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Published FAQ 111211

VIEWS: 6 PAGES: 10

									Topic                        New     Date                                          Question                                                                                                                                          Answ er
Overall 2011 Process & Timetable

                                              We are experiencing issues when completing the Evidence Templates in that
                                              cells in Excel can be expanded to a maximum width of 255 characters and a
                                              maximum height of 409.5 characters. In a number of instances the text within a
                                              cell exceeds these limits and therefore is not viewed when the document is
                                                                                                                                         Agents should insert extra rows to gain the space needed rather than creating attachments to the templates. If agents have specific issues they should contact Solvency II at Lloyd's
Completing Evidence TPs       Yes    Sep-11   printed and can only be viewed on screen by clicking into the cell.
                                                                                                                                         directly.
                                              Is there a preferred option from Lloyd’s on how you wish us to deal with this – e.g.
                                              insert extra rows, insert additional sheets as an appendix?



                                              Is Lloyd's coordinating a response to EIOPA and will any managing agents be                Following discussions with the FSA, Lloyd's understands that no action is required from managing agents at present. However, it is possible that Lloyd's will be required to participate
EIOPA Stress Tests                   Apr-11
                                              required to perform the stress tests?                                                      in other stress tests in the future.
                                                                                                                                         Evidence templates will act as a summary of an agent’s evidence. These evidence templates should therefore be completed and kept up-to-date throughout the process. The timetable
Evidence Templates                   Feb-11   How will the evidence templates work?                                                      includes staggered dates for submitting evidence templates and Lloyd’s will require agents to map their underlying evidence to each element within the templates. Agents should note
                                                                                                                                         that evidence may be demonstrated through documentation, systems, processes and people.
                                              On the evidence templates what is the relationship between the scoring and the
Evidence Templates and                                                                                                                   The scores represent progress against the Lloyd's issued scoring sheets and should be in line with the self-assessment scores. The RAG status should reflect whether this score is
                                     Mar-11   new Red/Amber/Green rating which agents are required to complete within the
RAG Status                                                                                                                               ahead of/in line with or behind scoring expectations. RAG status will also be used as part of application packs in December to show which areas are fully complete and which are not.
                                              templates?
                                                                                                                                         Agents should note that the RAG rating being applied following review of the evidence templates (ET) relates solely to the ET and its role in summarising the supporting documentation,
                                                                                                                                         processes, systems and people to evidence Solvency II compliance as part of the final Application Pack due on 16 December 2011 from all agents. The rating applied to the ET does not
                                                                                                                                         refer to the overall programme and agent progress against deliverables during the Dry Run process – rather it is the ET as a stand alone document. The ET should also be able to
Evidence Templates and                        What does the RAG rating applied to the evidence template review by Lloyd's                demonstrate reasonable understanding of the Solvency II requirements and provide rationale as to why the underlying evidence is appropriate to demonstrate compliance. Robust
                                     Jun-11
RAG Status                                    mean and how does this tie in with my overall Solvency II rating?                          explanations do not have to be comprehensive but typically would include some descriptions of the approaches undertaken to meet the central requirements. For more clarification please
                                                                                                                                         paste the following link into your browser. “Lloyd’s review and rating of evidence templates” <http://www.lloyds.com/The-Market/Operating-at-Lloyds/Solvency-II/Information-for-
                                                                                                                                         managing-agents/Guidance-and-
                                                                                                                                         workshops/~/media/Files/The%20Market/Operating%20at%20Lloyds/Solvency%20II/2011%20Guidance/Lloyds%20review%20and%20rating%20of%20evidence%20templates%20june2
                                              Will Lloyd's expectations regarding progress and scores throughout the year be             Score sheets are available on Lloyds.com and these set out progress throughout 2011.
Expected Progress                    Feb-11
                                              updated and communicated?
                                                                                                                                         Lloyd's will ensure all RAG ratings continue to be reviewed and updated on a monthly basis. Ratings will reflect progress on deliverables as well as agents progress against plans and
Expected Progress                    Feb-11   Will Lloyd's review RAG ratings on a monthly basis?
                                                                                                                                         wider Solvency II capabilities.
                                                                                                                                         We would expect this to be picked up through the regular agent meetings with account managers. Where material concerns arise, account managers will escalate issues to Lloyd's
Expected Progress                    Feb-11   How will Lloyd's regularly communicate the RAG status?
                                                                                                                                         senior management, who may then communicate directly with the Senior Nominated Person.
                                              How will the FSA review overlap with Lloyd's for those syndicates in the IMAP              The FSA have selected a sample of agents they wish to review. Whilst a certain degree of duplication will be unavoidable, Lloyd's and the FSA will liaise to ensure this is kept to the
FSA Reviews                          Feb-11   process and outside, and how will duplication be avoided?                                  minimum. The FSA have confirmed that, for syndicates with firms not currently in the IMAP process, the workplan can follow Lloyd's timetable and agents will not be expected to follow
                                                                                                                                         the FSA's E-N template. The FSA has also agreed to attend Lloyd's review meetings whenever possible or relevant to minimise duplication.
                                              Have Lloyd’s made provisions for the eventuality that the FSA issues contrary              Lloyd's has continuous liaison and discussion with the FSA to minimise this risk. The FSA will be attending the 2011 workshops and reviewing guidance issued by Lloyd's to ensure
FSA view of requirements             Mar-11
                                              advice to Lloyd’s?                                                                         consistency in views as far as possible.
                                              With regards to the review activity for 2011 – do agent’s implementation plans             No. Lloyd's does not expect agents to ensure their plan mirrors Lloyd's. However, agents should ensure that key deliverables and milestones in the Lloyd's plan can be met as part of
Implementation Plans                 Mar-11
                                              have to shift to mirror the Lloyd’s plan?                                                  their own plan and that they can demonstrate progress is being maintained against the plan.
                                                                                                                                         We consider that the use of consultants / contractors with management responsibility for programme management can only offer limited independent assurance, since they are reporting
                                              To what extent can external Programme Management resource be used to
Independent Assurance                Feb-11                                                                                              on delivery on behalf of each workstream at agent level in a similar manner to agent employees in the same role. We would look to discuss this on an agent-by-agent basis to determine
                                              provide independent assurance on the programme?
                                                                                                                                         the level of assurance this could provide.
                                              Does Lloyd's expect the level of work involved in the sign-off of self assessment          Lloyd's would expect that agents' programme governance should already ensure that some assurance is in place on reporting progress to the Board / Lloyd's. The project is of critical
Independent Assurance                Feb-11
                                              scoring to be onerous for agents?                                                          importance to agents and we consider that we are simply articulating a requirement we would expect all agents to have to give their Board comfort that progress is on track.
                                              Can the agents focus on assurance in the main areas and not be so concerned
Independent Assurance                Feb-11                                                                                              Consistent with a risk based approach, independent assurance should focus on the main risk areas.
                                              about minor subjects?
                                              Will Lloyd's be reviewing the independent assurance process adopted by agents              There will be a high level review of the process of assessment and assurance on the scores. Lloyd's may ask agents to provide more detail on this and may discuss this further with
Independent Assurance                Mar-11
                                              in detail?                                                                                 individual agents as scores are reviewed. The scores themselves will not be reviewed in detail although Lloyd's will look for significant movements in scores and outliers.
                                              Lloyd's is asking for board sign-off of the Final Application. Will this expectation
                                                                                                                                         As well as the final application, Lloyd's would expect that both ORSA and LCR will require Board sign-off. On the validation report we would not expect full Board sign-off but we would
Key Deliverables                     Feb-11   be applied to the other main deliverables (i.e. ORSA, Validation Report and
                                                                                                                                         expect a properly constituted sub-committee of the Board to approve it.
                                              LCR)?
                                                                                                                                         The workstreams all work towards a common goal of a robust SCR and the final application pack. There is no obvious area that can be given reduced focus - the timetable has looked to
Key Deliverables                     Feb-11   What is the key area of focus / area to get right in 2011?
                                                                                                                                         spread the workload e.g. deferred the ORSA following feedback and reduced emphasis on Reporting & Disclosure during 2011.
                                              Will Lloyd's specify the standards required for the deliverables and tests which           The relevant workshops for each area will address this issue. Lloyd's understanding will be refined by further discussion with the FSA, LMA and agents and Lloyd's will offer further
Key Deliverables                     Feb-11
                                              should be met at each stage?                                                               guidance as EIOPA publishes further clarification and guidance.
                                              There will be resource stretch for agents across a number of areas, in particular
                                                                                                                                         Lloyd's faces the same limitations as agents in terms of recruitment and budgets. We will direct resources on a risk-based approach. Lloyd's has also agreed to re-run the ICA 'lite'
Resources                            Feb-11   actuarial, risk management and internal audit. What consideration has Lloyd’s
                                                                                                                                         process for the 2012 u/w year with the FSA and sought to spread syndicate deliverables across the year as far as possible.
                                              given to market resourcing for the plan?
                                                                                                                                         This will vary from area to area and will be set out in further detail at the appropriate workshops. The depth of reviews will also depend on materiality, submitted scores, progress made,
Risk Based Reviews                   Feb-11   What form will Lloyd's risk-based reviews take?
                                                                                                                                         RAG rating and previous performance.
                                                                                                                                         Lloyd's has sight of all agent submissions for peer comparison; we can provide informal feedback where we consider that an area has been covered fully and resources could be directed
                                              How can we be sure that something is 'good enough' and also be sure that what
Submission Quality                   Feb-11                                                                                              to other areas to bring them up to the required standard. The FSA's review of agents will bring more clarity on the level needed to meet the required standard. The FSA will continue to
                                              is good enough for Lloyd's will also be good enough for the FSA?
                                                                                                                                         monitor our review work very closely and provide feedback where they consider more evidence is needed from Lloyd's or agents to be "good enough".
                                              Could the purpose of the workshops be clarified further? E.g. is it simply to              The purpose of each workshop will be set out in more detail nearer the time of the session. In general, they will be used to help scope reviews, clarify expectations and provide feedback
W orkshops                           Feb-11
                                              scope for the review, or coach the ideal solution?                                         and benchmarking of results together with guidance and examples where relevant.
Internal Model SCR

                                                                                                                                         Lloyd's considers that overall member capital is currently set at an appropriate level and intends, as far as possible, to maintain this at an aggregate level under Solvency II. However, as
2013 Capital Setting                 Feb-11   How will capital be set for 2013 and is the 35% uplift likely to change?                   with any change in basis, individual syndicate and member capital requirements may be subject to potentially material movements. We expect to be able to consult on the proposed basis
                                                                                                                                         for setting member capital for 2013 and beyond, later in 2011.
Catastrophe Risk                     Jun-11   How are small and large cats proportioned into the cat premium?                            RDS gives Lloyd's the peak exposures for the cat premium and these are not likely to be extended to other cats. Agents can include other cats in their cat premium if they choose,


                                              What guidance can Lloyd's give regarding modelling Lloyd's syndicate
                                              counterparty exposure by syndicate or as one "group reinsurer"? We understand
                                              that Lloyd's has one Financial Strength Rating and we should treat Lloyd's on
                                              same basis as any other (re)insurer with similar financial strength . But for a
                                              syndicate counterparty to fail to respond, both the specific members supporting            For the purposes of intra-Lloyds the LIM CCK treats Lloyd's as a group reinsurer and does not distinguish between syndicates. This might be overstating RI defaults, because in reality
                                              the relevant syndicate have to fail and Lloyd's overall has to fail. Accordingly,          not all syndicates would default together on their inward reinsurance. On the other hand the FSA have been asking about how the potential for another LMX spiral is recognised in the
Counterparty Exposure                Jun-11   having multiple syndicate counterparties reduces concentration risk - can this be          model. Rather than addressing this through more complex modelling, we are planning to carry out a sensitivity test which assumes that all intra-Lloyds reinsurance fails (an extreme
                                              addressed by assuming a higher recovery rate for defaulting syndicate                      case of LMX spiral). As for syndicates, they are free to implement more detailed models of their reinsurance programmes than the broad brush approach in the LIM CCK.
                                              counterparties? Or does having multiple syndicate counterparties and the two
                                              links in the chain of security mean we can assume a higher equivalent FSR for
                                              Lloyd's than its published ratings - as they apply to all policyholders not to ONE
                                              policyholder. Note, running all individual syndicate placements on R/I
                                              programmes adds complexity and runtimes etc rather than grouping as Lloyd's.

                                                                                                                                         • 1:200 discounted net cost to ultimate for all years of account combined, including a prospective year of account's underwriting LESS the projected net liabilities* on the solvency II
                                                                                                                                         balance sheet at t0 (December 2011 for now) and premiums received for the prospective year of account's underwriting that are not already included in the projected net liabilities.
Definition of the ultimate
                             Yes     Oct-11   What is the Ultimate SCR as defined by Lloyd’s?                                            • ‘Ultimate’ is defined as the final realised position – not the most prudent time step to ultimate. For liquidity risk, the costs associated with funding requirements or peak losses in the
SCR
                                                                                                                                         interim must be considered if material.

                                                                                                                                         • Lloyd’s expects syndicates to capture Insurance and Reinsurance Credit risk to ultimate while other risk categories may be modelled over a shorter time horizon (subject to a one year

                                              Should the Insurance risk figures on form 311in the LCR include the Binary
LCR                                  Sep-11   Event?                                                                                     Yes, the binary event should be included in the insurance risk modelling.


                                              We have been reviewing the LCR proforma that is on the Solvency II site and
                                              notice that there are a number of fields that say things like “drop down field” but
                                              there are no drop downs. Is the most up to date proforma and the one that we
                                              should be using for the end of October submission and is the completion of the
                                              proforma all that is needed by Lloyd’s at this time?                                       The specification is only a guide to help fill in the return on screen. The actual CMR return has the drop down selections included. I will ask the developers to include the drop down on
LCR Proforma                   Yes   Oct-11   We have been reviewing the LCR proforma that is on the Solvency II site and                the excel spreadsheet in the future, as that will help, but for now please refer to CMR for the details required. A new pro forma and CMR form will be available from the 24th October
                                              notice that there are a number of fields that say things like “drop down field” but        with the submission due on the 31st October
                                              there are no drop downs. Is the most up to date proforma and the one that we
                                              should be using for the end of October submission and is the completion of the
                                              proforma all that is needed by Lloyd’s at this time?



                                              In form 312 of the LCR return, the Unincepted Legal Obligations as at the end of
                                              2012 are requested. They were not part of the technical provision submission at            You can base them purely on expectations (in the absence of anything more concrete) and should be consistent with the assumptions made in calculating the one-year SCR, for example;
                                              30 September. They will also be very uncertain, due to questions around the                - do you expect to write more/less business in 2013 than 2012?
LCR Return                     Yes   Oct-11   SBF, capacity etc. that will not be resolved until well into next year. How do you         - do you expect to write more/less 1/1 renewals in 2013 than 2012?
                                              propose estimating Unincepted Legal Obligations as at the end of 2012?                     etc



                                              If modelling is being done in a currency other than GBP, what exchange rate
                                              should be used to convert SCRs to GBP for the LCR submission - Lloyd’s
                                              exchange rates (if so at what date?), current exchange rates, average year end
LCR Submission                 Yes            exchange rate per ESG, or something else?                                                  It would follow the same rates as the SBF return.
                                     Oct-11




                                                                                                                                         Lloyd’s recognise there are balance sheet changes which will cause the Ultimate SCR to differ from the ICA. Lloyd’s will revise the Economic Uplift (currently 35%) to ensure there is
                                                                                                                                         no change in the aggregate member solvency position. The revised Economic Uplift will be determined at an aggregate level and applied consistently across all syndicates (i.e. an
                                                                                                                                         uplift of x% will be applied to determine member ECA requirements).
Member level capital           Yes            If the Ultimate SCR differs from the ICA, does this mean the member(s) capital
                                     Oct-11
setting                                       requirement will change for a given syndicate?                                             Lloyd’s recognises that whilst this approach maintains the same aggregate solvency position in the market, some members may experience an increase to their capital requirement
                                                                                                                                         whilst other members experience capital reductions. For members that experience a material change in capital requirements, we would consider transitional measures: content to be
                                                                                                                                         set out for consultation and subject to FB agreement.

                                              There are concerns that the outcome of the walkthroughs will force agents down             Lloyd's may not expect all agents to follow the same path of model structure. However, where an agent has an approach which is significantly different to what is being seen elsewhere,
Model W alkthroughs                  Apr-11
                                              a certain model construction path that may not be suitable.                                Lloyd's may require greater validation and explanation of rationale for approach.
                                              Will Lloyd's expect agents to reconcile the two SCR numbers (ie the 12 month               Yes. The calibration of the model will form a key role, particularly where the model delivers an "ultimate" number and a loss recognition pattern is used to derive the one year time horizon
SCR Output                           Apr-11
                                              and the ultimate number)?                                                                  SCR
                                              Must agents provide both Interim SCR submissions (July and September) or                   Both interim submissions are required from all agents and should be completed on a best efforts basis. However, where agents can provide the full scope of the mid-September SCR
SCR Submissions                      Feb-11
                                              could they only supply one?                                                                submission as per the Lloyd's Capital Return, in their July return, only limited further work will be required for September.
                                                                                                                                         For time zero, as it is still a projected agents should use the latest available yield curve, which will be as at 30 June for the next years projections. This should be used for all SCR
Yield Curves                         May-11   What yield curves should be used in the model?                                             submissions in October. Lloyd’s will highlight these on the website once published by EIOPA. For time 1, agents can make use of nominal risk free yield curves from their ESG.
                                                                                                                                         Similarly agents should use their ESG outputs for the ultimate basis required by Lloyd’s.
Valuation & Balance Sheet


                                              Our GAAP balance sheet include "LCA" balances, which comprise "signed
                                              premiums/claims items less cash". QIS5 guidance notes mandates that these
                                              balances be shown separately on the balance sheet (thus did not form part of the
                                              insurance reserves). The reference (page 24 on the Sep 2010 guidance notes).
                                              For the recent Technical Provisions submission we use Signed premiums in the
                                                                                                                                         The LCA balances should be included in the Technical Provisions - the LCA balance is the sum of future premiums due on signed premiums and are premium cash flows. Note that
Balance Sheet                        Jun-11   calculation of Future Premiums. The LCA balances (which comprises signed
                                                                                                                                         these will be net of acquisition costs, so need to gross up and allocate accordingly between premiums and expenses.
                                              less cash balances) were excluded from the technical provisions. This is similar
                                              to the approach adopted in the preparation of the QIS5 Balance Sheet. What are
                                              you expecting on the Solvency II Balance sheet? (ie should LCA balances be
                                              excluded as part of the TP and disclose separately on the Solvency II balances
                                              sheet, or be included as part of the TP).

                                              On the Summary Balance Sheet by currency the instructions state that the data is
                                              required in “pure currency” with all non requested currencies going to other. In
                                              the GQD playback data an example of the figures have been given showing how
                                              to allocate currencies, i.e. only Lloyd’s settlement currencies to be reported in
                                              “Other” (e.g. Polish Zloty settled in USD would stay under USD as it is not one    In the case of the summarised balance sheet, the reported amounts should be in the original currencies. Where a particular currency is not one of the 5 currencies, it should be included
Currency                             Jul-11
                                              of the 14 Lloyd’s reporting currencies, but any Swiss Frances would go into        in "OTHER", irrespective of whether it's a Lloyd's settlement currency or not.
                                              Other as it is a Lloyd’s reporting currency).For the Summary Balance Sheet
                                              should we be using the method described above in the GQD playback or actually
                                              look at the original pure currency and if it not one of the 5 named ones it should
                                              go into other regardless?
                                              Is is correct to create a deferred tax asset (or liability) to reflect the difference in   Tax is borne by the members and syndicates accounts for their results gross and the balance sheet reflects this gross result. The retained earnings included in the basic own funds is
Deferred Tax                         Jul-11
                                              book value under Sol II and tax base under UK GAAP?                                        also gross and hence deferred tax should not be included in syndicate's balance sheet.
                                              There is currently a half year sign off will this apply to a Solvency II balance           The audit requirements are yet to be finalised by EIOPA and this is expected to be included in the Level 3 technical guidance to be issued next year. However, we do not expect that there
Half-year Sign Off                   Jun-11
                                              sheet?                                                                                     will be any audit sign-off required on a quarterly basis and hence the half year sign-off will only apply to the QMA, as it is currenctly.

                                                                                                                                         Reinsurance creditors would normally relate to premiums ceded and payable by the reporting date. The same principles applied to the direct premiums i.e. split between future premiums
Insurance and                                 Will there be any change to the current procedure for insurance and reinsurance
                                     Jun-11                                                                                              and ovedue premiums should be applied to the ceded premium. Ceded premiums that are overdue by the period end should be included as creditors and the valuation should be similar to
Reinsurance                                   creditors or will it follow what the procedure is for debtors?
                                                                                                                                         the current valuation under UK GAAP.Ceded premiums payable in future should be included in the valuation of technical provisions.

Investment Buckets                   Jun-11   Do agents need to supply the duration on each catetgory?                                   Yes, each type of band will need to be supplied. However Lloyd's will consider the possibility of agents doing an asset dump and Lloyd's dealing with the aggregation.

                                              Have Lloyd's provided any guidance on what the duration of Equity investments
                                              should be assumed as. I would have thought it would be appropriate to place
                                                                                                                                         In response to the below query, to assume the durations of Equity investments to be 0 (and therefore included in the 0-1 bucket) would be entirely appropriate, as these assets have no
LIM Segmented Assets                 Jul-11   them in the 0-1 bucket but I guess this would vary depending on the investment
                                                                                                                                         sensitivity to changes in interest rates
                                              strategy of the agent. I cannot see any guidance from the workshops or written
                                              documentation on this point. Please could more detail be provided.
                                              The latest advice on the Balance Sheet templates state that they are draft for
                                              consultation. Whilst we are using them to steer our work, what are your
                                                                                                                                         The balance sheet templates set out the information required by regulators, whereas the 2011 guidance templates set out the information we need that's specific to Lloyd's for the LIM
Mid Year Balance Sheet               Mar-11   expectations regarding the templates we will use for the mid-year return? Do
                                                                                                                                         etc. Whilst there may be some common areas, the LCR etc won't replace the other templates. We will issue more guidance on the balance sheet templates as consultation progresses.
                                              any of the 2011 Guidance templates replace them (e.g. LCR, segmented assets
                                              for the LIM)?
                                              On the “Assets - D6(213)” tab in the Solvency II QMR (issued October 2010) we
                                              have the following question.                                                               Assets - D6(213) is used to record collateral included in the balance sheet while the C1B(220) is for off-balance sheet items. In the case of collateral pledged by reinsurance
                                                                                                                                         companies, the whole amount pledged should be recorded i.e. the Solvency II value of the assets pledged as collateral should be recorded.
                                              This form is to capture off balance sheet collateral, is this in respect of the 100%
QMR                                  Sep-11   exposure against reinsurance contracts or just in respect of case reserves and             Please note that the Solvency II QMR (issued in October 2010) was based on EIOPA's templates that were issued in August 2010. However, in December 2010, EIOPA subsequently
                                              allocated earned IBNR against these contracts?                                             issued updated templates that were used in their pre-consultation process carried out in January 2011.
                                                                                                                                         An updated Solvency II QMR, including detailed instructions will be issued in December 2011.




QRD Balance Sheet                    Jul-11   Is the QRD summarised balance sheet in round thousands or to the pound?                    This should be to the pound.

                                                                                                                                         Lloyd's requires syndicates to exclude surplus assets held within the PTF when creating their SII balance sheet used to determine the SCR. As with the current ICA basis, agents
                                                                                                                                         should assume that all profits (defined as surplus assets on a solvency basis, not as reported in the syndicate annual accounts) are distributed. The approach is, therefore, for
                                              What assets should be included in the SII balance sheet used to determine the              syndicates to calculate capital requirements which exclude market risk on capital. This risk is calculated centrally at Lloyd's and effectively mutualised, subject to Lloyd's retaining the
SCR Balance Sheet                    May-11
                                              SCR?                                                                                       option to increase a member's capital requirement if the additional risk is materially higher than that of other members. Given a member's assets to meet its CIL requirement
                                                                                                                                         recognises both FAL and credit for surplus assets within the PTF (on a Solvency basis), the surplus held within the PTF can be viewed as capital. For this reason, Lloyd's expects
                                                                                                                                         syndicates to only consider assets which back the SII technical provisions and one year of new business premiums when determining their SCR.
Segmented Investment                          Could Lloyd's bring pressure on the Investment Management Community on how                 Lloyd's currently have an Investment Management forum where this issue has been raised. Lloyd's will pick this up again at the next forum and explain to them what their clients are
                                     Jun-11
Return                                        they bring data to their clients?                                                          facing and what they require.
                                              Is the Solvency II balance sheet to be submitted as at 31/12/10 by 29 July 2011 as
                                              part of the Valuation & Balance sheet workstream a separate submission to the
                                              rerun QIS 5 submission for the same dates as part of the Technical provisions &
Solvency II Balance Sheet            Jun-11                                                                                              The QIS5 rerun submission will cover both requirements
                                              standard formula workstream, or does submission of the
                                              SYND_S2QISReRun_v2(1).xlsx spreadsheet sufficient to cover both
                                              requirements?

                                              As part of the Balance sheet return for the end of July we are required to
                                              complete the "Summarised Balance Sheet by Currency" in original currency,
                                              converted to Sterling. This includes assets, liabilities and technical provisions,
                                              as well as members' balances. We can only report numbers like case reserves                To get to the pure currency, Lloyd's will accept reasonable allocation. For example, in the case of IBNR, you could use premium or claims figures to allocate this. On implementation of
                                              and LCA balances, and perhaps UPR balances in original currency. We don't                  Solvency II, syndicates will need to hold information in original currencies, however, where necessary/appropriate, reasonable allocation will also be acceptable. In the case of retro
Summarised Balance                            hold all figures in original currency, (IBNR for example).In addition we also              programme its not clear from your question whether the two currencies are the currencies in which these are denominated or these are just the settlement currencies. If the case is the
                                     Jun-11
Sheet                                         purchase our retro programme in 2 main currencies although these treaties                  former then these two currencies are the original currencies. In the case of reinsurance programmes, it does not mean that we want the information in the original currencies of the
                                              protect all currencies. Other conversations on the SBF seem to indicate that you           underlying insurance contracts they cover but rather the original currency of the reinsurance balances/contracts. All assets and liabilities should be analysed individually to assess their
                                              are asking for more information than we currently hold. As this will be a                  respective original currencies.
                                              significant amount of work for us, can you confirm that this level of detail will be
                                              required going forward (i.e. post SII implementation)? and how we should treat
                                              categories we don't hold in original currency (e.g. retro programme)?

                                              Funds at Lloyd’s were dealt with centrally in the latest QIS5 exercise but in the
                                              previous QIS exercises managing agents were required to account for their own
                                              FAL in the balance sheet.
                                                                                                                                         Syndicates will need to exclude FAL and FIS in the determination of SCR, however, in the case of Solvency II balance sheet, FIS will be included while FAL will be excluded since this is
Valuation & Balance
                                     Sep-11                                                                                              an off balance sheet item.
Sheet                                         In the balance sheet and valuation can we therefore omit FAL or will we need to
                                              include it in our SII Balance Sheet going forward and therefore include in
                                              Balance Sheet and Valuation and reporting?


                                              We would like some clarification on the Valuation (Balance Sheet Assets) and
                                              Assets tabs re overseas deposits please. On the Valuation tab these are to be
                                              included as long term bank deposits (as we hold them in line 24 on QMA002)                 The "current accounting base" and "Solvency I"columns in the valuation tab, should be completed in the same way as the QMA/annual accounts. In the "QIS5 valuation principles"
                                              and then when it comes to the Asset tab, are we to include the bond element of             column, the overseas deposits should be included in the appropriate investment line i.e underlying investments should be included in the correct/appropriate investment line. For
Valuation and Assets                 Jul-11
                                              these deposits too, ie bonds on the Valuation tab will differ from the bonds on the        example, amounts of government bonds in the overseas deposits should be included in the "Bonds-Government and multilateral banks" line. These investments should then be included
                                              Asset tab? We are a bit unsure as on page 26 of last years full guidance it                in the appropriate/relevant sections in the "assets" tab.
                                              states that totals in the balance sheet of the Valuation tab should be consistent
                                              with the more detailed figures in the Asset tab.
Technical Provisions and Standard Formula
Technical Provisions

                                              Within the TP submission (May 2011) can you confirm whether you are expecting
                                              the CP and PP future premium amounts to be gross or net of acquisition costs? I
                                                                                                                                         As we are collecting acquisition cost reserves explicitly at a whole account level we would require that the future premium amounts are gross of acquisition costs in the claims and
Acquisition costs                    Apr-11   am assuming gross with the acquisition costs to be entered in separately into
                                                                                                                                         premium provisions. This is similar to the current reporting basis in the SRD where written premiums and UPR are reported gross of acquisition costs and DAC respectively.
                                              the “Expense provision - Gross Acquisition Costs” field at the top of the
                                              submission?

                                              Why does the Technical Provisions proforma add back the acquisition costs for
                                              both Gross and RI in cell D11 for the “Total Net Best Estimate Technical                   Technical provisions should include provisions for all expected future expenses incurred in running off the business, this includes the acquisition costs (gross and RI) to be paid in
                                              Provisions”? The best estimate claims and premium provisions are included net              the future. Future premiums in the body of the template should be entered gross of acquisition costs to avoid any double count in cell D11. All other expenses should not be included in
Acquisition costs                    May-11
                                              of these acquisition costs as would expect given the “best estimate cashflows”             the claims and premium provisions sections but instead entered in D14:E20. It i s important to ensure that agents are comfortable that they are themselves not double counting in the
                                              approach. By adding the acquisition costs back, it would suggest that the total            submission. How they book and account for the different forms of RI acquisition costs will determine whether a positive or negative value needs to go in to row 16.
                                              TPs in D11 will be overstated and not on a best estimate cashflow approach.


Administration expenses                       Most of our expenses are included in the unallocated claims provision. Could you Solvency II requires that expenses cover all expected future expenses incurred in running off the business which are expected to be greater than the current basis, ULAE will cover part
                                     May-11
& overheads                                   advise what you are expecting to see in these fields?                            of these expenses but not all. Items such as marketing, rent and utilities etc should be included which may not have previously been reported under ULAE.

Binary events                        Apr-11   How does Lloyd's anticipate agents dealing with binary events?                             No specific method has been stipulated for binary events - this is subjective area. Lloyd's can demonstrate their own approach to binary events but cannot be more prescriptive than this.
                                              Will Lloyd's be able to provide loss distributions to agents for use in calculating
Binary events                        Apr-11                                                                                              Lloyd's avoids mandating methods as loss distributions may not suit all agents - the LMA may provide preferred approaches.
                                              binary events?
Binary events                        Jun-11   Is it necessary to separate the calculation for binary events?                             It is only necessary to identify the amount for binary events.
                                                                                                                                         This is an area that has yet to be decided on industry-wide: the FSA have a separate view to Lloyd's and the regulators have yet to settle on an interpretation. Lloyd's will provide more
Binders                              Apr-11   Can Lloyd's provide any further guidance on the treatment for binders?
                                                                                                                                         guidance on this when the information becomes available. Lloyd's expects to mandate an approach once the industry debate has reached a conclusion.

                                              Please can you clarify whether when Solvency II is 'live' Syndicates will be
                                              required to calculate technical provisions on a quarterly basis (i.e. more
                                                                                                                                         Under Solvency II, technical provisions will need to be reported on a quarterly basis. Solvency II allows estimations during the quarterly reporting, hence full actuarial process do not
Calculating TP's                     Sep-11   frequently than annual) and if so what the valuation date would be at the interim
                                                                                                                                         need to be carried out every quarter. Although not mandatory, Lloyd's would expect syndicates to calculate technical provisions fully twice a year.
                                              quarters (e.g. following year-end or as at 'now'). Please can you convey your
                                              understanding of what is required for the FSA / EIOPA as well.

                                              The specification for the Half-Year and Projected Year-End Technical
                                              Provisions shows a requirement for a risk margin calculation. As we are not                The guidance for the September submission states that "risk margins should be calculated using a cost of capital approach", this should be applied to a relevant SCR and not to the
                                              conducting a full QIS5 exercise this time, we do not have the full SCR needed to           technical provisions. In most cases this involves applying the 6% cost of capital rate to SCRs calculated at future time periods and discounting this with a risk free yield curve. The sum
                                              calculate the risk margin.                                                                 of these discounted 6% of SCRs is then the risk margin.

                                               The recent guidance (technical provisions submission template instructions) on Agents may use the 2010 Year End QIS5 rerun as a basis for the 2011 Half Year Technical Provision risk margin if they deem this to be appropriate. Alternatively a mid-year SCR
Calculating TP's                     Sep-11
                                              page 5 says risk margins should be calculated by applying a cost of capital to the calculation (standard formula or internal model) may be performed to re-calculate the risk margin amount at half year. For the 2011 Year End projected position Lloyd's expects
                                              technical provisions. Is there any further guidance on how this should be applied Managing Agents to update their SCRs to reflect the expected position as at 2011YE (again this may involve a recalculation of the standard formula or internal model in line with the
                                              ? Is this simply applying the cost of capital percentage to the calculated net     LCR submission), the risk margins can then be derived from this using the above methods.
                                              technical provisions and if so, do we still assume a cost of capital rate of 6% ?



                                              Does the suggested 5% threshold on materiality relate to class by class or the
Currency allocations                 Apr-11                                                                                              Settlement currency is fine as long as this is right and corresponds to exposures - needs to be justifiable. We consider that materiality would be at syndicate level not class of business.
                                              overall syndicate?
                                              The guidance for the Half Year and Year End Projection of Technical Provisions
                                              states that the six plus one currencies are now required – this is a change from           The same approach applies to the September TP submission, i.e. any non-material currency can be included within one of the specified currency buckets. However, for the September
                                              the previous submission. However, in the TPD guidance, it states that we can               TP submission, we do not require agents to pre-agree their currency splits with Lloyd's but we would expect the split to be consistent with the proposed split for the TPD. The approach
Currency segmentation of
                                     Jul-11   include any non-material currency within one of the specified currency buckets             for pre-agreement on the TPD is that the actuarial function supplies evidence to Lloyd's at least 30 days in advance of the first TPD submission as to why they believe the proposed split
technical provisions
                                              provided non-materiality has been pre-agreed with Lloyd’s. Does the TPD                    is appropriate (e.g. if they are suggesting certain currencies are immaterial etc.). There is no specified format in which agents must supply the evidence - it is up to the agent to supply
                                              approach apply to the technical provisions submissions? Also, what is the                  sufficient evidence.
                                              process, timescale and format required for pre-agreement?

                                              On the TP form we have to submit in May there are a few columns for the current
                                              position (of premiums, paid claims and outstandings). Taking premiums as an
                                              example, there would be two possible ways we could fill this in: The usual
Current position                              understanding of the current i.e. signed premium, or: The actual cash received.            It is correct that the premium to be reported in the May submission should be the actual cash received, however Lloyd's will accept signed premium if this is easier to report. If you do
                                     Mar-11
reporting                                     I’m assuming that as this is a SII form we should be submitting the latter – i.e.          take this approach then you should put a note stating that this is the case.
                                              the actual cash received. Otherwise there would be a mis-match with the
                                              technical provisions which are the discounted future cashflows. Please could
                                              you let me know whether my thinking is correct or not?
                                              Within the TP submission (May 2011) the following fields are asked for: Current
                                              position (Gross) Claims paid and incurred, Premiums received, net of
Current position                              acquisition costs. Can you confirm whether the “paid claims” are total paid
                                     Apr-11                                                                                              These should be cumulative amounts up to 2010 Q4 relating back to each original pure year of account.
reporting                                     claims as at 31.12.2010 or paid claims during the 2010 calendar year. Similarly
                                              are the “premiums received” the total received or just those received during the
                                              2010 calendar year?
Current position                              For the reporting of the gross outstanding claims - we are assuming these are
                                     May-11                                                                                              Yes - these are reported claims only.
reporting                                     as reported, i.e. excluding IBNR. Can you please confirm?
                                              With regards to the Technical Provision return due May 27th, could you please
Current position                                                                                                                         Yes, the column for outstanding claims should be just outstanding reported case estimates. Reserves for IBNR are instead included within the best estimate reserve columns to the
                                     May-11   confirm that "Outstanding Claims" under the "Current Position" section refers to
reporting                                                                                                                                right in the template.
                                              Case Outstanding as opposed to Case+IBNR.

                                              Within the TP submission (May 2011) the following fields are asked for:

                                              Current position (Gross)
                                              • Claims paid and incurred
Current position
                                     May-11   • Premiums received, net of acquisition costs                                              These should be cumulative amounts up to 2010 Q4 relating back to each original pure year of account.
reporting
                                              Can you confirm whether the “paid claims” are total paid claims as at 31.12.2010
                                              or paid claims during the 2010 calendar year. Similarly are the “premiums
                                              received” the total received or just those received during the 2010 calendar year.

Current position                              Can the column for the current position of "Premiums received" also use signed             For this exercise, signed premiums may be used as an approximation for the amounts of premiums received. Lloyd's would expect agents to use the comments tab to record any such
                                     May-11
reporting                                     premiums?                                                                                  approximations used.
                                              Will EIOPA produce mid-year risk calculation rates? What numbers should be
Discount rates                       Apr-11                                                                                              It is unlikely that EIOPA will produce a risk calculation at half year. Lloyd's will provide half-year information to agents.
                                              used for projected TPs on 31/12/11?
                                              Which spot rates are agents meant to use? I know we normally take the spot rate
                                              plus the liquidity premium x 50%. But, what spot rate do we use? Is it 2010 Pre-
Discount rates                       May-11                                                                                              It is the pre-stress curve. In reality this will translate into using the + 50% illiquidity for everything except the discount on the risk margin that only gets + 0%.
                                              Stress Curve or 2010 Baseline Stress Curve? I am assuming it is neither the
                                              Adverse or Inflation Stress curves.

                                              The discounting model provided by the regulator for 2009Q4 & 2010Q4 technical              The yield curves provided by EIOPA are at annual intervals (above 1 year) from the valuation date. The discounting tool does assume that cashflows occur at year end. Assuming
                                              provisioning discounts in whole years.                                                     cashflows occur at mid-year is an appropriate assumption and there are several approaches which could be adopted to work around this given the annual yield curve information
                                                                                                                                         provided, Agents may consider:
                                               We thought it might be more appropriate to assume cash flows fall on average              Assuming the cashflows occur at mid-year and discount using the year end spot rates but give a half year less of discounting credit (i.e. cashflow at 18 months discounted with year 2
                                              in the middle of the calendar year. However, using spot rates based on year-end            rate but only 18 months of discount);
Discounting                          Sep-11
                                              maturities mean this approach is not 100% accurate as the spot rates should be             Assuming the cashflows occur at mid-year and use half yearly yield curves derived by interpolating between the year end positions (i.e. cashflow at 18 months discounted with an
                                              ½ yearly. Please could you provide your thoughts on this prior to us finalising our        interpolated 18 month discount rate with 18 months of discount);
                                              figures for the 30th September submission.                                                 To derive either of the above Agents would have to amend to formula in the discount tool.



                                                                                                                                         As set out in the final advice to the EC (DOC 33/09), all cashflows arising from expenses incurred in running-off liabilities should be taken into account in determining the best estimate.
                                                                                                                                         The level 2 text states that this should include (a non-exhaustive list) administrative expenses, investment management expenses, claims management expenses and acquisition
                                              There are a number of splits of expenses on the May submission. These are not              expenses. Our split currently shows ULAE, Gross Acq Costs, RI Acq Costs, Admin Expenses, Overheads, Investment Management and Other which we feel reflects the segmentation
Expenses                             May-11   defined anywhere, and it’s not clear why they are split this way – can you clarify?        reasonably well. Lloyd's review of the end-May submission will include ensuring that all agents can make explicit allowance for these expense types.

                                                                                                                                         Going forwards, these expenses should all be considered in the Solvency II calculation. In addition, the method used to allocate the overhead expenses by line of business and
                                                                                                                                         premium/claims provisions (as per level 2 text) may mean that the expense types need to be split out and treated differently.

                                              With respect to the expense provisions , we assume that these will be as at year
Expenses                             May-11                                                                                              Yes - all figures should be as at 31 December 2010.
                                              end 2010. Again, I'd be grateful if you could please confirm?

                                                                                                                                         Expense provisions under Solvency II need to cover all expected future expenses incurred in running off the business. ULAE will cover part of these expenses but not all. Expenses that
                                              We have a ULAE expense provision at the period end in our accounts. This is the            are not included under the current basis but that will need to be included under Solvency II include, for example, investment management expenses. Also there will be (in some cases)
                                              only expense provision we have at the period end and under a S.II basis. I am              significant acquisition costs (Gross and RI) on unincepted business which is not accounted for on the current basis. We would expect expense provisions to increase under Solvency II
                                              planning on splitting this into the various categories (unallocated claims                 compared to the current basis.
Expenses                             May-11
                                              handling, admin expenses, overheads, and other lines) and discounting this to
                                              the present value. Am I right in thinking this is an appropriate method to use?            Although the CEIOPS (/EIOPA) texts do not give definitions of expense categories, the level 2 text does categorise these in to "...administrative expenses, investment management
                                              The finance and actuarial teams want to check we're not missing anything.                  expenses, claims management expenses and acquisition expenses...". Lloyd's is asking for a similar split to try and get comfort that syndicate TPs include all types of expenses needed.
                                                                                                                                         This may not be required at such granularity for future exercises (though note that the TPD will want a split of provisions for ULAE/non-ULAE/Acquisition costs).
                                          I was hoping to clarify a query with respect to the expenses breakdown for the
                                          technical provisions submission. From the most recent June 2011 submission               You are right in that the number of categories has reduced and so is less granular in that respect but we now require expenses to be split at a Class of Business and YOA level (we
                                          template instructions, expense provisions are now required at a line of business         previously only requested these at a whole account total level in the May TP submission). The expense categories in the September submission template are now consistent with
                                          level by year of account with the number of categories reduced to four. This is          the new technical provision return (TPD), that is ULAE, non-ULAE and Gross & RI Acquisition Costs. The TPD will eventually replace the SRD and this will be the main source of our
Expenses                         Aug-11
                                          clearly less granular than the May submission. Do you believe that this less             TP data. Whilst there are no plans to change the expense categories in the TPD going forward, Solvency II requires that all expenses incurred in running off the business are included
                                          granular level will remain going forward, or is it more worthwhile to produce a          and this may mean we quantify these more explicitly going forward . We would therefore suggest keeping a flexible approach. The main requirement is to ensure that you can estimate
                                          more detailed breakdown for future purposes, doing a summation for the                   expense provisions for all existing and legally obliged policies.
                                          November submission?
                                          We have been looking out for the GQD homepage on the CMR (with our
                                                                                                                                   The GQD return was released in UAT on 25/07/2011. The (attached) GQD FAQs are also available from the CMR UAT site.
                                          Administrators) and have not been able to locate it. Could you please let me know
                                                                                                                                   Agents need to contact the Data Management Helpdesk (ITGApplicationSupport2@lloyds.com) to arrange for their UAT account to be set up.
GQD                              Sep-11   when this is expected to be up and running? If it already is - can you please
                                                                                                                                   The production release of the GQD return is scheduled for the 21st October 2011.
                                          confirm that we have access?

                                                                                                                                   Q7: Should syndicates report the quarterly movement, rather than cumulative to date?
                                          Could I also confirm that the GQD will contain the movement in the quarter for
                                                                                                                                   The GQD data required is the quarterly movement (increment) for the Gross Gross Signed Premium, Gross Net Signed Premium and Gross Claims Paid. Lloyd’s use these figures in
                                          signed premium and paid claims, and the as at position for claims outstanding at
                                                                                                                                   addition to the incremental amounts received in previous quarters’ returns to calculate the cumulative position. The Gross Outstanding Claims figure should however be reported on an
                                          the end of the quarter.
                                                                                                                                   ‘As At’ basis.

GQD                              Sep-11
                                                                                                                                   Q8: Will the mandatory return in Q3 require data for 2011 Q1 to Q3 to be reported?
                                          For the first submission on 30th November, do you require the Q3 movement, or
                                          the year to date movement?
                                                                                                                                   No, the GQD return captures quarterly incremental data only. Lloyd’s will continue to receive data feeds from Xchanging until the GQD return’s go-live date and for a limited time in
                                                                                                                                   parallel after that.



                                                                                                                                   GQD submissions in 2012:
                                                                                                                                   Q4 2011: Thursday 12th January
                                                                                                                                   Q1 2012: Thursday 12th April
                                                                                                                                   Q2 2012: Thursday 12th July
                                          Would it be possible to get some indication of the timelines agents will be              Q3 2012: Thursday 11th October
                                          expected to work to for submission of the quarterly GQD and annual TPD                   With regards to the TPD return, the answer can be found in the FAQs document that was released on Tuesday and currently available from the Core Market Returns UAT environment.
GQD and TPD Returns              Sep-11
                                          returns? It would be helpful to have something to include in our Reporting policy
                                          document.                                                                                Q7: The 2010 data is required by 30th November 2011; what will be the deadline going forward for this return?

                                                                                                                                   The deadline for the 2011 year-end data is 4th June 2012. Deadlines for the following TPD return submissions have yet to be confirmed however since the TPD is expected to replace the
                                                                                                                                   SRD completely at year-end 2012, it is likely to follow a timetable from 2013 onwards that is similar to or possibly slightly ahead of the current SRD reporting timetable.


                                          For the first GQD return , either the UAT as at June or the Live one as at
                                          September, should the data be cumulative for the 2011 calendar year. This would Although we will continue to receive data feeds from Xchanging until the GQD return’s go-live date. Following assessment of the quality of the GQD historical data as at 2010 Q4, we
GQD Return                       Jun-11                                                                                   will decide on a case by case basis whether a similar exercise is needed for the 2011 Q1 and 2011Q2 data. we will then decide whether or not to ask a managing agent to submit historic
                                          then tie up with the cumulative 2010 data we have agreed. Or should the return  data depending on the quality of the data held for its syndicates.
                                          be incremental for that quarter.
                                          I have a question regarding sign off of the GQD return for Q3. Will Lloyds
                                                                                                                          The GQD return for Q3 2011 does not need signed off as per the form 910. This form exists in the GQD specification but not in the actual return. Discussions are ongoing internally as
                                          require a physically signed copy of sign off form 910 to accompany the Q3
                                                                                                                          to whether sign-off under business as usual reporting will be necessary.
GQD Return                       Nov-11   submission later this month?



                                                                                                                                   The return must be signed-off by two Executive directors. Use of the sign-off function in the software constitutes formal notification to Lloyd’s that the return has been approved by a
GQD Return                       Nov-11   Does the GQD return require Board sign off?
                                                                                                                                   person authorised to represent the directors. There is no form 910 on this return and no need to provide any hard copy or approval to Lloyd's.
                                          I assume this is brokerage on the inward premiums accrued in the technical
Gross acquisition costs          May-11   provisions. Which means such premium is shown including brokerage. Is this               True - also acquisition costs on the unincepted but contractually obliged business.
                                          correct?
                                          What is the purpose of the half year TP calculations and how does this fit with a        As per the Solvency II regulations TPs must be calculated every quarter. In addition to these aspects being requirements, it also constitutes good practice when attempting to
Half Year TPs                    Aug-11   one-year SCR which would cross multiple underwriting years and be                        understand the differences between calculating TPs at half year and at year end. It is also likely that the half-year position will form the basis of the roll-forward to year end (rather than
                                          inconsistent with the annual venture of Lloyd's syndicates.                              the previous year end) and therefore be less dated.

Half-year TPs                    Apr-11   Will agents be required to calculate half-year technical provisions?                     Yes as there will be big differences between mid-year and year end on unincepted business.
                                          Has anything been carried out centrally regarding the justification of                   This must be done on an agent by agent basis as different agents will have different classes of business. Lloyd's does not intend to be too prescriptive in this area as this should be
Homogenous risk groups           Apr-11
                                          homogenous risk groups?                                                                  principles based.

                                          In respect of LCA balances (in particular those in respect of gross premiums
                                          receivable), please could you provide some further advice on how these should
                                          be treated in the Solvency II balance sheet. Technically, these could be
                                          considered as future premium cashflow and therefore transferred to technical
                                          provisions. Alternatively they could be treated as a cash equivalent as they are         Under UK GAAP LCA balances are treated as debtors, however the treatment under Solvency II would be different. We would expect the balances to be classified as future premium due
LCA balances and TPs             Jun-11   technically a “promise to pay” once signed through the LCA. The guidance for             on signed premiums and therefore fall within the technical provisions. Note however that these amounts will be net of acquisition costs, so it will be necessary to gross up and allocate
                                          technical provisions states “that future premiums should only be included to the         accordingly between premium provisions and expense provisions. There may also be a credit risk associated with these balances.
                                          extent that any associated liabilities are also included in the technical
                                          provisions”. As signed premiums are generally viewed to be the equivalent of
                                          cash for reserving purposes, I would like some guidance as to what element
                                          should be transferred (if any) to technical provisions.”

                                                                                                                                   Lloyd's anticipates that there will only be 2 sets of technical provisions - UK GAAP (or then IFRS) and Solvency - the ultimate technical provisions will run off so do not expect the two
                                          How are agents expected to maintain numbers for all the different returns
Maintenance of returns           Apr-11                                                                                            different SCR base figures to increase the number of different TPS to be prepared. All reporting will be based on one set of technical provisions for Solvency and one set for
                                          required?
                                                                                                                                   forecasting.

                                          In discussions on legal obligation there has been a lot of talk about cancellation
                                          clauses on MGA business (i.e. “contracts to bind”). In principle, insurers should        There is still a lot of debate concerning legal obligations of insurance contracts and the treatment of binder business is an area the industry has yet to reach a stance on. The Lloyd's
                                          only allow for legally obliged future business written in the period up to when the      interpretation is to use a "look through" approach: A strict reading of the Solvency II guidance would imply that only the underlying policies that have been written but have not yet incepted
                                          insurer can activate the cancellation clause. For example, if the insurer is             as at the valuation date should be included within the valuation of technical provisions. This is because the contract between an insurer and a binding authority/MGA is not an insurance
                                          producing a Solvency II balance sheet as at 31/12/2010, and they are legally             contract. There are alternative approaches, e.g. to include all future obliged business that may be written through the binder or, as you suggest below, to include only legally obliged
MGA business                     Jun-11
                                          obliged on a contract to bind starting 1/1/2011 with a 3 month cancellation              future business written in the period up to when the insurer can activate the cancellation clause. Lloyd's will currently accept any of the above approaches so long as the approach can be
                                          clause, then they would be legally obliged on the business they expect the MGA           justified. It is, however, important to maintain a flexible approach so that if one of these approaches becomes mandated you can easily amend your approach.
                                          to write up to 31/3/2011.Two questions of clarification arise:




                                          i) It would seem sensible and consistent that the same principles apply to
                                          “contracts to bind” that have already incepted. For example, in the above, if the
                                          contract to bind had incepted on 1/12/2010, then the insurer should still exclude
                                          business written by the MGA after 31/3/2011. Should insurers apply the same              To answer your specific questions:
                                          principles to “contracts to bind” that have already incepted?
                                                                                                                                   i) If you are including legally obliged future business written in the period up to when you can activate the cancellation clause then it would make sense to also apply this to “contracts to
                                          ii) The ability to activate a cancellation clause often depends on whether an            bind” that have already incepted to remain consistent.
MGA Business                     Jun-11
                                          insurer is the lead or following. At inception of a “contract to bind” most insurer’s
                                          will be anticipating that the business will be profitable. Under the above example,      ii) Yes this does seem inconsistent and we could encourage you to adopt a consistent approach (please refer to the comments above for alternative approaches). Under the current
                                          follow insurers would be able to anticipate profits on the whole contract to bind,       Lloyd's interpretation ("look through") this would not be an issue as the directive only talks about insurance contracts. This is a topic that the LMA Solvency II working group is looking at
                                          whereas the lead would only be able to anticipate profits on 3 months’ worth. That       and you might like to consider providing input to the group. Please contact Gary Budinger for further information.
                                          seems illogical, particularly given that the cancellation clause would (in most
                                          cases) only be used if the business was proving to be unprofitable. Is there a
                                          recommended approach emerging?

                                          In the column for Future Premiums Included in Gross Best Estimate exc
                                                                                                                                   Future premium income should be entered as a positive amount. Expected profit commission outgo should be deducted from this expected future premium income. If you only have
Profit commissions               May-11   Expenses and Exc Discounting, if we have a profit commission due to pay out in
                                                                                                                                   expected profit commission outgo and no expected future premium income then this should be entered as a negative amount.
                                          the future can you please confirm the sign that it should take?

                                          With regard to reinstatement premiums for outwards reinsurance on earned
                                          business, should these go in the claims provision? (with reinstatement premiums          Yes, reinstatement premiums on earned business should go in the claims provisions. This is mentioned on page 32 of the guidance ("In a change to previous guidance, Lloyd’s current
Reinstatement premiums           May-11   anticipated for the unearned business going in the premium provision)? I ask             interpretation is that premiums relating to claims that have already occurred should now be incorporated into the calculation of outstanding claims provisions") - the reference on page
                                          because the last line on page 41 of the March 2011 update guidance on TPs                41 is now outdated and should be ignored.
                                          suggests this is not the case, although it seems the most logical thing to do.




                                          We have been looking into the data requirements of r/i acquisition costs and we
                                          have not captured the data relating to commissions paid to the
                                          brokers who place the reinsurance on our behalf. Our systems do have the data
                                                                                                                                   Paid reinsurance acquisition costs have been reported by most syndicates on the SRD 199 for some time. Although it has not been necessary for Managing Agents to allocate these to
                                          relating to the ceding commissions we receive, but not the commissions
                                                                                                                                   risk code, Lloyd's has done this on their behalf. For estimating provisions for reinsurance acquisition costs to be incurred on reinsurance future premium in the TPD 599, Lloyd's would
                                          paid to brokers. We are looking into the system changes required in order to
                                                                                                                                   expect Agents to make reasonable assumptions in deriving these amounts. If these costs are not fully collected, Lloyd's would expect these to be collected in future and any assumptions
                                          capture this
                                                                                                                                   or estimates around the reserves for these amounts be based on appropriate approximations.
                                          data going forward. However, trying to recreate the data historically is
Reinsurance Acquisition                   not really feasible given the volume of contracts involved. I'm also still not sure
                                 Sep-11                                                                                            Lloyd's recognises the difficulty for Agents in estimating certain data items in their technical provisions and understands that these will be estimates. Future data capture of these costs
Costs                                     how this information will be used. On inwards
                                                                                                                                   will help calculate more reliable estimates of these amounts in future.
                                          business, we receive a premium gross of acquisition costs, which is an inwards
                                          cashflow. We also pay commission to brokers which is an outwards
                                                                                                                                   Under Solvency II, all expenses to be incurred in servicing contractually obliged policies during their lifetime should be included within the best estimate. In order to quantify the
                                          cashflow. When it comes to outwards business, we pay a r/i premium gross of
                                                                                                                                   reinsurance commissions paid by Agents, Lloyd's is collecting these acquisition costs separately from the gross of acquisition cost reinsurance premiums in the same way that it does
                                          commission. This is an outwards cashflow. If we recorded the amount of
                                                                                                                                   Gross Gross Premium and Gross Acquisition Costs.
                                          commission paid, this would also be reported an outwards cashflow and it has
                                          already reported as part of the premium. Is there a specific reason
                                          for asking for this information?



                                          Can Lloyd's clarify currency reporting requirements and consistency between
                                                                                                                                   Lloyd's expects agents to report on all material currencies they are dealing in. TP reporting requirements are now confirmed at 6 plus 1 and Lloyd's will review balance sheet
Reporting currencies             Jun-11   these - TPs require 6 plus 1 but latest balance sheet request is asking for 5 plus
                                                                                                                                   requirements. Lloyd's will make these splits as consistent as possible across returns.
                                          1.
                                                                                                                                   We do not have a list yet of what falls under "S2 reports", however key Solvency II reports are as follows:

                                                                                                                                   Technical Provisions Data (TPD)
                                                                                                                                   Gross Quarterly Data (GQD)
                                          Is there a list as to what reporting falls under the category of “S2 reports”?           Lloyd's Capital Return (LCR)
Reporting query                  Sep-11
                                                                                                                                   LIM asset data
                                                                                                                                   ORSA
                                                                                                                                   Qualitative return
                                                                                                                                   Solvency II QMR (quantitative templates)

                                          For the current return do we add un-requested RI premium creditors to the                Given that any future premium debtors will be modelled within the gross technical provisions, unrequested expected future reinsurance premium outgoings should also be included in the
RI premium                       May-11
                                          reserves?                                                                                net TPs. Any corresponding amounts sitting in the assets as debtors and creditors should be removed to avoid double-counting.

Risk margin                      Apr-11   Does the risk margin need to be calculated outside the model?                            The movement of the risk margin over the year will have a large change so this should be calculated outside the model.
                                                                                                                                   We will not be collecting risk margins for the may exercise, but will do so for future exercises. Further details of the increase in granularity for future submissions can be found in our
Risk margin                      May-11   Are you expecting the risk margin to be included in this return?
                                                                                                                                   technical provision submission guidance and workshop slides explaining the process.
Risk margin                      Jun-11   Can Lloyd's provide and further guidance on the use of simplification method 3?          Please refer to the June TP/SF workshop slides.

                                          Will there be a prescribed basis or a choice of method by agents when
                                                                                                                                   This is currently being implemented by agents using a number of methods - Lloyd's is unlikely to mandate an SCR to use but will consider issuing best practice guidelines on this
Risk Margin                      Aug-11   considering the Risk margin for the Standard Formula or Internal Model?
                                                                                                                                   subject.


                                          TPs requirements state that segmentation should be calculated by country rather          Level 2 requirements state that technical provisions should be calculated in all currencies and segmentation by country should be going away. Settlement currency is fine as long as
Segmentation                     Apr-11
                                          than by currencies - will this be challenged on the grounds of data issues?              this is right and corresponds to exposures - needs to be justifiable.




                                          We are currently in the process of completing the documentation to support               1. "Demonstrate a robust process for calculating standard formula SCR" - the requirement refers to the start to finish process of calculating the Standard Formula SCR. Whilst this will
                                          the technical provisions scoring template return for the end of September.               be demonstrated by completing and submitting the QIS 5 workbook (with inputs from TPs, helper tabs, etc...) agent should also development a process around its completion.
                                          The scoring template for the standard formula SCR is based on demonstrating              For example:
                                          a robust process for calculating standard formula SCR and establishing and               What is the process for sourcing the required data ?
                                          documenting the process. We are currently working on the basis that we                   How does this data feed in to the relevant calculations? What checks are performed, etc...
                                          complete standard formula SCR by using the QIS return workbook and helper                Who is responsible for each section of the template?
                                          workbooks (Interest rate risk, concentration risk etc) as these provide the              What review/checking is performed and by whom?
Standard Formula SCR             Sep-11
                                          templates required to calculate standard formula SCR. We then document this              Who is responsible for sign-off of the completed template?
                                          process and methodology.                                                                 We would expect that documentation relating to this process to contain at least this level of information. Agent could consider representing this as a simple process map.
                                                                                                                                   The evidence available to support this requirement will include the submissions made to date of the standard formula.
                                          Is it possible to provide some guidance if this is the correct approach to               2. "Establish process for documenting methodology and assumptions used for calculation" - we would expect documentation of the methodology and assumptions used in each section of
                                          calculate the standard formula SCR and the level of process documentation                the template - or reference to other documentation which contains this information (e.g. TPs). This may be a standard document which is reviewed and updated as required following
                                          required?                                                                                each re-calculation of the standard formula.
                                                                                                                                   Agent should include who is responsible for reviewing and updating this document within the explanation for this requirement.




                                          Can the 6+1 basis for calculating currency risk by altered in the future?
TP Data                          Aug-11                                                                                            Agents must be flexible when considering this, especially for reporting purposes. There is every possibility of a change in the future (e.g. Lloyd's China).

                                          How much of Binders (on a 1 year basis) should be included in TPs?                       The treatment of binders on a legal obligation basis is yet to be resolved. Lloyd's will not be mandating an approach for binder inclusion but Agents must remain flexible if the
TP Data                          Aug-11
                                                                                                                                   requirements do become clearer in future.
                                                                                                                                   The reference to economic conditions could be misleading as the path dependency doesn't have to be economic. You need to decide if any elements of your cashflows are path
                                          On the Valuation Process tab under "Justification of selected valuation methods"         dependent. For example, the chain ladder assumes that development is independent from prior developments for a cohort (so not path dependent) although many people would not agree
                                          please can you provide some further guidance on what is meant by "Whether                with this assumption. The point is here is that if you think your cashflows are path dependent you should select methods that recognise that. A good example would be reinsurance bad
TP Evidence template             Jul-11
                                          cash flows are materially path dependent (eg cash flows depend on economic               debt where your assumption for RIBD in a future time period, let's say year 11, depends on what you've assumed for years 1 - 10. An economic example could be inflation which can be
                                          conditions at the cashflow date and also economic conditions at previous dates)"         linked to interest rates. If you are explicitly deriving inflation from interest rates then most models should recognise that interest rates in time period t+1 will have some dependency on the
                                                                                                                                   interest rate assumed in time period t etc.

                                          On the Valuation Process tab under "Justification of selected valuation methods"
                                                                                                                                   This is about ensuring you have selected a method which is appropriate and takes into account different drivers of uncertainty such as a change in the legal environment or the onset of a
                                          please can you provide some further guidance on what is meant by "Existence of
TP Evidence template             Jul-11                                                                                            recession. Similarly to "Whether cash flows are materially path dependent…", it's really saying make sure your model captures the drivers of the cashflows - or be prepared to explain
                                          material non-linear inter-dependencies between drivers of uncertainty (eg onset
                                                                                                                                   why it doesn't.
                                          of a recession which could increase frequency or severity of non-life claims)"
                                          Should agents be using the 'Period End' or 'Average' exchange rates for the half
                                          year and full year TP submission?
                                                                                                                                   Please use the Q2 period end exchange rates for the half-year and projected year end technical provisions.
TP Submission                    Sep-11



                                          With respect to the Half year and Full year projected TPs, we have sought to
                                          automate our population of the sheets. Whilst undertaking the review we have
                                                                                                                                   "You are correct that there is a row missing in the template, there should be an additional row inserted below "Life RI - Other Life reinsurance - Death" in the template and "LOR_D"
                                          noted one discrepancy within the sheet. For Life RI (CoB 35) there appears to be
                                                                                                                                   inserted in cell C1899. Due to the small nature of this error and the limited impact on the majority of the market Lloyd's will not look to reissue the template. If Agent's wish to automate
TP Template                      Sep-11   a line missing underneath line 1898. There should be a line reading "LO_D".
                                                                                                                                   the completion of the template they may wish to make the changes described above. However, please be aware that for the September TP submission Lloyd's will require submissions to
                                          Can you please confirm if this is what you would expect? Any if not, do you
                                                                                                                                   be in the format supplied on lloyds.com so any amendments made to the template should be removed before submitting."
                                          anticipate re-issuing the sheet?


                                                                                                                             This is not an error.
                                          I have noticed a possible issue in the technical provisions submission template    All gross and reinsurance future premium in the September submission template should be entered gross of acquisition costs - that is before deduction of acquisition cost. The gross
                                          due on 30 September 2011. This is relating to the RI acquisition costs             premium can be referred to as "gross gross" and is consistent with current financial reporting requirements (for clarity if the premium payable is £100 which includes £20 of acquisition
                                          In the template the RI acquisition costs are in blue (information only) in AK,     costs then £100 is the premium gross of acquisition cost and £80 is the premium net of acquisition costs). The premium (gross of acquisition costs) should then be deducted from the
                                          using the GBP section as my example. The RI future premiums in column AE are claims element of the technical provisions to derive the best estimate.
                                          required to be gross of commission.                                                 Gross future premium involves two cashflows that offset each other. The "gross gross" premium income (a cash in-flow) is offset by the associated gross acquisition costs (a cash out-
                                                                                                                             flow). Once reduced this could be termed "gross net" future premium (i.e. net of acquisition costs but gross of reinsurance costs)
                                          The TPs including expenses in columns AL and AP should take the items               Reinsurance future premium is different in that there are two outflows (from the perspective of the syndicate). The first is the "true" premium payable to the reinsurer to cover the risk
                                          excluding expenses (columns AA and AD, respectively) and then add on the           (i.e. the premium net of acquisition costs from a reinsurers perspective). The second is the cost of acquisition of the reinsurance - payable to the reinsurance broker. This second item
TP Template                      Sep-11   expense items. Three expense columns are added to the gross TPs (AL includes (from the perspective of the syndicate) can be offset with any return or overrider commissions and may become a cash in-flow (that is reinsurance acquisition costs can be either a cash
                                          AH:AJ), which includes gross commission. But RI acquisition costs in column        in or out flow).
                                          AK aren’t added into the RI TPs and therefore are missed out. Given both gross      The RI "Gross" Premium includes both elements (i.e. the premium payable to the reinsurer net of acquisition costs plus reinsurance acquisition costs). Therefore when deducting the
                                          and RI future premiums are gross of commission, I would expect the commission RI "gross" premium from the inwards premium cashflows the RI acquisition costs are already accounted for in the calculation.
                                          items to be included as expenses for both.                                          In other words to get the premium net of reinsurance and net of acquisition costs (i.e. the amount ultimately receivable by the syndicate) the gross premium should have gross
                                          What should I do about this? I can enter RI future premium net of commission       acquisition costs and RI "gross" premiums deducted but not the RI acquisition costs as these are already included in the RI "gross" premium. If RI premiums are estimated net of
                                          and leave column AK blank, to give correct total TPs, but this would then not give acquisition costs then an estimate of the RI acquisition costs is required to be made (and added on to the RI premium) to ensure the cashflows are calculated on a correct basis.
                                          expenses representing all items required.                                           A very brief example that shows the calculation of "net net" premium can be found within the TP&SF Solvency II FAQ section of lloyds.com. This assumes there are no claims and
                                                                                                                             "gross gross" premium of £100. The calculation is effectively (gross gross premium - gross acquisition costs - RI "gross" premium).
                                                                                                                              This also confirms that the template is set up to correctly calculate the final technical provision amount.
                                                                                                                             The six currencies (USD, GBP, CAD, EUR, AUD, JPY) Lloyd's has highlighted are those that Lloyd's considers material to Lloyd's. If a syndicate has what it considers material
                                          For the purpose of Friday 30th September's technical provisions template
                                                                                                                             exposure to a currency not within these 6 buckets then they should have already requested the additional yield curve from Lloyd's with which to perform the discounting explicitly. If a
                                          submission, do you have any guidance as to what set of interest rates you expect
                                                                                                                             syndicate has material exposure to (for example) HKD, then this would need to be discounted with the HKD yield curve (as it is material to the syndicate) but it would be reported to
                                          agents to use to discount the business falling into the “Other” currency bucket
TP Template                      Sep-11                                                                                      Lloyd's in the 'Other' currency bucket.
                                          (i.e. not one of the 6 named currencies)?
                                                                                                                                   Currencies which are immaterial to both the syndicate and Lloyd's which will be reported in the 'Other' currency bucket may simply be discounted using the GBP yield curve.



                                          1.   When will the TPD become “live” on CMR enabling a working template to               Currency segmentation should be performed according to the underlying original currency unless the Managing Agent wishes to report in settlement currency and can demonstrate that
                                          be downloaded?                                                                           the difference between the two is not material. Moreover, currency segmentation for reporting purposes should be performed according to the underlying original currency of the
                                                                                                                                   inwards business such that there is consistency between the gross and the net of reinsurance amounts at an individual currency level. This is a similar concept to class of business (in
                                          2.    Gross claims relating to the Japanese earthquake and tsunami are settled           the September return)/ risk code allocation (in the TPD return) where reinsurance recoveries should be reported in a consistent manner with the gross amounts and not allocated to
                                          mainly in GBP although the original currency will be JPY. As the original                another risk code. This ensures there is consistency between the gross and net of reinsurance amounts reported.
                                          currency is JPY then the gross claims relating to this loss will be denominated
TPD                              Nov-11   in JPY within the TPD. Reinsurance recoveries will be collected from                     Discounting, however, should be performed explicitly in the underlying currency. For example, for inwards business with an original currency of JPY, gross amounts should be reported
                                          reinsurers in the currency in which the gross claim was paid – i.e. mainly GBP.          and discounted in JPY. If these inwards losses are covered by an outwards policy with original currency GBP then the reinsurance amounts relating to these inwards losses (claims and
                                          For the purposes of the TPD I presume we show these recoveries in GBP even               premiums) should also be reported in JPY but discounting of these amounts should be performed in GBP. If, however, the exchange rate is stipulated in the reinsurance contract then
                                          though they relate to gross claims originally denominated in JPY. Thus there will        discounting should be performed in JPY as this is where the underlying currency exposure is.
                                          be an inherent currency mismatch within the TPD.
                                                                                                                                   There is a worked example available in the TPD FAQs on the Core Market Returns System.


                                          Can you please clarify the currencies to be used in TPD to 31.12.10. FAQ 1
                                          states that the 6 currencies should be stated in original currencies ( not
                                                                                                                                   The only difference from the SRD reporting is the switch from settlement to original currencies and the additional currencies required.
                                          original currencies in converted £), Other than ‘other’ which should be stated in
                                          C£.
TPD                        Yes   Nov-11                                                                                            All currencies should be reported which are material to the syndicate, this should be in the 6+1 unless prior consent has been given by Lloyd's to report in fewer. Each explicitly reported
                                          This is a different concept from the SRD so I want to make sure that my
                                                                                                                                   currency should be reported in that currency. GBP, "Other" and £CNV should be reported in GBP at the prevailing rates which the syndicate discloses on the return.
                                          understanding is correct.



                                          Could you please confirm that the TPD for a life syndicate should be prepared on
                                          the same basis than the September submission i.e. “life syndicates should report
                                          all business within the claims provision section, with the exception of unincepted       The TPD return should be submitted on a slightly different basis from the September TP.
                                          business relating to the 2010 and 2011 underwriting years which should be
TPD for life syndicates          Oct-11   reported in the premium provision section.”                                              In the TPD 599, Life Syndicates need to split Earned (Claims Provisions) and Unearned (Premium Provisions) reserves for all pure years of account in the same way an non-life
                                                                                                                                   syndicates to ensure market consistency in the return.




                                                                                                                                   You are correct - From our current understanding of the requirements the TPD is missing 8 columns, these being:
                                          In respect of the TPD submission due 30 November 2011.
                                                                                                                                   - Gross Amount Claims Provisions Future Premium
                                          Schedules 598 and 599 do not have a column for claims provisions – future
                                                                                                                                   - Gross Amount Claims Provisions Future Premium Discount
                                          premium cash flows.
                                                                                                                                   - Gross Amount Claims Provisions Future Acquisition Costs
                                                                                                                                   - Gross Amount Claims Provisions Future Acquisition Costs Discount
                                          The TP guidance (march 2011) states
                                                                                                                                   - RI Share Claims Provisions Future Premium
                                                                                                                                   - RI Share Claims Provisions Future Premium Discount
                                           “In a change to previous guidance, Lloyd’s current interpretation is that
                                                                                                                                   - RI Share Claims Provisions Future Acquisition Costs
                                          premiums relating to claims that have already occurred should now be
                                                                                                                                   - RI Share Claims Provisions Future Acquisition Costs Discount
TPD Instructions                 Sep-11   incorporated into the calculation of
                                                                                                                                   Lloyd's will not be updating the TPD for the November submission as Agents may be well progressed with the completion of these forms but instead make these changes for the next
                                          outstanding claims provisions. Note that this is based on Lloyd’s current
                                                                                                                                   submission in June 2012.
                                          understanding and this could still change
                                          before implementing measures are finalised.”
                                                                                                                                   Agents should allocate all earned future premium and the cashflows associated with these in to their corresponding premium provision columns alongside the unearned premium
                                                                                                                                   amounts for this submission. The TPD was designed prior to CEIOPS/EIOPA deciding that future premium needed to be split in to earned (claims provisions) and unearned (premium
                                          Will you be updating the TPD return to allow the reporting of this cash flow?
                                                                                                                                   provisions) amounts, previously it was Lloyd's understanding that all future premium was to be allocated to premium provision. Lloyd's was awaiting final confirmation of the need to split
                                                                                                                                   these amounts, it now appears that this is the case. The 2010YE TP calculations submitted to Lloyd's in May 2011 quantified the impact of earned future premium in the market.
                                          Are you going to prescribe through which column these cash flows should be
                                          reported or is it for each managing agent to decide?

                                          Please could you advise when the CSV file templates and off-line validation will         The TPD return will be released in UAT on 26/09/2011. Both the CSV template and Offline Validator will be available at that time.
                                          be available for the TPD Return?
TPD Return                       Sep-11
                                                                                                                                   The production release date is 21st October 2011.

                                          With regard to the allocation methodology for the TPD, the May 2011 guidance
                                          states that “Lloyd’s would expect agents to document their proposed allocation
                                          approaches which will be reviewed in advance of the TPD submission in
                                                                                                                                   “Lloyd's will not be going through a formal process of reviewing and assessing each Agent's allocation process. Lloyd's will be reviewing documentation of allocation methodologies in
                                          November”.
                                                                                                                                   exceptional circumstances where (upon review of the TPD for example) there are questions raised around the allocation used. In any case Lloyd's expects Agent's to be documenting
TPD Return                       Oct-11                                                                                            their approach to allocation for the TPD and for this to be provided upon request if necessary.”
                                          Is their a formal requirement to submit this methodology and if so, by what date,
                                          and is there any prescribed content / format ? Or, is this only required if it differs
                                          significantly from the proposed approaches in the guidance ?



                                                                                                                                   Unfortunately, this issue was only identified after the TPD return’s production release on 21st October 2011. As a result we are unable to provide a fix in time for the November TPD
                                          I am unable to submit data for the 2011 YOA in the 2010 year-end TPD return              submission. In order to ensure that the numbers submitted in the TPD return are consistent with the May TP submission, agents should combine the 2011 Year of Account amounts with
TPD Return                       Nov-11
                                          due for submission on 30th November 2011, how should this data be reported?              the 2010 Year of Account’s numbers in the TPD 598 and 599. It should be noted however that this is a one off arrangement applicable to the 2010 year-end return submission only. For
                                                                                                                                   the 2011 year-end return in June 2012, agents will be expected to submit the data for the non incepted business separately

                                          Lloyd's has advised that the TPD return should be consistent with the May TP
                                          submission. Are you expecting the numbers to be exactly the same? We
                                          progressed our methodology since the May submission and we were planning to              We would advise that the TPD need not reconcile exactly but we need to collect the 2011YoA consistent with the May return. We are happy to accept changes in amounts due to
TPD Return                       Nov-11   submit updated numbers for the TPD returns. Could you please confirm if we               improvements in methodology and assumptions.
                                          should submit the numbers as per May submission or our updated (and more
                                          accurate) numbers?


                                                                                                                                   The sign-off process for the TPD is the same as that for the SRD. Agents must complete form 910 which is obtained when the return is printed. This must be provided to Lloyd's as a
TPD Return                       Nov-11   Does the TPD return require Board sign off?
                                                                                                                                   hard copy.

                                          Question re the Risk Margin figures to submit in TPD form 699:

                                          What is meant by an undiscounted risk margin?

                                           I thought the Risk Margin, using a cost of capital approach, was the cost of
                                          providing an amount of eligible own funds equal to the Solvency Capital
                                          Requirement (SCR) necessary to support the obligations over their lifetime.              This is correct, the undiscounted risk margin is simply the sum of future undiscounted SCRs multiplied by the cost of capital rate. Lloyd's wishes to assess the impact of discounting on
TPD Return - Risk Margin         Nov-11   Hence not a cashflow, and therefore no undiscounted or discounted value.                 the risk margin and is therefore requesting this information in the TPD.

                                           Is it the interpretation that the Undiscounted Risk Margin is notionally equal to
                                          the Sum of ( the future SCRs multiplied by the cost of capital), before
                                          discounting by the risk free rate? And then the actual Risk Margin is the
                                          difference the Undiscounted Risk Margin and the Risk Margin Discount?



                                          The definitions in TPD 598 are 'TBC'. Do you know when the definitions are
TPD Return: Definitions          Jul-11                                                                                            The definitions are now in the version of the spec that is on the Solvency 2 website.
                                          expected to be provided?
                                          In TPD 199 Revenue Items, there is a field for non-ULAE 'Gross Claims
                                          Management Costs Other Expenses'. Can you explain what this item relates
TPD Return: Expenses             Jul-11                                                                                            All other non-ULAE and acquisition costs incurred in running off the business e.g. Admin and Investment Management.
                                          to and could we have some examples of the costs that you would expect to sit in
                                          here to ensure that allocate our expenses appropriately?
                                          Where are reinsurer default losses included in the TPD return? They are not
                                          mentioned in the specifications. I am including them in the reinsurance
                                          recoveries (i.e. I’m decreasing reinsurance recoveries for the reinsurer default         Similar to form 299 on the SRD (and the new TPD) reinsurance bad debt is not collected explicitly on the 599. As you have said this should be netted off the recoveries.
TPD Returns                      Oct-11   charges) for now.



                                                                                                                                   As set out in the TPD instructions, Lloyd's will require the Syndicate Actuarial Functions to justify any proposals for merging currencies considered non-material for TPD reporting
                                                                                                                                   purposes. This justification must include supporting evidence.

                                                                                                                                   The selection of materiality trigger points for TPD reporting is a decision for each syndicate and Lloyd's will not mandate these. However, the justification submitted to Lloyd's should
                                          For reporting in the TPD, how do we decide and justify which currencies are              comment on how these thresholds were selected.
TPD: Currency reporting          May-11
                                          immaterial and do not need to be reported separately?
                                                                                                                                   The evidence for a particular currency being considered immaterial should include details on how the liabilities in this currency have historically compared with the thresholds selected.
                                                                                                                                   Plans to increase the volume of business in a particular currency should be incorporated into any decision. Lloyd's also expects the Syndicate Actuarial Functions to consider the
                                                                                                                                   Solvency II requirement for Homogeneous Risk Groups in Technical Provisions calculation and the effects on these calculations of the proposed currency merging (including term
                                                                                                                                   structure considerations).
                                                                                                                                   For TPD, the reporting of currencies will need to be performed as set out in the TPD instructions (note the discussion on page 13 of the TPD instructions about being able to merge
                                                                                                                                   some "immaterial" currencies):

                                                                                                                                                                                                                                            ent
                                                                                                                                   It should be noted that, in all cases, original currencies need to be considered rather than just settlem currencies. Syndicates can report in their m               ent
                                                                                                                                                                                                                                                                                            ajor settlem currencies but only
                                                                                                                                                                                            ent
                                                                                                                                   if there is supporting evidence that the split of settlem currencies does capture all the m   aterial underlying currencies. For exam                                           m
                                                                                                                                                                                                                                                                        ple, if Australian Dollars represents an im aterial
TPD: Currency reporting          May-11   Do we need to report by settlement or original currency?
                                                                                                                                                                                    ay
                                                                                                                                   currency and is settled in Sterling, then this m be reported within the Sterling bucket. The key consideration is m    ateriality.

                                                                                                                                   The above suggests that an agent can use a major settlement currency (where different from the original currency), as long it is not material. Definition of materiality is the responsibility
                                                                                                                                   of the managing agent and their actuarial function.


                                          Given the nature of our business and our interpretation of the Technical
                                                                                                                                   No, we do not expect to see differences in the Technical Provisions submissions and the TPD return simply as a result of different allocation to currencies. The TPD instructions
                                          Provision and TPD guidance it looks as if the Technical Provisions should be
                                                                                                                                   probably give the best guidance on currency and are actually applicable to both submissions and so should be referred to in this instance. Essentially, what we are saying is that in both
                                          calculated on a settlement currency basis and the TPD returns should be
TPD: Currency reporting          Jul-11                                                                                            cases original currency should be used and syndicates can report in settlement currency only if settlement currency captures the material underlying currencies. In cases where
                                          submitted on an original currency basis. Do you therefore expecting to see
                                                                                                                                   settlement currency is used as a proxy for original currency, it is the responsibility of the agent to provide supporting evidence as to why this is appropriate - further details of this are
                                          differences in the TPDs and the Technical provision submissions simply as a
                                                                                                                                   provided in the TPD instructions.
                                          result of different allocation to currencies?
                                             Assuming an agent addresses the issue of materiality at syndicate level
                                             satisfactorily for its currency splits, are there any Lloyd's related considerations
TPD: Reporting                               that also apply? For example, the syndicate TPs total £50m and gross assets are         We will apply materiality at Lloyd's level - as long as the agent knows the currencies to be reported they can set up their systems to report the 5+1/6+1 and it will be easier for them not to
                                    Jun-11
currencies                                   £60m and the actuarial and finance functions conclude that the US$1m element            attempt to combine very small amounts of one currency with another.
                                             of both is immaterial, will Lloyd's accept this and enable the agent to report the
                                             US$ elements within the "plus one" category?

TPs September                                Which version of the TP template should I use for the September submission and          Agents should use the most up to date version of the template for the submission in September. The template on the website is clearly labelled with the version number. The current
                                    Jul-11
submission template                          what changes have been made to the template?                                            version is version 2. The formula to calculate the Total Undiscounted RI Best Estimate TPs (excl Risk Margin) for the Premium Provision has been amended since version 1.
                                             Most agents are using method 2 to calculate unincepted business - are Lloyd's
Unincepted business                 Apr-11                                                                                           There is still uncertainty in the industry on unincepted business so Lloyd's cannot mandate the method at this stage.
                                             able to mandate the method?
                                                                                                                                     There are two unincepted premium fields on the return. These were added at the request of MRC and so they may be better placed to define these.
                                             Please could you confirm whether Unincepted Premiums to be entered on
                                             schedule 105 of the SBF should include unincepted premiums in respect of both           unincepted premiums brought forward - This is premium to which the syndicate is contractually obliged to accept that has an inception date after the end of the year of account of the
                                             the 2011 and 2012 underwriting years?                                                   business plan. For syndicates currently completing their 2012 plans, this would include the contracts they have signed up to on or before 31/12/2012 that incept after 31/12/2012. The
                                                                                                                                     unincepted premiums would be for year of account 2013 but are recorded on the SBF for 2012. Note that other than the unincepted premium fields, the rest of the return is on a pure
                                             We will have unincepted premiums on the 2011 underwriting years relating to             basis.
Unincepted Premiums                 Sep-11
                                             attachments under binding authority agreements. The latter are being taken into
                                             account for our Solvency II work.                                                       unincepted premium carried forward - This is premium with an inception date before the start of the year of account that has yet to be received. For 2012 business plans this would be
                                                                                                                                     2011 YOA or earlier premium not yet received.

                                                                                                                                     http://www.lloyds.com/The-Market/Operating-at-Lloyds/Solvency-II/Information-for-managing-agents/Guidance-and-
                                                                                                                                     workshops/~/media/Files/The%20Market/Operating%20at%20Lloyds/Solvency%20II/Dry%20run%20guidance/SolvencyIILloydsTechnicalProvisionsDetailedGuidance.pdf
UW Y                                May-11   Should the figures be entered by pure underwriting year, or RITC year?                  The information must be set out by pure underwriting year.


                                              What will the valuation date be for an interim quarter - e.g. at 31.03.2012 would it
                                                                                                                                     Valuation for Q1 submission should be as at 31/3/13, however, valuation performed as at 31/12/12(based on Solvency II valuation principles) could be used for Q1 return as long as the
                                             be 31.03.2012 or 31.12.2012? (i.e. based on current data and including all
                                                                                                                                     following is carried out:
                                             business legally obligated as at 31.03.2012 or based on a projected year-end
                                                                                                                                     Adjust the 31/12/12 valuation with movements during Q1 2013
                                             data position and all business expected to be legally obligated as at 31.12.2012?)
Valuation As At Dates               Sep-11                                                                                           Determine technical provision for business written in Q1, including legally obligated contracts as at 31/03/13.
                                                                                                                                     The process for determining quarterly technical provisions could be similar to that adopted currently for QMA reporting and the only difference is that valuation under Solvency II should
                                             Are there any additional requirements from the FSA that you are aware of?
                                                                                                                                     be in line with Solvency II valuation principles.




Yield Curves                        Jun-11   When will the yield curves for the mid year technical provisions come out?              Lloyd's would expect to release these in July.
Yield Curves                                 I am looking for some yield curves as at 30 September 2011. I know Lloyd’s
                                             published some curves as at 30 June for the recent technical provisions
                                             submission.                                                                             Lloyd's produced half-year 2011 yield curves for the technical provisions submission in September (as at half-year 2011 and projected year-end 2011). Lloyd's shall only be producing
                              Yes   Dec-11                                                                                           these when required for future exercises and when EIOPA do not produce their own. As there were no submissions as at 30 September 2011, Lloyd's did not produce the curves.
                                             Have Lloyd’s published similar yield curves as at 30 September?
                                                                                                                                     The agent may wish to derive their own using a similar methodology as described on the front page of the half-year 2011 curves or could simply use these half-year curves as they stand.
Standard Formula

                                             There has been a lot of talk around the Standard Formula recently but is there a
                                                                                                                                     There is a need to calculate the standard formula in the short term - for model approval and rating agents as well as regulators who will be interested in this as a comparative number.
Future SF calculations              Mar-11   view from Lloyd’s as to how long agents will have to produce SF numbers post
                                                                                                                                     However, the long term view is far less clear and there is currently no clarity on whether regulators will require a standard formula periodically as part of ongoing model approval.
                                             the approval of the internal model?

                                             We are carrying out some further work on the QIS 5 re-run process and are
                                             seeking some clarification on the Counterparty Risk Module.

                                             Within the Solvency II balance sheet the amount that has been included as
                                             intermediary recoverables represent just the overdue premiums with the not yet          No future premium should be included within type 2 exposures - that is, the type 2 exposures should not include any premiums which are not yet due (i.e. the amount which falls within
                                             due premiums being re-allocated to Technical provisions.                                technical provisions). SCR 6.6 within the QIS5 specification defines the type 2 exposures to include policyholder debtors, on a Solvency II basis balance sheet these are due/over-due
QIS5                                Sep-11                                                                                           amounts only. The not yet due premium amounts would be included within the standard formula SCR within lapse risk. The over-due premiums should be split by that which is over-due
                                             Can you advise whether it is just this not yet due premium that should be               by more than 3 months (which assumes 90% defaults) and less than 3 months (15% default assumption).
                                             considered for the Type 2 exposures within the counterparty risk module and then
                                             further to this it is only amounts 3 months past due that are included, split
                                             between intermediaries and non-intermediaries.



                                             Is there any QIS 5 feedback on the 31/12/09 exercise? If not, what will the market      Individual feedback was issued to all syndicates in December 2010. Both EIOPA and the FSA have published EU/UK QIS5 result reports in March 2011 which are available via their
QIS5 feedback                       Feb-11
                                             get and when?                                                                           websites.
QIS5 feedback                       Feb-11   Is there any QIS 5 feedback? If not, what will the market get and when?                 Individual feedback was issued to all syndicates in December 2010. Both EIOPA and the FSA have published EU/UK QIS5 result reports in March 2011.

                                                                                                                                     Lloyd's has fed back on QIS5 including suggested remedies where we consider the standard formula is inappropriate. Lloyd's currently has no further information as to whether an
                                                                                                                                     additional QIS will be required by EIOPA, but we will inform the market as soon as we hear more. If not, we will still need a re-run as at 31/12/2010 as, amongst other reasons, Lloyd's is
                                             Will a re-run of the QIS5 as at 31.12.10 be necessary if there are no changes to
QIS5 re-run                         Feb-11                                                                                           required to show that it can calculate full standard formula SCRs and compare these with 31/12/2010 internal model SCRs. Though some points in the standard formula may change
                                             the standard formula?
                                                                                                                                     (such as cat risk), the majority of the calculation is likely to be very similar to that of QIS5. Additionally, the majority of the QIS quantitative requirements will be calculated in other parts
                                                                                                                                     of the process and this exercise will pull them together. There is no requirement to redo the qualitative elements of the QIS5 exercise.

                                              The control check Cell M on the valuation tab is reading “False”. We are
                                             comfortable that the totals are correct and that the movements shown reconcile
                                                                                                                                     The checks in this sheet look for reconciliations to the decimal point, there is no rounding applied. As long as you are comfortable that the movements are sensible and the 'FALSE'
QIS5 Re-run                         Aug-11   and as such don’t believe the control check to be working. It doesn’t appear to be
                                                                                                                                     flags have been checked then we have no problem with these being false.
                                             driven by decimal points but we are wondering if this is caused by the basic own
                                             funds being negative?
                                             Where within the valuation tab do we include the FAL invested assets? We have
                                                                                                                                     As per the Lloyd's Submission Instructions for the Standard Formula QIS5 rerun, Funds At Lloyd's and Funds In Syndicate should not be included on the balance sheet or in the
QIS5 Re-run                         Aug-11   included the FAL LOC’s in cell K173 and are currently including the invested
                                                                                                                                     modelling of risk on FAL for the standard formula SCR. Lloyd's will be modelling this centrally.
                                             assets in K174.
                                             Running cat losses from per risk losses through our reinsurance programme
                                             results in a higher retention for us if it is assumed that the full amount relates to
                                                                                                                                     I have now spoken to one of my colleagues and as per the QIS5 guidance, the cat risk element should be based on a single loss. The rest of the market should also be following this
                                             more than one loss. Alternatively, if we assume a single loss, our retention is
QIS5 Re-run - Cat Risk              Jul-11                                                                                           approach . Although we have not specifically collected market information to this effect we have recommended the use of RDSs to estimate the amount of recoveries which may arise
                                             only used once. The implications for this can be quite material, and we would
                                                                                                                                     from events which fall under these Solvency II classes.
                                             like to have your take on this. Has the market shown consistency towards one
                                             assumption more than the other? Is there a preferred method?
                                             Cat Risk (using Method 2) is based on factors applied to estimates of 2011
                                             GWP. Should this be “actual” GWP or “legally bound” GWP? My
                                             understanding is that, as per the Lloyd’s FAQ on Unincepted Premiums (dated             To produce an appropriate one-year standard formula SCR, Method 2 Catastrophe Risk should be based on an undertaking's exposure in the coming year, therefore this should be
QIS5 re-run: Cat risk               Jul-11
                                             Jun-11), we should be using the actual GWP, with no adjustments for unincepted          based on the full gross gross written premium relating to that calendar year (i.e. 2011).
                                             premiums either brought forward or carried forward. Could you confirm this,
                                             please?
                                             The guidance says all QIS 5 should be in GBP and in thousands. This is fine.
                                             However table 1.1 (Assets TAB) says exposure in the currency of the
QIS5 re-run: currency                        government. (I assume this means in the local currency- US Govt in USD will be          Lloyd's are expecting to see all figures in thousands and converted Sterling. The QIS5 standard formula re-run guidance refers to options within the spreadsheet to provide information
                                    Jul-11
reporting                                    recorded in USD). I found the question on FAQ row 20. Am I to disregard (in             in a number of reporting currencies (i.e. question 1.1 for the I.Assets tab). However please ignore and follow Lloyd's guidance.
                                             the currency of the government) and complete this in GBP as the answer
                                             reiterates that all should be in GBP? It is just slightly unclear.
                                             As part of QIS5 are syndicates expected to include FAL risk as part of their            Going forward, we expect syndicates to exclude FAL risk from their SCRs both on an internal model basis and for any re-runs of the standard formula. This is a change from QIS5 in
QIS5 re-run: FAL                    Apr-11
                                             internal models?                                                                        2010.
                                             On the original QIS 5 exercise we reported an LOC that supports our FAL, in the
                                             Ancillary Own Funds section of the Balance Sheet. Presumably, if we are
QIS5 re-run: FAL                    Jun-11                                                                                           Any assets backing FAL or FIS should not be included in the balance sheet.
                                             excluding FAL from the calculation, we should not be reporting the LOC under
                                             Ancillary Own Funds. Is this the case?
                                                                                                                                     The strict definition of PCO is the claims provision (i.e. earned business only). This follows from the QIS5 technical specification: TP.7.100. The technical provisions net of reinsurance
                                             Can you confirm whether the total of PCO in cell H32 on the Geographic                  in the given hom                                                                     e
                                                                                                                                                       ogeneous risk group or line of business would then exhibit the sam com                                                                  ate       ium
                                                                                                                                                                                                                                 ponents as the gross provisions, I.e.: PP Net = the best estim of prem provisions net of
QIS5 re-run: Geographic
                                    Jul-11   Diversification Tab should agree to H19-K19 on the Insurance obligations tab                                                    ate        s
                                                                                                                                     reinsurance; PCO Net = the best estim of claim provisions net of reinsurance; and RM = the risk m        argin. However, for this exercise we are happy if you define PCO as "estimate of
Diversification Tab
                                             (which in turn agree to the Tech reserves on SII basis submitted @ 31/05/11?            technical provisions excluding any risk margin" (i.e. to include the unearned business as well) as this should not distort the geographical spread to any material degree. Just let us
                                                                                                                                     know what approach you have taken.
QIS5 re-run: Holdings in                                                                                                             You should perform look-through procedures on these. However, Solvency II allows the following where look-through is not possible: Use the investment mandate - It should be assumed
Collective Investment               Jun-11   Should these be included in the assets worksheet and spread risk data?                  that the scheme invests in accordance with its mandate in such a manner as to produce the maximum overall capital requirement Treat the holding in CIS as an equity investment and
Schemes                                                                                                                              apply the global equity stress (if the assets within the scheme are listed in the EEA or OECD) or other equity stress (otherwise).

QIS5 re-run: Illiquidity                     Is there still a requirement to calculate the Illiquidity Premium Risk in the SCR if    The Illiquidity premium risk arises from the risk of increase of the value of technical provisions due to a decrease in the illiquidity premium. Therefore, if some or all of the technical
                                    Jul-11
premium risk                                 all the technical provisions are being allocated to the 50% bucket?                     provisions are exposed to the illiquidity premium (all in your example below are exposed to the 50% bucket), then the Illiquidity Premium Risk should be calculated.

                                             The cash flow workbook approach to calculating the interest rate risk premium is
                                             not geared to handling futures. Accordingly at the current time we are
                                             calculating the interest rate shock to the bond portfolio as follows: For each bond
                                             / future in the portfolio we are taking the duration of the bond and calculating        Bond futures can be classed as a form of interest rate derivative and, as such, it would make sense to apply the calculation for bonds to the bond futures as they are included alongside
                                             Interest rate shock for bond = V*Durⁿ *rateⁿ * factorⁿ where: V= market value of        each other in SCR 5.16 of the QIS5 Technical Specifications:
QIS5 re-run: Interest rate                   the bond Durⁿ = duration of the bond Rateⁿ = interest rate from Lloyd’s website
                                    Jul-11
risk                                         applicable to cashflows in year n factorⁿ = relative shock for cash flows in            SCR.5.16. Assets sensitive to interest rate movem  ents will include fixed-incom investm
                                                                                                                                                                                                                     e          ents, financing instrum               ple
                                                                                                                                                                                                                                                        ents (for exam loan capital), policy loans, interest rate derivatives
                                             maturity interval n (page 111 of QIS5 technical specification) These are then           and any insurance assets. This is not directly related to your question but I would also like to draw your attention to SCR.5.20: SCR.5.20. Where an undertaking is exposed to interest
                                             summed for the whole bond/futures portfolio. We are assuming this approach is           rate movem          ore                                          ent
                                                                                                                                                ents in m than one currency, the capital requirem for interest rate risk should be calculated based on the com         bined relative change on all relevant yield curves.
                                             acceptable, however could you just ask your contacts within the Corporation if
                                             this process for assessing the impact of derivatives in our portfolio is in line with
                                             Lloyd’s thinking.

                                                                                                                                     The interest rate shocks should be consistent with QIS5. These are percentage shocks depending on term. The shocks can be found in the discounting tool available on the EIOPA
                                             Could you confirm which yield curves should be used for the upward & downward
QIS5 re-run: Interest rate                                                                                                           website: https://eiopa.europa.eu/fileadmin/tx_dam/files/consultations/QIS/QIS5/Spreadsheets&IT-Tools/09.07-update/H_Cashflows_Discounting_20100906.xls. For example a GBP pre-
                                    Jun-11   interest rate shocks (used to shock liabilities). I assume it is the inflation stress
shock                                                                                                                                stress curve with zero illiquidity premium at 1 year of 1.026% (cell G20 on the 2010 yield curves sheet) would be shocked up by 70% (1.744%) or down by 75% (0.257%).
                                             curves & adverse stress curves respectively.


                                             I have a question that relates to market risk within QIS5, specifically on how to
                                             treat floating rate notes. My understanding of floating rate notes is that the
                                             coupon payment various according to what the interest rate has done since the
                                                                                                                                     FRNs have very limited interest rate risk due to the variable coupons, the only risk being the time from T0 to the next coupon date (typically quarterly). We would however suggest that
                                             bond’s issuance. This effectively means that once it has been sold, it is
QIS5 re-run: Market risk            Jun-11                                                                                           these assets should be included in the interest rate risk module to ensure consistency throughout the submission, despite their minimal charge. The capital value of the asset should be
                                              (largely) protected against changes in the yield curve, and therefore does not
                                                                                                                                     included within the spread risk module in line with other bonds.
                                             act like a typical bond. Within QIS5 should we exclude it from the interest rate
                                             shock scenario? Internally we have excluded it from “Interest rate risk” on our
                                             dashboards, although this has not fully fed through to the ICAs yet.

                                             Please would you be able to clarify what elements should be included within 'net
                                             PCO' on the Geographical Diversification tab. For QIS5 (original) all future
                                                                                                                                     Future premium included in the technical provisions is not collected explicitly in the spreadsheet so it can be allocated in a consistent way to the May TP submission. The purpose of the
                                             premiums were included within the premiums provision. Should future premiums
                                                                                                                                     Geographical Diversification tab is to derive volume measures for each geographical region to estimate the geographical diversification credit for premium and reserve risk. Reserve
                                             that we included in the claims provision as per the May 27th TP submission be
                                                                                                                                     risk GD volume measure - Net PCO relates to the Solvency II basis net of reinsurance best estimate technical provisions (excluding risk margin), this includes future premium.
QIS5 re-run: Net PCO                Jun-11   included here? If so, should they be gross or net of acquisition costs
                                                                                                                                     Technical provisions should include allowances for all expenses incurred in running of the business so the premium amounts within Net PCO would be net of acquisition costs.
                                             (presuming already that they are net of outwards reinsurance). If future
                                                                                                                                     Premium Risk GD volume measure - This is basically the maximum of 2010's net written premium and estimates of 2011's net written and net earned premium. The should all be gross
                                             premiums are not included then the figures shown in this table for 'net PCO' will
                                                                                                                                     of acquisition costs.
                                             not equal Gross Claims Outstanding less Recoverables Outstanding as per the
                                             Insurance Obligations tab (i.e. J19 - S19)
QIS5 re-run: Overseas                        In the July 11 submission do we still exclude overseas deposits in analysis on           Overseas Trust Fund assets do need to be included within the QIS5 analysis. Security level data for each of the Overseas Trust Funds as at 31.12.2010 is available, if the syndicate has
                                    Jul-11
deposits                                     spread for bonds in the assets tab.                                                     not received it they should email treasuryanalysis@lloyd.com and we will be more than happy to email it to them.
                                             In the latest Lloyd’s QIS5 guidance, there is a section on overseas trust funds
                                             which states “For the 2010 QIS5 exercise Lloyd’s provided agents with an
                                             indicative split of trust fund assets for use in their balance sheet and modelling of   Lloyd's contacted the market last year advising that this information was going to be provided and would be available on a quarterly basis. Those Managing Agents who contacted
QIS5 re-run: Overseas
                                    Jun-11   these for the derivation of the SCR. Managing Agents have since been provided           Lloyd's were sent the data during January. Managing Agents who have not received this information should contact treasuryanalysis@lloyds.com and state whether they would like to
trust funds
                                             with Syndicate security level information for the Overseas Trust Funds as at 31         receive it on an ongoing basis.
                                             December 2010 to be included within PTF asset submissions”. We have not
                                             received this information - who should we contact to request this?

                                             I have a question regarding the treatment of premium cashflows within claims
                                             provisions. My understanding is that Lloyd’s wishes for the discounted best
                                             estimate of premium cashflows on earned business to be included within the
                                             claims provisions (which seems intuitive, as these provisions relate to business
                                             that is already earned). However, it can give rise to complications when it comes
                                             to calculating the standard formula SCR. For example, for one of our classes of
QIS5 re-run: Premium                         business, the inclusion of these premium cashflows results in a negative claims         The future premiums should be included in the correct place - if this leads to negative claims provision then this should still be left in. As with previous QIS exercises, the best approach
                                    Jul-11
cashflows                                    provision. As the standard formula is factor-based, this could gives rise to a          is to apply the requirements as per the technical specification - if this leads to an issue then the process will identify these and their potential impact.
                                             negative capital charge on that class if the overall volume measure (for both
                                             premium and reserving risk) is negative.

                                             Should future premium cashflows be excluded from the claims provisions in the
                                             Insurance Obligations sheet to avoid this problem (even if they’re included within
                                             our Technical Provisions disclosures)?

                                             For QIS5 premium debtors i.e. the difference between written and signed, we left
                                             the in debtors on the last QIS5 return. This was on the basis that although they
                                             hadn’t received them, they were due under the normal terms of trade. I know a lot
QIS5 re-run: Premium
                                    Jul-11   of people netted them off against TPs. You mentioned in the balance sheet               These do all go against TPs.
debtors
                                             presentation that only premiums that were overdue should be retained in debtors.
                                             Could you tell me what the definition is of due/overdue, and what do you consider
                                             to be best practice.
                                             After we have stripped out the surplus assets reported at 31/12/2010 and after
QIS5 re-run:                                 our Reserves and RI have been revalued under Solvency II principles, we end up          As long as this profit has not been approved for distribution, it should be included in the valuation worksheet as basic own funds on line 118, "Retained earnings including profits from the
                                    Jul-11
Profit/retained earnings                     with a profit / retained earnings on the Solvency II Balance Sheet. Does this           year net of foreseeable dividend".
                                             need to be stripped out as well?
                                             What rate of exchange should be used? Should it be y/e rates, or average rates
QIS5 re-run: Rates of
                                    Jun-11   (to be consistent with QMA)? What rates should be used for Next year                    As per the guidance on Lloyd's.com, Lloyd’s 31st December 2010 period end rates as set out in market bulletin Y4459 should be used. These should be for all currency conversions.
exchange
                                             expectations?
QIS5 re-run:                                                                                                                         Cells H19 minus K19 should reconcile to the technical provisions submission in May. This is the net best estimate including all allowances for expenses. Agents will have to allocate
                                             Can you confirm that Cell H19-cell K19 on this sheet should agree to cell E11 of
Reconciliation to TP                Jun-11                                                                                           the expenses, discounting and bad debt to the Solvency II classes of business. Agent's may find that there are some questions from Lloyd's on their recent submissions, any changes or
                                             the recently submitted tech reserves return (assuming this is not restated?)
return                                                                                                                               improvements to the May submission following these questions should be incorporated in to the QIS5 rerun template.

                                             I have a question regarding the risk margin in QIS5. I'm not sure if there is a
                                             spreadsheet error or not but when entering numbers for the risk margin in the           The volume measures for reserving risk in the SCR calculation are based on the best estimate (i.e. excluding any risk margin). The areas it will affect are in Market Risk - Interest
QIS5 re-run: Risk margin            Jul-11   I.QIS5 Insurance Obligations spreadsheet the final SCR does not change. I               Rate, Spread, Currency and Illiquidity Premium Risk being the main ones as these are based on the liabilities on the balance sheet (i.e. including Risk Margins). This won't
                                             would expect this to have an effect on the SCR as in the previous QIS 5 exercise.       automatically affect the SCR as the liability amounts on these sections have to be entered manually, the volume measures for underwriting risk are populated from the TP sheet.
                                             Could you provide more information on this please?

                                             I’ve got a quick question on the calculation of the risk margin. If we’re using the
                                             “proportional” simplification, i.e. the simplification that assumes that the SCR is
                                             runoff according to the runoff of the “best estimate”, what do we mean by the
                                             “best estimate”? If we based it on the best estimate of all technical provisions,
                                                                                                                                     The QIS5 guidance states that simplification 3 (as you describe below) is based on the assumption that the future SCRs are proportional to the best estimate. The best estimate is
QIS5 re-run: Risk margin            Jul-11   the runoff profile will include premium cashflows. Is that intended? Or should we
                                                                                                                                     defined to be the probability weighted average of future cashflows (taking into account the time value of money) - therefore the best estimate should include any premium cashflows.
                                             base it only on the runoff of reserves built on the discounted cashflows of claims /
                                             expenses? For clarity, these would be the claims provisions and the premiums
                                             provisions excluding any components of these made up of discounted premium
                                             cashflows.
                                                                                                                                     The latest version of the QIS5 rerun template is version 2. The changes since version 1 are:

                                                                                                                                     The 'I.Current Situation' tab has been hidden as we are no longer collecting any information on this tab, and
QIS5 re-run: Submission                      What is the most recent version of the template and what changes have been
                                    Jun-11   made?                                                                                   The EPIFP formula has been amended to completely remove any effect of EPIFP (especially where syndicates are reporting negative gross best estimate technical provisions in any
template
                                                                                                                                     class).

                                                                                                                                     Agents should work with this version of the template going forward. Any future versions of the template will be put on lloyds.com with an accompanying FAQ detailing the changes which
                                                                                                                                     have been made.

                                             The instructions for the QIS5 Rerun state " Agents should only calculate their
                                             capital requirements based on their best estimate Solvency II liabilities and the
                                             assets which support these liabilities. This would exclude FAL, FIS and any
                                             surplus assets held to avoid overstating capital requirements under the standard
QIS5 re-run: Surplus                                                                                                                 The QMA201 shows these assets as balances held and yet to be distributed so are therefore a surplus asset in respect of the syndicate. They are therefore not to be included on the
                                    Jun-11   formula." Could you please clarify whether "surplus assets" includes profit
assets                                                                                                                               balance sheet or for the SCR modelling. Please adjust the current and Solvency II basis balance sheets for the purposes of the QIS5 submission.
                                             distributions paid during 2011 in respect of the 2008 YOA close? If so, are we
                                             required to net down the balance sheet to exclude the profit distribution or is this
                                             just referring to market risk? The instructions state that the balance sheet needs
                                             to reconcile to the QMA201, which was gross of the profit distribution?

                                             The guidance instructs us to remove FIS as well as FAL from the calculation.
                                              Our syndicate reported zero FIS at year end, but we did have profits that were
                                             being held for distribution. Would these need to be stripped out of the
QIS5 re-run: Surplus                                                                                                                 Yes, surplus assets should be removed from the calculation. We would suggest removing the assets from the investment portfolio using the proportions of these surplus funds to the
                                    Jun-11   calculation? If so, we were holding them as part of our investment portfolio
assets                                                                                                                               total amount and removing these proportions from each underlying asset.
                                             (SPTF and LDTF, with no distinction between the investments being held as
                                             profit and investments being held to support reserves), what method would you
                                             suggest using?
QIS5 re-run: Template               May-11   Has Lloyd's issued a new template for QIS5 submission and instructions?                 Lloyd’s has issued a new spreadsheet and instructions which agents should use for QIS5 rerun as at 31.12.10. Click here.

                                             I have a question on the QIS5 re-run spreadsheet issued by Lloyd’s for the

QIS5 re-run: Template                        submission on 29th July. The latest version is version 2. We are holding off            While we cannot guarantee that there will be no further changes to the template we would encourage Agents to use the most up to date versions in their workings and final submission.
                                    Jun-11   completing the spreadsheet in case any further changes are made. Will Lloyd’s
version                                                                                                                              Lloyd's will not be issuing an importer tool.
                                             be issuing a (macro) file to help update old versions with any corrections, as
                                             EIOPA did for the initial QIS5 exercise ?
QIS5 re-run: Treasury bills                  Where should these be included in the assets section of the 'valuation'
                                    Jun-11                                                                                           Treasury bills should be included in the "Bonds - Government and multilateral banks" line.
in balance sheet                             worksheet?
                                                                                                                                     All the treasury bills amounts should be included on section 1.1 "Borrowings by or demonstrably guaranteed by a national government" and also on section 2 as part of the total assets
                                                                                                                                     amount. All treasury bills issued by EEA countries, in their domestic currency or currency of another EEA state (e.g. treasury bills issued by Italy in Euro or by UK in Euro) should not be
QIS5 re-run: Treasury bills
                                    Jun-11   Which section should these be included in the 'assets' worksheet?                       included in the spread risk section as they attract a "zero" capital charge. Treasury bills issued by an Non-EEA state in its domestic currency (e.g. US treasury bills issued in USD)
in SCR
                                                                                                                                     should be included in section 3, table "Non-EAA sovereign bonds issued in domestic currencies". Treasury bills issued by an Non-EEA state in a non-domestic currency (e.g. Brazilian
                                                                                                                                     treasury bills issued in USD) should be included in section 3, table "Bonds (standard bonds covered by SCR 5.83 risk charges)".

                                             We understand the need to include unincepted premiums in written premium in
                                                                                                                                     The inclusion of unincepted business is for the valuation of technical provisions only. The premiums tab is quantifying volume measures of premium risk, this should be taken literally as
                                             order to be consistent with the technical provisions. If this is the case, then the
QIS5 re-run: Unincepted                                                                                                              premium written or earned in 2010 (relating to all underwriting years) - Gross and ceded. Next years expectations (which is calculated directly from the geographical diversification tab)
                                    Jun-11   premium figures should agree to ultimate premium gross of brokerage for 2010
premiums                                                                                                                             are the expected net written and earned premium in 2011 relating to the full calendar year. On this basis the figures should reconcile to the QMA as per Lloyd's detailed QIS5 guidance
                                             & prior + contracted for premium for 2011 YOA. Is this correct? If so it cannot
                                                                                                                                     issued in September 2010.
                                             be consistent with QMA1 column A line 3.

                                             On page 39 of the S2 reports it mentions “Need to change premium recognition            Under Solvency II, premium is recognised on legal obligation basis, hence premium reported in the Solvency quantitative templates will include premium on unincepted business. This is
                                             process (legal obligation basis). Does this mean on the P and L type forms the          the same basis that is used to completed QIS returns.
                                             premium should be included on a legal obligation basis on the S2 forms and non
QIS5 Returns                        Sep-11
                                             legal basis for the UK GAAP forms?. Also then, if more QIS returns are                  Under UK GAAP, premium is recognised on inception basis i.e only premium relating to business incepting in the financial year is recognised.
                                             prepared which basis should premium disclosed in that return be based on?




                                             We are currently in the process of completing the documentation to support              1. "Demonstrate a robust process for calculating standard formula SCR" - the requirement refers to the start to finish process of calculating the Standard Formula SCR. Whilst this will
                                             the technical provisions scoring template return for the end of September.              be demonstrated by completing and submitting the QIS 5 workbook (with inputs from TPs, helper tabs, etc...) agent should also development a process around its completion.
                                             The scoring template for the standard formula SCR is based on demonstrating             For example:
                                             a robust process for calculating standard formula SCR and establishing and              What is the process for sourcing the required data ?
                                             documenting the process. We are currently working on the basis that we                  How does this data feed in to the relevant calculations? What checks are performed, etc...
                                             complete standard formula SCR by using the QIS return workbook and helper               Who is responsible for each section of the template?
                                             workbooks (Interest rate risk, concentration risk etc) as these provide the             What review/checking is performed and by whom?
Standard Formula SCR                Sep-11
                                             templates required to calculate standard formula SCR. We then document this             Who is responsible for sign-off of the completed template?
                                             process and methodology.                                                                We would expect that documentation relating to this process to contain at least this level of information. Agent could consider representing this as a simple process map.
                                                                                                                                     The evidence available to support this requirement will include the submissions made to date of the standard formula.
                                             Is it possible to provide some guidance if this is the correct approach to              2. "Establish process for documenting methodology and assumptions used for calculation" - we would expect documentation of the methodology and assumptions used in each section of
                                             calculate the standard formula SCR and the level of process documentation               the template - or reference to other documentation which contains this information (e.g. TPs). This may be a standard document which is reviewed and updated as required following
                                             required?                                                                               each re-calculation of the standard formula.
                                                                                                                                     Agent should include who is responsible for reviewing and updating this document within the explanation for this requirement.




                                             There were difficulties completing the QIS5 spreadsheet i.e. large number of
                                                                                                                                     For QIS5, Lloyd's was reliant on material produced by CEIOPS, although updates were issued to caveat spreadsheet errors. If submission is a re-run of QIS5, Lloyds will provide a
Templates                           Feb-11   errors/ too many updates/ no application of proportionality. Will Lloyd’s be doing
                                                                                                                                     corrected spreadsheet to agents. However, any QIS6 submission will again rely on a spreadsheet produced by EIOPA.
                                             any work to help streamline / simplify this and other return templates?
Model Validation

                                             Testing of alternative methodologies and assumptions could be very time                 Lloyd's would expect that agents would always apply the principal of proportionality when performing any validation processes (not simply testing alternatives). Agents need to ensure
Alternative Assumptions             May-11   consuming, given the number of assumptions and methodologies in a typical               that their work is extensive enough to provide sufficient assurance over the model (as defined in their validation policy), and this work should necessarily focus on the most material areas
                                             model. Is it acceptable for agents to prioritise and focus on key areas?                of the model.
                                                                                                                                     One of the difficulties of Solvency II involves appropriate challenge at board and senior management, especially for those technical aspects of Solvency II. One approach that agents
Assumed Knowledge                   Mar-11   F                                                                                       have adopted includes external (or internal) run training sessions on technical aspects of Solvency II, for board and senior management. Lloyd's will ensure that the relevant skills will be
                                                                                                                                     available to support the validation process.
                                                                                                                                     It is Lloyd's view that agents will have considered alternatives in every case they have made an assumption (as any decision will involve considering options for the answer). In many
Assumptions - Alternative
                                    Mar-11   In what circumstances should agents be testing alternative assumptions?                 cases, all that Lloyd's will require is an explanation of this process and the rationale for the selected assumption. It would only be in the case of the most material assumptions where
Assumptions
                                                                                                                                     Lloyd's would typically expect to see detailed testing of alternative model implementations against each other.

Assumptions - Key                            Is it possible for Lloyd's to put together a list of the key assumptions used by        Lloyd's has no issue with sharing information on an anonymous basis - this depends more on whether individual agents are comfortable with this. Lloyd's will investigate the practicality
                                    Mar-11
Assumptions                                  agents and share these with the Market?                                                 of sharing this information (and potentially also further summary information gathered in the course of our model reviews) and advise agents in due course.
                                             If a syndicate was uncertain with an assumption (perhaps due to lack of data)
Assumptions - Uncertain                                                                                                              Solvency II considers that (re)insurance undertakings apply best estimate and do not include margin. Lloyd's would expect syndicates to be able to validate their choice of assumptions
                                    Mar-11   would a prudent stance be appropriate, or would regulators enforce that a market
Assumptions                                                                                                                          by appropriate stress / sensitivity tests (or appropriate validation tools). However it is not Lloyd's intention to apply a convergence to a mean when setting assumptions.
                                             average be adopted?
                                                                                                                                     As with all areas of validation, Lloyd's would expect agents to take a proportionate approach, and to focus efforts on data quality in the way that will have the most impact on the robustness
                                             How good is good enough with data adequacy? How should we approach the                  of their internal model outputs
Data Adequacy                                risk of over-allocating resource to data quality, away from other areas of the
                                             model?                                                                                  Lloyd's is, however, aware that some items of data are typically very material in internal model outputs, and that there is a risk that data quality is neglected because it is perceived as less
                                                                                                                                     exciting than other areas of modelling. Agents should therefore be prepared to explain why their definition of quality is appropriate given the impact data has on their model results

                                                                                                                                     As in many areas, this will be a decision for agents to make guided by the materiality of the data to the results of their internal model. Lloyd's does not intend to mandate any specific level
                                                                                                                                     of granularity as agent businesses and internal models vary greatly in their size and complexity, and therefore a one-size-fits-all solution would not be appropriate
                                             What level of granularity is required for data? Is Lloyd's intending to provide
Data Granularity                    Jul-11
                                             guidance to try and achieve consistency across the market?                              As an example, Lloyd's conducted several studies of the impact of increasing the granularity of reserving data, between a high level 10 reserving classes, a mid level of approx 50
                                                                                                                                     reserving classes, and and full risk code level. While there were material improvements in the answer moving from 10 to 50, the additional granularity of moving to risk code level did not
                                                                                                                                     add materially to the quality of the result, and therefore the 50 level was selected as appropriate for this purpose.

                                                                                                                                     Lloyd's recognises that a range of individuals throughout the business will contribute to the data policy (and associated data governance) as owners and/or users of different data around
                                                                                                                                     the agent. Typically, it is practically useful for there to be a single owner where this is pulled together (and when it is implemented), but this ownership does not preclude significant
                                                                                                                                     involvement from others.
Data Policy                         Jul-11   How is the distinction made between contributers and owners of the data policy?

                                                                                                                                     Lloyd's is not mandating any specific individual / department as the owner of the data policy, and it is the expectation that a range of people will be involved in the production and
                                                                                                                                     implementation of the policy
                                             How wide is the definition of data when thinking about the data policy and data         In common with the published guidance, Lloyd's is expecting agents to take a relatively wide definition of data within their data policy and data directory. That being said, agents should
Data Scope                          Jul-11
                                             directory                                                                               still be mindful of the principle of proportionality, and ensure focus on data that is really material to the SCR, whether this feeds directly or indirectly into the model
                                             When collecting metrics and comparing dependencies will the focus be on input
Dependencies                        Apr-11                                                                                           Lloyd's will discuss inputs with agents but review will focus on outputs.
                                             or output?
                                                                                                                                     One of the primary purposes of the draft Validation Report is to allow Lloyd's to feed back to agents. From this perspective, it would be helpful if at least one area was fully completed so
                                                                                                                                     that Lloyd's can give appropriate feedback on the style and extent of the proposed content for the final Validation Report. Lloyd's would also expect agents to provide a full "skeleton", so
                                             What level of completion is acceptable for the draft validation report submission?      this feedback can also identify if there are any areas that agents are not proposing to address in the final report.
Draft Validation Report             Jul-11
                                             Should some or all areas be completed?
                                                                                                                                     Agents should note that, as the final Validation Report is now required in December with the Final Application Pack, there will not be time for Lloyd's to provide feedback to remediate any
                                                                                                                                     issues with the Validation Report before application

                                             Does the full model validation evidence template need to be completed for the           As a minimum, those areas covered under the first workshop, Core Validation 1, will need to be completed for the submission due by 28 April (i.e. tabs 4, 6, 11 and 12). We would
Evidence Template                   Apr-11
                                             initial submission?                                                                     however encourage agents to complete as much of the template as possible, as this will enable earlier review and feedback on the additional areas not covered at the workshops to date.

                                                                                                                                     Lloyd's expects that agents will be able to place some reliance on work performed by external model providers when performing their validation, but that this is unlikely to ever be sufficient
                                             External suppliers (such as RMS) are providing substantial documents for                in isolation. For example, Lloyd's would not typically expect agents to independently verify the underlying mathematics, or to perform algebraic testing of the model implementation, as
External Model
                                    May-11   Solvency II validation purposes. Are these sufficient for agent validation of these     these are areas that would be best addressed by the model provider. Lloyd's would however expect the agents to understand how these processes had been done, and to explain why they
Documentation
                                             external models?                                                                        felt able to rely on them. Further to this, agents would always be expected to validate the output of their particular implementation of the any external model. This is not something that
                                                                                                                                     Lloyd's believes it would be possible for external suppliers to do.

                                             It is common practice for agents to use catastrophe model output from brokers
                                                                                                                                     The principles of validation would apply in the same way in these circumstances. Agents will need to be able to demonstrate that they have a good understanding of the model and the
External models                     May-11   (with adjustment to correct for perceived biases or differences in opinion). How
                                                                                                                                     way it has been implemented, and that the output is appropriate for their business
                                             would agents be expected to validate this?

                                             Back-testing of catastrophe models is not typically possible as exposure
                                             databases are not normally preserved through time due to the huge amount of             Lloyd's recognises that any validation process will have limitations, and that useful testing can still be achieved using approximations. Where full data is not available, Lloyd's would still
External models                     May-11
                                             information this would require, and where they have been preserved, not all             expect agents to make use of whatever data is available (such as historical loss ratios in the example given) to test the performance of the latest model
                                             inputs for current model versions are available

                                                                                                                                     Lloyd's is aware of this issue with external models however many providers will have qualitative information about the model. Apart from that it is advisable to use sensitivity testing and
                                                                                                                                     refer to papers to demonstrate understanding of the methodology. Lloyd's expects that in many of the most material cases, the models are already in use (e.g. many agents already use
                                             It is not clear how the materiality of external models would be validated apart from    catastrophe models to support underwriting decisions and aggregation management). Lloyd's would therefore expect that agents had conducted sufficient qualitative and quantitative
External Models                     Mar-11
                                             validating the output.                                                                  validation on the operation of these models to satisfy themseleves that they are appropriate for these purposes. The validation of the internal model would be expected to rely on the same
                                                                                                                                     decision process as to why these models were chosen in order to justify why their output is appropriate for use within an internal model. It could also be possible to pool the validation
                                                                                                                                     methods of the Market.

                                                                                                                                     Future Management Actions are explicitly referred to in the EIOPA Level 2 advice (and the draft Level 2 from the Commission) as an element of models that need particular treatment.
                                                                                                                                     This is particularly true for some longer-term life-insurance products, where management actions over the term of the product (such as setting the bonus levels on with profit policies)
                                                                                                                                     can have a large impact on the economic value of the policy.
Future Management                            Does Lloyd's have an expectation that future management actions should be
                                    Jun-11
Actions                                      inlcuded within the model?
                                                                                                                                     Non-life models may also contain some implicit and explicit management actions (such as the purchase of run-off reinsurance cover at a future point in the modelled time horizon, or the
                                                                                                                                     reduction of premium volumes in response to a down-turn in the cycle). Lloyd's would expect that agents consider the programming of their models carefully to decide whether any of the
                                                                                                                                     dynamics correspond to future management actions, and where they do, to apply the standards appropriately.
                                                                                                                                     Lloyd's believes that typically the execution of the approved SBF should not count as a "future management action" within the internal model, and it is actions that lead to deviations from
                                             There are many elements of the SBF that could be classed as future                      this SBF that are to be considered.
Future Management
                                    Jun-11   management actions (as the execution of the plan lies in the future). To what
Actions
                                             extent does Lloyd's think that the SBF process is a future management action?           Agents should, however, consider any elements of their SBF that are particularly contingent on future events (e.g. the purchase of reinsurance at 1/7) and apply the future management
                                                                                                                                     actions criteria in these cases
                                                                                                                                  As with many other areas of Solvency II, Lloyd's is not mandating an approach to independent validation, and there are a wide range of potentially acceptable solutions that agents could
                                                                                                                                  implement.

                                                                                                                                  Guidance on the requirement for independence in validation was included with the Validation Report guidance, issued in May 2011. Following this, Lloyd's will be engaging with agents
Independent Validation            May-11   Will agents be told if their approach to independent validation is unacceptable?       on their approach to independent validation via the Evidence Templates (first submission May 2011), and via the second stage of the model walkthrough process (from late June).
                                                                                                                                  Agents can therefore expect feedback at this time.

                                                                                                                                  The guiding principle is to ensure an adequate level of objective challenge during model validation - agents that follow this principle (and can demonstrate that they have) should not
                                                                                                                                  have any difficulties in demonstrating that their approach is appropriate.
                                                                                                                                  Agents should refer to the Validation Report guidance in the first instance. It is not expected that a single individual will be responsible for performing all validation processes (indeed,
                                           For small agents it is a challenge to find an independent person, can different        this would not be a desirable position), and the validation report would typically be expected to bring together work from a number of people (with varying degrees of independence). For
Independent Validation            May-11
                                           people be used for different areas of the validation?                                  agents with a small team, Lloyd's would typically expect that independent validation would include reviewing the testing work performed by the (non-independent) modelling team, rather
                                                                                                                                  than re-performance, in all but the most material areas.
                                                                                                                                  Where external reports contain relevant and appropriate testing, agents should feel free to use this information as part of their validation. Agents should note that it is very likely that
                                           How much can agents used external reports such as SAO in the Validation
Independent Validation            May-11                                                                                          there will be limitations in any such work in a model validation context because of the difference in purpose. For example, Lloyd's does not expect that model validation would typically
                                           Report?
                                                                                                                                  place a significant level of reliance on the SAO.
                                                                                                                                  The proportionality principle requires that more time is spent on the more material risks. Another rule is that more complex risks will generally have more complex models, so they will
                                                                                                                                  also require more validation time. Agents should note, however, that Lloyd's regards validation as a key part of any model, and has a strong preference for a relatively simple model that
                                           What is the view on proportionality for independent validation and how much            has been robustly and proportionately validated, compared to a highly complex model with relatively weak validation. Agents should note that a robust model design and build processes
Independent Validation            Mar-11
                                           resource are smaller managing agents expected to spend on validation?                  that incorporates ongoing testing and objective challenge may achieve a substantial proportion of the validation requirements. Agents should always consider the work that has already
                                                                                                                                  been undertaken when setting the scope and extent of required validation - it is achieving the aim of robust and appropriate model results that is the key output from validation, not the
                                                                                                                                  performance of a specific amount of work. Agents should also note the requirement for sufficient objective challenge when considering the scope of their validation.
                                                                                                                                  Some obvious requirements include no self-review and no conflict of interest. Lloyd's recognises that for smaller managing agents independence may be an issue whilst Lloyd's will
Independent Validation            Mar-11   How independent does the validation need to be?                                        provide a benchmarking model which may help with sense checking the numbers, Lloyd's cannot provide the independent validation. Every business has individuals who are not involved
                                                                                                                                  in capital modelling but know the business well who can provide qualitative feedback on the model.
                                                                                                                                  The output from the independent review should form a key part of agents' validation reports.

                                                                                                                                  The core purpose of independent review is to provide additional assurance on the quality of model results to all model stakeholders, not solely to provide an output for Lloyd's. The
                                                                                                                                  content of the independent review will therefore be determined according to agents' individual needs and circumstances (e.g. the extent and content of work that the agent Board feels is
                                                                                                                                  necessary for them to provide sign off of the application for model approval - this will obviously vary according to the complexity of agent models and the structure of agent teams).
Independent Validation            Mar-11   What is the output on independent validation?
                                                                                                                                  Lloyd's will, however, be required to demonstrate to the FSA that the market as a whole meets the requirements of the guidance on independent review. Lloyd's will therefore be looking
                                                                                                                                  for two things in agents' validation reports
                                                                                                                                   - An independent view on the implementation of the validation policy (i.e. the quality and objectivity of validation processes that have been performed)
                                                                                                                                   - A degree of independent testing of the most material elements of the model
                                                                                                                                  In both of these areas, Lloyd's would expect agents to make a proportionate interpretation for their business
                                                                                                                                  Whilst agents can take comfort from their interaction with Lloyd's and even assume Lloyd's will raise significant concerns on aspects of the business or modelling this is not a substitute
                                           To what extent can agents rely on Lloyd's reviews as independent or external           for validation and should not be taken as such. Lloyd's expect validation to be clearly defined with the key responsibilities and deliverables of the individuals (or functions) conducting
Independent Validation            Mar-11
                                           validation?                                                                            validation to be explicitly scoped. This does not include a consideration of how independence has been addressed but does not directly imply that validation should be conducted by an
                                                                                                                                  external party.

                                                                                                                                  A justification should be made an individual's level of expertise to sit on the committee. Although it can be challenging for non-actuaries to understand assumptions one of the
                                                                                                                                  requirements for Solvency II is that the Steering Committee will consist of people who can and will challenge the actuary on their assumptions.

                                                                                                                                  Agents should note that Solvency II formalises a wide range of stakeholders for internal models, and agents should consider reflecting this in the make-up of their steering committees.
Internal Model Steering
                                  Mar-11   Who should sit on committees for Internal Model Steering Groups?                       Areas such as the use test require wide understanding of and buy-in to internal models, and this is often best achieved by involving a wide range of people in the design and running of a
Groups
                                                                                                                                  model.

                                                                                                                                  There are no mandated positions on steering groups (indeed agents do not necessarily need to have an Internal Model Steering Group), but note that Lloyd's will need evidence of
                                                                                                                                  senior ownership and involvement in models. Agents should already be testing thier models under ICAS but may not have necessarily produced evidence to demonstrate this.

                                                                                                                                  Materiality for LIM is likely to be higher than an appropriate definition of materiality for any given agent. Therefore, as long as agent materiality definitions are appropriate for their own
                                                                                                                                  SCR, then LIM will not need to impose any standard across all agents.
                                           How consistent does materiality need to be across the Market? Does a varying
Materiality                       Jul-11
                                           definition of materiality across the market have any knock on implication for LIM?
                                                                                                                                  Lloyd's will investigate the provision of some limited guidance on what is appropriate as a definition of materiality for agents at the next workshop, but it should be noted that this will
                                                                                                                                  always remain an agent-specific decision
                                                                                                                                  Yes, as with many things within the internal model, Lloyd's would expect that the definition of materiality would evolve over time to reflect changes in agent circumstances (e.g. as a new
Materiality                       Jul-11   Is it acceptable for an agent's definition of materiality to change over time?         syndicate grows and matures, we might expect to see an increase in the materiality of reserve risk compared to premium risk). Agents should note, however, that they would be expected
                                                                                                                                  to explain and justify the rationale for changes in the assessment of materiality for each risk
                                           Is it possible for Lloyd's to provide feedback in advance of September on the          Agent approach to materiality will be considered as part of the second phase of walkthroughs, and Lloyd's will highlight any specific concerns at this point as and when we become aware
Materiality                       Jul-11
                                           approach that individual agents are taking to materiality?                             of them.
                                                                                                                                  The key processes will obviously vary between agents, depending on their model structure. A few key items to consider are:
                                                                                                                                   - the purpose of validation is not to reproduce the SCR. Instead, it is there to support the proposed calculation through testing the material assumptions and parameters to ensure it is
                                                                                                                                  not demonstrably wrong
Model Validation                  Jul-11   What are the key things to focus on to validate the model?                              - have a clear idea of pass and fail criteria prior to conducting the validation test. Here, Lloyd's is genuinely requiring agents to consider materiality and not perfection or "nice to have"
                                                                                                                                  adjustments to the calculated SCR.
                                                                                                                                   - This is a significant addition to the requirements beyond the standard needed under ICAS. Where agents have stated some, perhaps obvious, bases for the calculation, the validation
                                                                                                                                  does need to address the reasoning behind the approach adopted.
Model Validation Report                                                                                                           Lloyd’s is expecting to see gaps in the Validation Report at this stage and this should not prevent FAP sign off. As for all gaps, agents should make clear the work still required to
                                  Oct-11   Should the Board be signing of the FAP if the Validation Report still has gaps?
Gaps                                                                                                                              address outstanding issues.
                                                                                                                                  It may not be appropriate to set strict pass/fail criteria in advance. In some cases with large amounts of data it may be possible to do so- for example, defining how many residuals can be
                                                                                                                                  +/- 2 standard deviations from the mean. However in many cases there will be a large degree of expert judgement involved. It is important to make sure you are able to explain the steps
                                                                                                                                  you have taken which have led to the result.
Pass/Fail Test                    Mar-11   Are agents expected to set criteria for the Pass/Fail test ahead of time?
                                                                                                                                  Agents should note, however, that Lloyd's considers evidence of clear pass/fail criteria (whether these were set in advance, or iterated during the testing process) as strong evidence of
                                                                                                                                  robust validation. Agents should therefore expect to be able to explain why the results of their testing processes mean that they believe their model is fit for purpose, and not just to be
                                                                                                                                  able to produce the results of testing processes.
Profit & Loss Attribution         May-11   Who would Lloyd's expect to be accountable for P&L attribution?                        This will vary from agent to agent, although Lloyd's notes that it is expected to require input from individuals in Finance and Business Planning as well as those on the modelling team
                                                                                                                                  Lloyd's is not intending to mandate any particular set of drivers or classes for P&L attribution - the appropriate set will vary from agent to agent and an overall list would not therefore be
Profit and Loss                            Will Lloyd's provide any further guidance on the appropriate level of granularity      right for everyone.
                                  May-11
Attribution                                for Profit & Loss attribution?
                                                                                                                                  Agents should develop their own understanding of materiality to define material business units and risk drivers, and should ensure that their P&L attribution is at a sufficiently granular
                                                                                                                                  level of detail to capture each material business unit / risk driver combination
                                           The scope of risk mitigation appears to have increased via the inclusion of
                                                                                                                                  As with all areas of validation, Lloyd's would expect agents to take a proportionate approach, focussing on those risk mitigation techniques that have a material impact on their internal
Risk Mitigation                   Jul-11   operational controls. Are agents expected to validate all the outcomes of risk
                                                                                                                                  model output. For example, if reliance on Operational Risk Controls causes a 15% reduction in the SCR, then detailed validation of the effectiveness of this control might be expected
                                           mitigation?
                                                                                                                                  The more detailed elements of the validation are inherently technical, and NEDs would not typically have the appropriate skill sets to get heavily involved in these areas. NEDs are,
Validation                        Jul-11   Is there a view on the involvement of non-execs in the validation process?             however, required to understand the validation process and conclusions, in order to gain comfort in the robustness of the model, so they might be expected to get involved at this less
                                                                                                                                  technical level

                                                                                                                                  Lloyd's does not mandate any approach to validation - examples have been provided to show the sorts of things that may be appropriate in some circumstances. There is no requirement
                                           One of the suggested validation approaches is the use of alternative
Validation - Alternative                                                                                                          for any agent to adopt a particular approach to validation (beyond adopting those techniques mentioned in the guidance)
                                  May-11   methodologies (e.g. building a second mini model), which could be time
Models
                                           consuming. Should agents prioritise this over (say) P&L attribution?
                                                                                                                                  Agents should always focus their efforts on the areas that they believe are necessary to validate their model, which would typically be the most material and / or most uncertain elements.

Validation - Benchmark                                                                                                            Lloyd's has no specific plans to provide any additional output (beyond that which is currently available). We understand that the LMA is in the process of collating some information on
                                  May-11   Will Lloyd's provide any benchmark output to assist agents with validation?
information                                                                                                                       market practice, and would suggest that this may be a suitable forum for the sharing of benchmark information
                                                                                                                                  Lloyd's is not expecting individual agents to replicate publically available academic research into commonly-used modelling techniques as part of their validation. It is acceptable to rely
                                                                                                                                  on the work done by others in this regard. Agents should note, however, that they would still be required to validate their own implementation of the technique, and the results coming out
Validation -                               How does a syndicate ensure that the bootstrapping method is adequate to
                                  Jul-11                                                                                          of it. This could involve, for example, testing the method against individual data sets or testing the assumptions implicit in the methodology against the agent's own data. As part of
Bootstrapping                              measure the risk in question?
                                                                                                                                  validation, agents are expected to develop and support their view on why the models they have chosen are appropriate for their individual risk profile; no academic or market research is
                                                                                                                                  going to have addressed exactly this point

                                           Does Lloyd's have any view on the balance between independence and                     One of the major purposes for requiring independent validation is to ensure that material elements of the model are subject to robust objective challenge. Lloyd's would expect agents to
Validation - Independence         Jul-11
                                           understanding arising from familiarity with the model for validation?                  reflect this goal in determining the appropriate level for independent review and challenge in each element of their internal model

                                                                                                                                  Yes. Lloyd's faces a dual mandate in this regard - both to ensure regulatory compliance and to ensure equity between members regarding the exposure of the Central Fund.
                                           Will Lloyd's continue to challenge capital numbers even following the
Validation - Model                                                                                                                It is the expectation that robust and transparent validation at agent level will reduce the incidence of circumstances where there is a disagreement between Lloyd's and an agent around
                                  Jul-11   authorisation of internal models (and therefore the acceptance of robust
Authorisation                                                                                                                     the appropriate level of capital. Agents should, however, note that Lloyd's will continue to benchmark capital requirements, and require capital loadings where they do not believe that the
                                           validation processes at agent level)?
                                                                                                                                  capital calculated by the agent is consistent with the goal of preserving equity between members. Lloyd's will apply a standard to itself and require all review teams to be transparent in
                                                                                                                                  their reasoning for recommending an increase to the agents' calculation.


                                                                                                                              Lloyd's does not believe that providing a numerical threshold for validation accuracy is helpful in this context. For example, it is not clear what validating a binary event assumption to +/-
                                                                                                                              5% would mean, as there is no data for this assertion to be based on.
                                           What is an appropriate numerical threshold for applying model validation (e.g. +/-
Validation - SCR                  May-11
                                           5% of SCR)?                                                                        Validation should focus on developing the supporting rationale for agent selections within the acceptable range of possibilities, with greater effort placed where either the model
                                                                                                                              component is particularly material to the outcome, or where there is a particularly wide range of acceptable selections. Agents will need to develop their own definitions to ensure that
                                                                                                                              enough validation work is completed, and should expect some level of challenge to these definitions and their application.
                                                                                                                                  EIPOA guidance specifically states that the use test is within scope of validation. Lloyd's recognises that validation will need to be applied differently in this case, and would suggest the
                                                                                                                                  following considerations for validation of the use test:
Validation - Use Test             May-11   What does validation mean in the context of the use test?
                                                                                                                                   - That the key outputs (on which the use test is based) are free from material misstatements - as per validation of the SCR
                                                                                                                                   - That model output is really being considered in business decisions in the way it is expected to be in the use test framework. This would involve demonstrating not only that MI is
                                                                                                                                  produced from the model, but that this MI receives due consideration in business decision making
                                                                                                                                  A group has been set up via the LMA to discuss this further with the aim of doing as much of this centrally as possible. However, agents are required to apply the principles of validation
                                           Is it necessary for agents to check the data they receive from Xchanging or is
Validation - Xchanging            May-11                                                                                          to satisfy themselves that any data they use meet their internal definitions of complete accurate and appropriate. Part of this may involve reliance on centralised validation work (such as
                                           this something that can be coordinated centrally?
                                                                                                                                  that described above), but agents should note that this is unlikely to provide the full solution in any circumstances.
                                                                                                                                  Validation is required to be a continuous process, with a major cycle at least annually. Notwithstanding this, Lloyd's expects agents to focus validation efforts on the areas that pose the
Validation Frequency              May-11   Could the frequency of the validation be linked to the analysis of change?             greatest risk of material misstatement to the SCR (or other key model output), and would consider that analysis of change would be an appropriate consideration (amongst others) when
                                                                                                                                  determining which elements of the model pose the most material risk of mis-statement.
                                                                                                                                  No, this will be an internal document for Lloyd's. Given the difference in structure between Lloyd's and a managing agent, it is not thought that the Lloyd's validation report would provide
                                                                                                                                  a useful template for agents.
Validation Report                 May-11   Will Lloyd's make the LIM Validation Report available to the Market?
                                                                                                                                  The LIM team have been involved in developing the Validation Report guidance for agents, and agents should refer to this guidance where they have any questions as to what the
                                                                                                                                  appropriate content for a validation report is.
                                                                                                                                  The Validation Report is an internal document for agents to ensure their Boards are comfortable with their internal model. Lloyd's is not mandating what this report needs to contain
                                                                                                                                  beyond those areas discussed in EIOPA guidance, which are reflected in the existing Lloyd's guidance for agents. Therefore a more detailed 'checklist' of contents for the Validation
                                           Will Lloyd's provide a check list of items that should be used in the Validation
Validation Report                 May-11                                                                                          Report (or the underlying validation processes) would not be appropriate.
                                           Report?
                                                                                                                                  Lloyd's will issue further guidance, clarifications and/or examples where appropriate as our reviews progress, and we identify themes and issues that are common to agents.

                                           Is Lloyd's expecting the validation to be a statement claiming that "the Internal      Lloyd's will require positive assurance from agents and as such boards must be able to sign off that the model is reasonable/appropriate. Further guidance will be issued by Lloyd's as
Validation Report                 Mar-11
                                           Model is reasonable/appropriate" OR "the Internal Model is not unreasonable?"          part of the Validation Report and final application pack.

                                           Would it be possible for Lloyd's to share consistent themes and questions for a        Lloyd's has issued guidance on the validation report. Lloyd's also expects to share themes and issues arising from ongoing model reviews at the workshops over the remainder of 2011.
Validation Report                 Mar-11
                                           validation report with the Market?                                                     Any suggestions from the market as to the format and / or content of this feedback would be welcome, and Lloyd's will endeavour to incorporate this into the upcoming workshops.

                                                                                                                                  Scope of the validation report will follow Level 2 and proposed Level 3 requirements as closely as possible. Lloyd's would expect it to address all of the model tests and standards in
                                           What is the scope of the Validation report? Does it extend to Use Test and
Validation Report                 Feb-11                                                                                          articles 120 - 126 and the SCR number output. It will not need to validate the wider risk management system which would fall under the ORSA and which will require its own sign off.
                                           ORSA?
                                                                                                                                  Lloyd's has issued further guidance around the content and scope of the validation report which is available on Lloyd's.com
Validation Report                 Feb-11   Will Lloyd's issue a template of the Validation Report?                                Lloyd's has issued an example validation report template in the guidance issued but the format will not be mandated.

Validation Report                 Feb-11   Who should sign off the validation report?                                             As a key deliverable, Lloyd's will expect a properly constituted sub-committee of the managing agency board to approve this with onward reporting to the full Board.
                                                                                                                                  The Validation Report Guidance document issued in May has been updated to clarify Lloyd’s expectations for these two submissions and to provide some practical guidance on
                                           What is the difference between the draft validation report expected in August and      approaching common areas of uncertainty. Please paste the following link into your browser. http://www.lloyds.com/The-Market/Operating-at-Lloyds/Solvency-II/Information-for-
Validation Report
                                  Jun-11   the final submission ion October 2011 and what does Lloyd’s expect to see in           managing-agents/Guidance-and-
Contents
                                           each of these reports?                                                                 workshops/~/media/Files/The%20Market/Operating%20at%20Lloyds/Solvency%20II/2011%20Guidance/SII%20Validation%20Report%20Gudiance%20June%202011%20%20updated.
                                                                                                                                  pdf



                                           What is Lloyd's doing to make sure the scope of model validation is reasonable
                                                                                                                                  As above, validation requirements will be determined by final Level 2 and Level 3 measure to be published in 2011 and agents/syndicates will be required to meet these. However, Lloyd's
Validation Scope                  Feb-11   and proportionate, given quite different views and often significant estimated
                                                                                                                                  will provide additional guidance and clarification where possible.
                                           effort in the market and among consultants?




                                                                                                                                  There is no rule of thumb for this - agents will have different definitions for what qualifies as an assumption. The key point is to validate all assumptions in line with their materiality.
Validation Scope                  Mar-11   Is there a recommended number of assumptions that should be validated?
                                                                                                                                  Lloyd's would therefore expect detailed validation evidence to be available for material assumptions, and a clear process for less material assumptions.
                                                                                                                                  In both cases, this will be down to agent judgment. Testing must be extensive enough to ensure that there is no material misstatement in the SCR.
                                           Does Lloyd's have a view on how many tests is "enough" for validation? Related
Validation Tests                  May-11                                                                                          Lloyd's does, however, recognise that all validation processes have limitations, and that 100% accuracy in a typical capital modelling question is neither achievable nor desirable. In
                                           to this, how many test fails is acceptable for a final model?
                                                                                                                                  practice, therefore, agents are required to do enough validation work to ensure that their model is robust. A key test for this will be that agents should be able to explain why the level of
                                                                                                                                  validation they have performed is sufficient.
                                                                                                                                  The difference is more in how they are applied. For example, a chi-squared test can be used to parameterise a distribution, but comparing chi-squared results for several distributions
                                                                                                                                  would be a part of validation. It may not be possible in practice to separate all these processes cleanly, and agents might expect that where a greater number of tests and processes
                                                                                                                                  have been applied during "parameterisation", a correspondingly smaller number might be applied during "validation". The key output from validation will be an explanation of why the
                                           Validation tools are very similar to parameterisation tools - how are the
Validation Tools                  Mar-11                                                                                          selections are appropriate for a particular agent's business - this may be supported by a robust and extensive parameterisation process, although agents should note the requirements
                                           processes different?
                                                                                                                                  for independence and objective challenge during validation. It is certainly not Lloyd's intention that agents repeat parameterisation processes for validation where this does not add
                                                                                                                                  value. However we note that there may be circumstances where this does add value, for example getting an independent person to re-perform the fitting of material loss distributions on
                                                                                                                                  a sample basis in order to gain more comfort over the robustness of the fitting that has been performed as part of parameterisation.


                                           Under Solvency II, an undertaking's Actuarial Function has to at least annually        No. The requirement is for a process to be established by Q4 2012, be fully resourced and operational. In practice the first cycle of the process would be for valuations as at year-end
                                           produce a report to the senior management explaining how they have discharged          2011 and therefore Lloyd's would expect syndicate actuarial functions to complete a report to management by the end of Q1 2012 (in respect of all the required duties including opinions
Actuarial Function                Sep-11   their required duties. Given managing agent's Actuarial functions are expected         on underwriting and reinsurance). Given this would not be a strict regulatory requirements as at year-end 2011, the report could be produced in "draft" format. Under BAU these reports
                                           to be "fully operational" by Q4 2012, does this mean the Actuarial Function has to     would be formal actuarial reports. Any identified gaps or weaknesses in the process (for example uncertainty surrounding the underwriting opinion provided) should be clearly stated
                                           produce a report to management by this date?"                                          within the Final Application Pack along with a proposed course of remediation.
                                                                                                                                  The Actuarial Function is a good example of an area that whilst sitting in the Governance, Risk Management and Use workstream, will also be considered as part of other workstreams
                                           The plan shows the review of the Actuarial Function late in the process - does
Actuarial Function                Mar-11                                                                                          (e.g.. Technical Provisions). As such the specifics of certain elements of this review will be considered across a number of workshops and documentation requests and all review work
                                           Lloyd's consider this appropriate?
                                                                                                                                  will not be left until Q3 2011.
                                                                                                                                  Yes, however, there needs to be clear evidence of compliance and the requirements for the Actuarial Function could make this onerous. For example: The Actuarial Function must
                                                                                                                                  “contribute to the effective implementation of the risk-m         ent
                                                                                                                                                                                           anagem system referred to in Article 44, in particular with respect to the risk m odelling underlying the calculation of the capital
                                           If a managing agent has its Actuarial Function completely outsourced, can it still     requirem ents”. This extends the requirement beyond calculating the technical provisions and the requirement will need to see links to active contribution to the risk management system
Actuarial Function                Mar-11
                                           be Solvency II compliant?                                                              of a syndicate and the capital modelling. There is more emphasis on the Actuarial function to assess the suitability and quality of data. This will extend beyond receiving a Data Accuracy
                                                                                                                                  Statement and syndicate will need to evidence how an external party will be satisfying the requirements surrounding data management. The requirements surrounding outsourcing
                                                                                                                                  introduced as part of Solvency II will also need to be satisfied.
                                                                                                                                  Lloyd's is currently undertaking discussions at steering group level on the outcomes and actions required should the model not be approved - this includes both syndicate models and
                                           What is Lloyd's contingency plan in the event that the Internal Model is not
Contingency Plans                 May-11                                                                                          the LIM. These discussions are ongoing internally and will also be discussed with the FSA. Agents should have contingency plans in place to deal with the situation where a syndicate
                                           approved?
                                                                                                                                  model is not approved.
                                                                                                                                  In the use test template we require agents to complete only the cells in the lines which are not greyed out - i.e. the 9 principles of the Use Test (rows 6,10,13,18,21,25,29,32 & 36).
                                                                                                                                  Under each of these principles we have greyed out the underlying rows of detail points below which provide more detail around the principle but where we would not necessarily expect
                                           Are agents required to complete the greyed out use test tab on the evidence            separate evidence.
Evidence Templates                Mar-11
                                           template?
                                                                                                                                  Agents should, however, bear these principles in mind when completing the evidence templates. Whilst they are not expected to be evidenced separately, Lloyd's will look for application
                                                                                                                                  of the principles when assessing the quality of evidence in other areas.
                                                                                                                                  At the moment all of our work is geared towards Solvency II readiness and hence the key comparison, as per our evidence templates etc, is against those requirements. As Solvency II is
                                                                                                                                  not yet implemented, the Lloyd's minimum standards still apply and in some cases provide greater detail e.g. the minimum standards require an annual Board effectiveness review. Our
                                           I am conducting a gap analysis of our risk management framework against the
                                                                                                                                  intention is to revisit the minimum standards in time to ensure they reflect the Solvency II requirements, though we also think there is a great deal of consistency between the two at the
                                           Lloyds RM standards. I was really just hoping for clarification on whether we are
Gap Analysis                      Sep-11                                                                                          moment.
                                           still to be adjudged against the Lloyds standards or if the standards set out in
                                           Solvency II are the requirements that we should be adhering too?
                                                                                                                                  So in answer to your question, it depends really as to whether you are trying to gauge whther you meet the requirements today or those of Solvency II?

                                           Could Lloyd’s provide more guidance around the requirement regarding
                                                                                                                                  The evidence templates purposely only set out the CEIOPS requirements as we want to understand how agents think they meet each of the requirements. As part of the dry run review in
                                           “Adequacy of Information Systems”. What should the content of documentation in
                                                                                                                                  2010, the sort of evidence we thought may be available was: IT systems review documentation i.e. gap analysis of their systems against the needs of Solvency II, Information and data
                                           relation to this be? CEIOPS guidance is very vague: "Establish information
Information Systems               Mar-11                                                                                          security policy statement, Data security review documentation, Data accuracy reporting, Management information produced on the back of the above etc. This is also linked to the
                                                   s                                                ely
                                           system that produce sufficient, reliable, consistent, tim and relevant
                                                                                                                                  Adequacy of records and security information requirement. Taken together, agents need to be considering the questions: Is the data we are using correct? Are we using the correct
                                           inform                                                  m ents assum and the
                                                  ation concerning all business activities, the com itm        ed
                                                                                                                                  data in terms of MI etc?
                                           risks to which the undertaking is exposed."
                                                                                                                                  Specification of major and minor changes will include consideration of various types of model change (e.g. changes in governance or external models), as well as the criteria for
Model Change Policy               May-11   How is Lloyd's planning to define the model change policy?                             classifying changes as major or minor. A number of criteria are being considered, including quantitative aspects such as the effect of any change on the SCR as well as consideration
                                                                                                                                  of other factors such as methodology changes.
                                           Internal model change policy - how will this work after 'live' with 2 regulators -
Model Change Policy               Feb-11                                                                                          We would expect that Lloyd's will have primary responsibility for assessing material changes with the FSA monitoring our review work and the impact on the overall LIM change policy.
                                           will we get conflicting messages?
                                                                                                                                  Lloyd's will hold board level briefings on Solvency II for both executive directors and NEDs in May, August and November. Those will highlight areas where the board should be
                                           What is Lloyd's doing to ensure that Non-executive directors have a better
Non-Executive Directors           Mar-11                                                                                          challenging their Solvency II programme as well as producing updates on general market progress and issues. However, agents should take responsibility for ensuring that their own
                                           understanding and spend appropriate time considering Solvency II?
                                                                                                                                  NEDs are fully briefed and informed on Solvency II issues and that they spend sufficient time on a formal process for this.
                                           The ORSA 10 score requires Board sign off – since Lloyd's has told us that the         Lloyd's does not require specific Board approval of the ORSA for FAP submission in December 2011. However, we would expect evidence of Board involvement in the ORSA process
                                           ORSA does not require specific Board approval (but does require Board
ORSA                        Yes   Nov-11                                                                                          and the Board to be signing off on a version of the ORSA in Q1, hence the score of 10 for this period. Lloyd's would not necessarily expect to have sight of this but would expect agents to
                                           involvement) for the FAP, will this remain or be removed from the 10 score
                                                                                                                                  have go through this process in Q1 2012.
                                           requirements?
                                                                                                                                  Lloyd's will issue further clarification on the ORSA process later in 2011. Following feedback from the draft plan document, the ORSA workshop has been brought forward to earlier in
                                           Will more guidance be available from Lloyd's on the ORSA process, and in
ORSA                              Mar-11                                                                                          the year to allow greater preparation time prior to submission. At present, Lloyd's does not expect there to be a formal direct link from syndicate ORSAs to society ORSA and Lloyd's will
                                           particular, how do syndicate ORSAs interact with the Lloyd's ORSA?
                                                                                                                                  continue to set economic (and member level) capital using an agreed basis.
ORSA                              Feb-11   Can agents submit a Group ORSA or must it be by syndicate?                             Lloyd's will require an ORSA to contain syndicate specific information and as such will require the agent to submit an ORSA for each managed syndicate.
                                           There is no mention of ORSA in the Evidence and Timing document. As agents
                                           will be developing their ORSA reports throughout the year, will there be an            The ORSA submission date is 16 December. Lloyd's will aim to provide as much guidance ahead of this date as possible and will be happy to discuss specific elements with managing
ORSA Reports                      Mar-11
                                           opportunity of any review from Lloyd's of iterations before the December               agents at any time throughout 2011. However, there will be no formal review process ahead of the December submission.
                                           deadline?
                                           Is there an update on the implications of treating delegated underwriting              Lloyd's expectation is that EIOPA will resolve that delegated underwriting will constitute outsourcing. Lloyd's have been conducting a review of how this will impact current binding
Outsourcing                       May-11
                                           arrangements as outsourcing?                                                           authority and coverholder arrangements and associated documentation. Additional guidance on the practical implications of this will be issued to the market later in 2011.
Outsourcing/Delegated                      Will delegated underwriting be classed as outsourcing and when will more               In the latest Level 3 pre-consultation guidance it is clear that delegated underwriting will be classed as an outsourced activity. Lloyd's and the LMA are undertaking work in this area to
                                  Mar-11
Underwriting                               information on this be available?                                                      fully understand the potential impact. Lloyd’s will be able to provide more information on the impact in Q2 2011.
                                           With regards to the role of Xchanging in outsourcing, has there been any
                                                                                                                                  The main oversight of Xchanging currently sits with the LMA, however Lloyd’s are looking to provide more central oversight and will be working with the LMA on the overall approach to
Outsourcing/Xchanging             Mar-11   progress in taking this forward centrally? Is there a central oversight for the
                                                                                                                                  this.
                                           policy?
Reliance on Lloyd's                        Do the processes carried out centrally by Lloyd's on business planning and             It will be necessary to evidence how the syndicate meets the Solvency II requirements whether through their own processes or reliance on a Lloyd's central process. Where a Lloyd's
                                  Mar-11
Process                                    controls need to be repeated by the syndicates?                                        process is relied upon, we do not envisage that the agent would need to replicate this process within their own documentation, a reference to the Lloyd's process should suffice.
                                                                                                                                  The examples provided are intended as an illustration of one way in which risk appetite could be expressed and monitored. Lloyd's would not expect to see a mathematical aggregation of
                                           With reference to the risk appetite examples provided at the workshop, how could
Risk Aggregation                  May-11                                                                                          these illustrative measures to derive an overall risk appetite statement, but would expect some consideration of higher level appetite statement(s) within the overall framework and the
                                           these be linked into an aggregated risk appetite statement?
                                                                                                                                  consideration of key metrics at an appropriate level within the organisation.
                                                                                                                                  Lloyd’s now has a set of risk appetite statements which have been approved by the Franchise Board. This consists of 14 measures which the Franchise Board regard as fundamental.
                                           What has Lloyd’s approach been to Risk Appetite and how have they balanced the         These are split into 2 categories; 6 for the Corporation and 8 for the Market. They are all quite high level e.g.. Cat Risk, Reserve Risk, Central Fund Reserve Risk, consisting of a
Risk Appetite                     Mar-11
                                           “top-down” and “bottom-up” approaches?                                                 simple statement and one or two metrics. Lloyd’s task now is to implement the reporting and MI around these items. The items will change over time so they need to be under continual
                                                                                                                                  review.
                                                                                                                                  No, there are 14 high level statements which are broken down into various metrics and monitored by the Franchise Board. Agents will need a framework for risk appetite that fits their
Risk Appetite                     May-11   Does Lloyd's have an overarching risk appetite statement?                              own circumstances and a top level statement of risk appetite may be an important feature of this. Whatever framework is adopted, it will be important to ensure that board members can
                                                                                                                                  articulate how the board monitors risk appetite, including any top level statement(s) and more detailed metrics which support this.
                                           What is the process for the demonstrating the Use Test and how might this apply A logical process would be to agree the key uses and then document the uses that are fundamental to decision making. This approach would be applicable to all syndicates even though
Use Test                          Mar-11
                                           specifically to run-off syndicates?                                             the key uses will vary.
                                                                                                                           The evidence provided will vary from agent to agent and will depend on what has been determined by each agent to be a key use. From the review activity being undertaken, Lloyd's will
Use Test                          Mar-11   What is Lloyd's expecting to see as evidence for the Use Test?                  get appropriate information on the level of embeddedness within the business and expect agents to be able to demonstrate this. Should specific evidence be required this will be flagged
                                                                                                                           to the market as soon as it has been determined.
                                                                                                                                  Ultimately agents will need to be able to provide evidence of their identified business uses operating in practice. It is likely that any process to agree uses will initially identify a more
                                                                                                                                  extensive set of possible uses which will be narrowed down. This was the case for Lloyd's, where the process described in the workshop slides initially identified a more extensive set of
Use Test                          May-11   Do agents need to look at a comprehensive list of uses?
                                                                                                                                  uses, which has been prioritised to focus on a more manageable number. Any list of uses should not be considered as static, ideally there should be a regular (possibly annual) review
                                                                                                                                  of the list to identify any new uses arising as the business model changes. It may be that the use test approach will be developed to include some of the lower priority uses over time.


Reporting & Disclosure

                                           With regards to forms looking at analysis of change in Basic Own Funds in
                                           Reporting Period; the draft reporting is split between risks accepted in the
Basic own Funds                   May-11   period and in prior periods (based on the year business becomes legally                Lloyd's will need to complete these forms, hence the revised QMA will include all the requirements stipulated in these forms.
                                           obliged). Is it intended to have granular reporting on this basis within the QMA
                                           (Line of business / country / currency)?

                                           "Accident year (AY) or Underwriting year (UWY) is currently an open issue"
                                                                                                                                  This is still an open issue and we are waiting for EIOPA to determine the basis of reporting. One of the options being considered by EIOPA is to allow the undertaking the choice of
                                           comment on the forms; at present we have limited accident year reporting and
Basis of Reporting                May-11                                                                                          whether to use underwriting or accident year. Lloyd's supports this approach, and if this option becomes available would mandate the use of underwriting year accounting for all
                                           much claims data does not include accident year information. To what extent is it
                                                                                                                                  syndicates.
                                           envisaged that accident year reporting might expand?

                                           I am trying to plan some of the processes for the Solvency II for the CEIOPS
                                           templates, and had a few questions.
                                           1.      Are forms C1 and C2 the best place to start?
                                           2.     C2 – Profit and Loss Account – Most of the QIS5 focus has been on the
                                                                                                                                  Variation analysis forms are the equivalent of Solvency II profit and loss. These templates are some of the forms that we expect to change, hence we would advise that you wait for the
                                           balance sheet with adjustments effectively going through reserves/basic own
CEIOPS Templates                  Sep-11                                                                                          updated forms expected to be issued by EIOPA in October/November. Lloyd's shall distribute these to managing agents when they are available.
                                           funds. Is there any guidance on the definitions of what goes into lines 18 to 49?
                                           e.g. are premiums in line 18 based on gross gross written??.
                                           Is it worth me trying to do this now or should I wait until the templates and
                                           instructions come out in December?


                                           We currently map our own internal classes of business into classes as reported
                                           on the Form 104 of the QMA. For Solvency II purposes we have built our
                                           systems to map our classes to the SII designated classes. The Form 104
                                           classification and the Solvency II classifications are not the same and our
Class of Business                                                                                                                 We are currently in the process of developing the Solvency II QMA and this involves also reviewing the current QMA and determining changes that need to be able on implementation of
                                  Jul-11   concern is that we will have to report SII figures (technical provisions etc) using
Mappings                                                                                                                          Solvency II. We plan to issue the updated pro forma Solvency II QMA plus detailed instructions/guidance in December 2011.
                                           the current form 104 basis as well as the SII classifications – if this will be the
                                           case then we need to build this into our systems now. Any idea how likely it is that
                                           the Form 104 classifications will continue to be needed under SII reporting, or
                                           will we switch to only using the SII classes ?
                                                                                                                                  The currencies required for the TPD are 6 plus 1 and this was consulted with the market. Lloyd's is currently assessing the currencies to be required for Solvency II reporting templates
                                                                                                                                  and to assist in this exercise, syndicates have been requested to complete a one-off return on summarised balance sheet. We envisage that the proposed 5 plus 1 currencies will be
Currency Reporting                Jun-11   Has the decision been made as to which currencies should be reported?
                                                                                                                                  adequate, however following feedback from the market, Lloyd's will consider making the currencies reporting requirements consistent across the returns. Further guidance/information
                                                                                                                                  on this will be provided in December 2011.
Currency Splits                   Jun-11   Is there any guidance available on historical currency splits?                         Where the historical currencies cannot be directly split into the 5 required currencies, it will be acceptable for syndicates to use reasonable allocation methods to allocate them.

Early Closing                     Jun-11   Do Lloyd's need 2 weeks to complete their aggregation exercise?                        The two weeks period is to allow time for Lloyd's review process and also for the risk that agent(s) do not submit on time.
                                           Can Lloyd's give some guidance on what will be required for a syndicate that           We would expect that syndicates will review material movement between the early close date and year end. Lloyd's will issue guidance on this as part of the reporting guidance to be
Early Closure                     Jun-11
                                           closes early for reporting re the last months numbers?                                 issued in December 2011.

                                           I have a quick question about the Reporting & Disclosure Evidence Template
                                           that is due for submission at the end of July. Row 16 requires the following:
                                           "The report to supervisors shall have the following structure (Please refer to
                                           CEIOPS' Advice 50/09, pages 84-86) Agents must be able to provide the
                                                                                                                                  You are right that syndicates will not need to complete an RSR/RTS. However, as mentioned in our reporting and disclosure workshops held on 22nd/23rd June 2011, Lloyd's will
                                           qualitative information as stipulated in the report to supervisors (RTS)."
                                                                                                                                  require some level of qualitative information from the syndicates. The format of this will be provided to the market in December, but in the mean time, syndicates should use the RSR to
                                           However, it has been our understanding that syndicates will not be required to
Evidence Template                 Jul-11                                                                                          perform their gap analysis on qualitative requirements. Hence the inclusion of this statement in the evidence template. We do not expect syndicates to have completed the gap analysis
                                           provide the written element of a RTS as this will be done at market level by
                                                                                                                                  by July submission, however, status of the gap analysis should be provided. To address this statement, Syndicates should indicate what they are doing to address the gap analysis and
                                           Lloyd's (the recent workshops indicated that only a small amount of additional
                                                                                                                                  reference to available evidence to support this.
                                           narrative disclosure may be required and this will be collected via the QMA
                                           process). We therefore believe that this requirement is not applicable. Could you
                                           please advise on the specific requirement here and how you expect the question
                                           to be answered?


                                           EIOPA template K1 Country refers to the ‘branches’ in various different EEA and
                                           Non EEA countries. The definition of a ‘branch’ (per SII directive Art 145) is:
                                           “Any permanent presence of an undertaking in the territory of a Member State
                                                                                                                                  The definition states that the undertaking has an "office" managed by its own staff or independent person. This would be the case where a syndicate has an office in a member state and
                                           shall be treated in the same way as a branch, even where that presence does not
                                                                                                                                  that office is managed by own staff or independent person. This would not be the case with the coverholders because they do not manage a syndicate's office. However where a syndicate
                                           take the form of a branch, but consists merely of an office managed by the own
K1 Country Branch Data            May-11                                                                                          has an office in a member state and they have an employee/agent or independent person managing the office, business written through this office should be treated as being written
                                           staff of the undertaking or by a person who is independent but has permanent
                                                                                                                                  through a branch. Information required in this template (K1 Activity by Country) should be by country and this should follow criteria developed in Article 159 i.e. should depend on where
                                           authority to act for the undertaking as an agency would.” This could be used to
                                                                                                                                  the business is underwritten. Further guidance on how the template should be completed will be provided later in the year.
                                           refer to non branch contracts, such as cover holders. We believe that the aims of
                                           the reporting template is not to capture cover holder agreements. What is Lloyd’s
                                           stand point on this?

                                                                                                                                  Solvency II reporting requirements will not be finalised by EIOPA until Q2/Q3 2012. However, we believe the current templates issued by EIOPA and provided to agents on 9 November
                                                                                                                                  2011 are stable and can be used to perform gap analysis.
Lloyd's reporting                          When will Lloyd's requirements be settled for reporting?
                                  Nov-11                                                                                          Agent's development plans should be aligned with Lloyd's expectations and these can be reviewed next year as requirements become more clearer. We expect agents to be in a position
requirements
                                                                                                                                  to meet Solvency II reporting requirements by the end of Q3 2012 and this is in line with the planned "dry run" expected to be carried out in Q4 2012. Also, we expect that there will be
                                                                                                                                  some form of reporting in 2013, but we do not know the extent yet.


Material gaps re
                                               The key deliverable for this workstream is an implementation plan on 16
                                               December 2011. In terms of data quality, would changes need to be made and            The only deliverable is shown as an implementation plan and this will need to demonstrate that sufficient preparation on both reporting systems and data has been undertaken and
Reporting Deliverables                Feb-11
                                               systems updated earlier than this would suggest, as the quality of data will need     planned. Data quality will also be covered by the model validation workstream which will cover the internal model test around statistical quality.
                                               to be good enough for the internal model?
                                               Would it be possible to stagger the guidance and templates release dates so           Lloyd's is only expecting a Reporting Implementation Plan in December and is not expecting Reporting templates to be submitted this year. The templates will be released for
Reporting Guidance                    Jun-11
                                               that the guidance is issued before the templates?                                     consultation so that agents can feedback comments.
                                               What is the likelihood of more time to complete the returns under the reporting       An agent needs to work on the assumption that the timetable will be as currently published. However, the requirements will not be finalised until the Level 3 guidance has been
Reporting Timetable                   Jun-11
                                               timetable?                                                                            formalised.
                                               Will agents be expected to comply with the full reporting requirements at the         Solvency II reporting requirements begin on 1 January 2013 and the first reporting requirement will be in respect of quarter ending 31/3/2013. Not all the templates will be required on a
Reporting Timetable                   Jun-11
                                               start of 2012?                                                                        quarterly basis, hence the first full annual reporting requirement will be for the year ending 31/12/2013 which will be due in 2014 i.e. 12 weeks after the end of the year (31/12/2013).
                                               Will Lloyd's work towards the reporting timetables that have been set out in the
Reporting Timetables                  Jun-11                                                                                         Lloyd's will implement Solvency II reporting requirements consistent with EIOPA's final timetable.
                                               Directive or go for an early adoption?
                                               I am looking to clarify what exactly Lloyd’s is expecting from each managing          Syndicates will have to complete Solvency II quantitative templates which Lloyd's will use to complete it's SFCR/RSR. These templates will form the Solvency II QMA and we plan to
RTS and SFCR                          Jul-11   agent in order to complete the Lloyd’s RTS and SFCR, can you give me some             issue in December 2011, a pro forma Solvency II QMA including detailed instructions. Lloyd's will also collect some level of qualitative information and further details/guidance on this
                                               details or point me in the direction of guidance?                                     and format will also be issued in December 2011.
Run-Off Syndicates                    Jun-11   Will Lloyd's require syndicates in run-off to complete full reporting?                Yes, as Lloyd's is treated as a single entity and all syndicates will be required to complete full reporting.
                                                                                     514
                                                                                                                                     The issue of quarterly reporting of the SCR was raised by stakeholders during the pre-consultation process considering that this is not required within the Solvency II framework.
                                                                     SCR - Firms on Full Internal Models
                                                                                                                                     However, SCR is required to be recalculated and reported in case of a significant deviation of the risk profile from the assumptions underlying the last reported SCR. The need to report
                                               Will Lloyd’s require an SCR re-run at each quarter to be reported as part of the
                                                                                                                                     SCR on a quarterly basis when there has not been any significant deviation in risk profile is still an open issue that EIOPA is yet to decide to decide on.
SCR                                   Sep-11      QMR or will syndicates report the latest SCR in place at the quarter end?
                                                                                                                                     EIOPA is due to issue updated templates in October/November for public consultation and hopefully they will have addressed this issue in those templates.
                                                     EIOPA guidance indicates that quarterly re-runs will not be required.




                                                                                   515-521
                                                    SCR according to Standard Formula - Firms on Full Internal Models                These forms were included in the draft QMR pack for completeness and we will not be requiring syndicates to complete these forms considering that they will be on internal model.
                                               These have been included in the draft QMR pack, however the Directive [Clause         However, please not as indicated above, supervisor (in this case FSA) could require them.
                                               112(7)] and L2 guidance states that these will only be required at the request of
SCR                                   Sep-11
                                                  the supervisor giving reasons for the request. Will Lloyd's be requiring
                                               completion and submission of these forms and if so under what circumstances?



                                                                                                                                     Lloyd's has been in discussion with the FSA on the basis of reporting and it has been agreed in principle. It is our current intention that syndicates will not be required to submit an
Solvency & Financial                           Does Lloyd's still intend to collect certain data from agents and submit a single
                                      Feb-11                                                                                         SFCR but Lloyd's will need to collect some additional data from syndicates to produce an aggregate SFCR. Level 3 guidance will not be available until later this year, at the earliest.
Condition Report (SFCR)                        SFCR and how certain are they of the requirements?
                                                                                                                                     We are currently working on the latest draft advice we have and will advise agents on this basis.
                                               In your Supervisory Reporting and Disclosure Implementation Plan guidance
                                               notes it states that the Reporting Framework needs to be signed off by the Board
                                               by 16th December 2011. However, the SREP scoring guidance has Reporting               The SREP scoring guidance is the more up to date document. The expected timeline for the framework sign-off by the board is Q2 2012, however we expect this to have been discussed
SREP Guidance -
                                      Nov-11   Governance Framework sign-off as Q2 2012. Can I confirm that the SREP                 by senior management by 16 December 2011.
Reporting Framework
                                               scoring guidance is the more up to date document?




Sytems Processes                      Jun-11   If these have to be changed materially how far should agents go down the line?        We expect that Syndicates will review their reporting systems and make appropriate changes that will enable them to be able to meet Solvency II reporting requirements.
Updated pro forma                              We are currently doing some systems development work on our data warehouse
Solvency II Return                             and would appreciate some guidance in respect of Template TP(NL) – E6.

                                               This template requires the allocation of claims into bands to facilitate the
                                               production of a normal loss distribution curve.                                       The reporting team are currently working on the updated pro forma Solvency II return and the detailed instructions and these will issued in Q1 2012. These instructions will include
                          Yes         Dec-11   As the results are to be collated and reported centrally at Lloyd’s it is my          details on the brackets to be used.
                                               understanding that Lloyd’s should be defining the ranges for the brackets as
                                               outlined in the EIOPA template LOG. Can you confirm what bracket ranges you
                                               would be expecting us to use for the Solvency II business classes.


                                               Currently the data we receive via X-Changing for premium cash receipts only
                                               includes the percentage deduction in a narrative field. For the QRT we need to
                                                                                                                                     Xchanging is considering the impact of Solvency II to, among other things, ensure it meets the market's Solvency II data requirements. Lloyd's is in regular contact with Xchanging
Xchanging                             May-11   report paid acquisition expenses, it would therefore be useful to have the
                                                                                                                                     regarding such matters.
                                               deductions in a more accessible format. Is there any plan for X-Changing to
                                               change the data supplied?
Documentation and Final Application

Board Level                                                                                                                          The level of detail required at board level ultimately depends on the composition of the board, and the level necessary for them to make informed risk decisions. Of the 3 levels of
                                      Mar-11   What level of detail is required for board documentation?
Documentation                                                                                                                        documentation referred to in the presentation, the board level documentation generally consists of high level summary documentation.


                                                                                                                                     All agents should be targeting the end of Q1 for the closure of material gaps and Q2 2012 for the closure of any remaining gaps . This is in line with the FAP guidance issued in August
Closure of gaps           Yes         Nov-11   What is the deadline for closing gaps?                                                which stated that Lloyd's expects all gaps to be closed by 31 July 2012. The timing supports Lloyd's application to the FSA on 30 April and the proposal to use SCRs in Q3 2012 for
                                                                                                                                     capital setting purposes.



                                               Where an agent has a current system or model in place which is operational and        Lloyd's does not expect all agents to establish new systems, processes and/or models for all parts of their business and recognises that in some cases, existing systems will be
Current systems and                            which they believe is compliant with Solvency II, would this be acceptable to use     sufficient. Where agents plan to use a current system or model to meet part of their Solvency II requirements, they must ensure it is documented to an appropriate level. Lloyd's would
                                      Mar-11
models                                         even though they are planning to develop and enhance the system/model further         also require agents to demonstrate how they have determined that a current system/process meets the requirements. As for other areas, Lloyd's will not mandate what format evidence
                                               and what would Lloyd's expect to see documented?                                      should take. Evidence requirements will be discussed individually with agents throughout the reviews but would be expected to include MI, board/decision papers etc.



                                               In terms of the definition of a “material gap”, why is this being measured against
                                                                                                                                     Lloyd’s has asked for all areas which are not yet a “10” (i.e. fully completed and in force as BAU) to be identified within the FAP and therefore all “gaps” will be identified and stated on an
                                               Lloyd’s expected score rather than a 10 as for a “gap”? This may confuse the
Definition of gaps                    Oct-11                                                                                         absolute basis. However, the FAP guidance issued states that Lloyd’s does not expect to see material gaps at the point of FAP submission. Lloyd’s therefore considers that agents
                                               board when signing off the FAP and will mean it is a relative gap rather than an
                                                                                                                                     should only have to disclose a “material gap” against where they are expected to be at this point in time and not against final requirements.
                                               absolute gap.


                                                                                                                                     The FAP guidance issued states that Lloyd’s does not expect to see material gaps at the point of FAP submission on 16 December. However, Lloyd’s recognises that in some instances
Definition of gaps                    Oct-11   Are Lloyd’s expecting material gaps to exist at 16 December?                          there will be material gaps remaining and agents must have identified where any material gaps exist. Lloyd’s would expect all material gaps to have narrowed to a gap or to have been
                                                                                                                                     closed by the end of March 2012 and the FAP should make clear the work and timeline required to achieve this.



                                               If ORSA and IMSCR are only one sheet in the evidence template but 3 lines on
Definition of gaps        yes         Nov-11                                                                                         Gaps are based on the scoring sheet, not the evidence template, and there are three scores for ORSA and therefore a potential of three gaps, same for IMSCR.
                                               the score sheet, is that 1 gap or 3 gaps to be recorded in the FAP summary?




Definition of gaps                    Oct-11   How will agent’s information on gaps within the FAP be used?                          Lloyd’s will use the information to drive 2012 work and to prioritise which areas and agents need to be focused on in Q1 2012.




                                               Slide 22 of the Documentation, Final Application and ORSA workshop slides
Definition of gaps                    Oct-11   shows that Agents should state that size of the gap in the 2nd column of their        Assumptions on level of gap are correct however you do not need to comment on or specify the "quantum" of the gap. For the example you have given where a gap is not material i.e. 2
                                               FAP. If we are at score 8 for something that only needs to be 8-9 for Q4, then that   points, a simple 'No' will be sufficient. The example table shows additional detail purely for illustrative purposes.
                                               is a gap as it is not at 10 score. However, the gap is not material as it is not 3
                                               It would appear different agents have different views on what should be included      Lloyd's view on gaps to be reported is as follows:
                                               as a gap ranging from you can only have a maximum of 51 gaps, 44 for the
Definition of gaps        Yes         Nov-11   scoring sheets + 1 for each ET through to every line in the ET that is a partial      A. As we went through at the FAP workshops in October, as a minimum we would expect each gap on the scoring sheet to be covered together with any evidence template not rated
                                               must be recorded as a gap. In addition, agents may have gaps from model               green and so the 44+7.
                                               walkthroughs and documentation feedback etc. Can Lloyd's please confirm how


                                               Does the main board have to sign off all the FAP documents or can we use sub-         The Board are required to sign off on the application itself but do not necessarily need to sign off each individual document. It will be up to an agent/board to decide whether their own
FAP - Board Sign off                  Jul-11
                                               committees to sign off some (Eg. evidence templates)?                                 independent assurance process gives sufficient comfort to enable them to sign off on the FAP and all its contents. Use of Board sub-committees is an acceptable way to achieve this.




FAP - Section 2           Yes         Nov-11   What do Lloyd's expect the "Exceptions" to contain?                                   This is not a repeat of the gaps. This is explicit high level exceptions to the statements made in section 1 for instance if the agent failed to submit an SCR at the end of October then an
                                                                                                                                     exception in relation to "Article 101 - the model must be able to calculate a Solvency Capital Requirement" will be required.


                                               Summary of workstream status - does the "number of gaps identified" include           Yes, the total number of gaps (whether just gaps or material gaps) should be stated in the "number of gaps identified" column and then the subset of these which are material gaps
FAP - Section 2           Yes         Nov-11
                                               material gaps?                                                                        should be stated in the "number of material gaps". The numbers in the tbale within Section 2 must be consistent with those reported in Section 3.


                                                                                                                                     Lloyd's expect those Board members authorised to sign this document on behalf of the whole board to physically sign the document. Board minutes can be submitted if agents wish but
FAP - Section 2           Yes         Nov-11   Does the document have to be signed or should we submit Board minutes?
                                                                                                                                     are not required.



FAP - Section 3           Yes         Nov-11
                                                                                                                                   If, this?
                                               Confirmations - if we have identified gaps that we need to close do we answer "no" for with the work undertaken to date and the gaps identified, you will meet the requirement then answer "yes". Where you are unable to articulate gaps and therefore you will not be able to
                                                                                                                                   meet the requirement by June 2012 then answer "no".

                                                                                                                                     Only enter yes against the document if it is fully complete and signed off i.e. it is in use and will only be subject to change following Lloyd's review or the next annual review. If any
FAP - Section 3           Yes         Nov-11   Required Documentation - what does "complete - yes" mean?
                                                                                                                                     document requires further update/amendment you should enter "partial".


                                                                                                                                     The actual gap should be detailed not just the area it falls under i.e. within GRMU/Risk Management, the detail of the gap should not be just "underwriting procedures" - we would
FAP - Section 3           Yes         Nov-11   What level of information would you expect in "details of gaps"?
                                                                                                                                     expect more detail as to specifically what the gap in underwriting procedures is/are and then a description in the development plan column as to the process to close it.



FAP - Timing of                                Do documents for the FAP need to be produced as at the same date and be as            The aim is for all documentation to be consistent and current in portraying the level of compliance with requirements. Documents do not all have to be produced as at the same date
                                      Jul-11
Documentation                                  current as possible?                                                                  provided they do not show conflicting information on progress made.


                                               What form will the December sign-off and application pack take and will Lloyd's
                                                                                                                                     Lloyd's is discussing the content of the final application pack with the FSA and will communicate the requirements to the market by the end of June. It is currently expected that the full
Final Application Pack                Feb-11   issue a document/form to be completed?
                                                                                                                                     completed Evidence Templates will form a substantial part of the pack's supporting papers.

Format of                                      Is it possible to incorporate several areas into a single document in order to        Yes - Lloyd's will not mandate the number or structure of documents reviewed and agents should use documentation in a way which is appropriate for their business. It is the agent's
                                      Mar-11                                                                                         responsibility to ensure that the documentation produced meets the requirements of Solvency II. The Lloyd's review approach will be sufficiently flexible to support the documentation
Documentation                                  minimise the amount of documentation?
                                                                                                                                     structure adopted by each agent. Agents should ensure however that documentation is clearly mapped within evidence templates and if large documents are used to meet several
Gaps re: Evidence                              Should agents state a material gap if an Evidence Template was rated RED at           If an agent believes that they have addressed feedback sufficiently and that the template would achieve an AMBER rating based on their own self assessment then this no longer has to
                                      Oct-11                                                                                         be stated as a material gap and can be shown as a “gap” Similarly, if an agent believes that an evidence template has been updated so that it would now achieve a GREEN rating, it
template ratings                               last review but they feel they have since addressed the feedback given by Lloyd’s?
                                                                                                                                     need not be shown as a gap within the FAP submission.
                                                                                                                                     Where the listed evidence is not, itself, complete, that would lead to a ‘partially’ on the ET and should be reflected as a gap on the self-scoring for that workstream. However, the
Gaps re: Evidence
                          Yes         Nov-11   Does the feedback “Partial” on an evidence template mean a gap?                       evidence template itself need only be shown as a gap if it requires further work to achieve a GREEN rating.
template ratings




Lloyd's review and                             How long will it take for feedback to come back from Lloyd’s on the FAP               Lloyd’s will review all FAPs in Q1 2012 and provide feedback to all agents by the end of March 2012. Lloyd’s will however endeavour to provide feedback to agents as soon as possible
                                      Oct-11
feedback                                       submission?                                                                           and will prioritise any material concerns or inconsistencies.




                                                                                                                                     Whilst Lloyd’s review and feedback may result in some re-work being required, resource requirements in Q1 2012 should primarily be driven by agents’ own plans. The main priority for
Lloyd's review and                             Is Lloyd’s feedback and review of FAP likely to cause extra work for agents and
                                      Oct-11                                                                                         agents in Q1 2012 should be to focus on the gaps they have identified within the FAP, particularly any material gaps which have been identified, and look to close as many of these as
feedback                                       how should we plan our resources for Q1 2012?
                                                                                                                                     possible by end March 2012.


                                               All agents are likely to have material gaps in the SREP workstream, particularly
Material gaps re: SREP                         as a Reporting implementation plan is no longer required to be prepared and      Lloyd’s expects that this workstream will be the least progressed by 16 December. Updated quantitative and qualitative templates are not due from CEIOPS until late October/November
                                      Oct-11
workstream                                     submitted prior to the FAP submission. Does this mean that the Lloyd’s expected 2011 and Lloyd’s will therefore review the expected score on this workstream and reflect any changes in the scoring sheets to be issued to agents for the FAP submission.
                                               scores will change?

Model Validation Report                                                                                                              Lloyd’s is expecting to see gaps in the Validation Report at this stage and this should not prevent FAP sign off. As for all gaps, agents should make clear the work still required to
                                      Oct-11   Should the Board be signing off the FAP if the Validation Report still has gaps?
Gaps                                                                                                                                 address outstanding issues.

                                                                                                                                     No, Lloyd’s have not mandated any specific cut off date. Agents are free to select their own cut off date for the scores being submitted for the FAP but must ensure that there is
Self Scoring Assessment               Oct-11   Is there a specified as at date for the Self Assessed scoring?                        consistency across all elements of the FAP (e.g. scores should reflect the same level of progress as the statement of gaps and evidence templates). Agents should make clear within
                                                                                                                                     the FAP what the sign off date was.
                                               Would it be possible to have a formula in the scoring template which will flag
Self Scoring Assessment   Yes         Nov-11                                                                                         Updated self scoring templates incorporating this formula have been issued to all agents and are mandatory for use in the FAP submissions.
                                               each requirement as a “no gap”, “gap”, or “material gap”?

                                               What level of mathematical and statistical detail is required for the                 CEIOPS-DOC-48/09 section 9.3.4 details the requirements syndicates must satisfy to comply with Solvency II documentation standards. The advice highlights that the description of
Technical Documentation               Mar-11   documentation at the most technical level (are syndicates expected to produce         theories and mathematical methods should allow someone of commensurate knowledge to understand the workings of the internal model. The principle of proportionality applies, in that
                                               documentation equivalent to a mathematical / statistical textbook)?                   those complex models will require documentation to a greater depth than other less complex models.

                                               What is the best way to strike a balance between providing multiple documents to      The documentation does not need to include every aspect of the business line-by-line. Lloyd's have received a number of documents which appear to have been written specifically for the
Unwieldy documentation                Mar-11
                                               be reviewed and not putting strain on business resources?                             review process whereas agents should be producing documents only for business purposes which also meet the Solvency II requirements.

								
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