LONDON MARKET REFORM DELINKING. AGENDA Background Contract Certainty What is Delinking? Market Closing Performance The Myths Current usage Summary.

LONDONMARKET REFORM

DELINKING

AGENDA

• Background

• Contract Certainty

• What is Delinking?

• Market Closing Performance

• The Myths

• Current usage

• Summary

• Part of the International Process Compliance (IPC) Reforms (1998)

– Align the London market with international processes

– Improve flow of information to underwriters

• Incorporated into the LMP Programme– Faster premium payment

– Enables earlier documentation to client

• Contract Certainty– Early delivery of Signed lines

• Premium Payment Working Party– Faster premium payment

BACKGROUND

Current MRG Initiative• Project started at 1st January 2007 aimed at doubling usage of

delinking

• Identified what barriers exist to using Delinking and how these can be fixed

• MRG have agreed to provide each Broker with a monthly report showing what has been Delinked.

• MRG have set targets for usage:

– Q2: 50%

– Q3: 60%

– Q4: 80% - Mandatory as at 01/01/2008

• Market Rollout Plan provided to MRG for consideration

LONDON MARKET CLOSING

• London Market closings are submitted on an LPAN

• Submission of the LPAN to XIS provides:– advice of Closing details

– notification of signed lines

– authority for XIS to pay underwriters

• Broker submits the LPAN once client pays– NOT when the information is available

THE PROBLEM

Non-XIS (re)insurers advised of: - Closing note - signed lines

Pre DELINKING

Risk inception date

(Re)insurer writes risk

Producing broker receives: - evidence of cover (including signed lines) - debit note

Client receives: - evidence of cover - debit note

TOT date

XIS check and resolve queries XIS advise

(re)insurers of signed lines and payment

Funds transfer

68+0-15 60Client pays

London Broker: - signs down - produces evidence of cover - produces debit note

Latest date for PAN

submission to XIS

Over 80% of risks submitted

‘on time’

Only 20% of premium is

received by SDD

WHAT IS DELINKING?

• Post Placement separation of the Closing submission (technical account) to XIS (& underwriters) from the instruction to settle

• A two stage process– Advice of closing details and signed lines (LPAN)

• Timing to meet the Contract Certainty/FSA targets

– Trigger settlement once the client pays• At the same time as the old LPAN submission

XIS check and resolve queries

XIS advise (re)insurers of signed lines

LPAN submitted to XIS

DELINKED CLOSING

Risk inception date

(Re)insurer writes risk

0-15 Client pays

Pending file

Broker triggers payment

XIS advises Underwriters of payment

London Broker: - produces evidence of cover - produces debit note

Non-XIS (re)insurers advised of: - Closing note - signed lines

Funds transfer

Trigger date + 3 days

Broker signs down the risk

Client receives: - evidence of cover - debit note

Producing broker receives: - evidence of cover - debit note

BROKER RELEASE OF FUNDS

• On Line Trigger– Common facility for Lloyd’s/IUA business

– Available via the XIS screens

– Release items held on the pending file

• Electronic RESETT message– Automatic trigger from Broker system

– Standard international ACORD message

Money released into Settlement that evening

PAYMENT PERFORMANCE

On Time 1-3 Late 16-30 Late 31-90 Late89,117 256,160 75,727 116,13153,741 191,968 197,065 224,595

Excluding Binders, Lineslips and Covers

Monitoring Against Terms of Trade - Settlement Due Date to Payment

2005 Signings

Total8+ Early 1-7 Early 4-7 Late 8-15 Late 91+ Late

Delinked 92,027 72,165 154,199 75,681 24,709 955,915Non-Delinked 305,654 165,183 633,378 789,756 121,139 2,682,480

27%

53%

27%

20%

Figures include cash and first installments only

Based on total in-scope premium signed for 2005 up to August. Data supplied by Xchanging

QUERIES/REJECTION RATES

• Closing Queries– Items where the Closing submission is queried by XIS

• 22%

• Closing Rejections– Items rejected back to the Broker for correction and resubmission

• 4%

SCOPE OF DELINKING• Includes

– Original premiums

– Additional premiums

– Return premiums

• Excludes– Proportional Treaties

– Reinstatement premiums

– Premium reserves

• May not be suitable for– Short Terms of Trade periods

– Planned/Flexible Settlement schemes

• Direct• Facultative• XOL

Broker Signing Messages

- BSM

– EVERYTHING SETTLED THAT DAY. Includes payment of previously Delinked items and cash (Non-Delinked) signings.

- IPC BSM

– An EDI or CSV message in the same format as BSM showing EVERYTHING DELINKED THAT DAY applies to all transactions

- DL5089 “CSV File”

– For A&S Repository submissions only shows EVERYTHING SIGNED THAT DAY – Delinked and Non-Delinked

DELINKING MYTHS

• Delinked risks are paid later than non Delinked

– Analysis of Delinked submissions disproves this commonly stated issue

• Underwriters cannot tell if a delinked risk has been paid

– Separate messages are sent to Underwriters by XIS to advise when a delinked risk has been submitted and of the subsequent payment

• Brokers just want to delink risks to keep them off the late payers list

– The XIS Signing Performance Report for delinked items is based on the payment trigger date - not the LPAN submission

DELINKING MYTHS – Cont’d

• Just another Market Reform requiring costly systems changes

– Brokers submit the existing LPAN with a ‘Delinked’ stamp on it

• Payments can be released using the XIS on-line trigger facility

– Underwriters will need to change their systems if they want to take advantage of the earlier Delinked message.

• Most Underwriter Software packages already support delinked messages

Convertible Currency Processing

• For convertible currency transactions a notional rate of exchange must be provided at the Delinking stage.

• When the premium is released for settlement, the rate of exchange may be updated with the actual rate which will apply

• Rate of exchange may be updated via RESETT or Delinking Trigger

• If settlement rate of exchange varies more / less than 10% of original rate of exchange then release is prevented. Contact XIS to release on your behalf

Miscellaneous

• Settlement Due Date (SDD)– Delinked risks may be released for settlement, before, on or after the

SDD. If they are released after the SDD, you will be late signed.

• Premium Payment Warranty (PPW)– Delinked risks may be released for settlement up to and including the

PPW Date.

• Underwriter Proof– Once date has been passed underwriter proof is required, they will

accept the premium

– Evidence of underwriter proof should be sent to Xchanging who will release on your behalf

BENEFITS - Brokers

• A standard process for dealing with XIS and non-XIS insurers

• Queries resolved earlier

• Control of payment is retained

• Enables Contract Certainty requirement for Signed Lines to be achieved

• Consistent with A&S processes

BENEFITS - Underwriters

• Earlier advice of signed lines:– Provide confirmation of exposure

– Assist credit control

– Eliminate effort in chasing broker for details

– Xchanging messages

• Closing queries and corrections should not delay settlement

• Consistent with A&S processes

BENEFITS - XIS

• The checking of Closings and resolution of queries is no longer time critical to premium payment

• Reduces processing peaks and enables better workflow management

• Should a processing backlog occur it should not impact premium payment

• Earlier policy preparation is possible

Getting Started

• Who will release funds?

• Will you use the RESETT or Delinking Trigger?

• Get Delinking trigger ID’s set up or your RESETT software configured

• Get “IPC Delinked” stamp made

• Consider whether you will require the IPCBSM

• Consider processing some test transactions

Market Reports - Delinked Values and Percentages (2005-2007 Signings)Lloyd's Market

£m Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec2007 Delinked 309 197 148

Total 500 483 3592006 Delinked 212 151 96 146 165 166 223 177 102 123 145 138

Total 427 528 366 330 482 467 496 523 355 286 328 2682005 Delinked 183 144 64 116 104 96 132 104 76 61 94 83

Total 439 536 326 352 389 406 407 446 378 257 323 275

0%

10%

20%

30%

40%

50%

60%

70%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2005 Delinked % 2006 Delinked % 2007 Delinked % 2005 Mkt Avg 2006 Mkt Avg 2007 Mkt Avg

SUMMARY

• The Delinking process is beneficial to your organisation

• It supports the Contract Certainty and FSA requirements

• Closing queries and rejections are no longer on the critical path for premium payment

• This results in improved premium payment performance

• Premium performance and Delinking usage will be monitored over the next six months

• Eliminates “Londonisms”

Q&A

LONDONMARKET REFORM

DELINKING