SA Market Example (Clean) - 0112

Lloyd’s Syndicate

Market Example 0112

Illustrative financial statements template

Annual Report and Accounts for the year ended

31 December 2023

Version: 2.1

For Tagging convenience:

Current Period: 1 January 2023 – 31 December 2023

Prior Period: 1 January 2022 – 31 December 2022

2

Contents

Directors and Administration ................................................................................................. 3

Strategic report of the Managing Agent ................................................................................. 4

Managing Agent’s report ....................................................................................................... 5

Statement of Managing Agent’s responsibilities .................................................................... 6

Independent auditor’s report to the members of [insert syndicate name] ............................... 7

Statement of profit or loss and other comprehensive income: ............................................... 8

Balance sheet – Assets ....................................................................................................... 10

Balance sheet (cont’d) – Liabilities ...................................................................................... 11

Statement of changes in members’ balances ...................................................................... 12

Statement of cash flows ...................................................................................................... 13

Notes to the financial statements – (forming part of the financial statements) .................... 14

Appendix: Disclosure notes and accounting reference ....................................................... 50

3

Directors and Administration

[This is a placeholder for directors and administration details]

4

Strategic report of the Managing Agent

[This is a placeholder for the strategic report]

5

Managing Agent’s report

[This is a placeholder for the managing agent’s report]

6

Statement of Managing Agent’s responsibilities

[This is a placeholder for the managing agent’s responsibilities]

7

Independent auditor’s report to the members of

[insert syndicate name]

[This is a placeholder for the auditor’s report]

8

Statement of profit or loss and other

comprehensive income:

Technical account– General business/long-term business

For the year ended 31 December 20x2

	Note	2023 £000	2022 £000
Gross premiums written	5	362,500	338,400
Outwards reinsurance premiums		(87,000)	(90,000)
Premiums written, net of reinsurance		275,500	248,400
Changes in unearned premium	18
Change in the gross provision for unearned premiums		(25,000)	45,000
Change in the provision for unearned premiums reinsurers’ share		7,000	(12,000)
Net change in provisions for unearned premiums		(18,000)	33,000
Earned premiums, net of reinsurance		257,500	281,400
Allocated investment return transferred from the non-technical account	9	7,140	7,090
Other technical income, net of reinsurance		1,500	2,000
Claims paid	18
Gross amount		(120,000)	(147,000)
Reinsurers’ share		32,000	41,000
Net claims paid		(88,000)	(106,000)
Change in the provision for claims	18
Gross amount		(66,300)	(63,500)
Reinsurers’ share		36,200	36,000
Net change in provisions for claims		(30,100)	(27,500)
Claims incurred, net of reinsurance		(118,100)	(133,500)
Changes in other technical provisions, net of reinsurance, not shown under other headings
Long term business provision, net of reinsurance
Gross amount		-	-
Reinsurers’ share		-	-
Net change in long term business provisions	18	-	-
Other technical provisions, net of reinsurance		-	-
Net change in other technical provisions		-	-
Net operating expenses	6	(106,540)	(113,290)
Other technical charges, net of reinsurance		(1,500)	(2,000)
Balance on the technical account – general business/ long - term business		40,000	41,700

9

Statement of profit or loss and other

comprehensive income: (cont.)

Non-technical account – General business/long-term business

For the year ended 31 December 20x2

[Syndicates can use the “Other” line item in thestatement of comprehensive income to disclose any

other item that they have under OCI that has not been provided above.]

[The Syndicate may present a separate statement of comprehensive income, provided it includes the

line items and subtotal lines above where applicable.]

The accompanying notes from page [x] to [xx] form an integral part of these financial statements.

	Note	20x2 £000	20x1 £000
Balance on the technical account – general business/long-term business		40,000	41,700
Investment income	9	8,200	6,900
Realised gains/(losses) on investments	9	(250)	450
Unrealised gains/(losses) on investments	9	(400)	100
Investment expenses and charges	9	(410)	(360)
Total investment return		7,140	7,090
Allocated investment return transferred to the general business technical account		(7,140)	(7,090)
Gain/(loss) on foreign exchange		(2,300)	(2,050)
Other income		4,500	3,000
Other expenses		(4,500)	(3,000)
Profit/(loss) for the financial year		37,700	39,650
Other comprehensive income:
Currency translation gains/(losses)		3,000	(4,000)
Realised gains/(losses) on available for sale assets		-	-
Unrealised gains/(losses) on available for sale assets		-	-
Reclassifications through profit or loss		-	-
Other recognised gains/(losses)		(2,000)	500
Other		(1,000)	3,500
Total comprehensive income/(loss) for the year		37,700	39,650

10

Balance sheet – Assets

As at 31 December 20x2

	Note	20x2 £000	20x1 £000
Financial investments	11	384,000	320,000
Deposits with ceding undertakings		1,000	1,000
Investments		385,000	321,000
Provision for unearned premiums		20,650	13,650
Claims outstanding		145,000	108,300
Long term business provision		-	-
Reinsurers’ share of technical provisions	18	165,650	121,950
Debtors arising out of direct insurance operations	12	53,100	47,300
Debtors arising out of reinsurance operations	13	35,100	34,700
Other debtors	14	1,200	4,500
Debtors		89,400	86,500
Tangible assets	16	-	-
Cash at bank and in hand		8,000	19,000
Other		600	500
Other assets		8,600	19,500
Accrued interest and rent		3,500	3,600
Deferred acquisition costs	15	30,000	27,200
Other prepayments and accrued income		1,000	400
Prepayments and accrued income		34,500	31,200
Total assets		683,150	580,150

11

Balance sheet (cont’d) – Liabilities

As at 31 December 20x2

	Note	20x2 £000	20x1 £000
Members’ balances		39,500	46,250
Total c apital and reserves		39,500	46,250
Provision for unearned premiums		125,550	100,600
Claims outstanding		427,000	359,300
Long term business provision		-	-
Other technical provisions		-	-
Technical provisions	18	552,550	459,900
Provisions for other risks	19	-	-
Deposits received from reinsurers		500	1,500
Creditors arising out of direct insurance operations	21	52,300	38,200
Creditors arising out of reinsurance operations	22	31,400	28,200
Reinsurers share of deferred acquisition costs	15	-	-
Other creditors including taxation and social security	23	3,400	2,000
Amounts owed to credit institutions		3,000	2,500
Creditors		90,100	70,900
Accruals and deferred income		500	1,600
Total liabilities		643,650	533,900
Total liabilities, c apital and reserves		683,150	580,150

The Syndicate financial statements on pages [xx] to [xx] were approved by the board of [insert

Managing Agent name] on [insert the signing date] and were signed on its behalf by;

[Insert name]

[Insert position]

[insert date of signing]

12

Statement of changes in members’ balances

For the year ended 31 December 20x2

	20x2 £000	20x1 £000
Members’ balances brought forward at 1 January	46,250	52,300
Total comprehensive income/(loss) for the year	37,700	39,650
Payments of profit to members’ personal reserve funds	(43,850)	(45,200)
Losses collected in relation to distribution on closure of underwriting year	-	-
Cash calls on open underwriting years	-	-
Members agent fees	-	-
Net movement on funds in syndicate	-	-
Other	(600)	(500)
Members’ balances carried forward at 31 December	39,500	46,250

13

Statement of cash flows

For the year ended 31 December 20x2

	Note	20x2 £000	20x1 £000
Cash flows from operating activities
Profit/(loss) for the financial year		37,700	39,650
Adjustments:
Depreciation and other movements in tangible fixed assets		-	-
(Gain)/loss on disposal of tangible fixed assets		-	-
Increase/(decrease) in gross technical provisions		92,650	35,300
Increase/(decrease) in reinsurers’ share of gross technical provisions		(43,700)	(48,500)
Increase/(decrease) in debtors		(2,900)	(3,000)
Increase/(decrease) in creditors		19,200	20,100
Increase/(decrease) in deposits received from reinsurers		-	-
Movement in other assets/liabilities		-	-
Investment return		(7,140)	(7,090)
Foreign exchange		-	-
Other		-	-
Net cash flows from operating activities		95,810	36,460
Cash flows from investing activities
Purchase of tangible fixed assets		-	-
Sales of tangible fixed assets		-	-
Purchase of equity and debt instruments		(125,000)	(65,000)
Sale of equity and debt instruments		15,000	5,000
Purchase of derivatives		-	-
Sale of derivatives		-	-
Investment income received		7,540	6,990
Other		-	-
Net cash flows from investing activities		(102,460)	(53,010)
Cash flows from financing activities
Distribution of profit		-	-
Open year profit release		-	-
Collection of losses		-	-
Capital contributions/open year cash calls made		-	-
Funds In Syndicate released to members		-	-
Other		-	-
Net cash flows from financing activities		-	-
Net increase/(decrease) in cash and cash equivalents		( 6,650 )	( 16,550 )
Cash and cash equivalents at the beginning of the year		16,500	23,400
Foreign exchange on cash and cash equivalents		(4,850)	9,650
Cash and cash equivalents at the end of the year	24	5,000	16,500

14

Notes to the financial statements –

(forming part of the financial statements)

1. Basis of preparation

[Syndicate should adapt the commentary below

in this section]

[Syndicate name] (‘The Syndicate’) comprises

a group of members of the Society of Lloyd's that

underwrites insurance business in the London

Market. The address of the Syndicate’s

managing agent is [the managing agent

address].

The financial statements have been prepared in

accordance with the Insurance Accounts

Directive (Lloyd’s Syndicate and Aggregate

Accounts) Regulations 2008 and applicable

Accounting Standards in the United Kingdom

and the Republic of Ireland, including Financial

Reporting Standard 102 (FRS 102). FRS 102

requires the application of Financial Reporting

Standard 103 (FRS 103) in relation to insurance

contracts.

The financial statements have been prepared on

the historical cost basis, except for financial

assets at fair value through profit or loss and

available for sale that are measured at fair value.

The financial statements are presented in GBP,

[which is also the Syndicate’s functional

currency/the functional currency of the

Syndicate is GBP. [The presentational currency

is different from the functional currency of the

Syndicate because the Syndicatehas elected to

use a presentational currency aligned with the

presentational currency of its corporate

member].

All amounts have been rounded to the nearest

thousand, unless otherwise indicated.

Going concern

The Syndicate has financial resources to meet

its financial needs and manages its portfolio of

insurance risk. The directors have continued to

review the business plans, liquidity and

operational resilience of the Syndicate and are

satisfied that the Syndicateis well positioned to

manage its business risks in the current

economic environment. The Syndicate 20x3

year of account has opened and the directors

have concluded that the Syndicate hassufficient

resources to, and a reasonable expectation that

it will, open a 20x4 year of account. The

Syndicate has sufficient capital for each year of

account in its Funds at Lloyd’s (FAL) [and there

is additional capital available in the corporate

member]. There is no intention to cease

underwriting or cease the operations of the

Syndicate.

Accordingly, the directors of the Managing

Agent continue to adopt the going concern basis

in preparing the annual report and financial

statements.

2. Use of judgements and estimates

[Syndicate should adapt the commentary below

in this section]

In preparing these financial statements, the

directors of the Managing Agent have made

judgements, estimates and assumptions that

affect the application of the Syndicate’s

accounting policies and the reported amounts of

assets, liabilities, income and expenses.

The following critical judgements have been

made in applying the Syndicate’s accounting

policies:

[Syndicates to detail the key judgements made

in applying the accounting policies including

those that have the most significant effect on the

amounts disclosed in the financial statements.]

The Syndicate makes estimates and

assumptions concerning the future. The

resulting accounting estimates will, by definition,

seldom equal the related actual results. The

estimates and assumptions that have a

significant riskof causing a material adjustment

to the carrying amountsof assets and liabilities

within the next financial year are addressed

below.

[Syndicates shall disclose the key assumptions

and other sources of estimation uncertainty at

the reporting date, that have a significant risk of

causing a material adjustment to the carrying

amounts of assets andliabilitieswithin the next

financial year. This should include the nature

15

and carrying amounts at the end of the reporting

period – cross reference to notes if applicable]

3. Significant accounting policies

[Syndicate should adapt the commentary below

in this section]

The following significant accounting policies

have been applied consistently in dealing with

items which are considered material in relation

to the Syndicate’s financial statements.

A. Premiums written

Gross premiums written reflect direct and

inwards reinsurance business written during the

period, gross of commission payable to

intermediaries, and exclude any taxes or duties

based on premiums. Premiums written include

estimates for ‘pipeline’ premiums representing

amounts due to the Syndicate not yet notified

and adjustments to estimates of premiums

written in previous periods.

Estimated premium income in respect of facility

contracts, for example binding authorities and

lines slips, are deemed to be written in a manner

that reflects the expected profile of the

underlying business which has been written.

Outwards reinsurance premiums are accounted

for in the same accounting period as the

premiums for the related direct or inwards

business being reinsured. The earned

proportion of premiums is recognised as

income. Premiums are earned from the date of

attachment of risk over the indemnity period

based on the pattern of the risks underwritten.

B. Unearned premiums

The provision for unearned premiums comprises

the proportion of grosspremiums written which

is estimated to be earned in the following or

subsequent financial periods, computed

separately for each insurance contract using the

daily pro rata method, adjusted if necessary to

reflect any variation in the incidence of risk

during the period covered by the contract.

C. Acquisition costs

Costs incurred in acquiring general insurance

contracts are deferred. Acquisition costs include

direct costs such asbrokerage and commission,

and indirect costs such as administrative

expenses connected with the processing of

proposals and the issuing of policies. The

deferred acquisition cost asset represents the

proportion of acquisition costs which

corresponds to the proportion of gross

premiums written that is unearned at the balance

sheet date.

D. Reinsurance

The Syndicate assumes and cedes reinsurance

in the normal course of business. Premiums and

claims on reinsurance assumed are recognised

in the technical accountalong the same basis as

direct business, taking into account the product

classification. Reinsurance premiums ceded

and reinsurance recoveries on claims incurred

are included in the respective expense and

income accounts. Premiums ceded and claims

reimbursed are presented on a gross basis in

the technical account and statement of financial

position as appropriate.

Reinsurance outwards premiums are earned

according to the nature of the cover. ‘Losses

occurring during’ policies are earned evenly over

the policy period. ‘Risks attaching’ policies are

expensed on the same basis as the inwards

business being protected.

Reinstatement premiums on both inwards and

outwards business are accreted to the technical

account on a pro-rata basis over the term of the

original policy to which they relate.

E. Claims provisions and related

reinsurance recoveries

Claims incurred comprise claims and claims

handling expenses (both internal and external)

paid in theyear and themovement in provision

for outstanding claims and settlement expenses.

The Syndicate does not discount its liability for

outstanding claims nor the reinsurance share of

outstanding claims, with the exception of

periodic payment orders (“PPOs”) and classes

of business where the claims settlement is

expected to be greater than four years from the

date of incurrence (currently no classes of

business). Within the Motor and liability classes

of business large loss injury awards comprise

either a lump-sum payment, which is calculated

as the present value of the claimant’s loss and

expense, or as a structured settlement, typically

under a PPO awarded by the courts or agreed

with the claimant.

16

Outstanding claims include an allowance for the

cost of claims incurredbythe balance sheet date

but not reported until after the year end (IBNR).

Salvage and subrogation and other recoveries

are deducted from the provision for outstanding

claims [/ are recognised as other assets]. The

liability for outstanding claims is estimated using

the input of assessments for individual cases

reported to the Syndicate and widely accepted

actuarial techniques for the claims incurred but

not reported (IBNR). The techniques generally

use projections, based on past experience of the

development of claims over time, to form a view

on the likely ultimate claims to be experienced

and an estimate of the expected ultimate cost of

more complex claims that may be affected by

external factors, for example, court decisions

The reinsurers’ share of provisions for claims is

based on calculated amounts of outstanding

claims and projections for IBNR, net of

estimated irrecoverable amounts, having regard

to the reinsurance programme in place for the

class of business, the claims experience for the

year and the current security rating of the

reinsurance companies involved. A number of

statistical techniques are used to assist in

making these estimates.

Reinsurance assets are assessed for

impairment at each balance sheet date. A

reinsurance asset is deemed impaired if there is

objective evidence, as a result of an event that

occurred after its initial recognition, that the

Syndicate may not recover all amounts due, and

that event has a reliably measurable impact on

the amount that the Syndicate will receive from

the reinsurer. Impairment losses are recognised

in profit or loss in the period in which the

impairment loss is recognised.

F. Unexpired risks provision

Provision is made for unexpired risks arising

from general insurance contracts where the

expected value of claims and expenses

attributable to the unexpired periodsof policies

in force atthe balance sheet date exceeds the

unearned premiums provision in relation to such

policies (after the deduction of any deferred

acquisition costs). The provision for unexpired

risks is calculated by reference to classes of

business which are managed together.

G. Foreign currencies

Transactions inforeign currencies are translated

to the functional currency using the exchange

rates at the date of the transactions. The

Syndicate’s monetary assets and liabilities

denominated in foreign currencies are translated

into the functional currency at the rates of

exchange at the balance sheet date.

Non-monetary assets and liabilities

denominated in foreign currencies that are

measured at fair value are retranslated to the

functional currency at the exchange rate at the

date that the fair value was determined.

Non-monetary items denominated in foreign

currencies that are measured at historical cost

are translated to the functional currency using

the exchange rate at the date of the transaction.

For the purposes of foreign currency translation,

unearned premiums and deferred acquisition

costs are treated as if they are monetary items.

Differences arising on translation of foreign

currency amounts relating to the insurance

operations of the Syndicate are included in the

non-technical account. Differences arising on

translation from the functional currency to the

presentational currencyare recognised in other

comprehensive income.

[Syndicates should give additional disclosure

when functional currency differs from

presentational currency and give a reason for

that]

H. Financial assets and liabilities

[Note: this policy is written as an example as

though the syndicate has adopted IAS

39/Chapter 11/12, it is not anticipated

syndicates will adopt IFRS 9. The syndicates are

expected to manage their portfolios on a fair

value basis and therefore under IAS 39/Chapter

11/12 it is anticipated that financial assets will be

at FVTPL.]

In applying FRS 102, the Syndicate has chosen

to apply the recognition and measurement

provisions of [IAS 39 Financial Instruments:

Recognition and Measurement (as adopted for

use in the UK)/Chapters 11 and 12 of FRS 102].

i. Classification

The accounting classification of financial assets

and liabilities determines the way in which they

17

are measured and changes in those values are

presented in the statement of profit or loss and

other comprehensive income. Financial assets

and liabilities are classified on their initial

recognition.

The initial classification of a financial instrument

shall take into account contractual terms

including those relating to future variations.

Once theclassification of a financial instrument

is determined at initial recognition,

re-assessment is only required subsequently

when there has been a modification of

contractual terms that is relevant to an

assessment of the classification.

Financial assets and financial liabilities at fair

value through profit andlosscomprise financial

assets and financial liabilities held for trading

and those designated as such on initial

recognition. Investments in shares and other

variable yield securities, units in unit trusts, and

debt and other fixed income securities are

designated as at fair value through profit or loss

on initial recognition, as they are managed on a

fair value basis in accordance with the

Syndicate’s investment strategy. Other financial

assets, principally certain debt and other

fixed-income securities are classified as

available for sale.

The Syndicate does not hold any non-derivative

financial assets or financial liabilities for trading

purposes although derivatives (assets or

liabilities) held by the Syndicate are categorised

as held for trading.

Deposits with credit institutions, debtors, and

accrued interest are classified as loans and

receivables.

ii. Recognition

Financial instruments are recognised when the

Syndicate becomes a party to the contractual

provisions of the instrument. Financial assets

are derecognised if the Syndicate’s contractual

rights to the cash flows from the financial assets

expire or if the Syndicatetransfers the financial

asset to another party without retaining control

of substantially all risks and rewards of the

asset. A financial liability is derecognised when

its contractual obligations are discharged,

cancelled or expired.

Regular way purchases and sales of financial

assets are recognised and derecognised, as

applicable, on the trade date, i.e., thedate that

the Syndicate commitsitselfto purchase or sell

the asset.

iii. Measurement

A financial asset or financial liability is measured

initially at fair value plus, for a financial asset or

financial liability not at fair value through profit or

loss, transaction costs that are directly

attributable to its acquisition or issue.

Financial assets at fair value through profit or

loss are measured at fair value with fair value

changes recognised immediately in profit or

loss. Net gains or net losses on financial assets

measured at fair value through profit or loss

includes foreign exchange gains/losses arising

on their translation to the functional currency but

excludes interest and dividend income.

Financial assets classifiedas available for sale

are initially recognised at fair value, which

typically equates to the cost, plus transaction

costs directly attributable to its acquisition. After

initial measurement, these assets are

subsequently measured at fair value. Interest

earned whilst holding available for sale financial

assets is reported as interest income.

Impairment losses and foreign exchange gains

or losses are reported in profit or loss. Other fair

value changes are recognised in other

comprehensive income. Any gain or loss

recognised in OCI will be recycled to profit and

loss on derecognition of the asset.

Loans and receivables and non-derivative

financial liabilities are measured at amortised

cost using the effectiveinterest method,except

Syndicate Loans to the Central Fundwhich are

measured at fair value through profit or loss.

iv. Identification and measurement of

impairment

At each reporting date the Syndicate assesses

whether there isobjective evidence that financial

assets not at fair value through profit or loss are

impaired. Financial assets are impaired when

objective evidence demonstrates that a loss

event has occurredafter the initial recognition of

an asset, and that the loss event has an impact

on the future cash flowson the asset that can be

estimated reliably.

18

Objective evidence that financial assets are

impaired includes observable data that comes to

the attention of the Syndicate about any

significant financial difficulty of the issuer, or

significant changes in the technological, market,

economic or legal environment in which the

issuer operates.

Impairment losses on available for sale financial

assets are recognised by reclassifying the

losses accumulated in other comprehensive

income to profit or loss. The net cumulative loss

that is reclassified from other comprehensive

income to profit or loss is the difference between

the acquisition cost, net of any principal

repayment, and the currentfair value, less any

impairment loss recognised previously in profit

or loss. If, in a subsequent period, the fair value

of an impaired available for sale debt security

increases and the increase can be related

objectively to an event occurring after the

impairment loss was recognised, the impairment

loss is reversed through profit or loss. Otherwise

it is reversed through the statement of

comprehensive income.

An impairment loss inrespect of a financial asset

measured at amortised cost is calculated as the

difference between its carrying amount, and the

present value of the estimated future cash flows

discounted at the asset’s original effective

interest rate. Individually significant financial

assets are tested for impairment on an individual

basis. The remaining financial assets are

assessed collectively in groups that share

similar credit risk characteristics.

An impairment loss recognised on an amortised

cost asset reduces directly the carrying amount

of the impaired asset. All impairment losses are

recognised in profit or loss. An impairment loss

is reversed if the reversal can be related

objectively to an event occurring after the

impairment loss was recognised. For financial

assets measured at amortised cost the reversal

is recognised in profit or loss.

v. Off-setting

Financial assets and financial liabilities are

offset, and the net amount presented in the

balance sheet when, and only when, the

Syndicate currently has a legal right to set off the

amounts and intends either to settle on a net

basis or to realise the asset and settle the liability

simultaneously.

I. Investment return

Investment return comprises investment income

and movements in unrealised gains and losses

on financial instruments at fair value through

profit or loss, less investment management

expenses, interest expense, realised lossesand

impairment losses. Investment income

comprises interest income, dividends receivable

and realised investment gains.

Dividend income is recognised when the right to

receive income is established. Usually this is the

ex-dividend date for equity securities. Interest

income on financial assets measured at

amortised cost is recognised using the effective

interest method. For the purpose of separately

presenting investment income and unrealised

gains and lossesfor financial assets at fair value

through profit or loss, interest income is

calculated using the effective interest method

excluding transaction costs that are expensed

when incurred. For investments at fair value

through profit or loss, realised gains and losses

represent the difference between the net

proceeds on disposal and the purchase price.

For investments measured at amortised cost,

realised gains and losses represents the

difference between the net proceeds on disposal

and the latest carrying value (or if acquired after

the last reporting date, the purchase price).

Unrealised investment gains and losses

represent the difference between the fair value

at the balance sheet date and the fair value at

the previous balance sheet date, or purchase

price if acquired during theyear. Movements in

unrealised investment gains and losses

comprise the increase/decrease in the reporting

period in the value of the investments held at the

reporting date and the reversal of unrealised

investment gains and losses recognised in

earlier reporting periods in respect of investment

disposals of the current period.

Investment return is initially recorded in the

non-technical account. The return is transferred

in full to the general business technical account

to reflect the investment return on funds

supporting underwriting business.

19

J. Cash and cash equivalents

Cash and cash equivalents comprise cash

balances and call deposits with maturities of

three months or less from the acquisition date

that are subject to an insignificant risk of

changes in fair value and are used by the

Syndicate in the management of its short-term

commitments.

Cash and cash equivalents are carried at

amortised cost in the statement of financial

position.

Bank overdrafts thatarerepayable on demand

and form an integral part of the Syndicate’s cash

management are included as a component of

cash and cash equivalents for the purpose of the

statement of cash flows.

K. Taxation

Under Schedule 19 of the Finance Act 1993

managing agents are not required to deduct

basic rate income tax from trading income. In

addition, all UKbasic rate income tax (currently

at [20%]) deducted from Syndicate investment

income is recoverable by managing agents and

consequently the distribution made to members

or their members’ agents is gross of tax. Capital

appreciation falls within trading income and is

also distributed gross of tax.

No provision has been made for any United

States Federal Income Tax payable on

underwriting resultsor investment earnings. Any

payments on account made by the Syndicate

during the year have been included in the

balance sheet under the heading ‘other debtors’.

No provision has been made for any other

overseas tax payable by members on

underwriting results.

L. Pension costs

[Insert the Managing Agent name] operates a

defined contribution scheme. Pension

contributions relating to Managing agent staff

who act on behalf of the Syndicate are charged

to the Syndicate as incurred and are included

within net operating expenses.

M. Profit commission

Profit commission is charged by the managing

agent at a rate of [X]% of the profit on a year of

account basis subject to the operation of a

3-year deficit clause. This is charged to the

Syndicate as incurred but does not become

payable until after the appropriate year of

account closes, normally at 36 months.

[In case there are any Profit commissions

arrangement such as consortia arrangements

the policy should be included here too]

N. Deposits with ceding undertakings

Deposits with ceding undertakings are funds

held by Lloyd’s Europe on behalf of the

Syndicate to settle Part VIIclaims. These funds

are held at amortised cost in the balance sheet.

[Syndicate to detail any other deposits with

ceding undertakings]

[Syndicate to detail any other significant policies]

O. Tangible assets

All items classed as tangible fixed assets within

the statement of financial position are carried at

historical cost less accumulated depreciation.

Depreciation is calculated on a straight-line

basis to write down the cost of other assets to

their residual values over their estimated useful

lives as follows:

 Fixtures and fittings – over [5] years

 Computer equipment – over [3] years

 Other assets – over [5] years

The assets’ residual values, useful lives and

method of depreciation are reviewed regularly,

and at least at each financial year end, and

adjusted if appropriate. Where the carrying

amount of an asset is greater than its estimated

recoverable amount, it is written down

immediately to its recoverable amount.

Gains and losses on disposal of property and

equipment are determinedby reference to their

carrying amount.

P. Other prepayment and accrued income

[Syndicate to detail policy]

Q. RITC and Portfolio Transfer Policy

[Syndicate to detail policy]

R. Deposits received from reinsurers

Deposits received from reinsurers includes other

amounts received in advance from reinsurers

against future claims under the Syndicate's

20

reinsurance arrangements. These funds are

held at amortised cost in the balance sheet.

S. Operating expenses

Where expensesare incurred bythe Managing

Agent [/Service Company] for the administration

of the Syndicate, these expenses are

apportioned appropriately based on type of

expense. Expenses that are incurred jointly are

apportioned between the Managing Agent

[/Service Company] and theSyndicate on bases

depending on the amount of work performed,

resources used, and the volume of business

transacted.

T. Reinsurers’ commission and profit

participation

Reinsurers’ commissions and profit

participations, which include reinsurance profit

commission and overriding commission, are

treated as a contribution to expenses.

U. Funds withheld in SPA arrangements

[if applicable]

[Syndicate to detail policy]

V. Debtors and creditors

Insurance debtors and creditors include

amounts due to and from agents, brokers and

insurance contract holders. These are classified

as debt instruments as they are non-derivative

financial assets with fixed or determinable

payments that are not quoted on an active

market. Insurance debtors are measured at

amortised cost less any provision for

impairments. Insurance creditors are stated at

amortised cost. The Syndicate does not have

any debtors directly with policyholders, all

transactions occur via an intermediary.

Reinsurance debtors and creditors include

amounts due to and from reinsurers. These are

classified as debt instruments as they are

non-derivative financial assets with fixed or

determinable payments that are not quoted on

an active market. Reinsurance debtors are

measured at amortised cost less any provision

for impairments. Reinsurance creditors are

stated at amortised cost. Reinsurance debtor

principally relatesto claimsrecoveries where the

underlying claim has been settled and the

recovery is due. Reinsurance creditors are

primarily premiums payable for reinsurance

contracts and are recognised as an expense

when due.

Other debtors principally consist ofamountsdue

from members and sundry debtors and are

carried at amortised cost less any impairment

losses.

Other creditors principally consist of amounts

due to related syndicates and other related

entities, profit commissions payable and other

sundry payables. These are stated at amortised

cost determined using the effective interest rate

method.

W. Classification of insurance and

reinsurance contracts

Insurance and reinsurance contracts are

classified as insurance contracts where they

transfer significant insurance risk. If a contract

does not transfer significant insurance risk it is

classified as a financial instrument. [All of the

Syndicates written contracts and purchased

reinsurance contracts transfer significant

insurance risk and therefore are recognised

insurance contract].

4. Risk and capital management

[Syndicate should adapt the commentary below

in this section]

Introduction and overview

This note presents information about the nature

and extent of insurance and financial risks to

which the Syndicate is exposed, the Managing

Agent’s objectives, policies and processes for

measuring and managing insurance and

financial risks, and for managing theSyndicate’s

capital.

Risk management framework

The Board of Directors of the Managing Agent

has overall responsibility for the establishment

and oversight of the Syndicate’s risk

management framework. The Board has

established a Risk Committee to oversee the

operation of the Syndicate’s risk management

framework and to review and monitor the

management of the risks to which the Syndicate

is exposed. The Risk Committee has delegated

oversight of the management of aspects of

insurance risks to the Underwriting and

Reserving Committee, which is responsible for

21

developing and monitoring insurance risk

management policies, and the management of

aspects of financial risks to the Investment

Committee, which is responsible for developing

and monitoring financial risk management

policies.

The Risk Committee reports regularly to the

Board of Directors on its activities. The

Underwriting and Reserving Committee and the

Investment Committee report regularly to the

Risk Committee on their activities.

The risk management policies are established to

identify and analyse the risks faced by the

Syndicate, to set appropriate risk limits and

controls, and to monitor risks and adherence to

limits.

A. Insurance risk

[Syndicate should adapt the commentary below

on insurance risk]

Insurance risk arises from the possibility of an

adverse financial result due to actual claims

experience being different from that expected

when an insurance product was designed and

priced. The actual performance of insurance

contracts is subjectto the inherent uncertaintyin

the occurrence, timing and amount of the final

insurance liabilities.

The insurance risk the Syndicate is exposedcan

be separated into underwriting riskand reserve

risk.

i. Underwriting risk

Underwriting risk is the risk that the insurance

premium will not be sufficient to cover future

insurance lossesand associated expenses. This

includes the risks that the premium is set too

low, provides inappropriate levels of cover, or

that the actual frequency or severity of claims

events will be significantly higher than was

expected during the underwriting process.

ii. Reserve Risk

Reserve risk is the risk that the reserves

established in respect of insurance claims

incurred are insufficient to settle the claims and

associated expenses in full.

i. Management of insurance risk

A key component of the management of

underwriting risk for the Syndicate is a

disciplined underwriting strategythat is focused

on writing quality business and not writing for

volume. Product pricing is designed to

incorporate appropriate premiums for each type

of assumed risk. The underwriting strategy

includes underwriting limits on the Syndicate’s

total exposure to specific risks together with

limits on geographical and industry exposures.

The aim is to ensure a well-diversified book is

maintained with no over exposure in any one

geographical region or industry.

Contracts can contain a number of features

which help to manage the underwriting risksuch

as the use of deductibles, or capping the

maximum permitted loss, or number of claims

(subject to local regulatory and legislative

requirements).

The Syndicate makes use of reinsurance to

mitigate the risk of incurring significant losses

linked to one event, including excess of loss,

stop loss and catastrophe reinsurance. Where

an individual exposure is deemed surplus to the

Syndicate’s appetite additional facultative

reinsurance is also purchased.

Where considered appropriate, and in limited

circumstances, the Syndicate may adopt a

pro-active approach to early settling long tail

latent disease claims with the contract holder,

although each settlement is assessed on a

case-by-case basis to ensure the contract

holder is not disadvantaged by such an

approach.

The Underwriting and Reserving Committee

oversees the management of reserving risk. The

use of proprietary and standardised modelling

techniques, internal and external benchmarking,

and the review of claims development are all

instrumental in mitigating reserving risk.

The Syndicate Managing Agent’s actuaries

perform a reserving analysis on a quarterly basis

liaising closely with underwriters, claims and

reinsurance technicians. The aim of this

exercise is to produce a probability -weighted

average of the expected future cash outflows

arising from the settlement of incurred claims.

These projections include an analysis of claims

22

development compared to the previous ‘best

estimate’ projections. The output of the

reserving analysis is reviewed by external

consulting actuaries. The Underwriting and

Reserving Committee performs a

comprehensive review of the projections, both

gross and net of reinsurance. Following this

review the Underwriting and Reserving

Committee makes recommendations to the Risk

Committee and the Managing Agent’s Board of

Directors of the claims provisions to be

established.

The claims development table in note number

[X] shows the actual claims incurred to previous

estimates for the last 10 years.

ii. Concentration of insurance risk

[Syndicate to detail any concentrations of

insurance risk]

iii. Sensitivity to insurance risk

The liabilities established could be significantly

lower or higher than the ultimate cost of settling

the claims arising. This level of uncertainty

varies between the classes of business and the

nature of the risk being underwritten and can

arise from developments in case reserving for

large losses and catastrophes, or from changes

in estimates of claims IBNR.

The following table presents the profit and loss

impact ofthe sensitivity of the valueof insurance

liabilities disclosed in the accounts to potential

movements in the assumptions applied within

the technical provisions. Given the nature of the

business underwritten by the Syndicate, the

approach to calculating the technical provisions

for each class can vary and as a result the

sensitivity performed is to apply a beneficial and

adverse risk margin to the total insurance

liability. The amount disclosed in the table

represents the profit or loss impact of an

increase or decrease in the insurance liability as

a result of applying the sensitivity. The amount

disclosed for the impact on claims outstanding –

net of reinsurance represents the impact on both

the profit and loss for the year and member

balance.

[Other risk variables should be disclosed where

necessary to indicate the exposure and

sensitivity to insurance risk required by FRS

103.4.9]

General insurance business sensitivities as at 31 December 20x 2	Sensitivity +5.0% £000	-5.0% £000
Claims outstanding – gross of reinsurance	21,350	(21,350)
Claims outstanding – net of reinsurance	14,100	(14,100)

General insurance business sensitivities as at 31 December 20x1	Sensitivity +5.0% £000	-5.0% £000
Claims outstanding – gross of reinsurance	17,965	(17,965)
Claims outstanding – net of reinsurance	12,550	(12,550)

23

B. Financial risk

[Syndicate should adapt the commentary below

on financial risk]

The focusof financial risk management for the

Syndicate is ensuring that the proceedsfrom its

financial assets are sufficient to fund the

obligations arising from its insurance contracts.

The goal of the investment management

process is to optimise the risk-adjusted

investment income and risk-adjusted total

return by investing in a diversified portfolio of

securities, whilst ensuring that the assets and

liabilities are managed on a cash flow and

duration matching basis.

a. Credit risk

[Syndicate should adapt the commentary below

on credit risk]

Credit risk is the risk of financial loss to the

Syndicate if a counterparty fails to discharge a

contractual obligation.

The Syndicate is exposed to credit risk in

respect of the following:

 Debt securities and derivative financial

instruments;

 Reinsurers’ share of claims outstanding;

 Amounts due from intermediaries;

 Amounts due from reinsurers in respect of

settled claims;

 Cash and cash equivalents; and

 Other debtors and accrued interest.

The nature of the Syndicate’s exposures to

credit risk and its objectives, policies and

processes for managing credit risk have not

changed significantly from the prior year.

i. Management of credit risk

The Syndicate’s credit risk in respect of debt

securities is managed by placing limits on its

exposure to a single counterparty, by reference

to the credit rating of the counterparty. Financial

assets are graded according to current credit

ratings issued by rating agencies such as

Standard and Poor’s. The Syndicate has a

policy of investing mainly in government issued

and government backed debts. The Syndicate

does not currently invest new monies in

speculative grade assets (i.e., those rated

below BBB).

The Syndicate limits the amount of cash and

cash equivalents that can be deposited with a

single counterparty and maintains an

authorised list of acceptable cash

counterparties.

The Syndicate’s exposure to intermediaries and

reinsurance counterparties is monitored by the

individual business units as part of their credit

control processes.

All intermediaries must meet minimum

requirements established bythe Syndicate. The

credit ratings and payment histories of

intermediaries are monitored on a regular

basis.

The Syndicate assesses the creditworthiness of

all reinsurers by reviewing public rating

information and by internal investigations. The

impact of reinsurer default isregularly assessed

and managed accordingly.

ii. Exposure to credit risk

The carrying amount of financial assets and

reinsurance assets represents the maximum

credit risk exposure. [The Syndicate does not

hold any collateral assecurity orpurchase any

credit enhancements (such as guarantees,

credit derivativesand netting arrangements that

do not qualify for offset).] [If the carrying amount

does not represent the maximum credit

exposure, or credit derivatives and other similar

securities are used to mitigate the credit

exposure, details required by FRS 102.34.25

will need to be considered]

The following table analyses the credit rating by

investment grade of financial investments, debt

securities and derivative financial instruments,

reinsurers’ share of claims outstanding, amount

due from intermediaries, amounts due from

reinsurers in respect of settled claims,cash and

cash equivalents, and other debtors and

accrued interest.

24

Year 20x2	AAA £000	AA £000	A £000	BBB £000	Other £000	Not rated £000	Total £000
Shares and other variable yield securities and units in unit trusts	20,000	90,500	10,000	2,500	-	-	123,000
Debt securities and other fixed income securities	30,000	104,500	14,000	6,500	-	-	155,000
Participation in investment pools	-	-	-	-	-	-	-
Loans secured by mortgages	-	-	-	-	-	-	-
Loans and deposits with credit institutions	33,000	29,000	23,000	-	-	-	85,000
Derivative assets	-	-	2,600	-	-	-	2,600
Syndicate loans to central fund	-	-	-	-	-	-	-
Other investments	10,000	6,000	2,400	-	-	-	18,400
Deposits with ceding undertakings	-	-	-	-	1,000	-	1,000
Reinsurers’ share of claims outstanding	-	93,000	39,000	13,000	-	-	145,000
Debtors arising out of direct insurance operations	-	-	-	-	-	53,100	53,100
Debtors arising out of reinsurance operations	-	-	-	-	35,100	-	35,100
Cash at bank and in hand	2,000	5,000	1,000	-	-	-	8,000
Other debtors and accrued interest	-	-	-	-	-	6,300	6,300
Total	95,000	328,000	92,000	22,000	36,100	59,400	632,500

Year 20x1	AAA £000	AA £000	A £000	BBB £000	Other £000	Not rated £000	Total £000
Shares and other variable yield securities and units in unit trusts	20,000	56,000	6,000	6,000	-	-	88,000
Debt securities and other fixed income securities	29,000	100,000	20,000	6,000	1,000	-	156,000
Participation in investment pools	-	-	-	-	-	-	-
Loans secured by mortgages	-	-	-	-	-	-	-
Loans and deposits with credit institutions	30,000	17,000	13,000	-	-	-	60,000
Derivative assets	-	-	5,700	-	-	-	5,700
Syndicate loans to central fund	-	-	-	-	-	-	-
Other investments	8,000	2,000	300	-	-	-	10,300
Deposits with ceding undertakings	-	-	-	-	1,000	-	1,000
Reinsurers’ share of claims outstanding	-	86,000	15,000	7,300	-	-	108,300
Debtors arising out of direct insurance operations	-	-	-	-	-	47,300	47,300
Debtors arising out of reinsurance operations	-	-	-	-	34,700	-	34,700
Cash at bank and in hand	2,400	12,600	4,000	-	-	-	19,000
Other debtors and accrued interest	-	-	-	-	-	9,000	9,000
Total	89,400	273,600	64,000	19,300	36,700	56,300	539,300

25

iii. Financial assets that are past due or impaired

The Syndicate has debtors arising from direct insurance and reinsurance operations that are past due

but not impaired at the reporting date.

The Syndicate also has debtors arising from direct insurance operations that are impaired at the

reporting date.

These debtors have been individually assessed for impairment by considering information such as the

occurrence of significant changes in the counterparty’s financial position, patterns of historical payment

information and disputes with counterparties.

[Syndicates to disclose factors considered in determining impairment of the financial instruments]

An analysis of the carrying amounts of past due or impaired debtors is presented in the table below:

Neither past

due nor

impaired

assets

Past due

but not

impaired

assets

Gross value

of impaired

assets

Impairment

allowance

Total

20x2

£000

Shares and other variable yield securities and

units in unit trusts

123,000

-

123,000

Debt securities and other fixed income

securities

155,000

-

155,000

Participation in investment pools -

-

Loans secured by mortgages -

-

Loans and deposits with credit institutions 85,000

-

85,000

Derivative assets 2,600

-

2,600

Syndicate loans to central fund -

-

Other investments 18,400

-

18,400

Deposits with ceding undertakings 1,000

-

1,000

Reinsurers' share of claims outstanding 145,000

-

145,000

Debtors arising out of direct insurance

operations

47,250

5,610

690

(450)

53,100

Debtors arising out of reinsurance operations 30,160

4,760

510

(330)

35,100

Other debtors and accrued interest 6,300

-

6,300

Cash at bank and in hand 8,000

-

8,000

Total

621,710

10,370

1,200

(780)

632,500

26

Neither past

due nor

impaired

assets

Past due but

not impaired

assets

Gross value

of impaired

assets

Impairment

allowance

Total

20x1

£000

Shares and other variable yield securities and

units in unit trusts

88,000

-

88,000

Debt securities and other fixed income

securities

156,000

-

156,000

Participation in investment pools -

-

Loans secured by mortgages -

-

Loans and deposits with credit institutions 60,000

-

60,000

Derivative assets 5,700

-

5,700

Syndicate loans to central fund -

-

Other investments 10,300

-

10,300

Deposits with ceding undertakings 1,000

-

1,000

Reinsurers' share of claims outstanding 108,300

-

108,300

Debtors arising out of direct insurance

operations

42,250

4,820

650

(420)

47,300

Debtors arising out of reinsurance operations 29,670

4,780

560

(310)

34,700

Other debtors and accrued interest 9,000

-

9,000

Cash at bank and in hand 19,000

-

19,000

Total

529,220

9,600

1,210

(730)

539,300

The table below sets out a reconciliation of changes in impairment allowance during the period for

each class of financial asset at the balance sheet date:

1 Jan

New

impairme

nt

charges

added in

year

Changes

in

impairme

nt

charges

Released

to profit

and loss

account

Foreign

exchange

Others

31 Dec

20x2

£000

Financial investments -

-

Deposits with ceding undertakings -

-

Reinsurers' share of claims

outstanding

-

Debtors arising out of direct

insurance operations

420

30

-

450

Debtors arising out of reinsurance

operations

310

20

-

330

Other debtors and accrued interest -

-

Cash at bank and in hand -

-

Total

730

50

-

780

27

1 Jan

New

impairme

nt

charges

added in

year

Changes

in

impairme

nt

charges

Released

to profit

and loss

account

Foreign

exchange

Others

31 Dec

20x1

£000

Financial investments -

-

Deposits with ceding undertakings -

-

Reinsurers' share of claims

outstanding

-

Debtors arising out of direct

insurance operations

410

10

-

420

Debtors arising out of reinsurance

operations

300

10

-

310

Other debtors and accrued interest -

-

Cash at bank and in hand -

-

Total

710

20

-

730

The table below sets out the age analysis of financial assets that are past due but not impaired at the

balance sheet date:

Past due but not

impaired

0-3 months

past due

3-6 months

past due

6-12 months

past due

Greater

than 1 year

past due

Total

20x2

£000

Shares and other variable yield securities

and units in unit trusts

-

Debt securities and other fixed income

securities

-

Participation in investment pools -

-

Loans secured by mortgages -

-

Loans and deposits with credit institutions -

-

Derivative assets -

-

Syndicate loans to central fund -

-

Other investments -

-

Deposits with ceding undertakings -

-

Reinsurers' share of claims outstanding -

-

Debtors arising out of direct insurance

operations

2,000

3,000

610

-

5,610

Debtors arising out of reinsurance

operations

1,500

2,500

760

-

4,760

Other debtors and accrued interest -

-

Cash at bank and in hand -

-

Total

3,500

5,500

1,370

-

10,370

28

b. Liquidity risk

[Syndicate should adapt the commentary below

on liquidity risk]

Liquidity risk is the risk that the Syndicate will

encounter difficulty in meeting obligations

arising from its insurance contracts and financial

liabilities. The Syndicate is exposed to daily calls

on its available cash resources mainly from

claims arising from insurance contracts.

The nature of the Syndicate’s exposures to

liquidity risk and its objectives, policies and

processes for managing liquidity risk have not

changed significantly from the prior year.

i. Management of liquidity risk

The Syndicate’s approach to managing liquidity

risk is to ensure, as far as possible, that it will

always have sufficient liquidity to meet its

liabilities when they fall due, under both normal

and stressed conditions.

The Syndicate’s approach to managing its

liquidity risk is as follows:

 Forecasts are prepared and revised on a

regular basis to predict cash outflows from

insurance contracts overthe short, medium

and long term;

 The Syndicate purchases assets with

durations not greater than its estimated

insurance contract outflows;

 Assets purchased by the Syndicate are

required to satisfy specified marketability

requirements;

 The Syndicate maintains cash and liquid

assets to meet daily calls on its insurance

contracts;

 The Syndicate holds significant committed

borrowing facilities from a range of highly

rated banks to enable cash to be raised in a

relatively short time-span; and

 The Syndicate regularly updates its

contingency funding plans to ensure that

adequate liquid financial resources are in

place to meet obligations asthey fall duein

the event of reasonably foreseeable

abnormal circumstances.

Past due but not impaired

	0-3 months past due	3-6 months past due	6-12 months past due	Greater than 1 year past due	Total
Shares and other variable yield securities and units in unit trusts	-	-	-	-	-
Debt securities and other fixed income securities	-	-	-	-	-
Participation in investment pools	-	-	-	-	-
Loans secured by mortgages	-	-	-	-	-
Loans and deposits with credit institutions	-	-	-	-	-
Derivative assets	-	-	-	-	-
Syndicate loans to central fund	-	-	-	-	-
Other investments	-	-	-	-	-
Deposits with ceding undertakings	-	-	-	-	-
Reinsurers' share of claims outstanding	-	-	-	-	-
Debtors arising out of direct insurance operations	1,500	2,500	820	-	4,820
Debtors arising out of reinsurance operations	1,700	2,000	1,080	-	4,780
Other debtors and accrued interest	-	-	-	-	-
Cash at bank and in hand	-	-	-	-	-
Total	3,200	4,500	1,900	-	9,600

29

ii. Maturity analysis of syndicate liabilities

The maturity analysis presented in the table

below shows the remaining contractual

maturities for the Syndicate’s insurance

contracts and financial instruments. For

insurance and reinsurance contracts, the

contractual maturity isthe estimated date when

the gross undiscounted contractually required

cash flows will occur. For financial liabilities, it is

the earliest date on which the gross

undiscounted cash flows (including contractual

interest payments) could be paid assuming

conditions are consistent with those at the

reporting date.

6

Undiscounted net cash flows

Year 20x2	No maturity stated £ 000	0-1 yrs £ 000	1-3 yrs £ 000	3-5 yrs £ 000	>5 yrs £ 000	Total £ 000
Claims outstanding	-	200,000	120,000	80,000	27,000	427,000
Derivative liabilities	-	-	-	-	-	-
Deposits received from reinsurers	500	-	-	-	-	500
Creditors	-	76,600	11,400	2,100	-	90,100
Other credit balances	-	-	-	-	-	-
Total	500	276,600	131,400	82,100	27,000	517,600

Undiscounted net cash flows

Year 20x1	No maturity stated £ 000	0-1 yrs £ 000	1-3 yrs £ 000	3-5 yrs £ 000	>5 yrs £ 000	Total £ 000
Claims outstanding	-	150,000	90,000	80,000	39,300	359,300
Derivative liabilities	-	-	-	-	-	-
Deposits received from reinsurers	1,500	-	-	-	-	1,500
Creditors	-	58,400	11,400	1,100	-	70,900
Other credit balances	-	-	-	-	-	-
Total	1,500	208,400	101,400	81,100	39,300	431,700

c. Market risk

[Syndicate should adapt the commentary below

on market risk]

Market risk is the risk that the fair value or future

cash flows of a financial instrument orinsurance

contract will fluctuate because of changes in

market prices. Market risk comprises three types

of risk: interest rate risk, currency risk and other

price risk.

The objective of market risk management is to

manage and control market risk exposures

within acceptable parameters, while optimising

the return on risk. The nature of the Syndicate

exposures to market risk and its objectives,

policies and processes formanaging market risk

have not changed significantly from the prior

year.

i. Management of market risks

For each of themajor components of marketrisk

the Syndicate has policies and procedures in

place which detail how each risk should be

managed and monitored. The management of

each of these major components of major risk

and the exposure of the Syndicate at the

reporting date to each majorrisk are addressed

below.

ii. Interest rate risk

Interest rate risk is the risk that the fair value

and/or future cash flowsof a financial instrument

30

will fluctuate because of changes in interest

rates.

The Syndicate is exposed to interest rate risk

through its investment portfolio, borrowings and

cash and cash equivalents.

The risk of changes in the fair value of these

assets is managed by primarily investing in

short-duration financial investments and cash

and cash equivalents. The Investment

Committee monitors the duration of these assets

on a regular basis, targeting an investment

portfolio duration that, in the event of changes in

interest rates, always maintains the internal

capital requirements.

iii. Currency risk

The Syndicate writes business primarily in

Sterling, US dollar, Euro, Canadian dollar,

Australian dollar and Japanese Yen and is

therefore exposedtocurrency risk arising from

fluctuations in these exchange rates.

The foreign exchange policy is to maintain

assets in the currency in which the cash flows

from liabilities are to be settled in order to hedge

the currency risk inherent in these contracts. In

addition, as at 31 December 20x2, the Syndicate

has in place currency forward contracts which

materially hedge thelong position on US dollars.

The table below summarises the carrying value

of the Syndicate’s assets and liabilities, at the

reporting date:

Sterling

US dollar

Euro

Canadian

dollar

Australian

dollar

Japanese

Yen

Other

Total

20x2

£000

Investments 85,000

215,500

80,000

-

4,500

385,000

Reinsurers' share of

technical provisions

45,000

83,150

35,500

-

2,000

165,650

Debtors 24,500

54,900

8,500

-

1,500

89,400

Other assets 2,600

4,500

1,050

-

450

8,600

Prepayments and

accrued income

8,600

22,500

2,400

-

1,000

34,500

Total assets

165,700

380,550

127,450

-

9,450

683,150

Technical provisions (124,800)

(315,650)

(104,500)

-

(7,600)

(552,550)

Provisions for other

risks

-

Deposits received from

reinsurers

(500)

-

(500)

Creditors (23,600)

(51,300)

(14,200)

-

(1,000)

(90,100)

Accruals and deferred

income

(200)

(100)

-

(500)

Total liabilities

(

149,100

)

(

367,150

)

(

118,800

)

-

(

8,600

)

(

643,650

)

Total capital and

reserves

(16,600)

(13,400)

(8,650)

-

(850)

(39,500)

31

Sterling

US dollar

Euro

Canadian

dollar

Australian

dollar

Japanese

Yen

Other

Total

20x1

£000

Investments 85,000

175,000

59,000

-

2,000

321,000

Reinsurers' share of

technical provisions

32,700

57,650

30,400

-

1,200

121,950

Debtors 22,500

55,400

7,500

-

1,100

86,500

Other assets 2,350

12,600

4,150

-

400

19,500

Prepayments and

accrued income

7,200

20,900

2,150

-

950

31,200

Total assets

149,750

321,550

103,200

-

5,650

580,150

Technical provisions (100,500)

(265,000)

(88,000)

-

(6,400)

(459,900)

Provisions for other

risks

-

Deposits received from

reinsurers

(1,500)

-

(1,500)

Creditors (18,500)

(40,400)

(11,200)

-

(800)

(70,900)

Accruals and deferred

income

(1,100)

(300)

(200)

-

(1,600)

Total

liabilities

(

121,600

)

(

305,700

)

(

99,400

)

-

(

7,200

)

(

533,900

)

Total capital and

reserves

(28,150)

(15,850)

(3,800)

-

1,550

(46,250)

[NOTE: The above 6 currencies are the minimum that must be included by the syndicates as these are

the 6 currencies presented by Lloyd’s. Syndicates can present other currencies in this table, however

other currenciespermitted to be included are limited to the 14 currencies in which FAL can be held. The

14 permitted currencies are: GBP, USD, EUR, CAN, AUS, JPY, ZAR, CHF, NOK, SEK, DKK, HKD,

NZD, SGD, any other currency exposure should be presented as Other]

iv. Equity price risk

Equity price risk is the risk that the fair value of

a financial instrument will fluctuatebecause of

changes in market prices (other than those

arising from interest rate risk or currencyrisk),

principally investment securities, whether those

changes are caused by factors specific to the

individual financial instrument or its issuer, or

factors affecting all similar financialinstruments

traded in the market.

The Syndicate holds a limited portfolio of

equities which are subject to equity price risk.

This exposure benefits members through the

enhanced longer-term returns on equities

compared with debt securities.

Equity price risks are managed bysetting and

monitoring objectives and constraints on

investments, diversification plans and limits on

investments. The management ensures that

the Syndicate’s internal capital requirements

are met at all times, as well as those mandated

by the Syndicate’s external regulators.

v. Sensitivity analysis to market risks

The analysis below is performed forreasonably

possible movements in market indices on

financial instruments with all other variables

held constant, showing the impact on the result

before tax due to changes in fair value of

financial assetsand liabilities (whose fair values

are recorded in the profit and loss account) and

members’ balances.

32

	20x2 Impact on results before tax £000	20x2 Impact on members’ balances £000	20x1 Impact on results before tax £000	20x1 Impact on members’ balances £000
Interest rate risk
+ 50 basis points shift in yield curves	(4,280)	(4,280)	(3,625)	(3,625)
- 50 basis points shift in yield curves	4,180	4,180	3,540	3,540
Equity price risk
5 percent increase in equity prices	1,400	1,400	900	900
5 percent decrease in equity prices	(1,400)	(1,400)	(900)	(900)

[In addition to interest rate risk and equity price

risk included in the table above, Syndicates

should report the impact of currency risk on

results before tax and members’ balances. The

currency against which is the impact is

assessed willvarybySyndicatedepending on

the chosen reporting currency.]

[A 10% increase (or decrease) in exchange

rates, 5% increase (or decrease) in equity

prices and a 50 basis point increase (or

decrease) in yield curves have been selected

on the basis that these are considered to be

reasonably possible changes in these risk

variables over the following year].

The sensitivity analysis demonstrates the effect

of a change in a key variable while other

assumptions remain unchanged. However, the

occurrence of a change in a single market factor

may lead to changes in other market factors as

a result of correlations.

The sensitivity analyses do not take into

consideration that the Syndicate’s financial

investments are actively managed. Additionally,

the sensitivity analysis is based on the

Syndicate’s financial position at the reporting

date and may vary at the time that any actual

market movement occurs. As investment

markets move past pre-determined trigger

points, action would be taken which would alter

the Syndicate’s position.

C. Capital management

[Syndicate should adapt the commentary below

on capital management]

i. Capital framework at Lloyd’s

The Society of Lloyd’s (Lloyd’s) is a regulated

undertaking and subject to supervision by the

Prudential Regulatory Authority (PRA) under

the Financial Services and Markets Act 2000,

and in accordance with the Solvency II

Framework.

Within this supervisory framework, Lloyd’s

applies capital requirements at member level

and centrally to ensure that Lloyd’s would

comply with the SolvencyII requirements, and

beyond that to meet its own financial strength,

licence and ratings objectives.

Although, as described below, Lloyd’s capital

setting processes use a capital requirement set

at syndicate level as a starting point, the

requirement to meet Solvency II and Lloyd’s

capital requirements apply at overall and

member level only respectively, not at

syndicate level. Accordingly, the capital

requirement in respect of [Syndicate name] is

not disclosed in these financial statements.

ii. Lloyd’s capital setting process

In order to meet Lloyd’s requirements, each

Syndicate is requiredto calculate its Solvency

Capital Requirement (SCR) for the prospective

underwriting year. This amount must be

sufficient to cover a 1 in 200 year loss, reflecting

uncertainty in the ultimate run-off of

underwriting liabilities (SCR ‘to ultimate’). The

Syndicate must also calculate its SCR at the

same confidence levelbut reflectinguncertainty

over a one year time horizon (one year SCR)

for Lloyd’s to use in meeting Solvency II

requirements. The SCRs of each Syndicate are

subject toreview byLloyd’s and approval by the

Lloyd’s Capital and Planning Group.

A syndicate may be comprised of one ormore

underwriting members of Lloyd’s. Each

member is liable for its own share of

underwriting liabilities on the Syndicates on

which it is participating but not other members’

33

shares. Accordingly, the capital requirements

that Lloyd’s sets for each member operates on

a similar basis.

Each member’s SCR shall thusbe determined

by the sum of the member’s share of the

Syndicate SCR‘to ultimate’. Where a member

participates on more than one syndicate, a

credit for diversification is provided toreflect the

spread of risk, but consistent with determining

an SCR which reflects the capital requirement

to cover a 1 in 200 loss ‘to ultimate’ for that

member. Over and above this, Lloyd’s applies

a capital uplift to the member’s capital

requirement, known as the Economic Capital

Assessment (ECA). The purpose of this uplift,

which is a Lloyd’s not a Solvency II requirement,

is to meet Lloyd’s financial strength, licence and

ratings objectives. The capital uplift applied for

20X2 was 35% (20X1: 35%) of the member’s

SCR ‘to ultimate’.

iii. Provision of capital by members

Each member may provide capital to meet its

ECA either by assets held in trust by Lloyd’s

specifically for that member (FAL), assetsheld

and managed within a syndicate (FIS), or as the

member’s share of the members’ balances on

each syndicate on which it participates.

Accordingly, all of the assets less liabilities of

the Syndicate, as represented in the members’

balances reported on the balance sheet on

page 16, represent resources available to meet

members’ and Lloyd’s capital requirements.

5. Analysis of underwriting result

An analysis of the underwriting result before investment return is presented in the table below:

20x2	Gross premiums written £000	Gross premiums earned £ 000	Gross claims incurred £ 000	Gross operating expenses £ 000	Reinsurance balance £ 000	Underwritin g result £ 000
Direct insurance
Accident and health	24,500	20,000	(6,000)	(7,300)	(600)	6,100
Motor (third party liability)	-	-	-	-	-	-
Motor (other classes)	-	-	-	-	-	-
Marine, aviation, and transport	50,000	48,000	(14,300)	(16,400)	(1,500)	15,800
Fire and other damage to property	80,000	76,000	(31,000)	(27,500)	1,200	18,700
Third party liability	150,000	142,000	(105,000)	(49,140)	(2,650)	(14,790)
Credit and suretyship	-	-	-	-	-	-
Legal expenses	-	-	-	-	-	-
Assistance	-	-	-	-	-	-
Miscellaneous	22,000	21,500	(15,000)	(7,500)	(1,250)	(2,250)
Life	-	-	-	-	-	-
Total direct insurance	326,500	307,500	(171,300)	(107,840)	(4,800)	23,560
Reinsurance acceptances	36,000	30,000	(15,000)	(5,200)	(500)	9,300
Total	362,500	337,500	(186,300)	(113,040)	(5,300)	32,860

34

The below is an additional disclosure for Lloyd’s reporting purposes and is included to facilitate the

classification of the above segments into the Lloyd’s aggregate classes of business:

20x2	Gross premiums written £000	Gross premiums earned £ 000	Gross claims incurred £ 000	Gross operating expenses £ 000	Reinsuran ce balance £ 000	Underwriti ng result £ 000
Additional analysis
Fire and damage to property of which is:
Specialities	8,000	7,600	(3,100)	(2,750)	120	1,870
Energy	400	380	(155)	(138)	6	93
Third party liability of which is:
Energy	30,000	28,400	(21,000)	(9,828)	(530)	(2,958)

20x1	Gross premiums written £ 000	Gross premiums earned £ 000	Gross claims incurred £ 000	Gross operating expenses £ 000	Reinsurance balance £ 000	Underwritin g result £ 000
Direct insurance
Accident and health	19,000	25,000	(6,000)	(7,300)	(1,100)	10,600
Motor (third party liability)	-	-	-	-	-	-
Motor (other classes)	-	-	-	-	-	-
Marine, aviation, and transport	58,400	68,400	(34,000)	(19,800)	(6,500)	8,100
Fire and other damage to property	75,000	78,500	(40,000)	(26,600)	1,800	13,700
Third party liability	155,000	181,500	(115,500)	(52,490)	(10,100)	3,410
Credit and suretyship	-	-	-	-	-	-
Legal expenses	-	-	-	-	-	-
Assistance	-	-	-	-	-	-
Miscellaneous	6,000	15,000	(6,000)	(5,200)	(3,200)	600
Life	-	-	-	-	-	-
Total direct insurance	313,400	368,400	(201,500)	(111,390)	(19,100)	36,410
Reinsurance acceptances	25,000	15,000	(9,000)	(6,100)	(1,700)	(1,800)
Total	338,400	383,400	(210,500)	(117,490)	(20,800)	34,610

35

The below is an additional disclosure for Lloyd’s reporting purposes and is included to facilitate the

classification of the above segments into the Lloyd’s aggregate classes of business:

20x1

Gross

premiums

written

£

000

Gross

premiums

earned

£

000

Gross

claims

incurred

£

000

Gross

operating

expenses

£

000

Reinsuran

ce

balance

£

000

Underwriti

ng result

£

000

Additional analysis

Fire and damage to property of

which is:

Specialities 7,500

7,850

(4,000)

(2,660)

180

1,370

Energy 375

393

(200)

(133)

9

69

Third party liability of which is:

Energy 36,300

23,100

(10,498)

(2,020)

682

11,264

No gains or losses were [A gain[/loss] of £X was] recognised in profit or loss during the year on buying

reinsurance (20x1: [nil]).

The gross premiums written for direct insurance by underwriting location of risk is presented in the table

below:

	20x2 £000	20x1 £000
United Kingdom	95,840	94,450
European Union Member States	81,670	81,470
US	144,690	134,190
Rest of the world	4,300	3,290
Total gross premiums written	326,500	313,400

6. Net operating expenses

	20x2 £000	20x1 £000
Acquisition costs	94,500	89,700
Change in deferred acquisition costs	(2,700)	3,630
Administrative expenses	12,340	16,060
Foreign exchange [long - term business only ]	-	-
Members’ standard personal expenses	8,900	8,100
Reinsurance commissions and profit participation	(6,500)	(4,200)
Net operating expenses	106,540	113,290

Total commissions for direct insurance business for the year amounted to:

	20x2 £000	20x1 £000
Total commission for direct insurance business	65,200	62,700

36

Administrative expenses include:

	20x2 £000	20x1 £000
Auditors’ remuneration:
fees payable to the Syndicate’s auditor for the audit of these financial statements	210	200
fees payable to the Syndicate’s auditor and its associates in respect of other services pursuant to legislation	95	59
Impairment losses on debtors:
arising out of direct insurance operations	30	20
arising out of reinsurance operations	20	10
Impairment losses on financial instruments:
arising from instrument measured at amortised cost	-	-
arising from instruments measured as available for sale	-	-

7. Key management personnel compensation

The directors of [the managing agent] received the following aggregate remuneration charged to the

Syndicate:

	20x2 £000	20x1 £000
Directors’ emoluments	500	475
Fees	50	50

The active underwriter received the following aggregate remuneration charged to the Syndicate.

The run-off manager received the following aggregate remuneration charged to the Syndicate.

8. Staff numbers and costs

All staff are employed by the managing agent [/The syndicate and managing agent have no employees.

Staff are employed by [Name of service Company]. The average number of persons employed by the

managing agent [/service company], but working for the Syndicate during the year, analysed by

category, was as follows:

Number of

employees

20x2

20x1

Administration and finance 8

5

Underwriting 20

24

Claims 25

22

Investments 3

2

Total

56

53

	20x2 £000	20x1 £000
Emoluments	150	145

	20x2 £000	20x1 £000
Emoluments	-	-

37

The following amounts were recharged by the managing agency [/service company] to the

Syndicate in respect of payroll costs:

	20x2 £000	20x1 £000
Wages and salaries	6,500	6,000
Social security costs	750	700
Other pension costs	750	700
Other [short / long] term incentive costs	-	-
Total	8,000	7,400

38

9. Investment return

	20x2 £000	20x1 £000
Interest and similar income
From financial instruments designated at fair value through profit or loss
Interest and similar income	2,523	1,986
Dividend income	5,677	4,914
From financial instruments classified as Available for Sale
Interest and similar income	-	-
Dividend income	-	-
From financial instruments at amortised cost
Interest and similar income	-	-
Dividend income	-	-
Interest on cash at bank	-	-
Other income from investments
From financial instruments designated at fair value through profit or loss
Gains on the realisation of investments	-	600
Losses on the realisation of investments	(250)	(150)
Unrealised gains on investments	-	100
Unrealised losses on the investments	(400)	-
Other relevant gains/(losses)	-	-
From financial instruments at amortised cost
Gains on the realisation of investments	-	-
Losses on the realisation of investments	-	-
Unrealised gains on investments	-	-
Unrealised losses on the investments	-	-
Other relevant gains/(losses)	-	-
Financial liabilities at amortised cost
Interest expense	(10)	(10)
Other relevant gains	-	-
Other relevant losses	-	-
Investment management expenses	(400)	(350)
Total investment return	7,140	7,090
Transferred to the technical account from the non-technical account	7,140	7,090
Investment return on Funds in Syndicate	300	1,000
Impairment losses on debtors recognised in administrative expenses	(50)	(30)

[An investment return of £x was allocated to the technical account and … syndicate to include basis of

allocation.../The investment return was wholly allocated to the technical account]

39

10. Distribution and open years of account

A [distribution to / collection from] members of [Indicate amount] will be proposed in relation to the

closing year of account (20x0) (20x1: [Indicate amount] [distribution / collection] in relation to the

closing year of account (20w9)).

The table belowshows the current reporting year result(total comprehensive income/(loss)) of the years

of account remaining open after the three-year period:

	20x2 £000	20x1 £000
20w1	-	-
20w2	-	-
20w3	-	-
20w4	-	-
20w5	-	-
20w6	-	-
20w7	-	-
20w8	-	-
20w9	-	-
20x0	-	-

11. Financial investments

Carrying value

Cost

20x2

£000

20x1

£000

20x2

£000

20x1

£000

Shares and other variable yield securities and units in unit trusts

123,000

88,000

77,180

Debt securities and other fixed income securities 155,000

156,000

171,000

136,820

Participation in investment pools -

-

Loans secured by mortgages -

-

Loans and deposits with credit institutions 85,000

60,000

85,000

60,000

Derivative assets 2,600

5,700

-

Syndicate loans to central fund -

-

Other investments 18,400

10,300

17,450

9,320

Total financial investments

384,000

320,000

361,450

283,320

[The Syndicate has pledged [£000] of financial instruments, primarily debt and other fixed income

securities, as collateral against derivatives used for hedging. The pledged assets … terms and

conditions relating to pledge].

The amount ascribable to listed investments is [Indicate amount] (20x1: [Indicate amount]).

The table below presents an analysis of financial investments by their measurement classification:

	20x2 £000	20x1 £000
Financial assets measured at fair value through profit or loss	299,000	260,000
Financial assets measured at fair value as available for sale	-	-
Financial assets measured at amortised cost	85,000	60,000
Total financial investments	384,000	320,000

40

Included within [category] above are financial instruments with a carrying amount of [X (20x1: Y) which

would otherwise be required to be measured at fair value, but for which a reliable measure of fair value

is no longer available. These instruments are primarily [type of instrument] and a reliable measure of

fair value is not available because […].

The table below analysis the derivative assets and liabilities by type:

	20x2 Notional amount £000	20x2 Fair value £000	20x1 Notional amount £000	20x1 Fair value £000
Foreign exchange forward contracts	8,000	1,500	9,000	1,700
Interest rate future contracts	-	-	-	-
Foreign exchange future options	6,000	1,100	12,700	4,000
Equity options	-	-	-	-
Foreign exchange contract for difference	-	-	-	-
Other	-	-	-	-
Total	14,000	2,600	21,700	5,700

[Syndicates to disclose for each class of derivatives, the extent and nature of the instruments, including

significant terms and conditions that may affect the amount, timing and certainty of future cash flows.]

As the Syndicate is fully aligned, the Syndicateholds the capital supporting theirunderwriting in their

Syndicate’s premium trust funds. These funds are known as funds in syndicate (FIS). At 31 December

20x2, the following amount was held as funds in syndicate:

	20x2 £000	20x1 £000
Funds in Syndicate (FIS)	-	-
Total funds in syndicate	-	-

The Syndicate classifies its financial instruments held at fair value in its balancesheet using a fair value

hierarchy based on the inputs used in the valuation techniques as follows:

 Level 1 – financial assets that are measured by reference to published quotes in an active market.

A financial instrument is regarded asquoted in an active market if quoted pricesare readily and

regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory

agency and those prices represent actual and regularly occurring market transactions on an arm’s

length basis.

 Level 2 – financial assets measured using a valuation technique based on assumptions that are

supported by prices fromobservable current market transactions. For example,assets for which

pricing is obtained via pricing services but where prices have not been determined in an active

market, financial assets with fair valuesbased on broker quotes,investments in privateequity funds

with fair values obtained via fund managers and assets that are valued using the Syndicate’s own

models whereby the significant inputs into the assumptions are market observable.

 Level 3 – financial assets measured using a valuation technique (model) based on assumptions

that are neither supported by prices from observable current market transactions in the same

instrument nor are they based on available market data. Therefore, unobservable inputs reflect the

Syndicate's own assumptions about the assumptions that market participants would use in pricing

the asset or liability (including assumptionsabout risk). These inputs are developed based on the

best information available, which might include the Syndicate’s own data.

41

The table below analyses financial instruments held at fair value in the Syndicate’s balance sheet at

the reporting date by its level in the fair value hierarchy:

20x2	Level 1 £000	Level 2 £000	Level 3 £000	Assets held at amortised cost	Total £000
Shares and other variable yield securities and units in unit trusts	60,520	21,120	41,360	-	123,000
Debt securities and other fixed income securities	75,480	26,880	52,640	-	155,000
Participation in investment pools	-	-	-	-	-
Loans secured by mortgages	-	-	-	-	-
Loans and deposits with credit institutions	-	-	-	85,000	85,000
Derivative assets	-	-	2,600	-	2,600
Syndicate loans to central fund	-	-	-	-	-
Other investments	12,800	1,200	4,400	-	18,400
Total financial investments	148,800	49,200	101,000	85,000	384,000
Derivative liabilities	-	-	-	-	-
Total	148,800	49,200	101,000	85,000	384,000

20x1	Level 1 £000	Level 2 £000	Level 3 £000	Assets held at amortised cost	Total £000
Shares and other variable yield securities and units in unit trusts	39,600	12,600	35,800	-	88,000
Debt securities and other fixed income securities	70,400	22,400	63,200	-	156,000
Participation in investment pools	-	-	-	-	-
Loans secured by mortgages	-	-	-	-	-
Loans and deposits with credit institutions	-	-	-	60,000	60,000
Derivative assets	-	-	5,700	-	5,700
Syndicate loans to central fund	-	-	-	-	-
Other investments	8,000	1,000	1,300	-	10,300
Total financial investments	118,000	36,000	106,000	60,000	320,000
Derivative liabilities	-	-	-	-	-
Total	118,000	36,000	106,000	60,000	320,000

Information on the methods and assumptions

used to determine fair values for each major

category of financial instrument measured at fair

value is provided below.

Equity instruments listed on a recognised

exchange are valued using prices sourced from

the primary exchange on which they are listed.

Units in unit trustsand OEICs are valued using

the latest unit price or share price provided by

the unit trust or OEIC managers. Shares and

other variable securities and units in unit trusts

are generally categorised as level 1 in the fair

value hierarchy except where they are not

actively traded, in which case they are generally

measured at prices of recent transactions in the

same instrument. The Syndicate has no

exposure to hedge funds.

Debt securities are generally valued using prices

provided by external pricing vendors. Pricing

vendors will often determine prices by

consolidating pricesof recent trades foridentical

or similar securities obtained from a panel of

market makers into a composite price. The

pricing service may make adjustments for the

42

elapsed timefromatrade datetothe valuation

date to take into account available market

information. Lacking recently reported trades,

pricing vendors will use modelling techniques to

determine a security price.

Some government and supranational securities

are listed on recognised exchanges and are

generally classified as level 1 in the fair value

hierarchy. Those that are not listed on a

recognised exchange are generally based on

composite prices of recent trades in the same

instrument and are generally classified as level

2 in the fair value hierarchy.

Corporate bonds, including asset backed

securities, that are not listed on a recognised

exchange or are traded in an established

over-the-countermarket are also mainly valued

using composite prices. Where pricesare based

on multiple quotes andthose quotes are based

on actual recent transactions in the same

instrument the securities are classified as level

2, otherwise they are classified aslevel 3 in the

fair value hierarchy.

The derivative assets and liabilities held at the

reporting date comprise over-the-counter US

Dollar forward foreign exchange contracts with a

notional amount of [Indicate amount] (20x1:

[Indicate amount]. These derivatives are

valued using [observable prices…/valuation

techniques….] and are classified as [level

2/level 3] in the fair value hierarchy.

Management performs an analysis of the prices

obtained from pricing vendors to ensure that

they are reasonable and produce a reasonable

estimate of fair value. Management considers

both qualitative and quantitative factors aspart

of this analysis. Examples of analytical

procedures performed include reference to

recent transactional activity for similar securities,

review of pricing statistics and trends and

consideration of recent relevant market events.

At the reporting date Level 1 and Level 2

financial assets and liabilities were valued using

valuation techniques based on observable

market data. All of theinvestments categorised

as Level 3 are fair valued based on the inputs to

the valuation technique used.

[Where valuation techniques are used to

determine fair value syndicates are required

under FRS 102.11.43 to disclose the

assumptions applied in determining fair values

of each class of financial assets or financial

liabilities (e.g., if applicable, syndicate discloses

information about the assumptions relating to

prepayment rates, rates of estimated credit

losses, and interest rates or discount rates)]

[Where fair value of the instruments and other

assets has been determined other than by

reference to market value syndicates should

provide disclosure of the fair valuation

techniques used.]

12. Debtors arising out of direct insurance operations

	20x2 £000	20x1 £000
Due within one year	45,100	40,000
Due after one year	8,000	7,300
Total	53,100	47,300

13. Debtors arising out of reinsurance operations

	20x2 £000	20x1 £000
Due within one year	33,000	33,000
Due after one year	2,100	1,700
Total	35,100	34,700

43

14. Other debtors

	20x2 £000	20x1 £000
Inter syndicate balances	-	-
Other related party balances (non-syndicate)	-	-
Amounts due from members	-	-
Other	1,200	4,500
Total	1,200	4,500

15. Deferred acquisition costs

The table below shows changes in deferred acquisition costs assets from the beginning of the period

to the end of the period:

20x2

20x1

Gross

£000

Reinsurance

£000

Net

£000

Gross

£000

Reinsurance

£000

Net

£000

Balance at 1 January 27,200

-

27,200

30,730

-

30,730

Incurred deferred acquisition

costs

94,500

-

94,500

89,700

-

89,700

Amortised deferred acquisition

costs

(91,800)

-

(91,800)

(93,330)

-

(93,330)

Foreign exchange movements 100

-

100

-

100

Other -

-

Balance at 31 December

30,000

-

30,000

27,200

-

27,200

16. Tangible fixed assets

20x2

20x1

Fixtures

and

fittings

Computer

equipment

Other

Total

Fixtures

and

fittings

Computer

equipment

Other

Total

£000

Cost or valuation

At 1 January -

-

Additions -

-

Disposals -

-

Impairment losses -

-

Foreign exchange -

-

Other movements -

-

At 31 December -

-

Depreciation

At 1 January -

-

Charge for the year -

-

Disposals -

-

Impairment losses -

-

Foreign exchange -

-

Other movements -

-

At 31 December

-

Carrying amount at

31 December

-

44

17. Claims development

The followingtables illustrate the development ofthe estimates of earned ultimate cumulative claims

incurred, including claims notified and IBNR, for each successive underwriting year, illustrating how

amounts estimated have changed from the first estimates made.

As these tables areon an underwriting year basis, there is an apparent large increase from amounts

reported for the end of the underwritingyearto one year later asa large proportion of premiums are

earned in the year of account’s second year of development.

Balances have been translated at exchange rates prevailing at 31 December 20x2 in all cases.

Gross:

Pure underwriting year

20w3

20w4

20w5

20w6

20w7

20w8

20w9

20x0

20x1

20x2

Total

£000

Estimate of gross claims

at end of underwriting year

-

113,000

124,000

136,000

109,000

103,000

129,000

185,000

one year later

-

175,000

181,000

189,000

173,000

153,000

183,000

-

two years later

-

181,000

184,000

175,000

169,000

-

three years later

-

180,000

177,000

186,000

173,000

-

four years later

-

178,000

176,000

186,000

-

five years later

-

178,000

173,000

-

six years later

-

173,000

-

seven years later

-

eight years later

-

nine

years later

-

Estimate of gross claims

reserve

-

173,000

186,000

173,000

169,000

183,000

185,000

1,242,000

Provision in respect of prior

years

182,000

Less gross claims paid

-

(157,000)

(154,000)

(165,000)

(149,000)

(144,000)

(119,000)

(109,000)

(997,000)

Gross claims reserve

-

16,000

19,000

21,000

24,000

25,000

64,000

76,000

427,000

Net:

Pure underwriting year

20w3

20w4

20w5

20w6

20w7

20w8

20w9

20x0

20x1

20x2

Total

£000

Estimate of net claims

at end of underwriting year

-

75,000

81,000

79,000

83,000

73,000

86,000

92,000

one year later

-

108,000

109,000

134,000

119,000

102,000

130,000

-

two years later

-

108,000

111,000

131,000

120,000

82,000

-

three years later -

-

106,000

105,000

132,000

119,000

-

four years later

-

105,000

102,000

132,000

-

five years later

-

103,000

115,000

-

six years later

-

104,000

-

seven years later

-

eight years later

-

nine years later

-

Estimate of net claims

reserves

-

104,000

115,000

132,000

119,000

82,000

130,000

92,000

774,000

Provision in respect of prior

years

104,000

Less net claims paid

-

(86,000)

(96,000)

(116,000)

(98,000)

(65,000)

(95,000)

(40,000)

(596,000)

Net claims reserve

-

18,000

19,000

16,000

21,000

17,000

35,000

52,000

282,000

45

18. Technical provisions

The table below shows changes in the insurance contract liabilities and assets from the beginning of

the period to the end of the period.

20x2

20x1

Gross

provisions

£000

Reinsurance

assets

£000

Net

£000

Gross

provisions

£000

Reinsurance

assets

£000

Net

£000

Claims outstanding

Balance at 1 January 359,300

(108,300)

251,000

294,300

(71,800)

222,500

Claims paid during the year (120,000)

32,000

(88,000)

(147,000)

41,000

(106,000)

Expected cost of current year

claims

186,300

(68,200)

118,100

210,500

(77,000)

133,500

Change in estimates of prior year

provisions

-

Discount unwind -

-

Foreign exchange movements 1,400

(500)

900

1,500

(500)

1,000

Other

Balance at 31 December

427,000

(

145,000

)

282,000

359,300

(108,300)

251,000

The unwind of discount has been included within the statement of profit or loss – technical account –

within [indicate which line item – i.e. claims incurred].

20x2

20x1

Gross

provisions

£000

Reinsurance

assets

£000

Net

£000

Gross

provisions

£000

Reinsurance

assets

£000

Net

£000

Unearned premiums

Balance at 1 January 100,600

(13,650)

86,950

145,100

(25,500)

119,600

Premiums written during the year 362,500

(87,000)

275,500

338,400

(90,000)

248,400

Premiums earned during the year

(337,500)

80,000

(257,500)

(383,400)

102,000

(281,400)

Foreign exchange movements (50)

-

(50)

500

(150)

350

Other -

-

Balance at 31

December

125,550

(

20,650

)

104,900

100,600

(

13,650

)

86,950

20x2

20x1

Gross

provisions

£000

Reinsurance

assets

£000

Net

£000

Gross

provisions

£000

Reinsurance

assets

£000

Net

£000

Long term business provisions

Balance at 1 January -

-

Movements in provision -

-

Foreign exchange movements -

-

Other -

-

Balance at 31 December

-

Refer to Note 4 for the sensitivity analysis performed over the value of insurance liabilities, disclosed in

the accounts, to potential movements in the assumptions applied within the technical provisions.

46

19. Provisions for other risks

20x2

20x1

£000

Balance at 1 January -

-

Additions during the year -

-

Unwind of discount -

-

Amounts utilised -

-

Unused amounts reversed to the profit and loss account -

-

Foreign exchange movements -

-

Other -

-

Balance at 31 December

-

[Provide narrative description of the types of provisions included in the above including the information

required by FRS 102.21.14]

20. Discounted claims

Discounting may be applied to claims provisions where there are individual claims with structured

settlements that have annuity-like characteristics, or for books of business with mean term payment

greater than four years from the accounting date.

The claims have been discounted as follows:

Average discounted rates

Average mean term of

liabilities

20x2

20x1

20x2

20x1

Class of business

Accident and health -

-

Motor (third party liability) 3.0%

4.0%

7.0%

9.0%

Motor (other classes) 2.0%

4.0%

12.5%

10.0%

Marine, aviation, and transport -

-

Fire and other damage to property -

-

Third party liability 3.5%

2.0%

12.5%

10.0%

Credit and suretyship -

-

Legal expenses -

-

Assistance -

-

Miscellaneous -

-

Life -

-

The period that will elapse before claims are settled is determined using impaired life mortality tables.

The claims provision before and after discounting are as follows:

Undiscounted claims

Effect of discounting

After discounting

	20x2 £000	20x1 £000	20x2 £000	20x1 £000	20x2 £000	20x1 £000
Gross claims provisions	439,810	370,079	(12,810)	(10,779)	427,000	359,300
Reinsurers share of total claims	(149,350)	(111,549)	4,350	3,249	(145,000)	(108,300)
Net claims provisions	290,460	258,530	( 8,460 )	( 7,530 )	282,000	251,000

47

21. Creditors arising out of direct insurance operations

	20x2 £000	20x1 £000
Due within one year	44,455	32,470
Due after one year	7,845	5,730
Total	52,300	38,200

22. Creditors arising out of reinsurance operations

	20x2 £000	20x1 £000
Due within one year	25,120	23,970
Due after one year	6,280	4,230
Total	31,400	28,200

23. Other creditors

	20x2 £000	20x1 £000
Inter syndicate balances	-	-
Profit commissions payable	2,500	1,100
Other related party balances (non-syndicates)	-	-
Derivative liabilities	-	-
Other liabilities	900	900
Total	3,400	2,000

24. Cash and cash equivalents

	20x2 £000	20x1 £000
Cash at bank and in hand	8,000	19,000
Short term debt instruments presented within other financial investments	-	-
Deposits with credit institutions	-	-
Bank overdrafts	(3,000)	(2,500)
Total cash and cash equivalents	5,000	16,500

Only deposits with credit institutions with maturities of three months or less that are used by the

Syndicate in the management of its short-term commitments are included in cash and cash equivalents.

[Cash at bank and in hand above excludes £xm, which is presented as cash at bank and in hand

in the balance sheet but relates to amounts held in accounts with more than three-month

maturity from origination.]

48

Included within cash and cash equivalents are the following amounts which are not available for use by

the Syndicate because…[reason – should include regulated bank accounts in overseas

jurisdictions]

	20x2 £000	20x1 £000
Cash at bank and in hand	-	-
Short term debt instruments presented within other financial investments	-	-
Deposits with credit institutions	-	-
Bank overdrafts	-	-
Total cash and cash equivalents not available for use by the syndicate	-	-

25. Analysis of net debt

	At 1 January 20x2	Cash flows	Acquired	Fair value and exchange movements	Non-cash changes	At 31 December 20x2
Cash and cash equivalents	16,500	(6,650)	-	(4,850)	-	5,000
Derivative financial liabilities	-	-	-	-	-	-
Other	-	-	-	-	-	-
Total	16,500	( 6,650 )	-	( 4,850 )	-	5,000

26. Related parties

[Syndicate to provide details of related party disclosures – For reference: The Insurance Accounts

Directive (Lloyd's Syndicate and Aggregate Accounts) Regulations 2008 states that the information

required by paragraph 90 of Schedule 3 of the Large and Medium-sized Companies and Groups

(Accounts and Reports) Regulations 2008 must be given by the managing agent relating to any

transactions entered into bythe managing agent on behalf of the syndicate and must in addition identify

any related party who is an insurance or reinsurance intermediary together with particulars of the

amount of any material transactions with these related parties if they are concluded otherwise than

under normalmarket conditions. Where there are no transactions with related insurance orreinsurance

intermediaries requiring disclosure under paragraph 90 this fact should be disclosed.

Material transactions with the managing agent (and related undertakings of the managing agent),

including any profit commission and other fees payable; with syndicate participants (and related

undertakings of syndicate participants) including reinsurance arrangements; loans and other

transactions with directors and other key management personnel of the managing agent; and any

relationships with other Lloyd’s of London Market groups where the NED has more than one

appointment should be disclosed. The disclosures shall include the amount of the transactions and any

outstanding balances including the terms of conditions for their repayment.]

These disclosure requirements are in addition to the requirement to disclose key management

personnel compensation. This disclosure is given in note [xx].

27. Off-balance sheet items

[Unless the possibility of any outflow of resources is remote, if the syndicate has been party to

arrangements that are not reflected in its balance sheet, and at the balance sheet date the risks or

benefits arising from those arrangementsare material, then the syndicate must disclose the nature and

business purpose of the arrangements and the financial impact of the arrangements on the syndicate.

The information should be given to the extent necessary for enabling the financial position of the

syndicate to be assessed.]

49

28. Post balance sheet events

The amounts that are proposed to be transferred to members are disclosed in note [xx]. [Disclose the

nature and estimated financial effect of any non-adjusting post-balance sheet events]

29. Contingencies and commitments

[Syndicate to disclose any contingencies and commitments]

30. Foreign exchange rates

The following currency exchange rates have been used for principal foreign currency transactions:

20x2

20x1

	Start of period rate	End of period rate	Average rate	Start of period rate	End of period rate	Average rate
Sterling	1.00	1.00	1.00	1.00	1.00	1.00
Euro	1.11	1.12	1.13	1.15	1.11	1.13
US dollar	1.27	1.37	1.28	1.41	1.27	1.34
Canadian dollar	1.74	1.74	1.72	1.72	1.74	1.73
Australian dollar	-	-	-	-	-	-
Japanese Yen	-	-	-	-	-	-

31. Funds at Lloyd’s

Every member is required to hold capital at Lloyd’s which is held in trust and known as Funds at Lloyd’s

(‘FAL’). These funds are intended primarily to cover circumstances where Syndicate assets prove

insufficient to meet participating members’ underwriting liabilities. The level of FAL thatLloyd’s requires

a member to maintain is determined by Lloyd’s based on Prudential Regulatory Authority requirements

and resource criteria. The determination of FAL has regard to a number of factors including the nature

and amount of riskto be underwritten by the member and the assessment of the reserving riskin respect

of business that has been underwritten. Since FAL is not under the management of the Managing

Agent, no amount has been shown in these Financial Statements by way of such capital resources.

However, the Managing Agent is able to make a call on the Member’s FAL to meet liquidity requirements

or to settle losses.

50

Appendix:

Disclosure notes and accounting reference

Disclosure notes

Accounting reference

Table

Collect at

Interim

Managing Agent’s report

LR Sch1 8(1)(b)

LR Sch1 9(1)

LR Sch1 9(2)(b), LR Sch1

10

LR Sch1 8(2)(b)

LR Sch1 8(1)(a)

LR Sch1 11

N/A Yes

Statement of Managing

A

gent

’

s

responsibilities

N/A

Auditor’s report LR Sch1 12(1) N/A Yes (review

report)

Statement of profit or

loss – technical account

LR Sch1 1(2)(b)

Sch3 P&L format

FRS 102.3.17

FRS 102.5.7E

Statement Yes

Statement of profit or

loss – Non-technical

account

LR Sch1 1(2)(b)

Sch3 P&L format

FRS 102.3.17

FRS 102.5.7E

FRS 103.2.32

Statement Yes

Statement of OCI FRS 102.3.17

FRS 102.3.19

Statement Yes

Balance sheet LR Sch1 1(2)(a)

Sch3 BS Format

Statement Yes

Statement of changes in

members

’

balances

Best practice Statement Yes

Statement of cash flows

FRS 102.7.1 Statement Yes

Note 1 – Basis of

preparation

FRS 102.3.24(a), LR

5(3)(b), FRS 102.3.3, FRS

102.8.5(a), FRS 102.3.23

(d),(e)

None Yes

Note 2 – Use of

judgements and

estimates

FRS 102.8.6,7, IG2.10 None

Note 3 – Significant

accounting policies

FRS 102.8.5(b) None Yes

Note 4 – Risk and capital

management

FRS 102.34.21

FRS 102.34.23

FRS 102.34.24

FRS 102.34.25

FRS 102.34.26(a)

FRS 102.34.24

FRS 102.34.28

FRS 102.34.24

FRS 102.34.29

FRS 102.34.31

MB Y4856

General insurance business

sensitivities

Exposure to credit risk by rating

Financial assets that are past due

or impaired

Movement in impairment allowance

Aged analysis of past due but not

impaired assets

Analysis of liabilities by duration

Analysis of balance sheet by

currency

Sensitivities to market risks

51

Disclosure notes

Accounting reference

Table

Collect at

Interim

Note 5 – Analysis of

underwriting result

Sch3 85

Sch3 87 (1)

FRS 102.1.5

FRS 103 4.5

Analysis of result by segment

Geographical split of premiums by

origination

Note 6 – Net operating

expenses

FRS 103.4.6

Sch 3 88

LR Sch 2

Net operating expenses by type Yes

Direct commission

Auditors remuneration

Note 7 – Key

management personnel

compensation

LR Sch1 5

FRS 102.33.6

Directors emoluments

Active underwriter emoluments

Run off manager emoluments

Note 8 – Staff numbers

and costs

LR Sch1 4

S.411(1)

S.411(5)

Staff numbers by type

Staff costs by type

Note 9 – Investment

return

Sch 3 P&L format

FRS 102.11.48 (a)

FRS 102.11.48 (b)

FRS 102.11.48 (c)

Investment return Yes

Note 10 – Distribution

and open years

Required by Lloyd‘s Distribution on open years

Note 11 – Financial

investments

Sch3 BS

Sch3 73

Sch3 72

FRS 102.11.41

FRS 102.11.27

FRS 102.34.22

FRS 102.11.43

Sch3 73(2)(c)

FIS - required by Lloyds

Investment by asset type Yes

Investments by measurement

classification

Derivatives by type

Funds in syndicate table Yes

Asset by FV hierarchy classification

Level 3 movement analysis

Note 12 – Debtors

arising out of direct

insurance operations

FRS 102.4.4A

Split by one year, > one year

Note 13 – Debtors

arising out of

re

insurance

operations

FRS 102.4.4A Split by one year, > one year

Note

1

4

–

Other debtors

Required by Lloyds Analysis of other debtors Yes

Note

1

5

–

DAC

FRS 103.4.5(d) Movement analysis

Note 16 – Tangible fixed

assets

FRS 102.17.31(e) Movement in fixed asset

Note 17 – Claims

development

FRS 103.4.8(b)(iii) Development triangle – Gross

Development triangle – Net

Note 18 – Technical

provisions

FRS 103.4.5(d) Claims movement analysis

UPR movement analysis

Long term business provision

movement analysis

Note 19 – Provisions for

other risks

FRS 102.21.14 Provisions movement analysis

Note 20 – Discounted

claims

FRS 103.4.5(b)

Discount rates and mean terms

Discounted claims values

52

Disclosure notes

Accounting reference

Table

Collect at

Interim

Note 21 – Creditors

arising out of direct

insurance

operations

FRS 102.4.4.7

Split by one year, > one year

Note 22 – Creditors

arising out of

reinsurance

operations

FRS 102.4.4.7

Split by one year, > one year

Note 23 – Other

creditors

Required by Lloyd’s Other creditors by type Yes

Note 24 – Cash and cash

equivalents

FRS 102.7.20

FRS 102.7.21

Analysis by type Yes

Cash not available for use

Note 25 – Analysis of net

debt

FRS 102.7.22 Analysis of net debt movement

Note 26 – Related

parties

LR Sch1 1(5), (6)

FRS 102.33.1

None

Note 27 – Off-balance

sheet items

LR Sch1 7

FRS 102.21.15

None

Note 28 – Post balance

sheet events

FRS 102.32.10 None

Note 29 – Contingencies

and commitments

FRS 102.21.15 None

Note 30 – Foreign

exchange

rates

Required by Lloyd’s Summary of currency rates used

Note

3

1

–

FAL

Best practice None