LONDON MARKET REFORM

1. LONDONMARKET REFORM DELINKING

2. AGENDA • Background • Contract Certainty • What is Delinking? • Market Closing Performance • The Myths • Current usage • Summary

3. BACKGROUND • 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

4. 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

5. THE PROBLEM 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

6. Latest date for PAN submission to XIS London Broker: - signs down - produces evidence of cover - produces debit note Funds transfer -15 0 Client pays 60 68+ Producing broker receives: - evidence of cover (including signed lines) - debit note Non-XIS (re)insurers advised of: - Closing note - signed lines XIS check and resolve queries XIS advise (re)insurers of signed lines and payment Client receives: - evidence of cover - debit note Over 80% of risks submitted ‘on time’ Only 20% of premium is received by SDD Pre DELINKING Risk inception date TOT date (Re)insurer writes risk

7. 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

8. Broker signs down the risk Funds transfer London Broker: - produces evidence of cover - produces debit note Trigger date + 3 days -15 0 Producing broker receives: - evidence of cover - debit note Non-XIS (re)insurers advised of: - Closing note - signed lines LPAN submitted to XIS XIS advises Underwriters of payment Broker triggers payment XIS check and resolve queries Pending file Client receives: - evidence of cover - debit note XIS advise (re)insurers of signed lines DELINKED CLOSING Risk inception date Client pays (Re)insurer writes risk

9. 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

10. PAYMENT PERFORMANCE 27% 53% 20% 27% Figures include cash and first installments only Based on total in-scope premium signed for 2005 up to August. Data supplied by Xchanging

11. 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%

12. SCOPE OF DELINKING • Direct • Facultative • XOL • 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

20. 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

21. 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

23. 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”

24. Q & A

25. LONDONMARKET REFORM DELINKING