Principle 9: Liquidity

Managing agents should ensure syndicates have contractual access to sufficient liquidity in order to withstand a severe liquidity event (defined by Lloyd’s), underpinned by a robust liquidity risk management framework.

To support this, managing agents should ensure their syndicates:

Identify and assess their key sources of liquidity risk and have appropriate monitoring and reporting in place

Conduct and consider the outcomes of stress tests, including Lloyd’s defined stress test and syndicates’ own 1:200 stress test

Have clearly defined liquidity risk appetites

Conduct regular assessment of liquidity buffers above expected cashflow projections

Have thorough liquidity contingency plans in place including articulation of what management actions and steps are open to alleviate liquidity strain

Have robust governance over liquidity risk

Useful information

Liquidity Maturity Matrix

A copy of the full Liquidity Matrix is available to download as part of the full Principles PDF document.

Below are some of the frequently asked questions about this Principle, including the questions that were asked in the Technical Briefing session(s).

If you have any further questions, please reach out to Oversight.Framework@lloyds.com,

The template originally went out in December and a slightly revised version was issued in March – reach out if you haven’t seen it.

We treat FIS the same way as FAL.

We get the results in by syndicate we can allocate the syndicate and their results to the members and apply the FAL and FIS to calculate any net residual central fund strain.

Yes if they are in trust funds, they would not be considered free assets

The M&URs included some requirements around investment allocation and that was driven by liquidity as well as other things

If Syndicates could exclude FIS when we allocate the syndicate level results to members we can bring in all of the FIS and FAL at that point

The stress test is intended to be this strong. Please feel free to share views with Lloyd’s.

Yes

If the Lloyd’s defined stress test is appropriate to liquidity then use it, but we appreciate that some syndicates may not be able to use this, in which case they should use something more appropriate to them

Principle 9: Liquidity

Useful information

Liquidity Maturity Matrix

Will you be issuing a template for the liquidity risk stress test so that syndicates all undertake it using the same methodology?

If FAL is not available for liquidity I assume FIS is also not available to those with FIS?

Should syndicates also exclude assets held in SLTF, CRTF and CTF from available liquidity? And Overseas deposits in relation to losses stressed in those regions?

Regarding FAL Liquidity, are there plans to expand allowed securities in M&URs? e.g. will there be restrictions on certain types of securities?

Will co-mingling of FIS be allowed? Or can FIS be included in the cashflow test, because a cash call is likely in a stress event?

The stress test seems incredibly strong (1-200 event, reinsurer dispute, a 2008 GFC investment stress) and can only be covered by committed facilities rather than uncommitted (e.g. overdraft) and excludes FAL. what form of feedback is there to give our views on the construction of the stress test?

In respect of the stress test I assume we need to forecast 1 scenario where both the 1-200 event AND the repeat of the financial crises are both included?

The principal guidance states that we are to include outcomes of the Lloyd's defined stress test and the syndicates own 1:200 event...how are we to differentiate?