LLOYD S MINIMUM STANDARDS

Transcription

1 LLOYD S MINIMUM STANDARDS Ms1.7 UNDERWRITING DATA QUALITY October

2 Ms1.7 UNDERWRITING DATA QUALITY UNDERWRITING MANAGEMENT PRINCIPLES, MINIMUM STANDARDS AND REQUIREMENTS These are statements of business conduct required by Lloyd s. The Principles and Minimum Standards are established under relevant Lloyd s Byelaws relating to business conduct. All managing agents are required to meet the Principles and 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 blue 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. UNDERWRITING MANAGEMENT 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 Principles and 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 Principles and Minimum Standards. DEFINITIONS AFR: actuarial function report Benchmark Premium: The price for each risk at which the managing agent is expected to deliver their required results, in line with the approved Syndicate Business Plan. Catastrophe Modelling: (also known as cat modelling) is the process of using computer-assisted calculations to estimate the losses that could be sustained due to a catastrophic event such as a hurricane or earthquake. Delegated Authority: all forms of business where underwriting and claims authority has been delegated to another entity (e.g. binding authorities, consortia, lineslips etc.). ERM: Enterprise Risk Management ILW: Industry Loss Warranty KPIs: Key Performance Indicators LCM: Lloyd s Catastrophe Model LCR: Lloyd s Capital Return LITA: Lloyd s Internal Trading Advice 1

3 Lloyd s Returns: this will include, but not be limited to: Broker Remuneration Return; LCM Submissions; PMDR; QMB; RDL; RDS; Related Parties Return; SBF; Self-Assessment of Compliance versus Lloyd s Underwriting and Claims Standards; Syndicate Business Plan; Syndicate Reinsurance Programme Return; Xchanging Claims ORSA: Own Risk and Solvency Assessment PBQA: pre-bind quality assurance PMDR: performance management data return QMA: Quarterly Monitoring Return Part A QMB: Quarterly Monitoring Return Part B RARC: Risk Adjusted Rate Change RDL: Realistic Disaster Scenario (Light) RDS: Realistic Disaster Scenario Related Party: A related party shall mean: 1. Another syndicate managed by the same managing agent or a service company coverholder that is part of the managing agent s group. 2. Any company which has two or more directors in common with the managing agent 3. Any company within the same group as a corporate member of the syndicate which has a member s syndicate premium limit of more than 10% of the syndicate allocated capacity 4. Any company within the same group as the managing agent Risk Appetite: Is the level of risk that an organisation is prepared to accept, before action is deemed necessary to reduce it. ROC: return on capital SBF: Syndicate Business Forecast SRP: Syndicate Reinsurance Programme Syndicate Business Plan: means a business plan prepared by a managing agent in accordance with paragraph 14A of the Underwriting Byelaw. The Board: Where reference is made to the board in the standards, 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 these subjects. Ultimate Net Loss: The Reinsurer s gross loss less any recoveries from other reinsurance which reduces the loss to the reinsurance contract. Underwriting Data: this will include, but not be limited to all data which the managing agent, Lloyd s or other appropriate regulators require to monitor the business with regard to underwriting activities. 2

4 Ms1.7 UNDERWRITING DATA QUALITY Principle: There are effective systems and controls for managing, recording and reporting underwriting data to management and to Lloyd's. The data standards fall under two categories underwriting data standards and internal model data standards. It should be noted that there are three data standards with requirements that apply consistently across both underwriting and internal model data (UW 7.1 = MDI 6.1, UW 7.2 = MDI 6.2 and UW 7.4 = UW 6.3 respectively) and although there is consistency in the wording of both the standards and requirements, guidance is different to reflect the different subject matter. There are also additional data standards that are specific to underwriting (UW 7.3) and internal model (MDI 6.4, MDI 6.5 and MDI 6.6). The standards are presented in this way to differentiate that there are two distinct areas of data. These Data Quality Standards are primarily about the information managing agents and Lloyd s use to support the other Underwriting Management Standards (as well as Claims Management) and should be read in conjunction with these other Standards which also reference data and reporting i.e.: Underwriting Strategy and Planning; Underwriting and Controls; Delegated Authority; Price and Rate Monitoring; Exposure Management; and Reinsurance Management and Control. The focus is very much on enabling the management of underwriting performance versus the Syndicate Business Plans both within the managing agent s business and in returns to Lloyd s. These Data Quality Standards also need to consider where the same data is being used for other purposes as part of the business operations. UW Data Governance Framework Managing agents shall ensure that they have appropriate data governance structures and procedures in place for underwriting. Managing agents shall: appoint a nominated director(s) with accountability for oversight of the governance framework for underwriting data; have appropriate written policies and procedures in place to allow effective management, recording and production of underwriting data, which are reviewed annually; ensure that policies are agreed by the board; ensure that the data governance framework allows for the regular and appropriate reporting of underwriting data for executive management, the board and Lloyd s; and ensure that roles, responsibilities and reporting lines, for the management of underwriting data are clearly defined, approved by the board and reviewed annually. 3

5 The data governance framework should capture the structures and procedures, including triggers for escalation, to support the quality of underwriting data. Managing agents should have a framework in place which shows clear oversight of the quality of underwriting data, responsibilities and accountabilities and ensuring the necessary management information is produced to determine whether the syndicate is meeting strategic plans, Syndicate Business Plans, budgets and forecasts etc. The data governance framework should set the tone and provide appropriate oversight of the implementation of the data policy with regard to underwriting data necessary for sound decision making. In addition it should ensure appropriate, accurate, complete and timely reporting to support required governance and management decision making processes together with prompt detection of issues. Lloyd s expects managing agents to ensure that written data policies and procedures and standards are kept under regular review, at least on an annual basis. These documents should include the responsibilities and accountabilities of the various stakeholders across the managing agent and the quantity and quality of data metrics reported to management. UW Systems and Processes Managing agents shall have systems and processes in place to record relevant underwriting data and use the output for reporting to management and to Lloyd's. Managing agents shall have systems and processes in place: to record underwriting data which is sufficient in granularity and coverage to appropriately monitor underwriting performance against strategic plans, Syndicate Business Plans, budgets and forecasts; with relevant data from models and forecasts built into the data infrastructure for the production of underwriting data returns to Lloyd's; and to meet other appropriate external regulatory requirements and guidelines. Managing agents should ensure that they have systems, modelling tools and analysis methodologies in place to meet the requirements of the business. It is important that systems and processes relating to underwriting data can produce timely and accurate returns to executive management, the board and ultimately to Lloyd s and external regulators in the required format. Relevant data from models and forecasts, i.e. to calculate risk adjusted rate change, benchmark price etc. must be part of the data infrastructure to allow for data integrity and accuracy to be achieved on Lloyd s underwriting data returns. Lloyd s expects managing agents to give due consideration to IT systems with regard to underwriting data so that the quality and integrity of the data and its processing is not compromised. Personnel will need relevant skills and experience to ensure that there is: familiarity with systems, processes and tools; recognition of market groups within the Lloyd s market and external service providers who could assist with data solutions; and consideration of any tools / techniques suggested by Lloyd s. 4

6 UW Appropriateness, Timeliness, Accuracy & Completeness of Management Information, Lloyd's and Regulatory Returns Managing agents shall ensure that underwriting data reported internally and in returns to Lloyd's and other external regulators is appropriate, accurate, complete and produced in a timely manner. Managing agents shall: ensure that the executive management team and the board receive regular and appropriate underwriting data reports, including those produced by Lloyd s, to enable management to monitor underwriting performance. comply with Lloyd's instructions for the preparation of underwriting data returns; ensure underwriting data returns are appropriate, accurate, complete and submitted on time; identify key owners specifically for the production of Lloyd's underwriting data returns; have a schedule in place for underwriting data reporting time frames; and ensure that internal Management Information is consistent with that reported to Lloyd's and other external regulatory returns. The KPIs within executive reports should show whether business performance is progressing in line with the strategic plans, Syndicate Business Plans, budgets and forecasts. There should be sufficient information to provide clarity on the current position and the likelihood of meeting annual targets (including historic data for comparison purposes can assist with this). Whenever there are changes to Syndicate Business Plans, these are to be reflected in the reporting. Executive management and the board should be aware of the returns that are being issued externally to Lloyd s and to regulators. It is not the intention that Lloyd s will routinely test external returns to other regulators as part of a review of Data Quality Standards, but there is an expectation that these should be capable of reconciliation to internal Management Information and Lloyd s returns. Should an issue arise with an external regulator and testing becomes necessary, Lloyd s expect managing agents to be able to demonstrate how the information reconciles. As part of any Self Assessment against the Data Standards, managing agents should identify where they have had any material issues arising from regulatory returns. For the PMD return (PMDr), syndicates are required to complete all the rate change fields at the granularity required. Therefore, the risk adjusted rate change fields 180, 190, 200 and 210 are expected to be completed for all renewed risks. If however the rate change is unknown for any risk, there must be a process in place to record an N/C response in all these fields. An aggregated exposure change may not be recorded in field 200 with 180 and/or 190 being always reported as zero. Zero defaults in any of the rate change fields are not acceptable. Lloyd s provides clear instructions on how to complete each return. Examples can be found at the following links: [Link to PMDR can be found in the Appendix at the end of this document] [Link to SBF Instructions can be found in the Appendix at the end of this document] 5

7 UW Quality Control Managing agents shall have processes in place to review the systems and controls framework ensuring underwriting data is accurate and complete. Managing agents shall ensure that: there is regular exception reporting to identify potential variances or control failures in recording and producing underwriting data and these are investigated and escalated as appropriate; the quality of underwriting data is continuously assessed to ensure accuracy, completeness and appropriateness; and the systems and controls framework for underwriting data is subject to regular and appropriate internal audit review. Throughout the production process of data, from recording to reporting, Lloyd s expects controls to be in place to ensure accuracy and completeness of data, which can include data error reports / validation reports / exception reports etc. For example, exception reports may address larger premiums or line size, entries with unusual currencies for the syndicate, high acquisition costs, blank data fields where information would be expected to have been entered etc. There should be a process of checking the quality of data on a timely, frequent and ongoing basis with due regard to the materiality and the potential risk associated with inaccuracies. Where data entry is outsourced, accountability and responsibility remains with the managing agent who should also have a process of quality checking. Managing agents are expected to have an Internal Audit programme in place. Internal Audit are required to undertake regular reviews of the systems and controls for underwriting data for the production of Management Information and returns to Lloyd s and other appropriate external regulatory and accounting returns. This programme should include: Data validation & consistency; Data completeness; Effectiveness of analysis procedures; Process of converting data to Management Information; and Reporting accuracy / completeness / timeliness. Potential evidence Data Flows; Data Policy; Data Procedures; Data Exception/Validation Reports Information provided to the Managing Agency Board and Committees; Internal Audit Plan; Internal/External Audit Reports on data quality; IT Infrastructure; Lloyd s Returns; Reports from Lloyd s to the managing agent; and Structure Chart; 6

8 APPENDIX LINKS PMDR instructions: SBF instructions: Issued annually, latest version is here - 4/03/y4778.pdf#search='CMR' 7