Production of the SSOB, Aggregate Results and the Global Accounts

Appendix 4
PRODUCTION OF THE SSOB, AGGREGATE RESULTS AND THE GLOBAL ACCOUNTS

(a) As at 31 December 1981 and prior years

To enable Lloyd's to prepare the SSOB, syndicate auditors were required by the Solvency Letter to produce "Global Statements" in respect of the same categories as required by the SSOB. The forms were available from the Audit Department and set out cumulatively and by year the income and expenditure for the open years of account and the closed year of account.

The auditors provided information in consolidated returns to the Audit Department aggregating the returns for all of the syndicates which they were responsible for auditing. Lloyd's did not therefore obtain any information as to individual syndicates through this process in 1981 and prior years. Lloyd's aggregated the Global Statement returns to produce the SSOB.

Syndicate auditors were also required by the Solvency Letter to lodge "Global Revenue Accounts" in respect of:

(i) marine, aviation and transport business distinguishing:

(A) marine hull and liability;
(B) aviation hull and liability; and
(C) transport;

(ii) motor (UK and overseas);

(iii) pecuniary loss;

(iv) personal accident;

(v) property;

(vi) liability (i.e. non-marine "all other" business); and

(vii) life.

The Global Revenue Accounts contained details, cumulatively and by year, of the income and expenditure of the open years of account and the closed years of account and set out the RITC premiums received and paid, if any, including reserves on accounts running off. (The equivalent form for the SSOB and Aggregate Results/Global Accounts as at 31 December 1985 (GL1) stated separate figures for RITC premiums and reserves established for year of account in run-off). The information contained in the Global Revenue Accounts was similar to that which would be required in Form 1 of the SSOB for 1982 except that it gave a more detailed breakdown of other income and expenditure.

Syndicate auditors would provide consolidated Global Revenue Account returns for all the syndicates which they were responsible for auditing. The Global Revenue Account returns were aggregated by Lloyd's and provided to the Secretary of State in addition to the SSOB. The Global Revenue Accounts were also aggregated by Lloyd's in order to produce Aggregate Results.

Following the preparation of the SSOB and Aggregate Results by the Audit Department, the Committee of Lloyd's would be asked to approve the filing of the SSOB and circulation of Aggregate Results to underwriting agents prior to the press conference.

(b) As at 31 December 1982

The Solvency Letter was amended and syndicate auditors were required to file only Global Revenue Accounts which were returned on AU 36 forms. This change reflected the change in form of the SSOB set out in the Regulations, such that the previous Global Statements were no longer required. The SSOB were submitted to the DTI in the more detailed form of AU 36 providing a breakdown of income and expenditure. Syndicate auditors continued to produce a consolidated return for all the syndicates which they audited and Lloyd's produced the SSOB and Global Accounts by aggregating the auditors' returns.

The Council of Lloyd's was asked, on 18 July 1983, to authorise the Committee to approve the SSOB and Globals as they were not available at that time and the Council did not convene again until September. The Committee considered the matter on 24 August 1983 and approved the SSOB and Globals.

(c) As at 31 December 1983

An Internal Audit Report into the procedures and method for the production of the SSOB was prepared for the MSSD in October 1983. The report made a number of recommendations including:

(i) auditors should make their returns on an individual syndicate basis rather than a group basis;

(ii) a summary list should accompany the individual returns to show which syndicates had been included;

(iii) there should be a check against Lloyd's Underwriting Syndicates Book to ensure that all syndicates were accounted for and that there was no double counting; and

(iv) controls on receipt of revenue account returns should be improved and auditors should date returns.

The terms of reference of the newly created AASC included a review into the arrangements for the production of the SSOB. The AARD assisted the AASC in this process and assumed the role of organising the collation and preparation of the SSOB and Global Accounts (and to some degree the Globals themselves).

A briefing paper dated 17 April 1984 was prepared by the AARD for consideration by the AASC setting out the arrangements for the compilation of information for the SSOB and Global Accounts by syndicate auditors. The paper states the following arrangements for the SSOB and Global Accounts as at 31 December 1983:

(i) syndicate auditors would provide returns on the following basis:

(a) consolidated for all the syndicates for which the auditor acted; and
(b) individual returns in respect of each syndicate.

(ii) The return in paragraph (a) above would form the basis for calculating the SSOB and Global Accounts.

(iii) Syndicate auditors were to provide a confirmation in respect of the whole return.

The Solvency Letter required syndicate auditors to file "Statutory Statements of Business" in respect of the same classes as required by the form of SSOB. The AU forms (including the Global Revenue Accounts) were replaced by a series of forms with the prefix GL as follows:

GL1 Three year revenue accounts (this was in the same form as the AU 36).

GL2 Estimated future liability on open accounts.

GL3 Reconciliation of reinsurance premiums.

GL/A Listing of syndicates covered by the return.

A set of notes was sent to syndicate auditors, entitled "Notes for the Completion of Returns by Approved Accountants" providing guidance on the completion of the GL returns. The Notes were thereafter issued annually. The Notes required that:

(i) three year revenue accounts were to be prepared in accordance with the categories of business specified by the Regulations for all the syndicates which the syndicate auditors audited and individually for each syndicate;

(ii) where an account was running-off, the reserves established on the account as at the year end were to be treated as an RITC premium and other information relating to the account was to be included under the appropriate headings relating to the closed year of account; and

(iii) syndicate auditors were to provide a certificate to be attached to the return for all the syndicates which they audited confirming that the return had been prepared in accordance with:

(a) the Notes; and

(b) the Audit Instructions.

The SSOB and Global Accounts continued to be prepared by Lloyd's by aggregating the consolidated returns from syndicate auditors (and using information from other Lloyd's Departments).

On 6 August 1984 the Council agreed to authorise the Committee of Lloyd's to approve the SSOB and Globals. The AARD produced a memorandum for consideration by the Committee asking the Committee to approve the SSOB and Globals on 15 August 1984. The Committee granted such approval on 15 August 1984.

(d) As at 31 December 1984

Syndicate auditors were required to furnish three additional forms:

GL5 Community Co-insurance business;

GL6 Reconciliation to central solvency and syndicate annual reports; and

GL7 Aggregate premium income (aggregate premium income returns had been made annually to Lloyd's previously on form AU23).

By letter dated 15 March 1984 from the AARD, syndicate auditors were informed of the changes and provided with more detailed Notes to the GL forms. The Solvency Letter for this and subsequent years expressly stated that separate instructions would be issued for the SSOB. Returns were provided by the syndicate auditors both individually for each syndicate and consolidated for all of the syndicates which they audited. In respect of each individual syndicate return it was only necessary to file GL1 to 3 and GL6: see paragraph 9 of the Notes. Lloyd's calculated the information for the SSOB and Global Accounts as before.

On 5 August 1985 the Council agreed to authorise the Committee of Lloyd's to approve the SSOB and Globals formally. The Committee granted the approval sought on 14 August 1985 and 21 August 1985. Due to an error in the approved SSOB and Globals the Committee approved amended versions on 11 September 1985. This error led to the reviews described below.

(e) As at 31 December 1985

A number of reviews of the process for preparing the SSOB and Global Accounts were initiated as a consequence of an error made by a syndicate auditor, in its returns for the year end as at 1984, which had delayed the publication of the SSOB and Global Accounts. A report was prepared by Internal Audit on 25 October 1985. This report made recommendations including:

(a) the consolidated results should be subject to an external audit examination;

(b) the covering letter to the Notes to syndicate auditors should be briefer and the Notes to the GL forms should be more detailed;

(c) the GL6 form (reconciliation of SSOB and Global Accounts with central solvency and syndicate audit) should be redesigned to give greater clarity;

(d) consideration should be given to the use of a computer for the consolidation and reconciliation of the aggregated returns; and

(e) figures relating to run-off syndicates should be shown separately on the GL1 return.

There was a further review of the process for preparing the SSOB and Global Accounts in January 1986 by OSDD/Internal Audit. The report recommended that a number of changes should be made to the GL forms and accompanying notes. The report recommended that a feasibility study should be commissioned into the use of a computer to compute the returns and reconcile the figures automatically. It was recommended that the aim for the future should be to use the computer to consolidate individual syndicate returns.

The principal alteration to the GL forms and accompanying Notes that was recommended was the treatment of run-off accounts in GL1. The GL1 form was amended to provide separate figures for RITC premiums and amounts placed to reserve on accounts that were running off. This recommendation was ultimately implemented but the SSOB, being in a statutorily prescribed form, was not submitted in this more detailed format. The GL6 forms were also amended to improve reconciliation largely in accordance with the recommendations.

Following the problems of the 1984 globals exercise, a Global Task Force was set up in May 1986, reporting directly to the Chief Executive's Group on a weekly basis. The Global Task Force sought to improve the quality of the data submitted to Lloyd's and the controls over its processing.

At the same time Ernst & Whinney were instructed by Mr. Alan Lord, the then Chief Executive, to examine the systems and procedure covering the preparation of the SSOB and the Global Accounts. E&W were to be required to report to the Council of Lloyd's that in their opinion the Global Accounts and SSOB had been properly compiled from returns submitted by syndicate auditors and other relevant sources and presented fairly the aggregate results for the Lloyd's market on the basis set out therein.

Following the recommendation to computerise the process for producing the SSOB and Global Accounts, a computer system was developed called the "Three Year Revenue Accounts System". The Global Task Force instructed the Computer Audit Section of Lloyd's to review the system and a report was issued in June 1986. This report considered the system adequate and found no evidence of inherent weakness in the software product.

The Head of Market Services and Finance submitted a memorandum to Council seeking their approval for the SSOB and authorisation for the Committee to approve the Globals formally. The Council considered the memorandum on 11 August 1986, approved the SSOB and authorised the Committee to approve the Global Accounts. Following the submission of a memorandum by the Head of Market Services and Finance the Committee approved the Global Accounts on 20 August 1986.

E&W issued unqualified audit opinions for each of the SSOB and Global Accounts for the year ended 31 December 1985. In a letter dated 30 September 1986 E&W made a number of recommendations including:

(i) that the returns should be submitted by individual syndicates and the relevant sections of the SSOB/Global Accounts should be prepared by Lloyd's aggregating the individual returns;

(ii) that it would be practical, and more appropriate, for the syndicate returns to be prepared and reported on by managing agents and to be accompanied by a suitable audit report; and

(iii) information on premiums and claims could be provided more accurately by syndicates themselves.

(f) As at 31 December 1986

A strategy paper prepared for consideration by the CEG identified a series of objectives that had developed in relation to the SSOB and Global Accounts:

(i) to improve the quality and consistency of the data submitted;

(ii) to institute better controls over the production of the global figures;

(iii) to establish an audit trail thereby laying the basis for an audit opinion;

(iv) to improve the presentation of the global accounts with regard to the introduction of an audit opinion, developments in syndicate accounting and developments in public/insurance company reporting.

A discussion paper appended to this memorandum identified that the analysis undertaken in the SSOB and Global Accounts highlighted general liability as the source of major losses.

The computer system developed for the SSOB and Global Accounts was extended for the audit as at 31 December 1986 so that the data from individual syndicate returns could be consolidated by Lloyd's rather than from the aggregate returns submitted by auditors in the past. The returns continued to be submitted by auditors rather than managing agents.

The Notes issued for this year highlighted a number of changes:

(i) Auditors were required to submit individual syndicate returns and were no longer required to submit aggregated returns for all the syndicates which they audited; and

(ii) There were a number of additional forms:

GL/B

GL1 control sheet indicating for which categories of business a corresponding GL form was being submitted.

GL8

An approved accountants' report stating that they had prepared the return in accordance with the notes and that the accounting records from which the returns were prepared had been examined in accordance with the Audit Instructions and approved auditing standards.

Following the submission of a memorandum by the Regulatory Services Group the Council authorised the Committee to approve the SSOB and Globals on 5 August 1987. Following the submission of further memoranda to the Committee by the Regulatory Services Group the Committee granted the approval sought.

E&W provided unqualified audit opinions in respect of each of the SSOB and Global Accounts. By letter dated 30 September 1987 E&W made a number of recommendations including:

(i) Lloyd's should accept syndicate returns on computer disk;

(ii) GL7 forms (aggregate premium income) should be reconciled with GL1 forms (three year revenue accounts);

(iii) gross claims information obtained from the LPSO indicated that certain claims may be double counted - the matter should be reviewed;

(iv) information on premiums and claims analysis, both gross and net, should be provided by syndicates as part of their submission; and

(v) all in-house information included in the SSOB and Global Accounts should be subject to independent review and approval.

(g) As at 31 December 1987

E&W were instructed to audit the SSOB and Globals on 26 October 1987. The letter highlights that the required reports, attached to the letter, may be included in the relevant published documents. E&W were required to report in similar terms to previous years.

The CEG considered a memorandum prepared by the AASD headed "1987 Globals Exercise" on 6 November 1987. The memorandum identified the following changes to the SSOB and Global Accounts arrangements:

(i) the returns were to be completed by managing agents. Syndicate auditors would be required to audit and report to the Council on the accuracy and completeness of the returns. It was stated that the new arrangement would establish an adequate audit trail so that E&W could express an opinion suitable to be included in the published documents;

(ii) gross premiums, gross claims and gross investment would be disclosed in the Globals. An additional return would be required in order to compile comparative dates for the 1984 closed year of account; and

(iii) the amount of profit commission charged by managing agents would be disclosed by way of a note to the accounts.

The memorandum identified that there should be a move to obtain the returns from the managing agents by computer disk. It was suggested that a pilot system be run in parallel with the main system to investigate the feasibility of this. Draft letters were appended to the memorandum to be sent to managing agents and syndicate auditors highlighting the changes.

A set of "Instructions for the Completion of the 1987 Statutory Statement of Business Syndicate Return" was circulated to managing agents setting out detailed instructions on the completion of SSOB returns by syndicates. The GL forms were amended and added to as follows:

GL4 Reconciliation of gross to net data.

GL8 Reconciliation of calendar year premium income to year of account premium income.

GL9 Analysis of non-LPSO calendar year gross premiums and gross claims.

GL10 Managing agents' 'report and recognised auditors' report.

There were no significant amendments to the GL1 form to be returned for each category of business except that they came in the form of computer printouts. There was a separate GL1 form for new syndicates (GL1/n). Separate sets of GL1 forms were required for years of account in run-off but the GL1 forms for the 1985, 1986 and 1987 years of account were also to include run-off data.

GL4 required a reconciliation of gross data to net data for each category of business for premium, claims, investment returns and reserves. A GL4 was required for the open years of account and the closed year of account (and any years of account in run-off).

GL10 contained a managing agent's report and a recognised auditor's report. The managing agent was required to declare that to the best of its knowledge and belief the SSOB syndicate return was accurate and complete. The syndicate auditor was required to state in its opinion that the return had been prepared in accordance with the instructions and reflected fairly the transactions of the syndicate.

Market seminars were held in February 1988 to assist managing agents in understanding their responsibilities for the completion and submission of SSOB syndicate returns.

Pursuant to a memorandum submitted by the Regulatory Services Group, the Council of Lloyd's on 3 August 1988 authorised the Committee to approve the SSOB and Globals formally. The Committee formally gave such approval on 10 August 1988.

E&W issued unqualified audit opinions in respect of each of the SSOB and Global Accounts. The latter opinion was published in the Globals at page 17.

The procedures which were introduced over the years in relation to the Aggregate Returns and Global Accounts were aimed (inter alia) at ensuring that the aggregate results of the market had been properly collated. They were not designed to verify whether, in producing syndicate annual accounts, agents and auditors had carried out their duties properly.

THE DEVELOPMENT OF GLOBALS

(a) As at 31 December 1981 and prior years

The Audit Department produced Aggregate Results in a number of forms from the data provided by the Global Statements and Global Revenue Accounts. Aggregate Results, called "Summary of Accounts", summarised underwriting results for the open years of account and the closed year of account for the following categories of business:

(i) life;

(ii) motor;

(iii) marine, aviation and transit (other than aviation);

(iv) aviation;

(v) all other insurance business; and

(vi) a total of all categories of business.

In addition to the Summary of Accounts was a document entitled the "Summary of results". This document summarised the results, for the above categories of business, for a number of years prior to the closure of the year of account being closed, as at the relevant audit, and the closed year.

Aggregate Results were circulated to the Chairman of Lloyd's and the Chairmen of Market Associations prior to an annual press conference, announcing Lloyd's underwriting results, in order that they could prepare statements for the press conference. Aggregate Results were also circulated to underwriting agents prior to the press conference with a covering letter explaining that the information provided was strictly private and confidential until the press conference. The purpose of the latter action was to enable underwriting agents to be in a position to reply to any enquiries received from Names.

At the press conference the Chairman of Lloyd's made a statement followed by the Chairmen of the Market Associations. A document was released at the press conference containing Aggregate Results and the statements of the Chairs.

The Publicity and Information Department circulated the statements of Chairs and Aggregate Results to the underwriting agents. The statements of the Chairs and the Aggregate Results were publicised in the Lloyd's Log. The Aggregate Results were also published in the accounts of the Corporation of Lloyd's for the 1978 year end (which contained the Aggregate Results for the closure of the 1975 year of account) until the 1981 year end (which contained the Aggregate Results for the closure of the 1978 year of account).

(b) Globals as at 31 December 1982 and subsequent years

A memorandum was prepared by the MSSD on the new form of SSOB and the Globals for consideration by the Committee on 24 August 1982. The memorandum stated that with the introduction of the new statutory requirement for the SSOB the opportunity would also be taken to produce a much more comprehensive and "professional" financial statement of the insurance business of the Lloyd's Market. This new format was noted by the Committee.

The Globals were produced in the form of a brochure, later referred to colloquially as "glossies", reflecting the more detailed SSOB returns to the DTI. The new form of Globals contained the following:

(i) a statement by the Chairman of Lloyd's and the Chairmen of Market Associations;

(ii) three year revenue accounts;

(iii) notes to the accounts which developed into a "Statement of Accounting Policies" in the Globals as at 31 December 1985;

(iv) a five year business summary for the five years up to and including the latest closed year for each category of business; and

(v) a financial statement of the "Security Underlying Policies issued at Lloyd's" (this statement was audited and reported upon by E&W).

The three year revenue accounts, termed "Three Year Global Underwriting Accounts", were in a similar format to Form 1/AU 36/GL 1 for the ten categories of business required by the SSOB.

The RITC figures specified in the Globals included reserves established in respect of years of account running off. The notes to the Globals as at 31 December 1984 expressly state that the RITC figures included reserves established on years of account in run-off.

The Globals continued in a similar format until 1987 where the Three Year Global Accounts (for the Globals as at 31 December 1986) were re-formatted to provide a pure underwriting result as well as an overall result taking into account other income and expenditure. The Global Accounts ceased to show the movements on years of account for each year the account was open; the results were produced on a cumulative basis. The Notes to the Global Accounts stated that the Global Accounts were prepared from returns by managing agents (note 1) and stated the profit commission charged by underwriting agents on the closed year of account (note 5).

The Globals for the audit as at 31 December 1987 published a report from E&W stating that they had examined the compilation of the Globals and they had been compiled accurately and summarised properly the aggregate results of the Lloyd's market.

PROCESS FOR THE APPROVAL OF SSOB AND GLOBALS

The SSOB were required to be filed in a number of jurisdictions; the Audit Department/MSSD/AARD/AASD (the Department) supplied the Legislation Department with copies of the SSOB each year for distribution overseas or to important foreign visitors. The US Treasury Department and New York Insurance Department required the SSOB to be filed by 31 August. The National Association of Insurance Commissioners in the US liked to have the SSOB by 31 August or the first week in September. These filings drove the SSOB and Globals exercise. The SSOB was filed with the DTI and US regulatory authorities usually by the end of August. The information contained within the SSOB was embargoed until the release of the Global Accounts in the first week of September.

On receipt of the SSOB and Global Accounts returns from syndicate auditors in early June, the Department aggregated the information, manually in earlier years and by computer in later years. Draft SSOB and Global Accounts were prepared and reviewed by the manager of the Department. Once a finalised version was prepared the process for approval was as follows:

First week of August Draft SSOB and Aggregate Results/Global Accounts were sent to the Chairman of Lloyd's and the Chairmen of Market Associations in order for them to prepare statements for the Globals.

Second week of August The Council considered the SSOB and final proofs of Globals (if available) and authorised the Committee of Lloyd's to act on its behalf in approving the SSOB and Globals.

Statements by the Chairman of Lloyd's and Chairmen of Market Associations were finalised. The Department liaised with the Chairs and the Publicity and Information Department.

SSOB and final proofs of Globals were reviewed by O Group.

Third week of August The Committee of Lloyd's considered the SSOB and authorised appropriate officers to sign. The Committee considered the Globals and approved publication and distribution.

The SSOB were signed by the appropriate officers.

The SSOB were filed with the Board of Trade/the DTI. The SSOB were sent to agents overseas for filing with regulatory bodies.

Fourth week of August Globals were sent to printers.

Globals were sent to Council members.

First week of September Press conference and distribution of Globals.

Prior to the SSOB and Global Accounts for the year ended 31 December 1982 the process was similar, save that the Committee was solely responsible for approving the SSOB and Aggregate Results. From the year ended as at 31 December 1985, the process of preparing the SSOB and Globals was audited and the audit opinion was usually given in August.

The approval of the Council was obtained by the submission of memoranda with draft SSOB and Globals (if available) attached. The Department produced a memorandum for the Committee of Lloyd's outlining the procedure for preparing SSOB and Globals and seeking approval and authorisation.

GL/B	GL1 control sheet indicating for which categories of business a corresponding GL form was being submitted.
GL8	An approved accountants' report stating that they had prepared the return in accordance with the notes and that the accounting records from which the returns were prepared had been examined in accordance with the Audit Instructions and approved auditing standards.