New Service Company Applications
When a Managing Agent wishes to establish a new service company - or a branch of an existing service company.
A service company is an approved Coverholder that has satisfied Lloyd's that it is associated with a Managing Agent because:
(i) It is a wholly owned subsidiary of that Managing Agent or
(ii) It is a wholly owned subsidiary of the Managing Agent's holding company or
(iii) It meets such other criteria or requirements as Lloyd's may from time to time prescribe:
(iv) Is authorised to enter into a contract or contracts of insurance only to be underwritten by members of a syndicate managed by the service company Coverholder's associated Managing Agent in accordance with the terms of a service company underwriting agreement or by its associated insurance company.
In other words, it is completely aligned with one Managing Agent and only binds risks on behalf of its associated syndicate (or associated insurance company).
A Service Company Underwriting Agreement is a binding authority which authorises a service company to enter into a contract or contracts of insurance only to be underwritten by members of a syndicate managed by the service company Coverholder's associated Managing Agent (and, where applicable, by its associated insurance company). The Lloyd's Market Association has developed a model Service Company Underwriting Agreement which can be used.
This is one of a series of model wordings which may be used in order to ensure compliance with the Intermediaries Byelaw and the Requirements to this Byelaw.
The LMA has issued an updated version of the Service Company Underwriting Agreement ("SCUA"), LMA3134 dated 7 September 2015, with the aim of providing a comprehensive model binding authority contract for a Service Company Coverholder being 100% aligned to its associated Managing Agent and which binds insurance only for its managed syndicates. For more information please click here.
A separate Code of Practice has been prepared by Lloyd's regarding Service Companies. This document provides all necessary information governing Lloyd's expectations for the approval, on-going management and reporting of service companies.
ATLAS will need to be completed however the Delegated Authorities team are required to start the application on ATLAS. This will be carried out after an initial meeting to discuss the proposal. For more information around the application process please see below.
The application process is a three stage change task on ATLAS.
Lloyd's - Coverholder (Service Company) - Managing Agent - Lloyd's:
New applications require input from the Managing Agent as the Service Company in the initial stage. With this in mind they are able to log on and edit the information held there after Lloyd's has started the application and generated the PIN. Once the Managing Agent as the Service Company has decided the application is complete they will complete the sponsor's sign off and submit for approval. The status of the task changes to with the Coverholder (Service Company) and the Service Company will need to log in, complete the Coverholder sign off and approve the application. The application moves to the Managing Agent to complete due diligence before they in turn submit to Lloyd's.
Lloyd's service standards: (working days from date of submission to Lloyd's)
Lloyd's Brussels Applications:
For applications that require Lloyd’s Brussels sign off, the Managing Agent must ensure the supporting Brexit Decision Paper is submitted, this can be found in the decision paper section below. Where a European Subsidiary is being open for the purpose of Brexit, the Managing Agent must confirm the following;
- What information is the same compared to the already approved coverholder entity
- Confirmation that the correct local licensing has been obtained
- Confirmation this is existing business to Lloyds, i.e. no new risk codes and no new EPI
- The SBF class and codes to be provided
Lloyd's service standards: (working days from date of submission to Lloyd's)
- Full Service Company Application: 20 Days.
Initially a Managing Agent looking to establish a Service Company must make their SUP (Syndicate Underwriting Performance) Executive, and concurrently, the Lloyd’s Representative if one is present in the applicable territory, aware of their intention. Discussions will be held in respect of the classes of business to be underwritten, the experience of underwriters and the entity’s business strategy, amongst other things.
Following discussions with the Managing Agent and general agreement by Lloyd’s over the proposal i.e. that it is realistic and achievable, the next step is for the Managing Agent to submit a business plan (SBF) via the core market return system specifically for this prospective establishment with the corresponding supporting narrative attached. No underwriting or operational set up can occur without the Capital and Planning Group’s (CPG) approval of the business plan, nor without the approval by Delegated Authority.
If a Service Company intends to operate with ‘flexible use’ (i.e. an underwriter has the ability to underwrite on behalf of both the syndicate and company paper), the Managing Agent must also submit a completed flexible use form to London for approval, prior to any underwriting taking place. Lloyd’s London will check the information matches the SBF and will monitor this annually.
Managing Agents are reminded that all Lloyd’s Service Companies globally must adhere to the Best Practice of Minimum Standards, and the Underwriting Minimum Standards form part of the Underwriting Performance Annual Review.
Once the Managing Agent has submitted an application to DA for review it will be sent to Underwriting Performance for review who will check that the classes of business are already written by the MA . This is to ensure that the MA has the necessary experience to review and oversee the underwriting of this business.
Underwriting Performance will check that the line sizes requested are aligned with their SBF. If it is larger than that approved for London we will need an explanation as to why this is so. We will need income estimates and loss ratio estimates both on a gross basis. The loss ratio estimates for each class should not be less than that approved for London - if they are we will need an explanation as to why. These discussions will have taken place through the initial business planning process.
Seek legal advice
- Process of establishment
- Options for type of venture
- Local regulations, e.g.: business allowed; capital requirements; local tax advice; employment law
Branch vs. company
- e.g.. in Europe the IMD enables a branch to be set up via “passporting” rather than incorporating a new company
- Full service operation vs. contact office cost comparison
- Underwriting credibility; how business is normally conducted there
- Local regulations re where business is deemed to have been bound
- Claims service and related regulations (e.g. response times / licensed individuals)
- Location of back office functions (accounting, reporting, HR, policy production), i.e. in the service company, managing agency in London, or outsourced.
Will this apply? If so, consider: transparency/clarity of operation; and extent of Lloyd’s knowledge & experience of local staff.
- Identify which operating model is to apply and familiarise with related brand guidelines
- Governance & Franchise Standards
- Reporting lines; committees / board structure
- Planning; monitoring to plan / board reports
- Procedures, and monitoring compliance (e.g. exception reports, internal audit)
- Demonstrating to Lloyd's how minimum standards will be met
- Bedding-in period; cultural issues
- Enabling prompt data capture (for internal/external reporting and monitoring)
- Enabling remote oversight
- Ex pat vs. local (higher cost of ex pat; alignment of local staff to corporate culture)
- Training and induction (IT; procedures)
- Critical to get good local advice (corporate tax; payroll tax; VAT; GST)
- Contact Lloyd's tax department
- Risk of setting wrong precedent for other managing agents in the future
- Most DU business is processed via XIS (to enable regulatory reporting)
- Can opt for non-cash processing (i.e. just the data, to enable regulatory reporting)
- Business processed outside of XIS has to be declared to Lloyds (for reg reporting)
- Managing agent need a CSN if no broker (1 day training/assessment on abilities)
The Managing Agent must meet with Delegated Authority (DA) to discuss the proposed Service Company application.
At the meeting with either the DUM (Delegated Underwriting Manager) or compliance office Lloyd’s DAT will talk about the application process via ATLAS, our expectation regarding the letter of support and the steps that we go through at Lloyd’s in order to approve t he application. This meeting is able to be held prior to all details being confirmed by the prospective Service Company.
On preliminary approval by DA to proceed, the application will be completed on ATLAS. This is required to be started by Lloyd’s DAT who will conduct this process after the closure of the introductory meeting . This is subject to a legal name being established and the main point of contact being identified for the Service Company.
Prospective Service Companies must comply with Lloyd’s requirements outlined with the Service Company Code of Practice.
The undertaking must be provided by the Service Company under the terms of paragraph 15 (b) of the Intermediaries Byelaw. Words and terms in bold type in this document have the meanings given in the Definitions Byelaw (which includes the definition of a “ Service Company coverholder”) Every application requires a Service Company Coverholder Undertaking to be reviewed, signed and uploaded onto the ATLAS application form.
All Service Companies must complete and submit a Service Company decision paper for Lloyd’s review. This document is to be completed in conjunction with the ATLAS application and in accordance with the information discussed at the preliminary meeting.
Once the Service Company has been approved by Lloyd’s London and Lloyd’s Dubai , the coverholder will be able to enter into a Service Company Underwriting Agreement. This is a binding authority which authorises a Service Company coverholder to enter into a contract or contracts of insurance only to be underwritten by members of a syndicate managed by the Service Company coverholder’s associated Managing Agent (and, where applicable, by its associated insurance company).
Any further changes to the Service Company record once the entity has been approved will need to be submitted to Lloyd’s through ATLAS e.g. if the Service Company is looking to write an additional line of business then the Managing Agent will need to submit a class of business extension and accompanying checklist.
Each managing agent is required to sign-off on the control framework phase 1. Please see link for further details.
Lloyd's has created a number of guidance documents for Service Companies looking to establish in Asia (Singapore), Australia, Dubai and Hong Kong. Please see useful documents below for these guides.