Lloyd's regards an effective process of Independent Review of underwriting and pricing as essential and has embedded the requirement within our Underwriting Standards. Lloyd's recognises that different firms will want to shape their own solutions and this is accepted as long as the process is risk-based and demonstrably effective. Lloyd's has provided guidance notes within lloyds.com to illustrate what it means by an 'effective' process.
Lloyd's sees a clear distinction between Peer Review and Independent Review in terms of who does which and the focus of the two functions. Peer Review will usually be carried out within the underwriting teams and will focus on whether underwriting authorities and procedures have been followed on individual risks. Independent Review will assess pricing and underwriting of selected risks from a more strategic perspective. For example line size was within authority but was it appropriate for a risk of that quality? Are there trends emerging across the portfolio which will impact targeted performance? Benchmark pricing assumptions may need revision of the factors involved.
Lloyd's has published guidance on Terms of Reference for Independent Reviewers. This is included in the Lloyd's Guidance on Independent Review document which can be found here. These are not prescriptive nor exhaustive but cover all the points that Lloyd's considers essential for an Independent Reviewer to perform their role effectively.
No. Lloyd's is more interested in the independence of the review process being operated and its effectiveness. Lloyd's would expect that the personnel undertaking Independent Review have relevant experience and sufficient time, and are operating within a robust process. For example, a number of managing agents operate internal underwriting review teams. Lloyd's considers it essential that Independent Reviewers are sufficiently empowered to perform their role effectively and that their involvement is not simply a matter of "rubber stamping" the risks reviewed.
Lloyd's makes it a condition of business plan approval that the Underwriting Standards are being met, which includes an effective process of 'Independent Review'. Where Lloyd's wants to test that presumption relevant documents will be sought (including the IR terms of reference and recent reports), and conversations will be requested which may include underwriting management, the reviewer(s) concerned and possibly independent non-executive directors from the Managing Agent's Board.
Lloyd's regards this as very important. Every managing agent's board (or assigned board committee, with NED involvement) should be seeing independent review reports which include conclusions in the context of agreed plan delivery. The board should also be given regular opportunity to speak with the Independent Reviewer(s) directly.
This is entirely a matter for negotiation between the managing agent and the Reviewer and Lloyd's cannot opine on it.