Lloyd's is keen to promote both high standards and consistency in the audit of its coverholders.
Lloyd's Minimum Standard - MS 1.3 - Delegated Authority (October 2015) - Underwriting Management Principles, Minimum Standards and Requirements states that these are statements of business conduct required by Lloyd’s. The Principles and Minimum Standards are established under relevant Lloyd’s Byelaws relating to business conduct. All Managing Agents are required to meet the Principles and Minimum Standards. The Requirements represent the minimum level of performance required of any organisation within the Lloyd’s market to meet the Minimum Standards.
Clause 1.3.4 States:
Management and Monitoring of Delegated Authorities
Managing Agents shall proactively manage Binding Authority contracts once incepted.
Managing Agents shall ensure that:
- There is a clearly documented procedure in place for independent (internal or external) audit of Coverholders, and others to who authority is delegated;
In practice this means that:
Managing Agents should develop and implement a policy which governs their approach to the use of independent (internal or external) audit of entities to which they delegated authority. This policy will normally address:
- The frequency of audits based on the Managing Agent's risk assessment of the entity;
- The scope for review to be determined in the terms of reference for the auditors;
- The identification of appropriately skilled auditors able to fulfil the terms of reference; and
- The identification of key audit recommendations and their implementation
Further information on Coverholder audits can be found in section 6.4 of the Code of Practice for Delegated Underwriting. Lloyd's also produces a Coverholder audit scope for use by Managing Agents as listed below.
For information around previous Coverholder auditors conference please refer to the following links below.
To help meet these requirements, a Steering Group with representatives from the delegated underwriting committees in the Lloyd's market have worked with key stakeholders and auditors to produce a revised standard audit scope that Lloyd's encourages all its Managing Agents to use.
Lloyd's recognises that there may be some changes required to the scope which may only become apparent as it is used more widely. Feedbackon the scope - particularly from those that have used it in practice - is welcomed.
You can find the most current audit scope on the LMA website.
In excess of 1,200 Coverholders have multiple binders with multiple leads. Historically, Brokers have tried to help their Coverholders by coordinating audits between the different leaders. However, this has had limited success because of a (perceived) lack of flexibility amongst some Managing Agents to agree scopes, auditors or dates, and also because many of the Coverholders use more than one Broker.
Various Lloyd’s-led initiatives have helped to improve this problem over the last 3 years. These include the creation of a standard Lloyd’s Coverholder audit scope, quarterly information sheets sent to all Managing Agents informing them who their co-leaders are, and a pilot group of 8 Managing Agents working together to coordinate their audits.
To add momentum to this process The Delegated Authorities audit coordination pilot was set up in 2014. The main objective of the pilot was for Lloyd’s to trial centralisation of the scheduling, pre-audit and post-audit functions and manage these on behalf of the Lloyd’s Market. Achievement of one annual centrally coordinated audit for each Coverholder will ultimately:
- Cut the oversight and regulatory burden of multiple annual audits for those Coverholders with multiple Lloyd's leads.
- Eliminate duplication and inefficiencies in the process experienced by Managing Agents, Brokers and Coverholders.
- Ensure an efficient and effective application of the common audit scope.
This will make Lloyd’s easier to do business with for Coverholders and is aligned to the strategic priority “Making it easier to do business with Lloyd’s”.
The process below is now part of the Lloyd’s standard annual audit coordinated audit process which has led to a reduction in the number of audits of approximately 1,500 over the past two years.