(1) Do

you understand
the requirement
sufficiently at
this stage
(2)
What further
work/help is
required to reach
an understanding
(3)
Do you
currently meet
this
requirement
(4)
Where are you
short on this
requirement
(5)
Action
required to
address any
shortfall/ gap
(6)
When do you
envisage you
will be able to
meet this
requirement
(7)
Who will be
responsible for
actions on this
requirement
(8)
Estimated time
required to
address gap
(9)
Level of resource
needed to
address gap
(10)
Current status
on requirement
R / A /G
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key business and operational processes must be properly documented
directors and staff should understand all the operational and business processes relevant to their role
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internal control
internal audit
outsourcing
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risk policy setting out risk management strategy, covering each risk category
risk management process - risk identification and assessment, monitoring and reporting
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design and implementation
testing and validation
documentation
informing the Board about the performance of the model
analysis of the performance of the model and production of summary reports
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Governance Section
Existing
NEW
Fit & Proper Requirements (page 7)
Risk management standards - effective risk policy, subject to regular review
Governance standards
Existing
New
Risk Management (pages 8-9)
General governance requirements (pages 5-6)
Regular internal review of the system of governance
Written policies for:
Policies for risk management, internal control, internal audit and outsourcing reviewed at least annually
Processes for the identification and management of emerging risk issues
Risk management standards (risk governance) - structure for governance that supports risk management by providing clearly defined
accountabilities, expectations and reporting requirements for all parties
Operational processes minimum standards:
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page
references are included below. Additional notes on completion of the relevant columns are included at the foot of
this document.
Risk management standards - governance structure to support the management of risk
Risk management standards:
Risk management standards - process to identify all significant risks
Underwriting Byelaw, para 42A, (appointments to senior positions) - fit and proper requirements for directors/partners/active underwriters/run-off
managers
Lloyds process for notification and amendment of appointments to all senior positions, including active underwriters and run-off managers
Risk management standards (risk governance) - structure of the risk management function
ICA guidance minimum standard: Mapping to the risk register
Existing
Governance standards
N/A (no significant changes to Lloyds requirements and processes anticipated at this stage)
Contingency plans operational processes minimum standards - appropriate business continuity plans
New
Risk management function will need to address the following tasks relating to the internal model:
Contingency planning (considered in a wider sense than operational business continuity)
(1) Do
you understand
the requirement
sufficiently at
this stage
(2)
What further
work/help is
required to reach
an understanding
(3)
Do you
currently meet
this
requirement
(4)
Where are you
short on this
requirement
(5)
Action
required to
address any
shortfall/ gap
(6)
When do you
envisage you
will be able to
meet this
requirement
(7)
Who will be
responsible for
actions on this
requirement
(8)
Estimated time
required to
address gap
(9)
Level of resource
needed to
address gap
(10)
Current status
on requirement
R / A /G
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page
references are included below. Additional notes on completion of the relevant columns are included at the foot of
this document.
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the assessment must be driven by risk appetite

consideration should be given to all risks that the business faces, including those that fall outside the SCR calculation (this applies whether
the standard formula or an internal model is used)
the ORSA should form an integral part of the business strategy and be taken into account on an ongoing basis in strategic decisions
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assessment at different confidence levels eg as required for SCR, economic capital
longer term considerations ie assessment beyond the 12 month time horizon used for regulatory capital
l
agents will also need to revisit the ORSA in line with their own needs/material changes in the business
frequency of reassessment will be key in demonstrating use
agents will be required to inform Lloyds of the results of any reassessment of the ORSA
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should be reported to the Audit Committee and/or Board on a timely basis
Audit Committee and/or Board will be responsible for ensuring compliance with findings
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Existing
New
Internal control (page 12)
Existing
N/A (this is a new requirement under Solvency II consistent with the principles of the ICAS regime)
Demonstrate the link between risk and capital management:
Set out the methods used to determine overall solvency needs, including:
Be updated annually as a minimum:
New
Internal audit will also need to assess whether the internal control system remains sufficient and appropriate for the business
Internal audit findings:
Internal audit reporting lines
New
Assess the possible impact of changes in the legal environment on operations and the identification and assessment of compliance risk
Risk management standards - assurance processes
Contribute to implementation of risk management system
Have relevant experience and expertise
Operational processes minimum standards - outsourced activities should be properly monitored and controlled
Existing
Internal audit function, independent from the operational functions of the business
Where outsourced, internal audit must remain subject to effective internal oversight
Internal audit should provide assurance over compliance with all internal strategies, processes and reporting procedures
Lloyds Valuation of Liabilities Rules (governing the production of Statements of Actuarial Opinion and technical provisions)
Outsourcing (page 16)
Each syndicate will need to ensure they have an actuarial function
GN20 Actuarial reporting under the Lloyds Valuation of Liabilities rules
Internal controls as covered by existing franchise standards (including underwriting, claims, and risk management)
Underwriting byelaw (paragraph 40) - compliance officer appointment
Compliance function to advise on laws, regulations etc relating to Solvency II
New
Express an opinion on the overall underwriting policy
Express an opinion on the adequacy of reinsurance arrangements
Internal Audit (page 13)
Existing
Risk management standards - ensuring independence between risk management and assurance processes
Actuarial function (page 14-15)
Existing
New
ORSA (pages 10-11)
Where functions are outsourced, agents will remain fully responsible for discharging all of their duties under the draft Directive
(1) Do
you understand
the requirement
sufficiently at
this stage
(2)
What further
work/help is
required to reach
an understanding
(3)
Do you
currently meet
this
requirement
(4)
Where are you
short on this
requirement
(5)
Action
required to
address any
shortfall/ gap
(6)
When do you
envisage you
will be able to
meet this
requirement
(7)
Who will be
responsible for
actions on this
requirement
(8)
Estimated time
required to
address gap
(9)
Level of resource
needed to
address gap
(10)
Current status
on requirement
R / A /G
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page
references are included below. Additional notes on completion of the relevant columns are included at the foot of
this document.
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definition of best estimate
cashflows
risk margin
premium provisions
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the capital assessment should be driven by the key business risks
sound and appropriate capital assessment methodology
organisation understands key drivers of its capital requirements
l
the need to demonstrate clearly the link between the risk framework and the ICA calculation
consistency with the syndicate business plan (SBF)
embedding the ICA
the need to reflect the agents position against the franchise standards in the ICA
the importance of the involvement of senior management and the Board in deriving and challenging the capital assessment

the requirement for an amended ICA where the risk profile of the syndicate has changed materially or a new SBF is submitted during the
year
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formal approval by Board/senior management
appropriate adjustments to be made when the risk profile changes
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Technical Section
Report financial and solvency position to Lloyds on a quarterly basis
New
Existing
Valuation of Liabilities (page 19-20)
New
Calculate technical provisions as specified under QIS4:
Final requirements will not be clarified until Level 2 but it is envisaged that a new set of regulatory reporting forms will be developed
Use Test (pages 23-24)
Existing
Risk Management standards, capital allocation:
Lloyds ICA Guidance and Minimum Standards:
Lloyds Valuation of Liabilities Rules
GN20 Actuarial reporting under the Lloyds Valuation of Liabilities rules
Own Funds (page 21)
Existing
New
Use and approval of internal models
N/A (Lloyds do not anticipate applying any additional requirements for assets held at syndicate level over and above the draft Directive
requirements)
Syndicate assets comply with GENPRU
New
Demonstrate use of the model in the business
Process for review of the internal model
Board and senior management understanding and constructive challenge
Consider the impact on the SCR where the model is re-run to reflect changes in the business
Changes to the risk management framework, including the modelling process:
Clear link and consistency between the capital element of the internal model and other elements
Supervisory Reporting & Public Disclosure (pages 17-18)
Requirement to submit information to Lloyds for annual regulatory return to the FSA
Existing
Provide syndicate annual reports to Lloyds and the FSA
(1) Do
you understand
the requirement
sufficiently at
this stage
(2)
What further
work/help is
required to reach
an understanding
(3)
Do you
currently meet
this
requirement
(4)
Where are you
short on this
requirement
(5)
Action
required to
address any
shortfall/ gap
(6)
When do you
envisage you
will be able to
meet this
requirement
(7)
Who will be
responsible for
actions on this
requirement
(8)
Estimated time
required to
address gap
(9)
Level of resource
needed to
address gap
(10)
Current status
on requirement
R / A /G
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page
references are included below. Additional notes on completion of the relevant columns are included at the foot of
this document.
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non-claims experience that could affect the profit and capital position
new external quantitative information
qualitative information, both internal and external
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Extent of reliance on syndicate data
Reference should be made to market data but needs to be adjusted to reflect syndicate characteristics
Data should not be excessively smoothed as this is likely to understate volatilities
Expect the person responsible for any analysis supported by data to sign off that data meets criterion allowing for proportionality
Statistical quality standards (pages 25-26)
Existing
New
The drivers of risk in each risk group should be identified and described
The model should allow sensitivity testing of the main parameters as requested
Prescribed sensitivity tests are required as part of ICA pro-forma
Calibration Standards (pages 27-28)
Existing
Model should be calibrated using a VaR measure with a 99.5% confidence level, over a one year period
Non modelled risks should be calibrated to the 99.5% confidence level and a suitable aggregation method should be used
The model must be able to calculate a separate ICA for each syndicate covering all years of account of the syndicate combined
The model should allow output into constituent risk groups and be capable of showing the result by risk group both pre and post diversification
New
Profit & loss attribution (page 29)
Existing
New
Provide analysis of model output against actual loss experience
Review validity of past data over time as trends emerge and experience changes
Model should be flexible enough to allow for outputs other than the 1:200 level result
Output must address Solvency II risk categorisations for comparison with standard formula SCR
Management and Board understanding of sensitivity testing
Validate ICA against ECR and explain differences
Explicit back testing of the model is required
Comparison of model output to emerging experience on a timely basis (expected to be at a class of business level)
Analysis of emerging experience versus model expectations may need to be regularly reported to Lloyds
Validation Standards (pages 30-31)
Existing
Stress tests are needed to validate the model output for reasonableness and to help with calibrating assumptions
Stress and scenario tests must be relevant to their business and sufficiently extreme to represent the 1:200 level
Sufficient data over and above a syndicates own data should be considered and additional stress tests performed on uncertain assumptions
All models must be subject to sensitivity analysis
New
Output of internal model will have to be compared against standard formula SCR for at least first two years of internal model use
Validation function should be independent of the person parameterising the model to allow objective and robust challenge
Board should have overall responsibility for validation - management information on validation should be presented to the board and challenged
by it
Validation of the model should be carried out at least annually (appropriate frequency should be assessed by materiality)
Goodness of fit of probability distributions should be tested where statistical techniques are used, including both the choice of distribution and
the parameters
Actual vs expected analysis should be part of the validation process (expected to be at a class of business level)
Validation should consider not only emerging claims experience but all new data including:
Validation should check that all risks in the risk register are modelled and if not modelled there should be written justification
Assessment of accuracy, completeness and appropriateness of data should form part of the validation process. Data quality and model
sensitivity should drive design of calibration
Documentation should be adequate enough to allow independent verification of the validation process
(1) Do
you understand
the requirement
sufficiently at
this stage
(2)
What further
work/help is
required to reach
an understanding
(3)
Do you
currently meet
this
requirement
(4)
Where are you
short on this
requirement
(5)
Action
required to
address any
shortfall/ gap
(6)
When do you
envisage you
will be able to
meet this
requirement
(7)
Who will be
responsible for
actions on this
requirement
(8)
Estimated time
required to
address gap
(9)
Level of resource
needed to
address gap
(10)
Current status
on requirement
R / A /G
This template should be used in conjunction with Lloyd's "Guidance notes on gap analysis March 2009" and page
references are included below. Additional notes on completion of the relevant columns are included at the foot of
this document.
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Notes
1
2
3
4
5
6
7
8
9
10
Agents should state the name and job title of those individuals responsible for completing each specific action identified.
An indication of the time required to address this gap (e.g. in person months) should be provided.
Agents should estimate here the amount and level of resource necessary to become compliant with the requirements where these are not currently met. In particular, agents should highlight areas where they expect that additional resource will be required and what form this additional
resource will take.
Agents should select a status of red, amber or green to reflect the size and nature of the gap identified, and the level of risk associated with not complying with the requirement by the time of Solvency II implementation.
Agents should state whether they currently meet both the new and existing requirements.
Where the agent has identified a shortfall in meeting any of the expected requirements, they should provide detail as to where the gap arises.
For each identified gap, detail should be provided as to what actions are planned in order for the agent to address this gap and meet the requirement as it is currently envisaged.
For those requirements not currently met, agents should state the approximate date by which they expect to become compliant (in particular whether they expect to have addressed any gaps in time for the dry running process).
Documentation Standards (pages 32-33)
Existing
Existing
External models and data (page 34)
New
Cover the operational details of the internal model as well as the design
All changes should be documented on an ongoing basis (model to be revisited regularly and updated as necessary in line with risk profile of
business)
Outline the policy for changing the model
Be detailed and complete enough to allow a skilled and knowledgeable professional to replicate the model
Address articles 118-122 and 124
The overall ICA figure split by major risk category, before and after diversification
The allocation of capital across risk groups and the rationale and method used to derive the figures for each
Explain the approach to deriving the ICA and how it links together the business plan, key risks inherent in the business, related risk
management processes and practices and the capital required by the risks
Why the methodology chosen is appropriate to the syndicates business, taking account of its risk profile, risk appetite, track record with respect
to risk experience and exposure and the key principles upon which the ICA is based
The approach adopted towards the quantification of risk and the rationale for this approach
Highlight any areas where model is deemed not to perform effectively (model weaknesses) and detail how these are addressed
Detail the theory underlying the internal model and be relevant to complexity of model
The stress and scenario tests used and why they are appropriate for the business
The sensitivity of key assumptions
Clear strategy for regular review of any external models/data sources used
Document process undertaken to ensure external data/model chosen is appropriate to risk profile and should include sufficient sensitivity and
scenario testing to validate use
Able to demonstrate thorough understanding of use and limitations of any vendor software/products used
Any reliance on external supplier to be documented together with role of product(s) and extent to which they are used
Use of external cat models/ESG ICA must allow for possibility of model error or risks not captured in external models
Set out how Board/senior management are engaged in process particularly where outsourcing/consultants used
New
External loss databases, such as ORIC (operational risk consortium) for operational risk, to supplement own data when assessing 1:200 losses
Agents should detail whether they currently feel they have a sufficient understanding of the requirement and what it is trying to achieve, bearing in mind that further guidance and detail will be provided going forward as the Level 2 implementing measures are developed. Agents
should also consider the extent to which the understanding of the requirement is shared across the organisation.
Details should be provided as to what additional work the agent feels needs to be completed by them in order for the appropriate people at the agency to reach an adequate level of understanding of the requirement. Agents should also include here anything that Lloyds could do or
provide to assist in reaching this understanding.
All Lloyds minimum ICA standards must be addressed