Proposed New LPSO Agreement
I am writing to make you aware of the intention to replace the current outdated LPSO Services Agreement with effect from January 2016.
It is expected that the new agreement will be sent to managing agents by mid November, for signature and return within four weeks. Prior to distribution we will have completed a full independent legal review, it will also have been reviewed by Lloyd’s from a regulatory standpoint and the agreement will be recommended to the market by the LMA Board.
We have been advised that this timeframe should not be impacted by other commercial considerations involving the Xchanging Group.
Why are we doing this now?
The present agreement has not changed since 2006 and consequently does not meet current expectations for legal and regulatory compliance as we approach the start of Solvency II. Xchanging Ins-sure Services (XIS) were initially invited to engage in a renegotiation of the whole agreement, including pricing and other commercial terms, but we agreed to limit the scope to addressing regulatory compliance as the implications of the Target Operating Model and Central Services Refresh Programme (CSRP) for current shared services are not yet finalised.
Content from the current LPSO agreement has been retained, combined with new provisions, within the new agreement. This has resulted in a package which is significantly improved and which will meet the requirements of regulatory compliance.
The LMA Board regard the proposed new agreement as a positive development which the market should support.
What is the nature of the legal review?
The LMA has retained Bristows, a firm with extensive experience of outsourcing contracts, to provide an objective legal assessment of the new agreement and reassurance that it will achieve regulatory compliance. We intend to share their conclusions with the market.
In summary
In November we will send you a new LPSO agreement which has been materially upgraded to ensure that managing agents meet current regulatory requirements. There are no service changes or pricing impacts as a result of this negotiation, nor has the position in respect of liabilities and warranties been altered. Please note, that XIS may yet request pricing changes as part of the normal annual review process or indeed as a result of the approach to funding CSRP. Any such requests would be subject to the normal governance review process.
At this stage we would like to ensure that managing agents are aware of this impending change and ready to receive the new agreement package next month.
We understand that this may raise questions and we have attached a summary of new features in the proposed agreement, as shared with the LMA Board, together with a Q&A document which we hope will answer many queries. We will supply further information with the new agreement next month. If you have other enquiries at this point please contact either Malcolm Beane or Kieran Flynn who have coordinated this process (malcolm.beane@lmalloyds.com / kieran.flynn@lmalloyds.com)
As these are shared services we will need the cooperation of all managing agents to establish the new agreement, and your assistance and support will be greatly appreciated.
Yours sincerely,
Rob Gillies
Senior Executive, Underwriting
Enclosures:
LMA Board Summary
Q & A (v.1) regarding the proposed new LPSO Agreement
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