Lloyd's Delegated Authority Audit Requirements: What MGAs Must Know

Every year, Lloyd's of London auditors arrive at coverholder and managing general agent offices across the UK, Europe, and beyond, expecting to find systematic, well-documented evidence that delegated authority is being exercised exactly as the binding authority agreement stipulates. Many MGAs pass with minor observations. Some face serious consequences. The difference almost always comes down to the quality of their compliance infrastructure, not the quality of their people.

This guide explains what Lloyd's delegated authority audits actually examine, what standard of evidence is required, and what the consequences of audit failures look like in practice. It is written for compliance officers, operations managers, and senior leadership at MGAs and coverholders operating in the Lloyd's market.

What Delegated Authority Means in the Lloyd's Market

Lloyd's is not an insurance company. It is a market in which syndicates write insurance risks. Because Lloyd's syndicates cannot be everywhere at once, they delegate authority to third parties — managing general agents, coverholders, and Lloyd's brokers — to write business on their behalf. This delegation of authority is the structural foundation of how Lloyd's business reaches the world.

The three main instruments through which authority is delegated are binding authorities, claims handling agreements, and cover notes. A binding authority (or "binder") grants a coverholder the ability to accept risks on behalf of syndicates up to defined limits, within defined underwriting parameters, and for a defined period. A claims handling agreement grants authority to manage, settle, and pay claims up to specified thresholds. Cover notes are the documents issued to policyholders confirming their coverage under a binder.

For a more complete treatment of how delegated authority functions within the Lloyd's market structure, see our delegated authority glossary entry, which covers the full taxonomy of arrangements and the regulatory framework within which they operate.

The practical implication of this structure is that Lloyd's syndicates are exposed to the operational quality of their delegated authority partners. If a coverholder makes poor underwriting decisions, exceeds its authority limits, mishandles claims, or fails to produce accurate bordereaux, the syndicate bears the financial consequences. Lloyd's audits are how the market protects itself from that risk.

Why Lloyd's Conducts DA Audits

The Lloyd's audit programme serves three distinct purposes, all of which inform how auditors approach their work.

First, Lloyd's must protect its brand and market reputation. A Lloyd's policy is a promise backed by the collective financial strength of the market. If a coverholder mishandles claims or writes risks it should not, the damage is not merely financial — it erodes the trust that makes the Lloyd's brand valuable. Audits are quality assurance for the brand.

Second, audits protect syndicates from capacity misallocation. When a syndicate grants a binding authority, it is committing capacity to a specific strategy in a specific market. If the coverholder is operating outside the agreed underwriting parameters — writing risks that are too large, too geographically dispersed, or in prohibited classes — the syndicate's exposure profile is not what it agreed to. Audits verify that capacity is being deployed as agreed.

Third, audits protect policyholders. Coverholders handle the entire insurance relationship for many policyholders, from issuance through claims payment. If a coverholder is financially fragile, technically incompetent, or operating with inadequate processes, policyholders may receive poor service or, worse, see valid claims delayed or underpaid.

The Lloyd's Audit Cycle

Lloyd's operates a risk-based audit programme. Not every coverholder is audited every year, but all active coverholders with binding authorities are subject to the programme, and the frequency is determined by risk factors including the size and nature of the binder, the coverholder's history, and intelligence gathered through bordereaux review.

Routine Annual Audits

Larger binders and higher-risk arrangements are typically subject to annual audit. These audits are pre-announced, conducted by Lloyd's Performance Management Directorate (PMD) auditors, and follow a structured programme. Coverholders receive advance notice, prepare documentation, and present their evidence during a visit that typically spans one to three days depending on the complexity of the operation.

Triggered Audits

A triggered audit is an unannounced or short-notice audit initiated because of a specific concern. The triggers include complaints received by Lloyd's, poor performance signals in bordereaux data, claims ratios that deviate significantly from expectations, material events such as management changes or system failures, and market intelligence about a coverholder's financial stability. Triggered audits are more intensive and more consequential than routine audits because they start from a position of concern rather than verification.

What Lloyd's Auditors Examine: Claims Handling Authority

For MGAs and coverholders with claims handling authority, the audit of claims management is the most intensive part of the exercise. Auditors are looking for evidence that claims are handled consistently with the terms of the claims handling agreement and within the authority limits granted.

Authority Limits and Compliance

Every claims handling agreement specifies the monetary limit within which the coverholder can settle claims without referral. Auditors sample claims files to verify that adjusters are staying within these limits. A single instance of a claim settled above the authority limit is a material finding. A pattern of such instances is grounds for suspension of claims authority.

What auditors need to see: a documented process for checking authority limits before settlement, evidence that the check actually occurred on each file, and clear escalation documentation where a referral to the syndicate was required.

Reserving Accuracy and Timeliness

Lloyd's syndicates use reserve data for their own financial reporting. Inaccurate or stale reserves in bordereaux submissions distort the syndicate's financial position. Auditors examine the timeliness of initial reserves, the accuracy of subsequent reserve development, and the documentation supporting reserve decisions.

Bordereaux Timeliness and Accuracy

Bordereaux — the monthly or quarterly data submissions that report premium and claims activity to syndicates — are among the most scrutinised elements of the audit. Late bordereaux submissions are a significant finding. Inaccurate data in bordereaux is a more serious finding still, because it suggests either process failure or data integrity problems.

What auditors check: reconciliation between bordereaux data and the claims system, evidence that the person producing bordereaux has checked the data before submission, timeliness of submission relative to the agreed reporting dates in the binding authority.

Documentation Standards

Claims files must contain sufficient documentation to allow a third party — including a syndicate auditor — to reconstruct the claims handler's reasoning. This means contemporaneous notes, supporting documents (medical reports, engineer surveys, correspondence with third parties), coverage analysis, and settlement rationale.

Payment Authorisation Trails

Every payment must have a documented authorisation trail: who approved the payment, at what level, and on what basis. Auditors look for segregation of duties (the person who approved the settlement should not be the same person who authorised the payment) and for evidence that payment instructions were executed as authorised.

The Regure audit trail platform captures every action taken on a claims file — including who approved what, at what time, and what documentation supported the decision — in a format that makes producing this evidence straightforward during an audit.

What Lloyd's Auditors Examine: Binding Authority Compliance

For the underwriting side of delegated authority, the audit focuses on whether the coverholder is operating within the agreed parameters of the binding authority.

Premium Collection and Remittance

Binding authorities specify when collected premiums must be remitted to Lloyd's. Late or inaccurate remittances are a consistent finding in Lloyd's audits. Auditors examine the reconciliation between premium collected and premium remitted, and the timeliness of remittances relative to the agreed schedule.

Policy Issuance Compliance

Policy wordings issued to policyholders must comply with the approved wordings in the binding authority. Any deviations — even minor amendments — must have been approved by the managing agent. Auditors sample policies issued to verify that the correct wordings were used and that endorsements were within the coverholder's authority.

Underwriting Within Agreed Parameters

Binding authorities specify the classes of business, geographic territories, maximum sums insured, and underwriting guidelines within which the coverholder can operate. Auditors sample policies to verify that the coverholder is not writing risks outside these parameters. A coverholder that has been granted authority for standard commercial property in the South East of England should not have policies on its book for high-value residential risks in Scotland.

Terms of Business Agreement Compliance

The TOBA (Terms of Business Agreement) governs the commercial and regulatory relationship between the coverholder and the managing agent. Compliance with TOBA requirements — including anti-bribery and corruption obligations, sanctions screening, data protection, and regulatory status — is reviewed as part of the audit.

The Evidence Standard Lloyd's Requires

Perhaps the most important thing to understand about Lloyd's DA audits is the standard of evidence required. Lloyd's does not accept oral assurances about how processes work. It does not accept that a process is well-run simply because the people running it are experienced and professional. What Lloyd's requires is documented, systematic evidence that processes work as described.

The difference between passing and failing a Lloyd's DA audit is rarely about what actually happened. It is almost always about what can be proved happened.

This distinction matters enormously. An MGA with excellent claims handlers who do excellent work but document it poorly will fail an audit. An MGA with less experienced staff but rigorous documentation processes will pass. Lloyd's is testing the system, not the people.

The implication is clear: if your operation relies on individual expertise rather than documented systematic processes, you have an audit vulnerability regardless of how well the operation actually performs.

Common Audit Failures and Their Consequences

Lloyd's audit findings are graded. Minor observations require corrective action but do not immediately threaten the binding authority. Significant findings require remediation plans with timelines. Critical findings may result in immediate consequences.

Common Significant Findings

• Bordereaux submissions that are consistently late or contain material errors that required retrospective correction
• Claims files that lack contemporaneous documentation supporting coverage decisions
• Authority limits exceeded without documented syndicate referral and approval
• Policies issued with wordings not approved by the managing agent
• TOBA compliance gaps, particularly around sanctions screening and regulatory status declarations
• Segregation of duties failures in claims payments

Consequences of Audit Failures

The consequences of significant audit failures range across a spectrum. At the less severe end, the coverholder receives a formal observation with a required remediation plan and follow-up audit. Further along the spectrum, Lloyd's may impose enhanced oversight requirements — mandatory reporting periods, reduced authority limits, or restrictions on writing new business during remediation. At the most severe end, Lloyd's can suspend or terminate delegated authority entirely.

Termination of Lloyd's delegated authority is a serious market event. It is reported to the FCA, it affects the MGA's ability to obtain capacity from other Lloyd's syndicates, and it is difficult to recover from. Prevention is substantially less costly than remediation.

How Technology Transforms Audit Performance

The shift from manual, paper-based processes to modern claims management and compliance platforms has transformed audit preparation for MGAs that have made the investment. The change is not merely cosmetic — technology that is properly implemented changes the fundamental nature of the evidence available to auditors.

Automated Bordereaux Reporting

A modern platform that connects claims data to bordereaux production eliminates the manual extraction and formatting that produces bordereaux errors. When bordereaux are generated automatically from the live claims system, the reconciliation question answers itself: the bordereaux data is the claims data, and any discrepancy is immediately visible.

Complete Claims Audit Trails

Every action taken on a claim — every note, every document, every status change, every authority check, every payment instruction — should be timestamped, attributed to a named user, and stored in a format that cannot be retrospectively altered. This is not merely good practice; it is the difference between being able to demonstrate compliance and asserting it. The audit trail capability in a modern platform makes this level of documentation automatic rather than dependent on handler discipline.

Documented Workflows

When claims handling processes are implemented as defined workflows in the platform, the system enforces the process rather than relying on handlers to follow it voluntarily. If an authority limit check is a required step before a settlement can be progressed, the system will not allow progression without it. The workflow becomes the documented process that auditors want to see.

Structured Data for Evidence Production

Lloyd's auditors typically provide a sample of claims files for detailed review. In a manual environment, producing the complete file for ten or twenty claims can take hours of preparation. In a modern platform, producing the complete documented history of any claim is a matter of seconds. The speed and completeness of evidence production itself signals operational maturity to auditors.

Preparing for a Lloyd's DA Audit

Audit preparation should not begin when the notice of audit arrives. It should be a continuous process built into the operation. The following preparation activities should be ongoing rather than reactive.

Internal Mock Audits

Conduct quarterly internal reviews that replicate the Lloyd's audit process: sample claims files, check bordereaux reconciliations, review authority limit compliance, verify documentation standards. Issues found internally are much less consequential than issues found by Lloyd's auditors.

Bordereaux Reconciliation

Every bordereaux submission should be reconciled before submission. The reconciliation should be documented — who performed it, what the result was, and what was done with any discrepancies found. This documentation becomes the evidence that your bordereaux process is controlled.

Training and Process Refreshers

Claims handlers should receive regular reminders about authority limits, documentation requirements, and escalation procedures. The gap between what the process manual says and what handlers actually do tends to widen over time without active reinforcement.

How Regure Supports Lloyd's Audit Readiness

Regure is purpose-built for the operational requirements of managing general agents operating in delegated authority arrangements. The platform provides claims management with complete audit trails, automated workflow enforcement that ensures authority limit checks are a required step rather than an optional one, and bordereaux data generation that draws directly from the live claims record.

The platform's audit trail module captures every event in the claims lifecycle with the timestamp, user attribution, and supporting documentation context that Lloyd's auditors require. When an auditor requests the complete file for a sample claim, the evidence is immediately available and complete.

For MGAs preparing for Lloyd's delegation or seeking to strengthen their audit position ahead of a scheduled review, Regure provides the operational infrastructure that turns compliance from a periodic exercise into a continuous state. To understand how the platform supports delegated authority compliance in practice, and to see how it performs against the specific requirements of the Lloyd's audit programme, speak with our team.

If you are an MGA preparing for a Lloyd's audit, concerned about your current compliance infrastructure, or seeking to demonstrate operational maturity to prospective capacity providers, request a Regure demonstration. We will show you how the platform addresses the specific evidence requirements that Lloyd's auditors look for, and how MGAs using Regure approach audits with confidence rather than concern.