in                      the
                                       correct inputs from the helper sheets, please could you advise what are?                                                                                                                                                                                                         source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of   the helper                      source of
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Currency                      Sep-10   On the Assets tab in section 2 (information on currency risk) what components of the balance sheet should           This should be the whole trial balance.
                                       be included here e.g. is all assets or just investments or is it the whole trial balance?



Currency                      Sep-10   Agents should enter, "in the currency of the spreadsheet (required to be Sterling), details of their assets         All foreign currency assets/liabilities should be entered, in Sterling. The chosen treatment should allow for capturing all exposure to
                                       and liabilities exposed to currency risk, split by currency shown.” I assume that effectively this is all assets    currency risk, (with some allowance for materiality).
                                       and liabilities to tie up to the assets and liabilities total on the valuation tab (but on a current basis or S2
                                       basis) . And I also assume that materiality would apply to splitting assets and liabilities between currencies,
                                       the normal 4 currencies but also what about non pure convertible £ as we have to disclose for technical
                                       provisions? No obvious line for this so I assume not. Can you confirm treatment please?


Currency                      Oct-10   Last year for QIS4 we got clearance to look at fx risk in relation to our functional currency of USD, rather        Under QIS5, FX exposures are assessed based on the "local " currency. Local currency is defined in the QIS5 technical specifications as
                                       than our presentational currency of GBP. This would reflect the business reality that we manage fx exposure         the "currency in which the undertaking prepares its financial statements".
                                       versus USD and therefore are concerned if we are, say, long in GBP but not so concerned if we are long in
                                       USD. We're proposing to do the same for QIS5. Please could you confirm that this is acceptable to Lloyd's.


Currency                      Oct-10   We were checking through our spreadsheet today, and our consultant suggested that Table 1.1 on I.Assets   All of the QIS5 submission must be in GBP and the units must be in thousands.
                                       should be in GBP. We have it in local currency. Can you let me know whether you were expecting it in GBP?



Currency risk                 Oct-10   I was completing the assets tab. For the currency risk my methodology is to determine total assets and              Assuming that by "RESERVES" you mean members' balances and not technical reserves, then your approach is correct.
                                       convert them at year end rates for each currency. Then determine total liabilities excluding RESERVES and
                                       converting them at year end rates. Is that the correct way to approach it?


Government securities         Sep-10   How are regional / municipal government securities to be treated?                                                   As per CEIOPS' FAQ no. 56, page 44 ( https://www.ceiops.eu/fileadmin/tx_dam/files/consultations/QIS/QIS5/CEIOPS-Q-and-A-document-
                                                                                                                                                           20100923.pdf), " The capital requirement for local authority bonds is "0" in credit spread risk and market risk concentrations only when
                                                                                                                                                           local authority bonds are demonstrably guaranteed by national government of an EEA state and are issued in the currency of the
                                                                                                                                                           government. Otherwise, standard risk factors should be applied." This means that if the bonds do not meet the above requirement, then they
                                                                                                                                                           should be treated as corporate bonds.
Interest rate shock           Oct-10   We have been looking at the Interest Rate shock, and wish to know whether a simplification can be used.             QIS5 requires the discounting of all future cashflows at the specified rates, however if you are unable to provide cashflow data, using the
                                       Specifically, can we use the modified duration to get a (very close) approximation to the impact of the shock       modified duration for each holding will provide you with a fair approximation to the sensitivity to interest rates.
                                       value? My investment department said that this is the market norm for assessing the impact of interest rate
                                       shocks.




Interest rate shock           Oct-10   The central yield curve will give rise to a different market value, particularly for short-duration bonds. Should Using the central yield curve will result in a different market value, as the rates will not be the same as those used to value your funds at
                                       the stress values look at the range around the central yield curve implied market value, or should it follow the 31.12.2009. The implied market value should be used to obtain a percentage shift up and down, which can then be applied to the actual
                                       guidance exactly and put in the change from the actual market value to the stressed value. For example, the market value as at 31.12.2009.
                                       actual market value could be 90, the implied market value 95 and the stressed values 93-97. Should 93 or 88
                                       be included within the QIS5 spreadsheet?


Interest rate shock           Oct-10   What do we do with extremely short duration bonds, i.e. those that are due to mature in the next month?             The guidance from CEIOPS is that all future cashflows should be discounted, going so far as to provide shift points for maturities of less
                                       Applying the stress values gives an over-inflated view of what the real interest rate shock is to these specific    than a year. Those bonds with a short duration should have only a small impact from interest rate stress testing
                                       assets.




Interest rate shock           Oct-10   I have a number of questions regarding the Interest Rate Shock for QIS 5, in particular the assets that make As you have identified, using the central yield curve (as supplied by CEIOPS) will result in a different market value, as the rates will not be
                                       up the NAV. All of our investments will be included within the NAV used to calculate the shock, which are all the same as those used to value your funds at 31.12.2009. You should use the Implied market value (discounting all the cashflows using the
                                       fixed income bonds. I am unclear as to whether the NAV should be made up of the market values of the bonds yields as suppled by CEIOPS) to obtain a percentage shift up and down, which then can be applied to the actual market value as at
                                       as reported in the valuation tab, (i.e. market values at 31/12/09) or whether it should be made up of the sum of 31.12.2009.
                                       the actual face value cashflows if we were to hold those assets to maturity (i.e. coupon payments, principal
                                       paydowns and maturity paydowns), as the Discounting Tool provided by CEIOPS would suggest?



Interest rate shock           Oct-10   If we are to use the actual par value cashflows, how do we treat investments that are callable? As if they are      Duration of the callable investments should be used, however where this cannot be observed in the market or cannot be easily modelled,
                                       held to full maturity?                                                                                              then the ultimate maturity date should be used.

Interest rate shock           Oct-10   Will our LOC used to support FAL (included in Ancillary Own Funds) be included in this calculation, or as it        LOC will not be included as this is an off-balance sheet item                                                                                       MRC       ###### Yes              Yes
                                       is off-balance sheet, is this excluded?

Interest rate shock           Oct-10   Does it matter if the NAV is negative for some of the years on the discounting tool, i.e. because we don‟t          No this is fine. It is possible to have both positive and negative NAVs by future payment periods.
                                       have investments maturing in some of the years that we have reserves being paid out?


Investments                   Sep-10   For all investments we have entered modified duration on the spread helper tab and we are now preparing             The duration of assets to be used is the modified duration.
                                       investment holding cashflows to process through the "discounting tool". For Corporate/Treasury bonds we
                                       have no problem. However for mortgage backed securities with a given maturity date in say 20 years which
                                       investment managers have advised a modified duration of say 4 years, should we be entering the cashflow
                                       for this security going out for the modified duration of four years or the full 20?




MM Funds                      Sep-10   Can you confirm that MM funds did not require look through and are to be treated as cash for QIS5                   I can confirm that you should treat MM funds as cash for QIS5 purposes and look through is not required.
                                       purposes?


Overseas deposits             Oct-10   Having had a look at the QIS 5 OSD sheets issued by Lloyd‟s last week – they don‟t appear to tally up. For   When completing the stress tests, we have excluded those assets from the concentration and spread risk which have been issued by or are
                                       example on the Australian Trust Fund sheet the total Government Bonds in cell D8 is different to the number demonstrably guaranteed by a government with a credit rating of AAA-AA and are in domestic currency, as these have no impact on the
                                       in Table 1.1. Another example is that in section 3 – info on spreads, the bonds in the table for Standard    SCR. However those Non-EEA domestic government guaranteed assets will need to be included in your submission. Agents will need to
                                       Bonds is different to cell D10. Another example is for the Non-EEA sovereign bonds table – this has only got use the detailed asset data provided to perform their own analysis so as to get the full split of investments.
                                       the amount for the NZ bonds and not the Australian Gov‟t bonds (which are surely also non-EEA?) Another
                                       example is in the Australian JATF(2) spreadsheet – the table on Concentration of Assets – the sum of         The amount of OSD to be included in the long and short term deposits was that invested in deposits. The OSD should be reported as per
                                       concentration by category for Standard Bonds is greater than the the total Standard Bonds figure. There are the underlying investments.
                                       probably examples like this throughout the other spreadsheets as well. Please advise how to proceed. Also,
                                       as per the Lloyd‟s Detailed Guidance, should the OSDs actually be included in long and short-term
                                       deposits?


Overseas deposits             Sep-10   If we are applying a look-though basis to the underlying assets, should these be included in the Bonds and          Agreed, look through procedures need to be applied on the overseas deposits. The proposal in the QIS 5 guidance to split these between
                                       Cash lines in the Valuation tab, as opposed to the Long / Short Term Bank Deposits suggested in the                 short and long was meant only for any deposits included in the overseas deposits.
                                       Lloyd‟s Detailed Guidance QMA mapping suggests?



Overseas deposits             Oct-10   Looking at the split of overseas deposits we have a slight issue. At year end Dec 09 the balance of overseas        In the case of the split in the balance sheet, the accrued interest should be presented separately. The accrued interest should be included
                                       deposits accounts was split between deposit and accrued interest. Accrued interest was reported as "other           in the "any other assets, not elsewhere shown" line on the valuation tab.
                                       debtor", which is now in other assets on the valuation tab of QIS 5 workbook under current accounting basis.
                                       I now have a choice to either move the accrued interest from other assets under the QIS 5 basis, to ensure
                                       that the sum of Bonds totals back to what was sent to use by yourselves. or leave other assets as originally
                                       reported and bonds will not come back to the statements received. Could you provide some guidance on
                                       which you would prefer to see?


Overseas deposits             Sep-10   Overseas Deposit treatment: It has been suggested in the detailed guidance to include the overseas                  The breakdown of overseas deposits was provided to the market on 1 October to allow for full inclusion.
                                       deposits as long term bank deposits which would fall under counterparty risk. Bearing in mind the
                                       spreadsheet available from the Lloyd's treasury team (as attached) showing the underlying securities; is this
                                       factoring the risk associated at a "better than best efforts" basis? Or should we be including overseas
                                       deposits in the spread and concentration risk helper tab calculations.




Overseas deposits             Oct-10   Further to the analysis of overseas deposits into their underlying investments provided a few days ago, I    Information on Canadian Margin Fund has already been provided. CILF and CICR are liquidity funds and qualify as cash and cash
                                       understand that the same analysis is required for the Canadian Regulated Funds denominated in USD            equivalent, hence no "look through" is required.
                                       which is classed as a holding in an investment pool? Also the Guidance Notes for QIS 5 (page 24, Section 1
                                       “Balance sheet – Assets”) suggest that a “look through” analysis is required for collective investment funds
                                       – would this include the CILF and CICR? If this “look through” analysis is required for these items, is a
                                       “market wide” solution going to be provided as was done for overseas deposits or will we have to get this
                                       information from Citibank/Royal Trust?


Overseas deposits             Oct-10   In the analysis of Overseas Deposits into Bonds - Government, Bonds - Corporate (other) and cash                    In the assets tab, Non-EEA sovereign bonds amount will not agree with the "bonds-government and multilateral" amount in the valuation tab
                                       shouldn‟t the total of section 3 “Information on spreads” (AAA, AA etc) agree to the “Bonds – Corporate             since the EEA government bonds have been excluded from the asset tab because they have a "0" capital charge.
                                       (other)” in section1 “Balance Sheet assets” under the Valuation Tab at the top?                                     The "bonds standard" amount in the asset tab will not agree with the "bonds - corporate(other)" amount in the valuation tab because for
                                                                                                                                                           spread risk assessment, Non-EEA government bonds issued in non-domestic currency are treated as standard bonds.




Securities                    Oct-10   If we have securities that are demonstrably guaranteed by the US Government, where are these placed in the The securities that are demonstrably guaranteed by the US government and are issued in USD should be included in the "Non-EEA
                                       Assets tab in section 3? In the Standard Bonds table or in the Non-EEA sovereign bonds, issued in          sovereign bonds, issued in domestic currency" table.
                                       domestic currency table?


Simple/Complex assets         Oct-10   Can you clarify for me which assets should be treated as simple and which as complex securitised bonds for          Distinction between basic and complex MBS depends on whether the investment provides "pass-through participation certificate " or they
                                       me please, out of: MBS, RMBS, ABS, CMBS, CMOs and ARMs                                                              have special features (e.g. protects the investor from certain risks). The pass-through participation certificates entitles the holder to a pro-
                                                                                                                                                           rata share of all principal and interest payment made on the pool of loan assets. The complex MBS could be organised in tranches and
                                                                                                                                                           each tranche is sold separately. An example of a pass-through MBS include Residential Mortgage Backed Securities (RMBS) and
                                                                                                                                                           Commercial Mortgage Backed Securities (CMBS) while example of a complex MBS is the Collateralized Mortgage Obligation (CMO).

                                                                                                                                                           "Pass-through" investments should be considered as simple while the collateralized investments should be considered as complex.




V5 spreadsheet error          Oct-10   The QIS 5 spreadsheet (issued 5th October) stated it had resolved the Reconciliation reserve on tab I.              Please refer to the updated version (issued on 6th October 2010).                                                                                    AP      ########    Yes          Yes
                                       Valuation [rows 120:126] Either I am misunderstanding how this schedule should work, or the spreadsheet             Inclusion of RI element is correct because the RI amount has been considered in the "adjustment to assets line". The aim of this section is
                                       is still incorrect.   At present the rows 121:126 are inconsistent and without manual intervention result in the    to reconcile the own funds as per the accounting balance sheet to the excess of assets and liabilities as per QIS5 balance sheet.
                                       Balance Sheet not balancing! The calculations are as follows , with my suggested remedial actions

                                       Row121 Adjustments to assets Present formula F61-G61 This subtracts "Current accounting assets from
                                       Solvency 1 assets. Following the formula in Row 122 , it should be H61-F61 This subtracts Solvency 2
                                       assets from Current Accounting base. As Col F & G are the same for the syndicate it makes no difference to
                                       the final calculation. However CEIOPS needs to decide if the Reconciliation reserve reconciles "Solvency 2"
                                       (Col H) to "current accounting base"(Col F) or "Solvency1"(Col G) Please note the reversal of column
                                       order i.e. H minus F Also note that this includes the RI element of Technical provisions - IS THIS
                                       CORRECT?



V5 spreadsheet                Oct-10   Row 122 Adjustm    ents to technical provisions gives the difference in gross technical provisions between          The reconciliation reserve enables reconciliation between own fund items based on accounting values and excess of assets and liabilities
                                       Solvency II (col H) and Current Accounting Base (Col F). Should this be the difference in Gross Reserve             based on QIS5. Adjustments that have been made to assets and liabilities so as to get to QIS5 values are picked here so that the total basic
                                                                                                                                                           own funds before adjustments can be calculated, and as a result balance the balance sheet.
                                       or Net Reserve? Row 125 Adjustm       ents to other liabilities: this cell has no formula, but based upon Row
                                       122, I assume it should be the difference between Col H and Col F, Rows 87 to 98? These are the
                                                                                                                                                           In the case of "adjustment to other liabilities", adjustments made to other liabilities will need to be entered on this line.
                                       adjustments I needed to make , in order for the balance sheet to balance and assuming the change in
                                       Retained earnings needs to be posted to the Reconciliation reserve.




Basic own fund items          Sep-10   Your instructions say pick up line 11 of form QMA205. What line in Basic own funds items would you expect           Members' balance should included in the "Retained earnings including profits from the year net of foreseeable dividends" line
                                       this to appear. It could be either „Retained earnings including profits from the year net of foreseeable
                                       dividends‟ or „Surplus funds‟.

Cash deposits                 Sep-10   Do I treat the collective investment schemes e.g. deposit arrangements as the custodian defaulting or the           This should be treated at underlying asset level. Information on overseas deposits was provided to the market 1 October.
                                       underlying assets underneath them. Is there any split of investments available for overseas deposits yet.


CILF                          Oct-10   Please could you clarify the treatment of the CILF – overnight sweep of the LDTF – from the Lloyd‟s detailed        CILF and CICR should be treated as cash and cash equivalents.
                                       guidance it would seem that as they appear on line 1 of the QMA balance sheet they should be described as
                                       Equities / Other Shares. There is then an FAQ which says that they would be further categorised as listed.
                                       However, there are then further FAQ answers which say that as the CILF and CICR are liquidity funds they
                                       should be treated as cash and cash equivalents. Please could you clarify the treatment.




Concentration of              Oct-10   In the QMA return form 219u we had headings Sovereign Debt , Government Agency and ratings. For QIS5                The terms in the QMA return form 219u are the same as those in QIS5. However, QIS5 requires split of the sovereign debt i.e. those
investments                            there are Type of exposure and ratings. Is there any views how these should match to 219u?                          issued by an EEA state, those issued by a Non-EEA state but in its domestic currency, and the rest. Also, there are additional ratings
                                                                                                                                                           required under QIS5.


Concentration risk helper     Sep-10   Question relates to QIS5 tab SF.SCR.G point 5.104 - Concentration Risk Is the Initial Asset Value total and         The concentration risk helper doesn't automatically feed into the QIS5 sheet. I understand that cell F410 of the SCR sheet (labelled
tab                                    Net asset value after shock amount automatically populated from the concentration risk helptab or are these         Mktconc) needs to show the value calculated within cell C2 on the concentration risk helper tab (also labelled as MKTconc). You will need
                                       figures manually entered. If manual, what is the shock factor?                                                      to input figures to cells F412 and F413 accordingly.




Concentration risk            Oct-10   Can you clarify for me what assets I need to be classing and analysing under Concentration Risk and what            All assets considered for equity, spread risk and property risk (e.g. corporate bonds, Non-EEA government bonds) should also be
                                       assets I need to be classing under the Counterparty default Risk module. Do you have a definition of what           considered under concentration risk module.
                                       you are expecting to be listed under each.                                                                          Assets included in the counterparty risk module include risk mitigating contracts such as reinsurance arrangements, receivables for
                                                                                                                                                           intermediaries, cash at bank) as well as any other credit exposured which are not covered in the spread risk module.
                                                                                                                                                           Refer to CEIOPS Technical Specifications for more details regarding this.


Concentration risk            Oct-10   On the concentration risk help tab: a. do we have to group all the US T-Bills together or can we show them          a. The US T-Bills can be shown separately.                                                                                                           AP       ###### Yes              Yes
                                       separately b. for credit default swaps, if these are not included under Solvency II balance sheet then we do        b. yes - If the credit default swap are not included in the Solvency II balance sheet, then they should not be included in the currency risk
                                       not need to include them in the currency risk calculation c. is there an error in the pickup on the CEIOPS          calculation.
                                       spreadsheet for the operational risk calculation as it only seems to pick up gross direct reserves d. on the        c. This was an error in the old version of the spreadsheet. The updated spreadsheet - update no. 3 (dated 28/9/10) picks up the correct
                                       submissions to Lloyd's are Lloyd's expecting questionnaires to be filled out and sent to Lloyd's as part of the     balances.
                                       submission?                                                                                                         d. Yes, Lloyd's expects the questionnaires as part of the submission.

Concentraion risk             Oct-10   Just to clarify, the Concentration Helper Tab requests the total value of assets considered, not the total Yes, the total value of assets considered should be included in the concentration helper tab.                                                                 AP       ###### Yes              Yes
                                       number of assets considered? Also, the only government bonds to be considered in this figure are non-EEA Only Non-EEA government bonds should be considered here, however EEA government bonds issued in Non-EEA currency should be
                                       government bonds?                                                                                          treated as standard bond for spread risk purposes and hence should also be considered in the concentration helper tab.


Concentraion risk             Oct-10   I have another question regarding the concentration element in QIS 5. If a bond is demonstrably guaranteed This should be combined with the respective government securities.
                                       by a government, should it be combined with the government, or should it form its own counterparty (and if
                                       this is the case, would it be a separate government counterparty or a standard corporate counterparty)?



Contingent liabilities        Sep-10   Does the 3% callable New Central Fund contribution count as contingent liabilities? If so , do I need to            This would not qualify as a contingent liability under IAS 37. Please see definition of contingent liability in the QIS5 Technical
                                       include it in my QIS 5 Balance Sheet?                                                                               Specifications, page 17




Counterparty simplification   Sep-10   Can you confirm that once I run my SCR calc say 4 times for 4 bands of failed reinsurers and also calculate         There are actually two simplifications in use here, the simplified calculation for non-life reinsurance, and the simplification for grouping
                                       the capital cost of failure of banks , intermediaries etc I simply add these numbers together and put in cell       counterparties together. It is worth investigating the impact of both, as the use of simplifications is subject to a few conditions about
                                       C18?                                                                                                                proportionality (see pgs93-94, SCR1.15-SCR1.23). SCR6.55 also states that the non-life reinsurance simplification cannot be used if it
                                                                                                                                                           were to significantly misestimates the risk mitigating effect, or if the result of a more sophisticated calculation is not easily available. From
                                                                                                                                                           a few test calcs I have done, the simplified method does significantly misestimate the result so would not be appropriate. Cell C18 (SCR nl)
                                                                                                                                                           is just for the impact of non-life RI mitigation on the non-life underwriting risk SCR. Other counterparty exposures sit elsewhere.
                                                                                                                                                           Regarding the second simplification, I would check the impact of diversification, as you could have significantly higher charges by
                                                                                                                                                           concentrating reinsurance into fewer buckets.


ECA split                     Oct-10   I was wondering if I could get some guidance with regards to how to treat the ECA in QIS 5. As at 31/12/09          The proposed approach is correct, apart from the treatment of FIS. FIS should be treated the same way as FAL. Refer to the FAQ on the
                                       my syndicate had c.25% in FAL assets, 25% funds in syndicate, 50% provided by an LOC (half of which was             treatment of FAL.
                                       collateralised). By my understanding the FAL assets should go into the QIS 5 asset split (including cash);
                                       the funds in syndicate should go into Basic Own Funds – 1e) Surplus Funds; the full LOC (including
                                       collateralised portion) should go into Ancillary Own Funds Tier 2, Letters of Credit. Please can you confirm
                                       that this is right – if not, what is the right method?




FAL                           Sep-10   Is the Trust subject to the capital requirements outlined in the market risk module?                                Yes, in the case of FAL supported by form other than LOC and Bank Guarantee. The amount of FAL that is supported by LOC/Bank
                                                                                                                                                           Guarantee is included in the ancillary own fund items (outside the balance sheet) and does not have a corresponding entry in the assets
                                                                                                                                                           amount.

FAL                           Sep-10   How are excess funds taken into account in determining the capital requirements?                                    As per our QIS 5 guidance, page 5, "For a syndicate where all of the capital is provided by a member or group of members participating
                                                                                                                                                           solely on that syndicate, please report the full value of FAL held as at 31 December 2009".

                                                                                                                                                           The full amount of FAL should be included as assets, however if there is an element of FAL that is supported by LOC/Bank Guarantee, this
                                                                                                                                                           should be ignored and it should be included in the ancillary own funds items (this is an off-balance sheet item).


FAL                           Sep-10   We hold corporate bonds, held in Lloyds trust as FAL. We assume these investments will be included as               Corporate bonds held as FAL should be included as assets in the balance sheet and the corresponding entry should be included in the
                                       assets on the balance sheet but are unclear as to where they should be included in own funds tab. Can you           basic own funds items. The amount should be included in the "ordinary share capital (net of owns shares) - paid up" line.
                                       please advise?

FAL                           Sep-10   How should FAL provided in form of cash/investments be treated in the QIS 5 balance sheet?                          This should be treated as Basic Own Fund items and should be included in the "ordinary share capital (net of own shares) - paid up
                                                                                                                                                           capital" line. The corresponding amount should be included in the respective assets lines.



FAL                           Sep-10   How should FAL provided in form of LOC be treated in the QIS 5 balance sheet?                                       LOCs are treated as Tier 2 capital and should be accounted for in the QIS 5 spreadsheet as Ancillary Own Fund items. The ancillary own
                                                                                                                                                           fund amount is outside the balance sheet, hence no amount is included in the assets value. Also as stated in the QIS 5 Technical
                                                                                                                                                           Specifications, SCR. 6.45, page 144, "A letter of credit should not be taken into account in the calculation of the counterparty default risk
                                                                                                                                                           model if its approved as ancillary own funds".

FAL                           Sep-10   For FAL cash balances the double entry is presumably Dr Cash Cr Tier 1 own funds. Is this correct?                  Yes


FAL                           Sep-10   Is FAL cash allocated to "Initial fund" as opposed to share capital or "other reserves"?                            This is allocated to the "Ordinary share capital (net of own shares) paid up" line




FAL                           Sep-10   For the FAL cash balances, (which are a combination of USD and GBP balances), these are presumably                  Yes
                                       valued at balance sheet rates rather than the exchange rate used in the November coming-into-
                                       line valuation?

FAL                           Sep-10   For LOC, I think there has to be an associated debit or else the spreadsheet doesn't validate i.e. it doesn't       LOC is included in the ancillary own fund items, an off-balance sheet item, and hence no debit entry in the spreadsheet.
                                       balance. Am I mistaken?


FAL                           Sep-10   As for cash FAL balances, I presumably use the balance sheet exchange rate rather than the Nov CIL                  Yes
                                       exchange rate?




FAL                           Oct-10   Following receipt of the advice on the treatment of third party FAL within the QIS 5 spreadsheet (copied            The basis you have adopted is correct. The latest advice is relevant for syndicates with third party capital >25%
                                       below), please can you can confirm whether this approach must be followed. In the QIS 5 workshops I seem
                                       to remember it being mentioned that if non-aligned capacity is less than 25% of the total then it would be
                                       acceptable to assume that the asset split of the non-aligned FAL is the same as the aligned asset split.


FAL                           Oct-10   In the recent guidance regarding the treatment of 3rd party FAL, it states that „Agents should assume that       Yes, this should be applied on all 3rd party FAL
                                       the value of third party assets is reduced by 25% from this figure to allow for the effects of diversification‟.
                                       Where a syndicate has a portion of capital provided by 3rd parties (but not all), are we expected just to reduce
                                       in line with this?
FAL                           Oct-10   Please could you confirm how the following asset classes as provided in the FAL breakdowns should be                Life policies should be included in other assets while UCITS and Unit Trust should be included in investment funds.
                                       classified within tab I. Valuations of the QIS5 spreadsheet FAL category: Life Policies, UCITS, Unit Trust;




FAL                           Oct-10   With regards to the QIS 5 treatment of FAL, I understand that the FAL should be reported in the Assets with         The whole amount of FAL that is in form of cash and investments should be treated as Tier 1.
                                       the balance in Ordinary Share Capital – Paid Up. I assume the cash element of it should be Tier 1, but what
                                       would the investments be classed as? Would it depend on their maturity date?




FAL                           Oct-10   When calculating our Economic Capital Available, we go through an exercise, comparing the ECA with                  In the case of QIS5, there is no need to perform this analysis. The total amount of FAL backed by assets need to be included in the
                                       section (B) liabilities and section (D). This leaves a surplus (see the attached file). I believe this figure can   "Ordinary share capital (net of own shares), paid up" line and the assets need to be included in asset section of the balance sheet.Where
                                       only go on Ancillary Own Funds on the QIS 5 spreadsheet. Is this correct?                                           FAL is provided in form of bank guarantee or LOC, this need to treated as ancillary own fund items and is an off-balance sheet item.




FAL                           Oct-10   The FAL assets will be reported in the valuation worksheet in the appropriate cells, please can you advise          FAL that is backed by assets should be included in the basic own fund items section, "ordinary share capital (net of own shares), paid up"
                                       where the liability should be reported to make the balance sheet balance, in liabilities or own funds (if so        line.
                                       what line).

Hypothecated FAL              Oct-10   I have started to populate the CEIOPS QIS5 workbook on a "FAL only" basis so that I have a separate audit           LOCs should not have a corresponding asset entry due to the fact that they are an off-balance sheet item. They should only be reflected in
                                       trail of the FAL assets included in QIS5. I have yet to adjust asset values for QIS5, however I have                the ancillary own-fund items. We would prefer exclusion of LOC from the presentation of S1 assets and capital.
                                       encountered a couple of issues and would welcome your advice: 1) Valuation tab. I have hypothecated the
                                       non-aligneds' assets using QIS4 as a proxy pro-tem and set the Solvency 1 asset total to the ECA
                                       by inserting the LOC as 'any other assets' at F60 and adding to retained earnings at F118. 1a) I have
                                       excluded the LOCs from 'any other assets' for QIS5 purposes and shown the S1>QIS5 change as a value
                                       decrease. Is this the correct treatment of LOC for Solvency 1 in the valuation tab? 1b) In order to get basic
                                       own funds to work, I've had to insert the LOC value as an adjustment to other liabilities at H125 and deduct
                                       the same value from cell H118. Is this OK? 1c) Would you prefer me to simply exclude LOC from
                                       the presentation of S1 assets and capital [treat as off balance sheet]; i.e. for S1: net assets = ECA.




Investment Funds              Sep-10   Per page 23 and the additional note on page 24 Investment Funds such as mutuals, should be valued on a              Agreed. However you also need to consider any funds that could be included in QMA 2, line 3
                                       look through basis. For current accounting basis the cross reference on the QMA2 is to line 3. However as
                                       at 31.12.09 I do not believe this is where mutuals were put (and the QMA 2 is auto generated). They were on
                                       line 1 on the QMA2 but line 3 on the QMA 201.


Liquidity                     Sep-10   As at 31/12/09, we held c.€23m in a liquidity fund, which we treated as cash, as it dealt in very liquid paper,
                                       with a WAL of only 56 days. This was included, along with all our other cash in the trust funds (e.g. LDTF
                                       etc.), by Lloyd‟s definitions, in “Holdings in Collective Investment Schemes” in line 3 on the QMA 201. I was
                                       wondering how to treat this on the Balance Sheet – whether to put it as part of cash or whether a look-
                                       through basis should be applied. The issue I have with applying a look-through basis is that the fund
                                       provider cannot provide us with details of the individual holdings or modified durations, but only the % in
                                       each category of rating and asset class (please see attachment), so we would not have sufficient data to
                                       a
Topic                         Date                                                         Question                                                                                                                                 Answer

Non life cat risk             Oct-10   I have two questions regarding the calculation of Cat risk using the factor based method. 1) The Ceiops                  1) Apply cat premium 2) allocate a % to each scenario. (answer updated below)
                                       guidance says that the premium input Pt = estimate of the gross written premium during the forthcoming                   "Following a change to the QIS5 technical specification (see errata on CEIOPS website), CEIOPS have published Q&A response 178 to
                                       year in the relevant lines of business which are affected by the catastrophe event. (SCR.9.177). We have                 clarify the intended approach. The approach for method 2 non-life catastrophe risk should have no split of premiums between peril. The
                                       developed a model that allocates this gross written premium by SII LoB, which then has the Ct factor applied             whole premium for a line of business should be applied for each peril. However, if premiums for business that has specifically excludes a
                                       to it to produce a gross loss which is then netted down. In the case of something like MAT or NP RI                      particular peril, they may be removed from the premiums applied to the factor. Any such adjustment, as well as problems with the approach,
                                       casualty we are applying the Ct factor to the total GWP for that SII class. Is this correct or should it just be         should be documented within the qualitative questionnaire."
                                       applied to catastrophe premium? 2) On a similar note, for things like Fire and other damage which is split
                                       into 4 different cat scenarios (storm, flood, earthquake and fire), should all of the GWP have the relevant Ct           The following text was from a confirmation email from David Theaker at the FSA:
                                       factor applied to it or should we allocate a percentage to each scenario?                                                Method 2 requires the whole premium for the line of business for each peril – it is not a factor applied to a notional part of each premium as
                                                                                                                                                                the CEIOPS answer clarifies. One adjustment that would however be reasonable to make would be to exclude premiums in respect of
                                                                                                                                                                business which is not exposed at all to the peril (eg if certain business


                                                                                                                                                                has an earthquake exclusion then it would not seem unreasonable to exclude these premiums from the earthquake scenario).



Counterparty risk             Oct-10   When we calculate counterparty risks. I assume only outstanding receivables as at year end 2009 is relevant, The amount to be considered should be the outstanding receivables as at the end of 2009 .This should be the amount that is included in the
                                       not total recoverable? Also should be include the recoverable which related to unincepted business?          balance sheet as receivables. Counterparty default calculations must include reinsurer share of outstanding/IBNR claims as well as the
                                                                                                                                                    risk mitigating impact of reinsurance on the SCR. They also cover cash held at bank and other items as detailed in Section SCR.6 of the
                                                                                                                                                    technical specifications.

Expected profits              Sep-10   On pages 299-300 of the QIS5 guidance it discusses the expected profits on future premiums. OF.15 says                   EPIFP is testing the effect of including profits via the future premium cashflows (and whether this should form part of tier 1 or tier 3), so the
                                       expected profits included on future premiums for 'existing (in-force) business' need to be identified                    own fund item should capture all elements of this. This would include future instalment (or other) inflows due in the future on incepted
                                       separately. Does 'existing business' here mean the same as 'existing contracts' in the best estimate                     business, premiums on unincepted business, but not premiums that are over-due (which stay within premium debtors and are not moved to
                                       calculations (that is, does it include unincepted contracts to which we have a legal obligation) or is it just           premium provisions).
                                       concerned with future premiums on in-force=incepted business?



Health CAT risk sub           Oct-10   In SCR 8.5 “Health CAT Risk Sub modules”, section 8.101 states that non proportional health classes of                   The scenario based approach for Health Cat Risk requires a gross estimate of the losses under each scenario and a corresponding
modules                                business for example, accidental death, and excess of loss treaty, will not be captured. Can you please                  estimate of their mitigation. Inwards non-proportional Health reinsurance will be captured if it is included in the modelling of the scenarios.
                                       confirm that this is correct and that the Cat scenario relating to non-proportional business will not be                 However, agents with inwards non-proportional health business may not have the data to model the average sum assured of the risks in
                                       captured in any other Cat risk calculation in QIS5?                                                                      each country.



Man-made cats                 Oct-10   On page 241, we have the section heading 9.4.2, which introduces Method 2 as a factor-based approach I                   As Lloyd's did not write the guidance we cannot comment on the structure of the technical specifications. Section SCR 9.4.2 deals with
                                                                                                                                                                Method 2 as a method of estimating the full catastrophe risk capital charge based on factors to apply to premiums. Section SCR 9.4 deals
                                       note there is no 9.4.1 or Method 1 for man-made cats in the QIS5 Technical Specifications. This is not a
                                                                                                                                                                with Method 1 covering both natural and man-made catastrophic standardised scenarios.
                                       trivial point, but very confusing. Are we to understand that Method 1 (which should be titled 9.4.1) begins on
                                       p.221 before Section SCR.9.9.3?



Man-made cats                 Oct-10   Am I correct in interpreting that the man-made cat scenarios, like the natural cat scenarios, are only                   Please note SCR 9.47 which specifies where method 1 may not be appropriate (i.e. where risks are located outside the EEA or non-
                                       applicable for risks in the EEA? I point to the territories listed in the "Motor calculation" sheet of the man-          proportional reinsurance business is written).
                                       made cat helper tabs as evidence?

Man-made cats                 Oct-10   Section 9.4.2 (factor-based method for man-made cats) explains that the factor-based method should be                    Lloyd's do not expect the use of partial internal models for QIS5. The use of partial internal models may be the most appropriate in reality        MRC   ######
                                       used where: Method 1 is inappropriate (and I interpret Method 1 to be standardised scenarios as explained                but QIS5 is testing the standard formula and should be completed without reference to internal model results. If you wish to include the
                                       in the first point above)   where a partial internal model is inappropriate for the Miscellaneous line of                reuslts of any internal cat modelling for comparisons then this is encouraged as part of the questionnaires or as notes to the submission.
                                       business. In our case, we believe a partial internal model would be the most appropriate approach. The text
                                       above seems to suggest that this is a viable option - is this the case? If so, it would again seem contrary to
                                       the quoted CEIOPS text above, which explicitly forbids the use of a partial internal model. If partial internal
                                       models are forbidden, we then find ourselves forced to use Method 2, which seems contrary to the spirit of
                                       the text above, which appears to imply partial internal models are permissible here.




Man-made cats                 Oct-10   How is "mitigation" defined in the cat helper tabs, and how is it to be calculated. It seems to suggest that             The mitigation is described in sections SCR 9.67 - 9.73 and 9.96 - 9.100 of the techncial specification.                                            MRC   ######
                                       undertakings can estimate the effects of their own mitigation. This is inconsistent with the approach to
                                       calculating recoveries for non-proportional reinsurance for premium/reserve risk, which forbids the use of
                                       an internal model for estimating reinsurance recoveries. I quote CEIOPS' response to my earlier query,
                                       which is also on their Q&A page:"Participants should apply the [non-proportional reinsurance] adjustment
                                       as prescribed in the technical specifications not their own methods (otherwise this is an internal model)."Or
                                       should I interpret that it is entirely valid to estimate non-proportional reinsurance recoveries based on the
                                       results of modelling or other extraneous calculations?




Market risk - concentration   Oct-10   We are in the process of deriving the figures to put under the concentration of assets used for market risk              We have assessed the concentration risk on the 3rd party FAL assets and none exceed the concentration threshold. In line with this, could
                                       concentration calculation. I am using the helper sheets for this but am unsure how to include the 3 Party
                                                                                                                                                  rd            you please assume a "0" capital charge in relation to concentration risk on the 3rd Party FAL.
                                                                          rd
                                       Assets in this calculation as the 3 party work sheets do not give details of counterparties. Please can you
                                       advise.


Non life cat risk             Oct-10   We are looking to complete the man-made catastrophe Method 1 standardised scenarios. The liability                       The mitigation is described in sections SCR 9.96 - 9.100 of the technical specification.
                                       scenario is based purely on GWP - how should we net down accordingly for risk mitigation (per
                                       SCR.9.157)?



Non life cat risk             Sep-10   For the non-life CAT risk, the factors are based on gross written premiums during the forthcoming year per               Gross of acquisition costs.
                                       page 242 of the technical specifications. Are gross written premiums gross or net of acquisition costs?



Non life cat risk             Sep-10   For the non-life CAT risk, the factors are based on gross written premiums during the forthcoming year per               Yes, although the assumption that renewals (and therefore unincepted business) will be same at year-end 2010 as for year-end 2009 will
                                       page 242 of the technical specifications. Should the premiums for the 2010 year include 1/1/2011 renewals                only hold if premium volumes and mix of business are broadly the same.
                                       which are legally binding at 31.12.2010, as it is on a Solvency II basis? If so, is it acceptable to assume the
                                       business renews the same as for the 2010 renewals?



Non life cat risk             Oct-10   Under SCR 9.1.169 Major Fires Explosions does this refer to all Fire premium income or merely that which                 As per the CEIOPS Q&A item 178, premium is not required to be split in to various catastrophic events. Therefore, for the classes where
                                       is viewed as presenting a catastrophic fire risk?                                                                        multiple entries are required (e.g. Fire & Property, Motor Other Classes), the full 2010 Gross premium should be entered multiple times.
                                                                                                                                                                We have confirmed this with the FSA.


Non life cat risk             Oct-10   Lloyd‟s have stated in the guidance that Lloyd‟s “does not expect many syndicates will be able to use the non- Correct. As discussed further on page 16 of the QIS5 guidance, the limitations of method 1 (including not covering non-EEA exposures)
                                       life catastrophe method 1 scenarios given their limitations”. Is the reason for method 1 not being suggested means that Lloyd's will be expecting the majority of agents to perform non-life cat risk calculations using method 2. Please also see
                                       because the “man-made catastrophe” and “natural catastrophe” helper spreadsheets are only applicable for Section SCR.9.171 of the QIS5 technical specifications, detailing that methods 1 and 2 can be combined if required.
                                       European business? Our business is largely non-European so can I assume method 2 would be the
                                       required approach? Am I also correct in thinking either method 1 or method 2 is used and not a combination
                                       of both? Could further clarification be given on the above.




Non life cat risk             Oct-10   A policy‟s insured risks can span multiple CRESTAs. This can result in a policy‟s limit being counted many               Method 1 was not set up to deal well with these types of exposures (or those covering non-EEA exposures or non-proportional RI
                                       times over in each of the scenarios as well as yielding an incorrect value for the total sum insured in a given          business). If business doesn't fit well with Method 1, Method 2 should be used. If using Method 2, consider the issues with this
                                       country. An example:                                                                                                     approach (look particularly at response 178 in the CEIOPS Q&A document). The alternative of entering full exposures in all zones affected
                                       Policy abc has a limit of EUR10Mn and an excess of EUR 10Mn. This policy covers three locations, one of                  would overstate the cat risk significantly, but may still be more realistic than the Method 2 approach. Problems with either approach should
                                       which is in CRESTA 1, one in CRESTA 2 and one in CRESTA 3. Each location is worth EUR 50Mn. The                          be documented and included in the feedback within the qualitative questionnaires.
                                       input sheet suggests that for this policy we should put a gross exposure of EUR10Mn in each of CRESTA
                                       1, CRESTA 2 and CRESTA 3, which will yield a total exposure of EUR30Mn. This is incorrect, as the                        Please also see page 208 of the technical specification: "Undertakings need to assess whether the standardised scenarios appropriately
                                       gross exposure of this policy in the event of a nat cat is EUR10Mn.                                                      capture the risks to which they are exposed." If multi-zone cover falls into this, Method 2 may be more appropriate.



Non life cat risk             Oct-10   Many of the CRESTA definitions in the input sheet do not match those provided by CRESTA.org or those of                  Response 179 of the CEIOPS Q&A gives additional information on the CRESTA zone information used. Question 37 (page 89) suggests
                                       our aggregation system . For example: Greece, Italy, Austria. How should agents deal with locations with                 an approach of assuming a spread across regions where more granular data is not available. Pages 9-10 of the Catastrophe Task Force
                                       only Country level geocoding?                                                                                            calibration paper (linked on CEIOPS QIS5 background information page) gives additional detail.




Non life cat risk             Oct-10   There is no facility to split our exposure by country and take a diversification credit - even for perils such as        There is currently no provision for a split by territories and then performing a sum of squares test. It would be reasonable to apply the
                                       earthquake where there is no multi-territory clash potential. Our current draft has made some allowance for              factors by peril by territory so reinsurance could be applied appropriately but the answers would need to be summed rather than the sum of
                                       this by calculating reinsurance recoveries separately for different territories. We feel it would be reasonable          squares to comply withthe CEIOPS requirements.
                                       to perform a full “square root of squares” diversification calculation by territory. Could you please provide
                                       guidance on whether this would be allowable, and if so, how to go about it?




Non life cat risk             Oct-10   All of our fire-exposed premium has been entered into the Major Fire/Explosions element and loaded at        CEIOPS require that the full premium for the relevant Solvency II line of business is applied to the factors for non-life catastrophe method 2.
                                       175%, which is significantly higher than earthquake premium. Even if we split out the pure fire component of The only exception is where policies can be seen to exclude a peril, which is unlikely for the fire peril. The results will be high and this is a
                                       the risk, it is entirely unreasonable to apply such a heavy load to small commercial and residential binder  known concern with the method. It would be worth including in the questionnaire (or as a covering note) the impact of the alternative
                                       risks, spread very widely around the States. The sensible approach may be to only apply this load to our     approach so we can judge the impact.
                                       heavy industrial classes D&F premiums (although that would leave our California/Australia brush fire
                                       exposure unaccounted for). We have not found any references to this within the documentation and would
                                       welcome your guidance on this.




Non-life cat risk             Oct-10   Looking through the high level guidance for non-life cat risk, I have seen the following: Personalised                   Where possible agents are encouraged to use method 1, however, as you have highlighted, these are not applicable for non-EEA
                                       scenarios have been removed for QIS5. The default method now is to apply standard (European) scenarios                   exposures or where non-proportional inwards business is written (as there are no scenarios for these). As such Synidcates should use
                                       where possible. These scenarios are not to be used for non-proportional reinsurance business. The                        method 2 where method 1 is not appropriate.
                                       standard scenarios are detailed in nature/definition and have been formulated by CEIOPS Non-Life
                                       Catastrophe Task Force, which included representatives from the industry, including Lloyd‟s. In all other
                                       cases, the formula approach is to be used. It is expected that the majority of Lloyd‟s non-life cat exposures
                                       will now be valued under this method when considering the standard formula requirements. Does this mean
                                       Lloyd‟s is expecting Syndicates to mainly use method 1 or method 2 (the final few words “under this method”
                                       don‟t give a definitive indication on this)?




Non life cat                  Oct-10   For most lines of business, our excess of loss reinsurance program is shared between the Syndicate and   The expected recoveries are designed to be a reflection of the recoveries that would actually take place and so applying the loss once and
                                       the insurance company.When estimating the reinsurance recoveries for method 2 of the catastrophe module, allocating the recoveries would appear most sensible given this is what would happen in reality.
                                       should we: Apply the cat load factors separately to the syndicate and the insurance company premiums, thus
                                       assuming 2 independent events happened, one for each entity, then apply the XL program to each (thus
                                       using the program twice, once for each entity)? OR Apply the cat factor to the total premiums, estimate the
                                       recovery based on one event, then allocate the recoveries between entities?



Non prop R1                   Oct-10   I was wondering if the QIS 5 helper tab, Adjustment for Non-Proportional RI, refers only to RI premiums, or              The non-proportional adjustment applies to premium risk only. The helper tab requires details of gross premiums only. Please see the
                                       does it relate to reserves as well?                                                                                      technical specification (and Annex N) for details of conditions to be met for use of this adjustment.



Non proportional              Sep-10   Please would you answer the following questions in relation to QIS 5 Annex N – Adjustment factor for non-                Lloyd's is asking syndicates to complete the non-proportional adjustment on the prescribed basis if possible. Lloyd's have received a
reinsurance                            proportional reinsurance for the Non-SLT health and non-life premium and reserve risk sub-modules. This                  number of syndicates outlining their belief the cacluation is not possible but could be made posssible in applying a numer of assumptions
                                       states in the second bullet that the adjustment factor should only be calculated in relation to per risk excess          or simplifications. Therefore Lloyd's are suggesting the following: if a syndicate can complete the calculation "correctly" then they should
                                       of loss reinsurance which complies with the following conditions; it covers all insurance claims that the                do so. If a syndicate believes they cannot complete the adjustment exactly as specific then they should apply a reasonable approach to make
                                       lot of reinsurance is not included? Point (a) was raised with a representative of the FSA at a recent
                                       seminar, who advised that the QIS 5 specification should be interpreted literally; otherwise there was a
                                       danger that it would not be re-worded appropriately.




Reinsurance protection        Oct-10   Our 2010 SBP included an estimate of what our reinsurance protection would be and how much it would                      The valaution of QIS5 is as at year-end 2009 as it will be compared ot the provisions and capital that were actually held. Therefore, for
                                       cost. Our data now includes the actual cost of the protection that we bought. We would like to include this              consistency the estimated premiums would be more suitable. However, given the would improve the accuracy of reinsurance spend it would
                                       actual data in our QIS 5 submission, rather than manipulate our data. For example, we did not buy some                   be acceptable to use the actual spend and note this in the questionnaire when submitting the return.
                                       protection for our workers' compensation clash business, so we would need to create a dummy policy in our
                                       data to reflect this. We could include a reconciliation of the data submitted to the SBP if that would help.
                                       This would be preferable to changing our data.



SCR interest rate             Sep-10   On the SCR interest rate risk calculation, I have assumed that the only interest rate risk is to T-Bills and that The interest rate shock should include all assets exposed to interest rates that would include fixed income bonds. There are two reasons.
                                       fixed income bonds do not need to be included in the calculation as they have a fixed income and so would not Firstly, the assets values are included in the balance sheet at market value and hence would move in the event of interest rate "shocks". The
                                       be exposed to interest rate risk, is that assumption in line with Lloyds thinking?                                second is that the test is completed on Net Asset Value - this is the expected cashflows from assets exposed to interest rates minus
                                                                                                                                                         liabilities exposed to interest rates. As all the technical provisions are exposed to interest rates (since they are discounted under Solvency
                                                                                                                                                         II) these will be included in the calculation. Therefore by including less assets the interest rate shock may be overstated as the level of
                                                                                                                                                         matching could be significantly understated.
SCR interest rate             Sep-10   On the SCR interest rate risk calculation, I am taking the asset figure of say £60m for the T-Bills and as               The prescribed shocks are on the interest rates not the asset value. The interest risk is measuring an entities net exposure to interest rates
                                       these are all within 1 year I am moving the figure by up 70% and down 75% per the CEIOPS guidance, this                  (assets exposed to interest rates minus liabilities exposed to interest rates) and the effect on the net present value. For example if the net
                                       gives a large capital requirement. I feel this is not quite right, do Lloyd's have any other guidance for this           exposure was 100 payable in 1 years time and interest rates were 1% then the discounted value is 99. If the interest rate shock was 100%
                                       calculation?                                                                                                             then the discount rate would be 2% (rather than 1%) and the NPV 98 - I.e. The interest rate risk would be 1 (and not 100).




Treatment of reinsurance      Oct-10   As part of the Solvency II calculations, we have looked at the inwards premiums which are legally bound at 31 We would ideally like a principle of correspondence between the gross and reinsurance on unincepted business. This would require some
                                       December 2009 and brought these in to our technical provisions as future premiums (and associated             sort of assumption around the cost of the reinsurance (and the recoveries) applying to the gross premium and claims being included under
                                       claims). Much of our outwards reinsurance programme is written by this date too. I am assuming we             QIS5 technical provisions.
                                       include the cashflows for these as well – particularly as we have recognised some reinsurance recoveries
                                       on the claims generated on the legally bound policies. However, some of the outwards reinsurance cost will
                                       relate to inwards policies which have not yet been bound. Do we make an adjustment for this under the
                                       concept of proportionality? For example, I may have a 1/1 outwards reinsurance policy in place by 31
                                       December 2009. This will cover business already written (and included in Solvency 2) and business yet to
                                       be written. It seems wrong to include all of the reinsurance cost when not all of the inwards business has
                                       been included in the Solvency 2 calculations.




USP's                         Oct-10   I am writing from Syndicate 435. We're struggling to dig out historical data to complete the information                 Syndicates with less than 5 years of historical data will be unable to complete the USP information. If agents are still struggling to
                                       regarding USPs. The main problem is the need to obtain data at a sufficiently granular detail to enable us               complete this information then we would suggest using reasonable approximations and assumptions in order to derive the USPs. The
                                       to prepare meaningful information by QIS 5 class of business. I'm sure that we're not the only ones in this              purpose of QIS5 is to highlight difficulties in determining an SCR under the specified approach, it is therefore better if agents attempt to
                                       position. Could you let me know whether there is any leeway in terms of the submission requirements, either              complete the required inputs and document their difficulties through the qualitative questionnaires rather than doing nothing.
                                       from a data or a timing perspective.



USP's                         Oct-10   We just started writing several LOBs on Lloyd's paper on year 2010. This means that we don't have enough       If the business can be classed as roughly similar to that written in the companies then we would see no drawback in including this data in
                                       historical data to do the calculation for USP and NP adjustments. However, we have been writing these          the syndicate submission. Similarly, there is no reason to split the business from the different entities if you have assessed that the
                                       LOBs in our insurance companies since 2000, and we have performed the calculations for these. Does             difference in volatility from each is immaterial. In terms of reinsurance, please decide on an appropriate approach. If the NP coverage is
                                       Lloyd's want us to use the factors calculated for the insurance companies, or should we leave all NP           the same between company and Lloyd's then the company NP adjustments may be applied, if not then the 2010 Lloyd's coverage could be
                                       adjustments at 100% and not submit any USBs? Similarly, we have been writing these LOBs on 2 different         applied to the 2009 and prior gross amounts. Another approach would be to leave these factors at 100%, although this would increase your
                                       papers, should we split them for doing the calculation? We're afraid the triangles won't have much credibility SCR when USPs are applied. Whatever approach is taken please highlight the difficulties faced in the questionnaire.
                                       if we split them 3 ways. The business written in all three companies is similar, there's no reason to believe
                                       they would have significantly different volatility




USP's                         Sep-10   I am a little concerned by what “better than best efforts” will be defined as, particularly for the purposes of          We are expecting 3 spreadsheet submissions from each syndicate (p.5 of guidance), one of which will have the selected USPs (and no geo
                                       USPs. I think we are OK for the data in methods 1 and 2 of underwriting risk (basically the ultimate at the              diversification). There is no requirement to work through all 3 methods, particularly the one(s) for which the data requirement can‟t be met.
                                       end of the first year), but I don‟t think we would even get close to the data standards required in the QIS5             We are, however, asking agents to explain and justify the chosen method. If you are able to apply more than one method, there may be
                                       technical specifications for method 3. Therefore we are intending to only include the results from one of the            benefit in working through both and comparing the results. In the future, the standard formula SCR may be subject to public disclosure; the
                                       first two methods in our submission (Lloyd‟s doesn‟t stipulate which version of USPs should be used)                     lower the standard formula SCR, the more favourable balance sheet capital will look in comparison.
                                       depending on which best fits the data. For the reserves, methods 2 and 3 are OK, but we might struggle a
                                       little with the data quality around the inflationary adjustment and margin on O/S claims required in method
                                       1. Therefore we are proposing to be more approximate for method 1 and to focus more on methods 2 and 3.
                                       Please can you confirm that this is acceptable? Note that we will be putting together commentary in the
                                       submission that details the exact data challenges in a bit more detail than the above.




USP's                         Oct-10   The requirements seem to say that we need to take our historical gross claims and apply the 2010                         This is the theoretical requirement. This is also an area where the strict requirement appears very onerous. In this case, applying the
                                       reinsurance programme to those gross claims. Is that right?                                                              programme that was in place (i.e. as the data will be stored) is acceptable but should be noted in the questionnaire when completing the
                                                                                                                                                                return.

USP's                         Oct-10   With regards to the QIS 5 submissions, we do not have any identifiable USPs. Do we still have to make a                  Please supply two separate returns for completeness and note in the questionairre that no USPs have been applied.
                                       submission with USPs included? If so, is it OK that it will just be the same as without USPs?




Definition of PCO             Sep-10   For the Geographical split schedule could you define claims outstanding (net PCO) is it the full TP                      Claims outstanding cash-flow projections relate to claim events having occurred before or at the valuation date – whether the claims
                                       reserve, i.e. including Bad debt and claims handling elements?                                                           arising from these events have been reported or not (i.e. all
                                                                                                                                                                incurred but not settled claims). The cash-flow projections should comprise all future claim payments as well as claims administration
                                                                                                                                                                expenses arising from these events. As per heading in QIS5 spreadsheet, the columns for reinsurance should be net of adjustment for
                                                                                                                                                                default. This is the same for the "Net PCO" column in the geographical diversification sheet.


Expected earned               Sep-10   Data Item 7 Ref: QIS5 Spreadsheet - Geographical diversification tab, "Next years expected earned written"               This item should be your interpretation of next years earned premium relating to all underwriting years (i.e. mainly 2009 and 2010) gross of
                                       column F As per Lloyds guidance this figure (when summed across all QIS5 classes of business and all                     acquisition costs. 2010 Earned Premium cannot be obtained from the SBF submission, agents may choose to derive an estimate of next
                                       geographical zones) can be taken from the latest approved SBF for 2010. a) We read this figure in the                    year's earned premium based on their SBF for 2010 however.
                                       SBF to be the 2010 underwriting year net earned premium. Please could you confirm if this is correct. b)
                                       The QIS5 spreadsheet (and CEIOPs technical specifications guidance) suggests the data item required is
                                       the 2010 earned equivalent of data item 6, which we read as the ' calendar year net earned premium for the
                                       2010 calendar year for all years of account'. Please could you confirm if this is correct. c) We understand
                                       that the figure in 7a) would be different from the figure in 7b). Please could you confirm which figure we
                                       should use for the QIS5 spreadsheet.




Geocoding                     Oct-10   How would you like us to deal with locations with only Country level geocoding? - on the geographical                    Refer to 9.4.2 on pages 241-243. The current interpretation is that the total line of business (in your case, fire) premium income should be
                                       diversification tab are the net reserves to be included to be the figures on the current basis or the Solvency 2         allocated 100% to each of the categories in the table on page 242 when calculating the non-life CAT risk capital requirement. This
                                       basis ?                                                                                                                  interpretation comes from the CEIOPS Q&A, Q.178 on p.91 and the errata for SCR 9.174 (see p.9).
                                                                                                                                                                https://www.ceiops.eu/fileadmin/tx_dam/files/consultations/QIS/QIS5/20101001-CEIOPS-Q-and-A-document.pdf
                                                                                                                                                                http://ec.europa.eu/internal_market/insurance/docs/solvency/qis5/201007/technical_specifications_errata_en.pdf The capital requirements
Geographical split            Sep-10   We are starting to prepare our data to complete the geographical diversification section of QIS5, does                   Please see annex M of the CEIOPS QIS5 technical specification for the required mapping.
                                       Lloyd‟s have a suggested mapping of which countries / US states belong to each of the 18 regions?




Geographical split            Sep-10   At the Lloyd's workshop there was some discussion about how best to approach geographical split and a                    This is down to the agent but is important that you can justify the approach.
                                       number of agents expressed concern about the difficulty in collating this data. I'm not sure if this discussion
                                       reached any clear conclusion. As an example of the issue, if we have material worldwide business or
                                       business coded to US (but due to current system limitations the extracted data may not show which part of
                                       US) is it legitimate to pro-rate this (potentially overstating diversification benefit) or is it better to allocate to
                                       one particular area (potentially understating diversification benefit). Do you have any advice on which way to
                                       lean or is it purely down to the agent?


IBNR                          Sep-10   Note on a Solvency II basis claims provisions would include outstanding reserves (case reserves) and                     This figure should be on a QIS5 basis, not as reported in the QMA. It should be identical (when summed) to section 3 if the QIS5
                                       IBNR reserves but would exclude reserves relating to claims arising from exposures (on contracts existing                Insurance Obligations tab (i.e. TP's excluding risk margin).
                                       as at YE09) falling after 31.12.09. It would also include all years of account. It would also include other
                                       adjustments as set out in the Lloyds guidance on technical provisions on a Solvency II basis. c) We
                                       understand that the figure in 8a2) would be different from the figure in 8b). Please could you confirm which
                                       figure we should use for the QIS5 spreadsheet?


I.Premiums                    Sep-10   Should premiums for the I.Premiums sheet and Geographic Diversification sheet be gross or net of                         Both Gross and Net premiums should be entered gross of acquisition costs.
                                       acquisition costs?


Net PCO                       Sep-10   Data item 8 Ref: QIS5 Spreadsheet - Geographical diversification tab, "Net PCO" column H As per Lloyds The net PCO should be agents' QIS5 estimate of technical provisions excluding any risk margin.
                                       guidance this figure (when summed across all QIS5 classes of business and all geographical zones)
                                       relate to the 2009 reporting year. a) We assume that we would take this information (i.e. the total sum) from
                                       QMA returns as at 31.12.09 (i.e. submitted Feb 2010). Please could you confirm if this is correct. a2) We
                                       also read the Lloyds guidance as taking the figure from QMA206 reporting year of account 2009 row 1+2+3
                                       less QMA 203 reporting year of account 2009 row 21+23. Please could you confirm if this is correct b) The
                                       QIS5 spreadsheet (and CEIOPs technical specifications guidance) suggests the data item required is the
                                       net of reinsurance claims provisions on a Solvency II valuation basis as at 31.12.09. Please could you
                                       confirm if this is correct.



Net reserves                  Oct-10   On the geographical diversification tab are the net reserves to be included to be the figures on the current             Solvency II basis.
                                       basis or the Solvency 2 basis?



Net written                   Sep-10   Data Item 5. Ref: QIS5 Spreadsheet - Geographical diversification tab, "Net Written" column D As per                     a) Yes this is correct, please take the 2009 premium as reported in the QMA as at 31.12.2009. The premiums information used should be
                                       Lloyds guidance this is the 'net of reinsurance written premium relating to the 2009 reporting year' (when               gross of acquisition costs.
                                       summed across all QIS5 classes of business and all geographical zones) a) We assume that we would                        a2) Yes, this is correct, this is the same information as reported in a1).
                                       take this information (i.e. the total sum) from QMA returns as at 31.12.09 (i.e. submitted Feb 2010). Please             b) Gross less Ceded as reported in the Premiums tab should match that which has been put in the Geographical Diversification tab to meet
                                       could you confirm if this is correct. a2) We also read the Lloyds guidance as taking the figure from                     the check built in to the premiums sheet, this will be from the QMA.
                                       QMA100 reporting year of account, col: CNV row 5. Please could you confirm if this is correct. b) We also                c) No, the information placed in the Premium and Geographical Diversification tabs should relate to the 2009 Reporting Year (i.e. all years
                                       assume that the information required in the QIS5 spreadsheet should match the net figure inferred from                   of account).
                                       taking item 3 from item 1 above (as there is a check built in the QIS5 spreadsheet). Please could you confirm
                                       if this is correct. c) We understand that the figure in 5.a2) would be different from the figure in 5b) – 5.a2           So the information to be used in the spreadsheet is that reported in the QMA as at 31.12.2009
                                       being on a reporting year basis (2009 only) and 5b being on a calendar year basis (all years of account).
                                       Please could you confirm which figure we should use for the QIS5 spreadsheet.




Net written                   Sep-10   Data Item 6. Ref: QIS5 Spreadsheet - Geographical diversification tab, "Next years expected net written"                 The Premiums for 2010 for the Geographical Diversification tab should be your estimate of next years written premium from all
                                       column E As per Lloyds guidance this figure (when summed across all QIS5 classes of business and all                     underwriting years (i.e. largely 2010 and the unwritten from from 2009) gross of acquisition costs. The SBF may be a useful proxy for this
                                       geographical zones) can be taken from the latest approved SBF for 2010. a) We read this figure to be the                 but it assumes that the unwritten portion of business at the end of any underwriting year remains relatively stable from year to year.
                                       net written premium for 2010 underwriting year of account supplied in the SBF. Please could you confirm if
                                       this is correct. b) The QIS5 spreadsheet (and CEIOPs technical specifications guidance) suggests the
                                       data item required is the 2010 equivalent of data item 5, which we read as the ' calendar year net written
                                       premium for the 2010 calendar year for all years of account'. Please could you confirm if this is correct. c)
                                       We understand that the figure in .6a) would be different from the figure in 6b). Please could you confirm
                                       which figure we should use for the QIS5 spreadsheet.




PCO                           Oct-10   I have a brief question regarding the definition of net PCO for the I.Geographical diversification tab. It is            PCO refers to the best estimate of technical provisions as calculated on a Solvency II basis. This amount should include all expenses,
                                       defined as the best estimate for claims outstanding by LoB. Does it really mean the provision for claims                 discounting, risk margins etc. as included in the technical provisions.
                                       outstanding?




premiums                      Oct-10   I have a question on the worksheet “I.Geographical Diversification”. According to page 32 of the Lloyd's                 Please see page 29 (4th full paragraph) of the QIS5 guidance and FAQs published on Lloyds.com. In summary, a full year's premium is
                                       detailed guidance the "next year expected" net written and net earned premiums should be taken from our                  required. The premiums for 2010 should be an estimate of next year's written premium from all underwriting years (i.e. largely written
                                       latest approved business forecast for 2010. Could more clarification be given on this point? The SBFs are                portion of 2010 and the unwritten from 2009) gross of acquisition costs. However, SBF data may be used to form a proxy for this. Data
                                       performed on a YOA basis, and the QIS 5 is on a GAAP basis and I'm not sure how this information would                   taken from the SBF without adjustment will involve underlying assumptions that the unwritten portion of business at the end of an
                                       be comparable. What information in the SBFs should I be reconciling my work on QIS 5 to?                                 underwriting year remains relatively stable. Any more accurate estimation available to an agent can be used and documented.

Value of net premiums         Oct-10   Could you please give some guidance on what we are expected to fill in, in column G of the geographical                  As per the Lloyd's detailed guidance, this refers to the net present value premiums which are expected to earn in 2011 and beyond but on
                                       diversification tab? The guidance says the present value of net premiums of existing contracts which are                 contracts which have already been written. This is intended to capture multi-year contracts with substantial earnings in future years.

Classes of business           Sep-10   Please could we clarify the distinction between the two motor S2 class of business categories? Are they                  All we have regarding the split between classes is what is given in the QIS5 specification and previous CEIOPS documents. Your
                                       actually trying to split between bodily injury claims and physical damage claims? For example, physical                  suggestion would be an acceptable interpretation of the wording. There is uncertainty over what to do with property damage to something
                                       damage to a third party vehicle could potentially at the moment fall into both motor categories (it is liability to      other than a vehicle, given the tight definition within "Motor Other", but following your suggestion seems sensible. Please make comments
                                       a third party and also damage to a vehicle).                                                                             in the qualitative questionnaires regarding these issues.




Reserving classes             Sep-10   I would like to ask a question about the Lloyds grouping for the solvency II. From my understanding there are            Lloyd's are not specifying any groupings for reserving classes under Solvency II. Lloyd's feedback is clear in that the most important
                                       many syndicates which don't report on Lloyds' grouping hence reserve was not set that way. The result of                 consideration when considering segmentation for reserving classes is homogeneous risk groups. These should be the basis for the
                                       following the Lloyds grouping sometime would show a reserving class being split by two Solvency II                       reserving exercises, as is currently the case. Projections based on homogeneous risk groups can be allocated or aggregated as
                                       classes. I wonder whether Lloyds' grouping should always be followed so that Lloyds can maintain a                       necessary using appropriate/proportionate methods.
                                       consistency as whole or we can just group based on our reserving classes just like FSA returns?

Risk codes                    Sep-10   We have a question about the QIS5 classifications of motor business between what appears to be own                       The exact split will differ between syndicate to syndicate. Lloyd's will provide results of QIS5 for reference - this will probably include the
                                       damage and liability elements. Given that the premium is not normally split in this way, we wondered if there            split between the motor classes to assist future exercises. However, this information is currently unavailable and the principle of substance
                                       was any sort of approximation that was being used in the market? Given the presence of much larger motor                 over form should be applied if the exact split is proving difficult. Alternatively a proportionate split may be available from the pricing basis.
                                       writers than ourselves in Lloyd‟s we are wanting to ensure that our segmentation was consistent with the                 Lloyd's would be interested in any approximate approaches applied to understand where difficulties may have arisen so please include any
                                       rest of the market.                                                                                                      detail in the note to QIS5.



Risk codes                    Sep-10   I‟m reviewing the risk code mappings per the Lloyd‟s detailed guidance for QIS 5 released last week and                  I think the sheet you are looking at is "I.Current Situation" - the reason why the QIS5 lines of business are missing is that it is assumed the
                                       notice that you have the following QIS5 lines of business:- Income protection, Non-proportional health,                  current situation is on a QIS4 basis. If we the go to the sheet "I.QIS5 insurance obligations" we see in cells F8 to F11 the place to show
                                       medical expenses and workers‟ compensation. However, I can‟t see these lines of business on the QIS5                     how it splits into the QIS5 lines.
                                       sheets. There are some - such as Accident, Health, Legal expenses – are they meant to map across to
                                       these?


Binders                       Sep-10   We have a question of the treatment of binders within QIS5 technical provisions. For instance, assume a       The proposed approaches for binders continues to be debated with the market and a definitive position has yet to be reached. The current
                                       binder has incepted on 01/10/2009 and has a cancellation period of 180 days. We identified two                favoured option would be to take the exact wording of the specification and only include policies that have a legal obligation. A binding
                                       interpretations of Lloyd‟s guidance: a) Future premium will cover the full period of the open binder – authority is not a policy as such and so should be assessed on a "look through basis" (i.e. look at the underlying policies). In practise this
                                       in this case 9 months As per the “expected profit within future premiums” paragraph on page 13 of             would mean that only policies with upcoming renewals (that had been accepted) would be included and which would be a much smaller
                                       Lloyd‟s detailed guidance for QIS5, the binder “exists” at the valuation date (31/12/09) under the concept of sample than the notice period. Whatever approach is to be adopted it should be carefully noted as the impact of different approaches will be
                                       contract certainty. Consequently (as per the same paragraph) all future cashflows from the binder should      analysed. It is unlikely this issue will be fully resolved before QIS5 is completed.
                                       be included in the future premiums. It should be considered as unearned and incepted business. In practice
                                       this means that cashflows from policies written under the binder should be allowed until the binder expires
                                       on 30/09/2010. b) Future premium will cover only the cancellation period of the open binder – in
                                       this case 180 days. Let‟s now focus on the contract certainty of underlying policies. Any individual policy
                                       not yet written by the valuation date could be considered as not being “existing



                                       business”, in the eventuality that the binder is cancelled on 01/01/2010. Under this scenario, the business
                                       incepting during the 6-month cancellation period (i.e. until 30/06/2010) would relate to unincepted business
                                       and no allowance should be made for any profit/loss on policies incepting between 01/07/2010 and
                                       30/09/2010. Which one of these two interpretations would you recommend?



Cash-flow                     Sep-10   Does Lloyd's have a view on how syndicates should approach the requirements for a strict cashflow basis                  Agents are approaching the problem in a number of ways. One such way is to take underwriting year reserves and split to claims/premium
                                       for the technical provisions? The most detailed data source available to us is based on Xchanging                        provisions (perhaps in a similar way to existing practices). Use separate claims/premium cashflow patterns to project these cashflows
                                       messages. However these messages do not reflect actual cashflows that take place. Does Lloyd's have a                    forwards. Some are thinking of either calculating these patterns directly, if they have the data, or taking an underwriting year cashflow
                                       view on how syndicates should approach making allowance for cashflows relating to (for example) the                      pattern and using an approach (perhaps looking at underlying inception/earnings/payments) to split into two different patterns. Premium
                                       difference between signed and booked premiums?                                                                           provision cashflow patterns would generally be delayed, behind claims provision cashflow patterns. Others have discussed splitting an
                                                                                                                                                                underwriting year cashflow projection into what related to claims/premium provisions as at the valuation date, recognising the move
                                                                                                                                                                towards premium provisions in the later cashflows. Overall, we are just suggesting that a reasonable (and justifiable) methodology is used
                                                                                                                                                                and documented as part of the Technical Provision section of the dry run.
Cash-flow                     Oct-10   We understand that all expense cashflows need to take into account that will be incurred servicing existing              The inclusion of unincepted contracts will be negative as they include embedded profit and will be net of associated acquisition costs. The         MRC   ###### Yes   Yes
                                       contracts in their lifetime. On the waterfall chart on page 12 of the dry run guidance the quantum of the                increase in the expense allowance will be driver by the inclusion of acquisition cots on future premiums (from incepted contracts). As you
                                       change in provision for the inclusion of unincepted business compared with the change in expense basis                   correctly identify there are also other areas that contribute to the increase in expenses.
                                       looks odd to us. The primary driver for the change in expense basis, per the table on page 47, are
                                       acquisition costs on unearned business. Are Lloyd‟s showing the inclusion of unincepted business on the
                                       waterfall before or after netting off associated acquisition costs?



Cash-flow                     Oct-10   Following the transfer of future premium from debtors to technical provisions for QIS5 would you please                  Only premiums that are due but have not been paid (i.e. remain on the balance sheet as policyholder debtors") should be included in the
                                       confirm we should still enter the future premium amount in the counterparty helper tab Under counterparty                counterparty default module and these should be treated as "type 2". Non payment of future premium that form part of the technical
                                       type 2 over or under three months.                                                                                       provisions will be assessed a as part of the lapse risk module. Please also see response 185 of the CEIOPS Q&A document


Cashflows                     Oct-10   In section 5 "Other Information", please could you provide guidance on what figure you expect to see in Cell             Capital at risk is for life contracts only and hence should be zero for a non-life only return.
                                       H85 "Capital at risk for all contracts". The return is in respect of a non-life syndicate.




Counterparty default          Oct-10   Does the adjustment for counterparty default for the QIS 5 technical provisions double count the RI element              Counterparty default in technical provisions is based on a best estimate adjustment. The counterparty defult shock aims to calculate the
                                       of the counterparty default shock that is calculated separately for the SCR tab? How are the two related?                st
                                       Should the technical provisions adjustment take into account collateral?
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1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,     Counter   Oct-10   Please      1). Yes,
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