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Outwards Reinsurance - 13 Principles for doing business at Lloyds

The recently published “13 Principles for doing business at Lloyds” marks a fundamental change to the existing Oversight Framework for syndicates. The objective of these changes is to support improvement in the performance of the managing agents, with the changes designed to offer growth opportunities to the best performing syndicates whilst ensuring ‘appropriate and proportionate’ oversight for those syndicates performing less well.

We at Cenata strongly support this initiative with respect to the Principles and Objectives for Outwards Reinsurance. In this document we review these Principles and explain how Cenata will support your syndicate on your journey from Foundation to Advanced status.

Working with you from Day 1 we use our Discovery Phase approach to determine which of the five Syndicate categories most accurately reflects your current capabilities.

This is a deep dive collaborative review taking advantage of our subject matter expertise and thought leadership to bring clarity to this initial category assessment, then helping you plan your way forward with both immediate actions and longer term phased strategy aimed at delivering you to your target category. 

In this way you are able to demonstrate an objective review process in arriving at one of the five starting categories;

Outperforming

Good

Moderate

Underperforming

Unacceptable

The importance of syndicates having effective Outwards Reinsurance processes is underlined by its own designated Oversight Framework Principle and expected outcomes. For each Principle, Lloyds point to ‘materiality’ as the differentiator and this materiality informs the next stage of our Discovery Phase. In effect, the more material a syndicate is to a particular Principle, the more sophisticated is the expectation concerning the syndicates' capabilities to meet that Principle. 

These different levels of sophistication are referred to as a Maturity Matrix, ranging from FOUNDATIONAL, through INTERMEDIATE and ESTABLISHED through to ADVANCED level. These levels of maturity set out the expected outcomes for the syndicate.

It is worth noting that Lloyds expect the maturity matrix to ‘flex and evolve’ per Principle. This demonstrates the importance of a Discovery Phase approach. With a strong foundational analysis in place, revisions to maturity matrix can be more easily adopted as part of the overall strategy.

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To further align the Discovery Phase with Lloyds expectations, we embrace their ‘change of mindset’ concept intended to move the syndicate away from a ‘tick list’ of prescriptive requirements. This is to avoid any misleading conclusions by the syndicate that if all the underlying requirements are met then the overall intention must also be met. 

Lloyds propose that assessments are conducted under an outcomes-based approach, a “top down” view with more judgement and expertise applied in identifying important oversight considerations, including determining the relative importance of the these identified considerations. In this way the Principles focus on the outcome, rather than the requirements, and it is against this outcome that an assessment needs to be made.

This requires a different type of questioning and the Cenata Discovery Phase is the ideal collaborative process to achieve this. It has the further benefit of actively demonstrating your (ability to) switch from rules based “Bottom-up” thinking to the required outcomes based approach of “Top-down”.

Syndicate Principles for Outwards Reinsurance

The following overarching Principle is cited: 

Managing agents should define and execute syndicate outwards reinsurance strategy and purchasing plans which effectively support the wider syndicate business strategy and objectives. 

It is becoming increasingly recognised that outwards reinsurance data touches every part of the syndicate operation. This understanding has to be an identified and integral part of every consideration in moving from a “bottom-up” to a “top down” mind-set. The Principle is further broken down;

  1. Have outwards reinsurance strategies and purchasing plans which are robust and reflect the underwriting, exposure and capital management appetites of each individual syndicate, and the best interests of the members of the syndicate​.

  2. Have appropriate systems, controls, procedures and expertise to enable the effective management of outwards reinsurance purchasing and recoveries​.

  3. Live and potential financial, operational, counterparty, contract and liquidity risks arising from their outwards reinsurance arrangements​ are identified, monitored, evaluated and mitigated.

  4. Have robust and effective monitoring, reporting and governance frameworks employed over their outwards reinsurance arrangements. 

Each of the above then has an allocated syndicate maturity matrix expected level of sophistication.

The final part of the Discovery Phase is to align existing outwards reinsurance systems and processes with your syndicate starting category and agree the improvements required to achieve your maturity matrix target. 

Your personalised strategy for success

The outcome of the Discovery Phase will be an agreed, documented strategy that identifies your start point and the steps to take you to your target level of matrix sophistication. Irrespective of your size or complexity of process, our analysts have the expertise and our solution Cenata SURE has the functionality to deliver your outwards reinsurance strategy goals.