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Governance

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Minimum Standards and Requirements

These are statements of business conduct required by Lloyd’s. The Minimum Standards are established under relevant

Lloyd’s Byelaws relating to business conduct. All managing agents are required to meet the Minimum Standards. The Requirements represent the minimum level of performance required of any organisation within the Lloyd’s market to meet the Minimum Standards.

 

Within this document the standards and supporting requirements (the “must dos” to meet the standard) are set out in the pink box at the beginning of each section. The remainder of each section consists of guidance which explains the standards and requirements in more detail and gives examples of approaches that managing agents may adopt to meet them.

Guidance

This guidance provides a more detailed explanation of the general level of performance expected. They are a starting point against which each Managing Agent can compare its current practices to assist in understanding relative levels of performance. This guidance is intended to provide reassurance to managing agents as to approaches which would certainly meet the Minimum Standards and comply with the Requirements. However, it is appreciated that there are other options which could deliver performance at or above the minimum level and it is fully acceptable for Managing Agents to adopt alternative procedures as long as they can demonstrate the Requirements to meet the Minimum Standards.

Definitions

CPD

Continuing Professional Development

EIOPA

The European Insurance and Occupational Pensions Authority

FCA

Financial Conduct Authority

LMA

The Lloyd’s Market Association

Multiple Syndicates Byelaw

This byelaw prohibits an underwriter, whether or not an active underwriter, acting as such for more than one syndicate concurrently without the consent of the Council

ORSA

Own Risk and Solvency Assessment

PRA

Prudential Regulation Authority

SCR

Solvency Capital Requirement is the amount of funds that insurance and reinsurance undertakings are required to hold in the European Union

Shadow Directors

In the Companies Acts ‘shadow director’, in relation to a company, means a person in accordance with whose directions or instructions the directors of the company are accustomed to act.


A person is not to be regarded as a shadow director by reason only that the directors act on advice given by him in a professional capacity.

 

A body corporate is not to be regarded as a shadow director of any of its subsidiary companies for the purposes of - Chapter 2 (general duties of directors);  Chapter 4 (transactions requiring members’ approval); or Chapter 6 (contract with sole member who is also a director). By reason only that the directors of the subsidiary are accustomed to act in accordance with its directions or instructions.

3)

The Companies Act 2006 defines a shadow director as follows:

1)

2)

SNP

Senior Nominated Person 

SOX

The Sarbanes–Oxley Act of 2002

The Board

Where reference is made to the board in the standards, managing agents should read this as board or appropriately authorised committee. In line with this, each agent should consider the matters reserved for the board under the Governance Standard in order to evidence appropriate full board discussion and challenge on the material items

 
 
 
 
 

System of Governance

GOV 1.1 Effective System of Governance

 

Managing agents shall have in place an effective system of governance which provides for sound and prudent management of the business. 

 

The system of governance shall: 

Be proportionate to the nature, scale and complexity of the operations of the business;

 

Provide for effective cooperation, internal reporting and communication of information at all relevant levels of the business; and

 

Include compliance with the requirements laid down in the SII Framework Directive, Articles 42 to 49.

Lloyd’s expects all managing agents to have an effective governance framework appropriate to their business in place. Under Solvency II there are a number of specific requirements, including the internal audit, risk management and actuarial functions, as well as more general governance requirements. The principle of proportionality allows managing agents to design their system of governance in a way that meets regulatory requirements while appropriately reflecting their specific risk profile. 

This guidance suggests how managing agents may evidence an effective system of governance. This is not exhaustive, but evidence of the governance framework would typically include:

Organisational structure showing accountability – i.e. board, committees, decision making bodies and required functions (actuarial, internal audit, compliance, risk management);

Personnel organisation structure / function organisational charts – i.e. resources;

Matters reserved for the board (see also GOV 3.7) including delegation to committees / decision making bodies;

Terms of reference for the board and each committee / decision making body;

Committee membership (with job title of the individual members);

Board and committee timetable – detailing dates and outline of agenda / matters to be discussed; 

Management information – summary details of the MI provided to the board, committees and decision making bodies; and

Governance map (which may cover some of the items listed above).

The governance framework should clearly demonstrate where the following activities are being considered and decisions made:

Underwriting;

Reinsurance;

Claims;

Reserving;

Investment;

Asset liability management;

Liquidity and concentration management; and

Operational risk including cyber security & data management.

Solvency II Framework directive, Articles 42 to 49

The requirements for an effective system of governance refer to compliance with Articles 42 to 49 and further requirements and guidance relating to these are covered within other sections of the standards and guidance as below:

MMUS Table.jpg

GOV 1.2 Review of System of Governance

 

The system of governance shall be subject to regular internal review.

Managing agents shall:

Monitor, and on a regular basis evaluate, the adequacy and effectiveness of their system of governance; and

Take appropriate measures to address any deficiencies.

The board is responsible for ensuring that the system of governance is internally reviewed on a regular basis and should determine the appropriate scope and frequency of the reviews, taking into account the nature, scale and complexity of the business.  Whilst the frequency of review is not mandated, Lloyd’s would expect managing agents as a minimum to consider the need to conduct a review on an annual basis in line with the board effectiveness review which must be carried out annually (see GOV 3.8) and record clearly the rationale for any work conducted and/or reliance placed on a previous review.  

Conducting the review

The board is also responsible for determining who within the organisation should conduct the review and should ensure that they are suitably independent. Independence does not require the reviewer to be external, but the person(s) conducting the review should be independent from the area(s) they are responsible for reviewing e.g. compliance should not be responsible for reviewing the compliance function. 

Typically the approach taken to the review would be documented to ensure that there is clarity over its scope and purpose.

Follow up

Findings and conclusions from the review should be properly documented and reported back to the board.  In order to allow an adequate revision of the system of governance appropriate feedback procedures encompassing at least all key functions should be established. Suitable feedback loops are necessary to ensure follow-up actions are continuously undertaken and recorded.

After the feedback reports are presented to the board, discussions on any challenge provided or improvements suggested should be documented as appropriate. 

Changes to the system of governance

Managing agents should note that where changes are made to any aspect of the system of governance, it is important to assess any impact this may have on the internal model and whether a model change under the model change policy needs to be implemented. More detailed requirements and guidance relating to model change are set out in Section 5 of MS12 – Scope, Change and Use.

GOV 1.3 Internal Control System

 

Managing agents shall have in place an effective internal control system.

The internal control system shall:

Include administrative and accounting procedures, an internal control framework, appropriate reporting arrangements at all levels of the business and a compliance function;

 

Secure compliance with applicable laws, regulations and administrative processes, the effectiveness and efficiency of operations in view of the business objectives and the availability and reliability of financial and nonfinancial information; and

 

Ensure that adequate and orderly records of the business and internal organisation are maintained.

The internal control system needs to be robust and create a strong control environment with control activities that are adequately aligned to the risks of the business and the agent’s processes.  A strong control environment should ensure all personnel are aware of the importance of internal control and their role in the internal control system. This will ensure the system is fully embedded within the managing agent’s organisational culture.  

Internal controls include the task of identifying and managing any areas of potential conflicts of interest appropriately.  A high level of integrity is an essential part of the control environment and managing agents should therefore avoid policies and practices that may provide incentives for inappropriate activities. 

A proper internal control system should include internal controls:

At different levels of the organisational and operational structures;

At different time periods; and

With different levels of detail.

Specific requirements and guidance relating to the compliance function are included in GOV 6.3 & 6.4.

Internal Control Policy

Managing agents are required to implement a written policy on internal control (see GOV 2.4) which is approved by the board. The policy should include the means by which senior management implement the internal control system to provide for and maintain the suitability and effectiveness of the internal control system. Internal control combines the following aspects:

Control environment;

Control activities;

Communication; and

Monitoring.

The monitoring mechanisms within the internal control system should provide the board with relevant information for the decision-making process.  The effectiveness of the internal control system itself should be monitored on a regular basis, so that any deficiencies of the system can be identified and rectified in a timely manner.

Record keeping

Managing agents should document their internal organisational and operational structures and keep this documentation up to date. They should also maintain adequate and orderly records of their business activities and keep them for an appropriate time frame, taking into account their own prescribed record retention periods. 

Managing agents shall:

The preservation of essential data and functions; and

 

​The maintenance of business activities.

GOV 1.4 Business Continuity & Contingency Planning

 

Managing agents shall establish, implement and maintain a business continuity programme and take reasonable steps to ensure continuity in the performance of their activities.

The business continuity programme shall aim to ensure, in the case of an interruption to systems and procedures: 

The timely recovery of data and functions; and

The timely resumption of business activities.

Where there is an operational disruption, the programme should aim to ensure:

Identify the risks to be addressed by contingency plans based on the areas where they consider the business to be most vulnerable;

Conduct a full business impact analysis, identifying business activities, resource requirements including staff, suppliers, technology, data and premises dependencies, as well as associated Recovery Time Objectives (RTO) and Recovery Point Objectives (RPO).

Produce contingency plans to manage an incident and ensure that business activities can continue within agreed RTO and RPO timescales in the event of a denial of access to premises, unavailability of staff, a major IT failure (including hardware or cyber related incident), loss or corruption of data and/or the failure of service provision by a critical supplier; and

Review, update and test all aspects of their business continuity arrangements on a regular basis. 

The aim of contingency planning is to enable the managing agent to continue the business activity at a predetermined minimum level to provide an acceptable level of service to policyholders and other market participants. 

Contingency plans

Managing agents should develop and document contingency plans to ensure the business disruption and/or possible losses are limited if there is an unforeseen interruption to their systems and procedures. These might for example arise from natural catastrophes such as floods or earthquakes, from terrorist attacks, serious fires, a successful cyber attack, a failure of IT systems or a pandemic that affects a large number of employees. The plans should document arrangements for managing the initial incident as well as business recovery. Plans should include the following: 

Defined roles and responsibilities;

An appropriate communication strategy for all stakeholders;

A clear set of actions and owners; and

The process for recording information and the decisions made.

The plans should be made available to all relevant management and personnel so that every person involved knows their role in advance of any emergency situation. All staff should be made aware of the existence of the plan and be provided with key information that would be useful to them during an incident.

As well as addressing operational business continuity, managing agents should consider other risks for which risk mitigation plans may be needed as part of their risk management system. This may include capital and solvency risk and planning, liquidity arrangements, reinsurance and outsourcing. For those risks identified, as a minimum, managing agents should ensure that they document high level risk mitigation procedures. Whilst it is not necessary that contingency planning should include every business activity, it should take into consideration all significant activities. 

Contingency plans should include consideration of critical suppliers, for example, XIS, XCS, PPL and services delivered or managed by LIMOSS. Lloyd’s would expect a managing agent to consider all their critical suppliers as part of their contingency planning. Lloyd’s expects to support and monitor the impact of a significant operational disruption in a supplier providing services to the whole market through existing market governance.

Testing and review

For all contingency planning arrangements, managing agents should ensure a robust exercising programme is in place to test their effectiveness. As well as the annual testing of IT and other business recovery capabilities, there should be annual exercises for crisis and incident management teams to test these arrangements. It is best practice for any workplace recovery provisions to also be tested annually, including those reliant on working from home. Managing agents should look to take part in the IT Test held by Lloyd’s each year at ExCeL.

Contingency plans should be reviewed at least annually and updated as necessary (for example as part of change programmes) and tested in line with an approved testing plan. Regular review and updating ensures that the plans stay effective and suitable, and test runs provide assurance that the plans will work effectively should an emergency arise.  

 

Section 2: Organisational Structure

The System of Governance shall include an adequate transparent organisational structure.

The organisational structure shall:

Establish, implement and maintain effective decision making procedures;
 

Clearly specify reporting lines that ensure the prompt transfer of information to all persons who need it in a way that enables them to recognise its importance;


Allocate functions and responsibilities; and


Take account of the nature, scale and complexity of the risks inherent in the business.

GOV 2.1 Organisational structure

Managing agents should have a well-defined organisational and operational structure which is geared towards supporting the most important strategic goals and operations of the business.  They should be able to adapt the structure to changes in their strategic aims, operations or in the environment within an appropriate period of time.  

The organisational structure identifies the business processes involving material risks and sets out how they should be executed, including responsibilities and information flows, to ensure that these processes are adequately monitored and controlled.  The operational structure refers to the way in which operations are organised and supports the main functions of the organisational structure (see also Section 1.1 on evidencing organisational structure).

Agents should ensure that each key function has an appropriate standing in terms of organisational structure and that their responsibilities and the authority they have to exercise their tasks are clearly set out (see also section 6.1).  Diagrams and process flow charts may help represent both the organisational and operational structure more clearly but are not mandatory.

It is important that the organisational culture is one which enables and supports the effective operation of the system of governance.  This requires a suitable “tone at the top” with the board providing appropriate organisational values and priorities.  In order to meet the four-eyes-principle any significant decision concerning the business should be agreed by at least two persons before being implemented. Maintaining a formal schedule of matters referred to the board for decision is a practical way of demonstrating those matters which are reserved for the board (see also GOV 3.7 regarding matters reserved for full board review). 

GOV 2.2 Segregation of duties

Managing agents shall have a clear allocation and appropriate segregation of responsibilities across the organisation.

Managing agents shall ensure that:

They employ personnel with the skills, knowledge and expertise necessary to discharge the responsibilities allocated to them properly;

All personnel are aware of the procedures for the proper discharge of their responsibilities;

 

The performance of multiple tasks by individuals and organisational units does not or is not likely to prevent the persons concerned from discharging any particular function in a sound, honest and objective manner;

 

They comply with the requirements of the Multiple Syndicates Byelaw with regard to underwriters acting for more than one syndicate concurrently; and

 

Key operational and business processes are properly documented.

Lloyd’s does not wish to unduly restrict managing agents in choosing how to organise themselves as long as they establish an appropriate segregation of duties that in particular ensures the necessary full independence of the internal audit function and sufficient independence of the other key functions (see GOV 6.1).

The duties and responsibilities within the organisational structure should be clearly defined, allocated and coordinated with each other in the managing agents’ policies, covering all important duties while avoiding unnecessary overlaps and fostering effective cooperation between functions. Policies and procedures should be clearly documented to ensure all personnel are aware of these. Required functions should be kept separate unless this would be disproportionate in which case agents need to have effective policies and procedures in place to ensure that their independence is not compromised. 

An adequate segregation of responsibilities in particular ensures that the persons responsible for performing tasks are not also responsible for monitoring and controlling the adequacy of this performance. There should, however, be an organised process of communication between those responsible for operational activities and the control functions.

Procedures are established in order to ensure that those involved with the implementation of the managing agent's strategies and policies understand where conflicts of interest could arise and how such conflicts are to be addressed; and

 

They act in the best interests of syndicate members.

Lloyd’s recognises that it is not always possible to avoid conflicts of interest, and it is therefore important to ensure that any conflicts are identified and dealt with in an appropriate manner. The types of conflicts that may arise include, but are not limited to:

Internal – director’s interests;

Corporate – related parties;

Capital – third party capital; and

Group conflicts.

Conflicts of interest policy/procedure

To ensure that conflicts of interest are identified and appropriately addressed agents should have in place a conflicts of interest policy/procedure. The purpose of the policy should be to ensure that all conflicts of interest are declared and that decisions are taken in full knowledge of those conflicts.

GOV 2.3 Conflicts of interest

Managing agents shall ensure that effective systems are in place to prevent conflicts of interest wherever possible and that potential conflicts of interest are identified and appropriately addressed.
 

Managing agents shall ensure that: 

Clearly set out the relevant responsibilities, objectives, processes and reporting procedures to be applied;

Are consistent with the overall business strategy;

Are implemented;

Are reviewed at least annually;

Are subject to approval by the board, or nominated Committees as appropriate; and

Are adapted in view of any significant change in the system or area concerned. 

GOV 2.4 Required Policies

Managing agents shall have written policies in relation to at least risk management, internal control, internal audit and, where relevant, outsourcing. 

Managing agents shall ensure that those policies: 

Agents should note that the policies set out above are explicitly required under the system of governance provisions of Solvency II but this is not an exhaustive list of all policies relevant to Solvency II requirements or the operational policies which Lloyd’s would expect managing agents to have in place. 

This section sets out general guidance on the required policies. The following sections contain additional specific guidance:

RM 2.3 – risk management policy;

GOV 1.3 – internal control policy;

GOV 6.5 – internal audit charter; and

GOV 5.2 – outsourcing policy.

Written policies

Whilst specific written policies must be in place, they do not have to be separate and agents may combine these policies as they see fit in line with their organisational structure and processes.  All written policies should be in line with the managing agent’s overall business strategy and should for each function or process to which they relate, clearly set out:

The goals pursued with the policy;

The tasks to be performed and who is responsible for them;

The processes and reporting procedures to be applied; and

The obligation of the relevant organisational units to inform the risk management, internal audit, compliance and actuarial functions of facts relevant for the discharge of their duties.

Policies covering key functions should also address the standing of these functions within the managing agent, including their rights and powers.  

A proper implementation of the written policies requires that all staff members are familiar with and observe the policies for their respective area of activities and that formal induction and training procedures are in place. It also requires that any changes to the policies are promptly communicated to them.

Approval and review of policies

Written policies should be subject to approval by the board or nominated Committees as appropriate particularly specific areas as described in Section 3.7, as should any subsequent changes, unless these are minor, e.g. correcting typographical errors.

The annual review requirement applies to all written policies which managing agents are required to have under the Solvency II framework directive.  Any review of the written policies should be appropriately documented and cover:

Who conducted the review;

Any suggested recommendations. 

For further requirements and guidance regarding documentation, managing agents should refer to Section 6 of MS12 – Scope, Change and Use. 

That all key operational processes are properly documented;

All staff understand the operational and business processes relevant to their role;

 

Operational targets and KPIs are set, reviewed and acted upon as necessary; and

 

Ensure that the board or nominated Committee give adequate attention to the operational and business processes.

Managing agents shall have appropriate operational processes for effective management of the business.

Managing agents shall ensure: 

GOV 2.5 Operational processes

No specific guidance has been written for these standards and requirements which are self-explanatory.

Ensure appropriate, skilled staff are available for the operation of the finance function;

Accurately complete the Lloyd's financial returns through Lloyd’s Data Collection platforms as and when required;

Have appropriate credit control and management procedures in place for the collection of premium; and

 

Ensure all premium taxes are correctly reported to Lloyd’s tax department for central settlement with the relevant tax authority.

 

Calculate an estimate of the standard Formula SCR, in conjunction with any actuarial input, as required by the Regulator 

GOV 2.6 Finance operations 

Managing agents shall have appropriate finance resource for the management of the business. 

Managing agents shall:

Guidance relating to managing agent Premium Trust Funds (PTFs)

The Lloyd’s Chain of Security is central to policyholders having assurance that Lloyd’s members are able to pay valid claims.  A key element to the Chain of Security is the Premium Trust Funds which hold the receipts and receivables of the underwriting business of members at Lloyd’s.  These funds are held in trust and are available to meet members’ underwriting liabilities in accordance with the terms of the Premium Trust Deeds (PTD).

 

Managing agents are given dispositive powers over the PTFs and it is important that managing agents understand their obligations to administer the PTFs and that they have appropriate controls in place.

 

As part of demonstrating that they have appropriate finance resource for the management of their insurance business, managing agents should ensure that they have in place suitable controls for the operation of the syndicate PTFs in accordance with the terms of the PTDs.  Lloyd’s expects that while the appointed Managing Agent Trustees will exercise overall responsibility, day to day responsibility for these controls will ordinarily be allocated to the Finance team.  While it is for managing agents to determine the appropriate controls to implement, the following are areas that should be addressed:

Suitable training should be provided to the individuals (including the Managing Agent Trustees) with responsibility for administering the PTFs.  This should include training on the outgoings that are permitted from the PTF (Permitted Trust Outgoings – see the Premium Trust Deeds, Schedule 3).

The Managing Agent Trustees should receive and review regular management information that allows the Trustees to monitor the transactions undertaken by the PTF.

An assessment of the oversight and governance of the PTF should be included in any Internal Audit Plan.

Key documents relating to the PTF should be readily available in a single location.  This will include copies of the PTD (both as originally executed and as may have been updated from time to time – available on Lloyds.com), documented financial controls and training material.

Reference to PTD compliance and operation should be included within the Risk Register.

 

Staffing levels are appropriate to the size and complexity of the business;

 

All staff understand their roles and responsibilities and are appropriately appraised; and

 

Staff understand the regulatory requirements that apply to their role.

GOV 2.7 Human Resources 

Managing agents shall ensure they have appropriate resource to support the Managing Agency. 

Managing agents shall ensure that:

No other specific guidance has been written for these standards and requirements which are self-explanatory.

Section 3: Board Effectiveness

Providing leadership and setting business strategy;

Establishing a prudent and effective control framework which enables risk to be assessed and managed;

Ensuring that adequate financial and human resources are in place;

Reviewing management performance; and

Ensuring compliance with the laws, regulations and administrative provisions adopted pursuant to the Solvency II Framework Directive.

A managing agent shall be headed by an effective Board, which is collectively responsible for the performance of the managing agent and the syndicate(s) under management. 

The role of the Board shall include:

GOV 3.1 Effective Board

Leadership

The Board should ensure that it sets a suitable ‘tone at the top’, providing appropriate organisational values and priorities (see also GOV 2.1).

Board Meetings and committees

The Board should meet sufficiently regularly to discharge its duties effectively.  Typically managing agents hold full Board meetings on at least a quarterly basis and should ensure that these are scheduled sufficiently far in advance to allow for reasonable attendance from all directors.  Where non-Board members attend Board meetings, care should be taken to ensure that the reason for their attendance is clear and that they are not acting as ‘shadow’ directors.

The Board should also have regular and robust interaction with any committee it establishes as well as with senior management and with other key functions, requesting information from them proactively and challenging it when necessary. Managing agents are responsible for determining the most appropriate committee structure for their business. Committees that are typically seen in a managing agent include the following:

Audit;

Executive management;

Investment;

Operations;

Remuneration;

Reserving;

Risk & capital;

Security & credit; and

Underwriting.

Formally established committees of the Board should have clear terms of reference and delegation of responsibilities. The value of ensuring that committee membership is refreshed and that undue reliance is not placed on particular individuals should be considered in deciding the Chair and membership of committees. 

Committee terms of reference would typically cover the following areas:

Purpose;

Authority;

Composition;

Meeting frequency and quorum;

Responsibilities; and

Reporting arrangements.

Where the standards and guidance refer to Board responsibilities it is acceptable for these to be delegated to a properly authorised Board committee, unless explicitly stated otherwise. Where responsibilities are delegated in this way the Board should still ensure that those responsibilities are met.

Specific Board responsibilities under Solvency II

The responsibility for ensuring that a managing agent can continue to meet the Solvency II tests and standards lies with the Board of the managing agent.  The Board must ensure that appropriate documentation and records are maintained to disclose with reasonable accuracy at any time the status of compliance with the requirements. The Board is also responsible for notifying Lloyd’s as soon as possible if any of the conditions for compliance cease to be met.

Size of the Board to ensure it is not unwieldy but has an appropriate balance of skills and experience;

The need for a strong executive and non-executive representation;

 

The need to ensure that all directors are able to allocate sufficient time to the managing agent to discharge their responsibilities effectively; and

 

The need for directors to regularly update and refresh their skills and knowledge.

Managing agents shall ensure that the members of the Board and of each of its committees collectively possess the necessary qualifications, competency, skills and professional experience in the relevant areas of the business in order to effectively manage and oversee the business in a professional manner. 

As well as ensuring the collective suitability of the Board, managing agents shall ensure that each individual member of the Board and its committees has the necessary qualifications, competency, skills and professional experience to perform the tasks assigned.  Consideration should be given to the following:

GOV 3.2 Collective suitability of the Board

The Board should not be so large as to be unwieldy but should be of sufficient size in order that the requirements of the business can be met and changes to the Board’s composition and that of its committees can be managed without undue disruption. 

Managing agents should ensure that all directors are able to allocate sufficient time to discharge their responsibilities effectively.  When considering the composition of the Board, managing agents should ensure that there is sufficient focus on strategy and key issues. 

 

In addition to fitness with regard to their duties in their specific areas of responsibility, the Board of the managing agent must, collectively, be able to provide for the sound and prudent management of the business. The collective knowledge, competence and experience of the Board should therefore include, at a minimum, the following areas:

Insurance and financial markets;

Business strategy and business model;

System of governance, including risk management and control;

Financial and actuarial analysis; and

Regulatory framework and requirements.

Board members are not expected to each possess expert knowledge, competence and experience within all areas of the business, but the collective knowledge, competence and experience of the Board as a whole should provide for sound and prudent management of the business. Board members should, however, have at least a base level of knowledge of those areas that fall outside their own immediate area(s) of expertise. For example, all directors should be aware of the key risks the business faces and how these are managed.

Board members are not expected to each possess expert knowledge, competence and experience within all areas of the business, but the collective knowledge, competence and experience of the Board as a whole should provide for sound and prudent management of the business. Board members should, however, have at least a base level of knowledge of those areas that fall outside their own immediate area(s) of expertise. For example, all directors should be aware of the key risks the business faces and how these are managed.

Director Responsibilities

When allocating responsibilities, agents should have regard to the span of control of individual directors ensuring it is not excessive. Points to consider include:

The number of direct reports; and 

Areas of responsibility (e.g. wide/ranging/unassociated areas or areas outside of their areas of expertise as well as areas where there may be a conflict – e.g. underwriting and claims).

Individual director terms of reference will provide useful evidence of division of responsibilities.

  

Directors should ensure that the managing agent is fulfilling its duties of care and responsibilities under the Managing Agents Agreement on behalf of the capital providers on the syndicates which it represents, subject at all times to Lloyd’s requirements for managing agents.

Succession Planning

The Board should satisfy itself that plans are in place for orderly succession for appointments to the Board and to senior management, so as to maintain an appropriate balance of skills and experience and to ensure progressive refreshing of the Board.  Managing agents may wish to consider short term contingency planning as well as longer term succession planning.

Constructively challenge and help develop proposals on strategy;

Scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance; and

Satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible

Managing agents shall ensure that the Board includes a balance of executive and non-executive directors, such that no one individual or group of individuals can dominate the Board's decision taking. 

 

All managing agent Boards should include at least two independent non-executive directors.  As part of their role as members of a unitary Board non-executive directors should:

GOV 3.3 Non-Executive Directors

Managing agents should seek to achieve an appropriate balance between executive and non-executive directors to ensure that the views of each are given sufficient weight in Board discussions. Where the managing agent is part of a group, consideration should also be given to ensuring that there is a sufficient balance between any group non-executive directors and independent non-executive directors to ensure that group representatives do not dominate discussions unduly. For this purpose a group independent non-executive director would be considered independent if they also sat on the Board of the managing agency.

Independent non-executive directors

The role of independent non-executive directors is important as they are able to bring a degree of objectivity to the Board’s discussions and play a valuable role in monitoring executive management. Lloyd’s requires managing agents to appoint at least two independent non-executive directors to ensure that there is sufficient independent scrutiny of the executive management.

When determining whether a non-executive director can be regarded as independent, the Board should consider whether the director is independent in character and judgement and whether there are relationships or circumstances which are likely to affect, or could affect, the director’s judgement.

There are a number of relationships and circumstances which should be considered when determining independence, including if the director:

Has been an employee of the managing agent or group within the last five years;

Has, or has had within the last three years, a material business relationship with the managing agent either directly, or as a partner, shareholder, director or senior employee of a body that has such a relationship with the managing agent;

Has received or receives additional remuneration from the managing agent apart from a director’s fee, participates

in the company’s share option or a performance-related pay scheme, or is a member of the company’s pension scheme;

Has close family ties with any of the managing agent’s advisers, directors or senior employees;

Holds cross-directorships or has significant links with other directors through involvement in other companies or bodies;

Represents a significant shareholder; and

Has served on the Board for more than nine years from the date of their first election.

Where any of the cases above apply, it is not necessarily a bar to a director being regarded as independent, but the Board must be able to state the reasons why it believes the director should be considered independent, notwithstanding those circumstances.

Appointment of non-executive directors

Non-executive directors should be appointed for specified terms subject to re-election and should have clear terms of reference on appointment.

To ensure a clear division of responsibilities the roles of Chair and Chief Executive should not be carried out by the same individual;

The Chair is responsible for leadership of the Board and ensuring its effectiveness in all aspects of its role;  including ensuring the level of information is appropriate;

 All directors must take decisions objectively in the interests of the managing agent and in the interests of the syndicate(s) which they manage; and

No one individual should have unfettered powers of decision.

There should be a clear division of responsibilities at the head of the managing agent between the running of the Board and the executive responsibility for running of the managing agent's business. 

GOV 3.4 Division of Board responsibilities

Chair and Chief Executive Roles

The Chair is responsible for leadership of the Board and ensuring its effectiveness on all aspects of its role. This includes setting the Board’s agenda and ensuring that adequate time is available for discussion of all agenda items, in particular strategic issues.  The Chair should also promote a culture of openness and debate by facilitating the effective contribution of non-executive directors in particular and ensuring constructive relations between executive and non-executive directors.

For the appointment of a Chair, a job specification should be prepared including an assessment of the time commitment expected, recognising the need for availability in the event of crises. Lloyd’s regards it as good practice that the Chair should be an independent non-executive director. Where this is not the case, there will be increased focus from Lloyd’s on the degree of independence across the Board as a whole.

The detail of the CEO’s responsibilities will vary between one managing agent and another, but the main responsibilities of the role include development of strategy, in conjunction with the Chair and the rest of the Board; implementation of the strategy and oversight of the day to day operations of the managing agent.

Both the Chair and the CEO should have documented terms of reference.

Appointments to the Board shall be made on merit and against objective criteria;

 

Managing agents shall  ensure that new directors have sufficient time available to devote to the role; and

 

All directors should receive induction on joining the Board.

GOV 3.5 Appointment of new directors

There should be a formal, rigorous and transparent procedure for the appointment of new directors to the Board.

New directors

Managing agents should have clearly documented procedures for the appointment of new directors and a formal induction policy and process for induction should be in place. The search for Board candidates should be conducted, and appointments made, on merit, against objective criteria (i.e. taking account of the capabilities required for the particular appointment in terms of skills, experience, independence and knowledge) (see also section 4 on fit & proper requirements).

The Board receives adequate information on performance and operational matters; and

Adequate Board attention and focus is given to strategy and operational/business processes.

GOV 3.6 Adequate information at Board level

The Board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its responsibilities.

Managing agents shall ensure that:

The Chair is responsible for ensuring that all directors receive accurate, timely and clear information but directors should seek clarification or amplification where necessary.

Lloyd’s would expect Board reports to be written rather than verbal and care should be taken to ensure that the content and level of detail is appropriate. Board papers may be provided to Board members in either hard or soft copy format and should be circulated sufficiently far in advance to enable adequate review and preparation for meetings.

The Board should review strategy on at least an annual basis and set its priorities for the forthcoming year. Progress against the strategy and priorities should be monitored and reported to the Board on a regular basis. 

GOV 5.2 includes further detail regarding monitoring and reporting on outsourcing arrangements.

Long term objectives, commercial strategy and key strategic decisions;

Risk Management & Control Framework;

ORSA Report to be submitted to Lloyd’s;

Syndicate’s Business Plan with actions taken where appropriate to address material variances from the Plan; 

Lloyd’s Capital Return;

Report and Accounts;

Major internal model changes;

Confirmation statements as required by Lloyd’s e.g. Solvency II compliance, minimum standards compliance;

Reserves for both financial accounting and solvency; and

 

Conduct Risk Strategy.

GOV 3.7 Matters reserved for full Board review 

Managing agents shall ensure that they have a clear schedule of matters that are required to be approved by the full Board. 

Managing agents shall ensure that as a minimum the following areas are approved at the full managing agency Board and not delegated to any committee or individual:

The list above defines the items that Lloyd’s would expect to be discussed, challenged and approved by the managing agent’s full Board*. It is acknowledged and expected that Boards do place appropriate reliance on their appointed Committees. It should not be regarded as a definitive list of everything that an agent may take to its full Board for approval, simply a list of the minimum areas that Lloyd’s expects to be discussed and challenged at this level. Where full Board discussion and challenge has been limited (it is not acceptable for this to be nil) then the agent will be expected to evidence how the full Board takes comfort from the discussion and challenge undertaken through its authorised committees.

It would not be appropriate for an authorised committee to approve these items and then report the decision to the Board; the full Board is required to play an active role in the process. Minuted discussion and challenge should be available for review when the agent is requested to evidence full Board approval.

The level of full Board discussion and challenge will vary from agent to agent, dependent on the governance process for the particular subject matter. For instance, an ORSA that has been reviewed and discussed by a Risk and Capital Committee will require less Board discussion and challenge than an ORSA that the authors have passed directly to the full Board for sign off ahead of its submission to Lloyd’s. For those items listed above, that are directly derived from the minimum standards, please also review the guidance attached to those standards specifically in order to further understand the expectations e.g. reserving.

*The full Board refers to the body involved (i.e. the managing agent’s Board of directors) and is not a requirement that each and every Board member is required to be present. The full Board should be operating as agreed within its terms of reference.

Lloyd’s would expect that the Board effectiveness review should be the responsibility of the Chair as executive directors will be conflicted.  The non-executive directors should be responsible for performance evaluation of the Chair, taking into account the views of executive directors.

Conducting the review

The review may be conducted by internal or external resource provided the agent can demonstrate that they are sufficiently independent and that the review itself is rigorous and robust.  The review need not follow the same format each year and where internal resource is generally used to conduct the review, Lloyd’s would expect agents to consider conducting a periodic external review.  

Evaluation of the Board is likely to consider: 

The balance of skills, experience, independence and knowledge of the company on the Board;

How the Board works together as a unit; and

Other factors relevant to its effectiveness.

In addition to the Board effectiveness, the review should provide a view of the operation and effectiveness of its committees. The review will also form part of the regular review of the wider system of governance (see GOV 1.2). The approach to the Board effectiveness review should be documented and this may be part of an overall document setting out the approach to the review of the system of governance. The outcome of a managing agent’s internal performance and evaluation process and considerations of any nominations committee in terms of Board constitution and appointments are likely to contribute to the overall review.

Follow up

The Chair should act on the results of review by recognising the strengths and addressing the weaknesses of the Board and, where appropriate, proposing new members be appointed to the Board or seeking the resignation of directors.

The evaluation of individuals should aim to show whether each director continues to contribute effectively and to demonstrate commitment to the role (including commitment of time for Board and committee meetings and any other duties).

The review should be carried out on at least an annual basis and can be internal or external;

The results of the review and any recommendations should be reported to the Chair; and 

The Chair should monitor the implementation of any recommendations.

GOV 3.8 Annual Board effectiveness review

The Board should undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors.

 

Section 4: Fit & Proper

Include an assessment of the person's professional and formal qualifications, knowledge and relevant experience within the insurance sector, other financial sectors or other businesses and whether these are adequate to enable sound and prudent management;

 

Take account of the respective duties allocated to that person and, where relevant, the insurance, financial, accounting, actuarial and management skills of the person; and

 

In the case of Board members, take account of the respective duties allocated to individual members to ensure appropriate diversity of qualifications, knowledge and relevant experience to ensure that the business is managed and overseen in a professional manner.

GOV 4.1 Fit and proper requirements for individuals

The assessment of whether a person is "proper" shall:

Managing agents shall ensure that all persons who effectively run the business or have other key functions are at all times fit and proper and all regulatory requirements under the FCA and PRA’s Senior Managers and Certification Regime are met.

Managing agents shall establish, implement and maintain documented policies and adequate procedures to ensure that all persons who effectively run the business or have other key functions are at all times fit and proper.

The assessment of whether a person is 'fit' shall:

Consider whether they are of good repute and integrity; and 

Include an assessment of that person's honesty and financial soundness based on evidence regarding their character, personal behaviour and business conduct including any criminal, financial and supervisory aspects relevant for the purpose of the assessment.

From 10 December 2018, the Senior Managers and Certification Regime (SM&CR) applies to all dual - regulated insurers, including Lloyd's managing agents. Under SM&CR managing agents must ensure that these individuals performing Senior Management Functions (SMFs) and Certification Functions are assessed as fit and proper at least annually.'

Fitness

Fitness for a role should be based on assessment of management competence and technical competence. Managing agents should base their assessments on:

The individual’s previous experience, knowledge and professional qualifications; and

 

Demonstration of due skill, care, diligence and compliance with the relevant standards of the sector the person has worked in.

Propriety

Assessment of propriety of an individual should be based on their reputation, reflecting: 

Past conduct;

Criminal record;

Financial record; and

Supervisory experience.

The current EIOPA guidelines and explanatory notes on the system of governance include guidance on relevant matters to be considered in the assessment of an individual’s propriety, including criminal offences, disciplinary and enforcement actions.