Y o u r s o u r c e f o r p r o f e s s i o n a l l i a b i l i t y e d u c a t i o n a n d n e t w o r k i n g .

Demystifying Professional Liability at Lloyd’s

June 2015

Sponsored by PLUS Diamond Sponsors:

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

The information and opinions expressed by our panelists today are their own, and do not necessarily represent the views of their employers or of PLUS. The contents of these materials may not be relied upon as legal advice.

A copy of the presentation slides will be available following this webinar, on the PLUS website at: www.plusweb.org

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Meet The Presenters

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Sarah Stephens Head of Cyber, Technology, and Media E&O JLT Specialty

Hank WatkinsPresident, North AmericaLloyd’s

Lyndsey BauerPartner Paragon International Insurance Brokers

Chris WarriorHead of Management LiabilityHiscox

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

There are many misconceptions about the London insurance market…

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

What our friends think we do

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

What our parents think we do

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

What Americans think we do

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

What we really do

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

…on second thought, maybe some of them are true.

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Webinar Agenda

1. About Lloyd’s

2. Meet our Insured

3. Broking

4. Underwriting

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Y o u r s o u r c e f o r p r o f e s s i o n a l l i a b i l i t y e d u c a t i o n a n d n e t w o r k i n g .

About Lloyd’s

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Lloyd’s key characteristics

• Lloyd’s is a market, not a company• We have a long history of helping clients manage risk taking, dating back to 1688• The Lloyd’s market insures complex and specialist risks• Global licenses • Performance Management Directorate that oversees responsible risk taking across

the market• Regulated by the Prudential Regulatory Authority (PRA) and the Financial

Conduct Authority (FCA)• Chain of security and financial ratings

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

The Lloyd’s market

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58 managing agents manage 96 syndicates

Lloyd’s is a marketplace of independent businesses whose combined experience and expertise deliver risk transfer solutions to an increasingly complex world.

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Our business in numbers

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96 syndicates

of specialist underwriting

expertise

3872

327 years of

underwriting experience

200 countries and

territories

219brokers

bringing business from…

coverholdersoffering a local route

to Lloyd’s

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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A variety of risk appetites can be found in the Room, where business is still done face to face

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Many of the world’s leading insurers are within a stone’s throw of the Lloyd’s building…

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

… as are many more brokers

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Lloyd’s + Overall London Company Market = Total 2013 income US$83.63bn

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US$43.33bn

Source: IUA, London Company Market Statistics Report, October 2014Exchange rate as at 31 December 2013 - £1 + $1.66

Overall London

company market

US$40.29bn

US$43.33bn

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Lloyd’s syndicates - backed by some of the best known names in global insurance

19Source: Lloyd’s Annual Report 2014

Worldwide in-surance industry

24%

Bermudian in-surance industry

13%

US insurance indus-try

22%

UK insurance indus-try and other corpo-

rate30%

Individual members (limited liability)

9%

Individual members (unlimited liability)

2%

Y o u r s o u r c e f o r p r o f e s s i o n a l l i a b i l i t y e d u c a t i o n a n d n e t w o r k i n g .

A colorful history

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Key milestones in our history

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1688 1880 1906

1925 1920 – 30s 1939

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

The Lloyd’s Performance Management Directorate has responsibility for overseeing syndicate performance on behalf of the Franchise Board.

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Its responsibilities include:

• Reviewing annual syndicate business plans

• Monitoring syndicate performance against business plans

• Providing class of business management information and thought leadership to the market

• Setting a framework of minimum standards for competence and performance

How does Lloyd’s manage underwriting performance?

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Realistic Disaster Scenarios = our model

• Careful management of catastrophe risk is a business imperative at Lloyd’s

The Corporation of Lloyd’s devised a set of Realistic Disaster Scenarios (RDS) to stress test both individual syndicates and the market as a whole to see how they stand up to chains of accumulated exposure in very extreme cases – contemplating over $100bn of insurance industry losses

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Lloyd’s ratings

• Three of the world’s leading rating agencies validate Lloyd’s robust capitalisation and the market’s financial strength.

• As all Lloyd’s policies are backed by mutual security, the following ratings apply to the entire market.

24Source: Lloyd’s Annual Report 2014

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Lloyd’s Chain of Security

Lloyd’s unique capital structure, often referred to as the Chain of Security, provides excellent financial security to policyholders and capital efficiency to members.

Several assets

First link Syndicate level assets$70,417m

• Members’ premium trust funds and other assets held in trust at syndicate level.

• All premiums received are held in trust.• Include international regulatory deposits and

trust funds.

Second link

Members’ funds at Lloyd’s$24,498m

• Each member must provide sufficient capital to support their underwriting.

• Amounts required are calculated through syndicate individual capital assessment (ICA).

• Funds are held in trust for the benefit of policyholders.

Mutual assets

Third link

Central assets$5,237m

• Available to meet any valid claim that cannot be met from a member’s resources in the first two links.

• Include the Central Fund, funded by members’ annual contributions and funds issued by the Corporation of Lloyd’s

Source: Lloyd’s Annual Report 2014

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

A five year view of Lloyd’s performance

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US$m

2010 2011 2012

2013 2014

Gross written

premiums

34,759

£22,425

37,339

£23,337

40,025

£25,173

39,959

£25,615

41,717

£25,283

Combined ratio 93.3% 106.8% 91.1% 86.8% 88.1%

Investment return

1,950

£1,258

1,528

£955

2,084

£1,311

1,309

£839

1,724

£1,045

Result before tax

3,446

£2,195

(800)

(£516)

4,517

£2,771

5,320

£3,205

4,931

£3,161

Return on capital

(pre-tax) %

12.1

(2.8) 14.8 16.2 14.7

Source: Lloyd’s Annual Report 2014

Y o u r s o u r c e f o r p r o f e s s i o n a l l i a b i l i t y e d u c a t i o n a n d n e t w o r k i n g .

Lloyd’s in the US

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Lloyd’s in the US – a major player

• Lloyd’s is eligible to write surplus lines (E&S) and is an accredited reinsurer in all US jurisdictions.

• In 2014, the market holds its # 1 and # 2 positions in these segments, respectively.

• Underwriters at Lloyd’s are licensed insurers in Illinois, Kentucky and the US Virgin Islands only.

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Total US Market vs Lloyd’s - 2014

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Source: Market Intelligence based on: Lloyd’s US reporting system, RAA Reinsurance Underwriting report, SNL Financial, (April 2015)

US insurance market Lloyd’s

Licensed ReinsuranceExcess & Surplus lines

US$ 67.9bn 2013 vs 2014+44% US$ 5.3bn

2013 vs 2014+3%

19% market shareUS$ 37.6bn

2013 vs 2014+9%

US$ 8.1bn2013 vs 2014

+15%

Note – 1) The figures above for the market include only US based entities plus Lloyd’s figures 2) The above analysis does not include exempt business 3) Market RI growth due to National Indemnity results now include loss portfolio and quota share agreements with affiliated GIECO companies, all effective 1/1/2014

US$ 180m2013 vs 2014

-22%US$ 521bn2013 vs 2014

+4%

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

E&S - Lloyd’s vs Competitors - 2014

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794

831

894

1,032

1,190

1,204

1,486

1,763

4,678

8,166

Source: Market Intelligence based on: SNL Financials, (April 2015) and U.S Reporting System (April 2015)

15%

-3%

8%

11%

-2%

4%

6%

20%

48%

-5%

2014 Loss Ratio

49%

72%

59%

52%

49%

45%

44%

65%

43%

58%

% change from 2013

Please Note: Loss ratios are on a calendar year basis for 2014

Premiums are in US$ m and represent coverage on US exposures only

Y o u r s o u r c e f o r p r o f e s s i o n a l l i a b i l i t y e d u c a t i o n a n d n e t w o r k i n g .

Emerging risksLloyd’s defines an emerging risk as…

an issue that is perceived to be potentially significant but which may not be fully understood or allowed for in insurance

terms & conditions, pricing, reserving or capital setting.

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Emerging Risk research reports

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www.lloyds.com/emergingrisks

New reports coming soon…

Bitcoin

Food security scenario

Cyber attack against US power grid

Drones

Selection of current reports Catastrophe Modelling and

Climate Change Autonomous vehicles Solar Storm Risk to the North

American Electric Grid Tornadoes: A rising risk? Feast or Famine: Business and

Insurance Implications of Food Safety and Food Security

Y o u r s o u r c e f o r p r o f e s s i o n a l l i a b i l i t y e d u c a t i o n a n d n e t w o r k i n g .

On to a risk entering the market…

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Y o u r s o u r c e f o r p r o f e s s i o n a l l i a b i l i t y e d u c a t i o n a n d n e t w o r k i n g .

So you have a risk to talk about?

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Capacity and How to Get It

• D&O - $100 / $150m / $500m• Cyber - $185m / $300m / $1B• E&O - $125m

• Open Market• Lineslips & Facilities

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Functions and duties of a Lloyd’s broker

SET UP FILE AND KEEP ACCURATE RECORDS IN A TIMELY MANNER

• Receive Submission• Acknowledge Receipt &

Establish Timeframes• Discuss Placement Goals with

Producer: opportunity, account history, and agree revenue split

• Prepare “work up” based on financials and other disclosures

• Consider Placement Goals against established appetite of underwriter

• Select and contact insurers to log submission and/or Broker of Record letter

TAKE TO MARKET

• Create Slip - all clauses fully referenced, subjectivities & remedies highlighted

• Ensure insurer is fully licensed in all territories where coverage given

• Get in queue for insurers selected • “Broke” risk to underwriters

making all material disclosures / utmost good faith

• Secure best pricing and appropriate coverage

• Gain full support for quotations from Excess and follow markets

• All underwriters lines fully referenced, Claims agreement parties agreed

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Underwriting

• Broking and Underwriting at Lloyd's has changed

• Underwriting at the Box- what does that mean?

• The Subscription Market

• Lloyd's Licenses

• Contract Certainty

• Claims and Underwriting

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Functions and duties of a Lloyd’s broker

SET UP FILE AND KEEP ACCURATE RECORDS IN A TIMELY MANNER

• Receive Submission• Acknowledge Receipt &

Establish Timeframes• Discuss Placement Goals with

Producer: opportunity, account history, and agree revenue split

• Prepare “work up” based on financials and other disclosures

• Consider Placement Goals against established appetite of underwriter

• Select and contact insurers to log submission and/or Broker of Record letter

TAKE TO MARKET

• Create Slip - all clauses fully referenced, subjectivities & remedies highlighted

• Ensure insurer is fully licensed in all territories where coverage given

• Get in queue for insurers selected • “Broke” risk to underwriters

making all material disclosures / utmost good faith

• Secure best pricing and appropriate coverage

• Gain full support for quotations from Excess and follow markets

• All underwriters lines fully referenced, Claims agreement parties agreed

BIND & INVOICE

• Check that instruction to bind is all as quoted

• Prepare fully claused Market Reform Contract

• Produce premium tax schedule For underwriters / insured to agree

• Secure insurers stamps showing Percentage, initial and date

• Secure stamps and signatures of all follow and excess markets

• Underwriter to initial all pages of schedule and wordings

• All underwriters lines fully referenced Claims agreement parties agreed

ISSUE POLICY

• Process begun upon satisfaction of Subjectivities and receipt of Premium

• Prepare the Wording per binding slip

• Take Wording with Binding Slip to Market

• Review Wording with Underwriters against the binding slip

• Submit agreed Wording to Lloyds for issuance

• Lloyds require 5 full working days to respond

• If they raise no issues, policy will be issued within 2 weeks.

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Questions

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P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

Panelist Contact Information

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Sarah Stephens Head of Cyber, Technology, and Media E&O JLT Specialtysarah_stephens@jltgroup.com

Hank WatkinsPresident, North AmericaLloyd’shank.watkins@lloyds.com

Lyndsey BauerPartner Paragon International Insurance Brokerslbauer@paragonbrokers.com

Chris WarriorHead of Management LiabilityHiscoxchris.warrior@HISCOX.com

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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Thank You Diamond Sponsors

P r o f e s s i o n a l L i a b i l i t y U n d e r w r i t i n g S o c i e t y

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Thank you for your time.

A replay of this webinar will be available to PLUS Members at: www.plusweb.org