market bulletin

Ref: Y4991

Title

Lineslips

PurposeTo remind the market of those areas which require particular attention when writing
lineslips and to inform the market of changes Lloyd’s is making to its requirements

TypeEventFrom

Tom Bolt- Director
Peter Montanaro- Head of Delegated Authorities
Performance Management Directorate

Date

26 April 2016

Lineslips – ensuring managing agents maintain strong oversight
Lloyd’s has recently carried out two thematic reviews into lineslips, focussing on thosewritten in the Aviation and Terrorism classes. Based on the findings of those reviews andwider market feedback, Lloyd’s will shortly be publishing updated Minimum Standards for
Delegated Underwriting including clearer standards for lineslips. Where, in Lloyd’s view,
managing agents have inadequate controls, Lloyd’s may impose restrictions on the writingof lineslips. In assessing managing agents against the updated standards, Lloyd’s will belooking particularly at how managing agents address the following points:•Extent of authority granted under a lineslip – It is important that the conditions,scope and limits of authority given to the leader(s) are clearly set out in the lineslipagreement. This should include outlining the specific nature and type of businessintended to be covered. Where there are more complicated agreements, including‘drop-down leaders’, the operation of those agreements must be carefully considered
and documented in the lineslip agreement in a way that is transparent to allparticipating underwriters. Managing agents should also ensure that the lineslip
leader(s) retain an appropriate level of underwriting control and must retain theauthority to bind each risk declared. Any instance where the leader is unable to decline
a risk declared during the period of the agreement are not permitted under a lineslipagreement.

•Placing information to be provided to the lead underwriter(s) for individual
lineslip declarations – Underwriters must be satisfied that they are provided withappropriate information for the binding of individual risks under the lineslip. The
information provided to the lead underwriter(s) mid-term must be sufficiently frequentand detailed to allow them to monitor the business properly.

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Lloyd’s is authorised under the Financial Services and Markets Act 2000MARKET BULLETIN•Issuance of contractual documents bound under the lineslip – The lineslip
agreement must clearly specify the process for issuing contractual documents for risks
to be bound under the lineslip. Any risk bound under a lineslip must be signed by thelead underwriter(s) with delegated authority. This may be achieved by the leadunderwriter(s) putting their stamp on the slip for any risks placed using the MRC
standards otherwise alternative arrangements will be required to ensure this. Any
documentation issued by the broker is broker insurance documentation (BID) andcannot be relied on as insurer approved contract documentation.

•Information provided to the underwriter(s) –Lloyd’s also has concerns that following
underwriters are not being provided with sufficient information about the business beingbound on their behalf and that they are therefore unable to meet the Lloyd’s minimum
standards and reporting requirements. All participating underwriters must ensure thatthey receive sufficiently frequent and detailed information to ensure that they are able
to do so. Following underwriters are expected to monitor, measure and assessbusiness written on their behalf accurately on a timely basis.

•Changes to the lineslip – Any authority delegated to the lineslip leader(s) to agreechanges to the lineslip must be specified and properly documented. Generally, any
authority given to the lineslip leader to make amendments to the lineslip should belimited to non-material changes and any extensions to lineslip provisions (such asperiod) should be agreed by all participating underwriters.

Changes to Lloyd’s Requirements
Part E of the Intermediaries Byelaw and the Requirements made pursuant to that byelaw (atparagraph 12A) set out certain requirements for the writing of lineslips at Lloyd’s.
To further clarify the standards that Lloyd’s expects should be applied to lineslips, Lloyd’s isalso making changes to the following:
1

Minimum Standards – Lloyd’s is amending the Minimum Standard for DelegatedAuthority UW1.3. The changes are intended to make clear that the minimum standards
for delegated authorities apply to lineslip agreements, as well as Consortia
arrangements. The updated standards have been discussed with the LMA and will be
notified to the market shortly.

2Code of Practice - Delegated Underwriting – Lloyd’s Delegated Authority Team isupdating its code of practice for delegated underwriting to set out more detail on Lloyd’s
expectations for writing lineslips. The updated Code will be published in the summer.

Additionally, Lloyd’s is presently discussing with the London Market Group updating theMarket Reform Contract standard for lineslips and lineslip declarations.
Lloyd’s requirements presently mean that Coverholders should not be given authority toparticipate on lineslips as this would constitute sub-delegation for the purposes of theIntermediaries Byelaw. As part of its review of the requirements for lineslips, Lloyd’s will bePage 2 of 3

MARKET BULLETIN

consulting on whether greater flexibility should be permitted. Any questions relating to thisshould be directed to the relevant account executive in the Delegated Authorities Team.
Definition of lineslip
The changes being implemented will apply to all lineslip agreements at Lloyd’s. The
Definition Byelaw defines lineslips as“an agreement by which a managing agent delegates its authority to enter into
contracts of insurance to be underwritten by the members of a syndicate
managed by it to another managing agent or authorised insurance company inrespect of business introduced by a Lloyd’s broker named in the agreement”
A number of placements in the market adopt a different name to describe theseagreements, including ‘facility’, ‘arrangement’, ‘programme’ and ‘scheme’. Where, however,
the agreement involves a delegation of the authority to enter into contracts of insurance orreinsurance in a way that meets the above definition it will qualify as a lineslip and Lloyd’s
will be monitoring managing agents to ensure compliance with its requirements. Any
delegation of authority to the broker to enter into contracts of insurance or to issue
documents evidencing contracts of insurance are not permitted through a lineslip
agreement and must be approved as a Coverholder arrangement.
Distribution Costs
Managing agents are reminded that Lloyd’s has issued guidance with regard to distribution
costs, broker remuneration and additional charges. This includes guidance with regard toprofit commission on lineslips. The guidance is presently set out in Market Bulletin Y4864.
Consortia Arrangements
Consortia arrangements are similar to lineslips in that they are delegations of authority
between managing agents. Lineslips are adopted where the business to be written is to besourced from a single broker. Consortia arrangements are more usually used where thebusiness to be written is expected to come from a number of different sources.
At the same time as looking at lineslip agreements, Lloyd’s is working with the LMA with aview to the LMA producing a model wording for consortia arrangements based on the LMA
model binding authority agreement, LMA3113.
Further Information
If you have any questions with regard to this bulletin, you are asked to contact Lloyd’s
Delegated Authorities Team by email at coverholders@lloyds.com.

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