market bulletin

Ref: Y4133

Title

Binding Authorities US and non-US Combined (“joint”) certificates issued bycoverholders

PurposeTo advise managing agents and brokers of new procedures relating to combined
certificates

Type

Event

From

Rolf Tolle, Director Franchise PerformanceDate

11/03/08

Deadline

Immediate Effect

Related links

http://www.lloyds.com/actsandbyelaws

The purpose of this bulletin is to advise managing agents and brokers of –•the removal of the general prohibition on permitting combined certificates to be issued underbinding authorities for US business;•to advise the market of a revised several liability clause to be used for combined certificatesissued under all binding authorities (ie both for US and non-US risks); and•to confirm that in respect of certificates that are solely underwritten by Lloyd’s underwriters,
managing agents may continue to authorise coverholders to use their existing several liability
clauses (such as LSW 1001).

Background
From time to time Lloyd’s managing agents wish to permit their coverholders to issue “combinedcertificates” to policyholders (i.e. a single certificate that evidences a contract of insurance in which a
proportion of the security is to be provided by insurers other than members of Lloyd’s. Such acertificate has previously been referred to as a “joint certificate” and is so described in the various
Model Binder Wordings issued by LMA).

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Lloyd’s is authorised under the Financial Services and Markets Act 2000

Lloyd’s has set certain rules regarding the use of such certificates. These are set out in chapter 2 ofthe requirements made under the Intermediaries Byelaw at paragraph 16 which can be accessed at
http://www.lloyds.com/actsandbyelaws
In summary these requirements generally permit a managing agent to permit a coverholder to issue
combined certificates provided always that the appropriate several liability clause is included.

US risks
In the case of US risks Lloyd’s has until now endorsed provisions in the LMA’s US General CoverConditions that prohibit in most cases coverholders from issuing combined certificates.
Lloyd’s has reviewed this prohibition on combined certificates in particular as there is no equivalentprohibition on single combined policies being issued for US risks underwritten on open market basis.
Lloyd’s believes that it is no longer appropriate for the general ban to remain in place on combined
certificates for US risks. Instead, in the event that a managing agent having carefully considered therelevant legal and credit risks involved believes that it is appropriate and prudent to permit its
coverholder to issue a combined certificate then it may do so. However, in order to minimise theassociated risks it is vital that the new procedures below are adopted.

New procedures for all combined certificates (ie both US and non-US risks)
1.

Before it permits a coverholder to issue combined certificates under a binding authority, themanaging agent must make sure that it knows the identity of the non-Lloyd’s co-insurer(s)who will be represented on combined certificates issued under the binding authority. TheManaging Agent should be satisfied that it is appropriate in all circumstances for Lloyd’s
underwriters to be party to combined certificates with that co-insurer..
Where the managing agent permits a coverholder to issue combined certificates but the coinsurer is not a party to the same binding authority, then the managing agent does not needto name the co-insurer on the Lloyd’s binding authority. But the managing agent does needto know the identity of the co-insurer and, as above, satisfy itself that the issuance ofcombined certificates with that co-insurer is appropriate.
(In neither scenario above is there a requirement by Lloyd’s for the managing agent tothereafter see each individual combined certificate that the coverholder issues.)

2.

The certificate to be issued should not include a Lloyd’s logo or be titled “Lloyd’s Certificate”
or similar.

3.

An appropriate several liability clause must be incorporated in every combined certificate
issued by the coverholder to a policyholder. A new clause suitable for use by coverholders
on combined certificates is attached as Annex 1 (and has been issued as LMA 5096) andshould be used going forward for both US and non-US risks.

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Also the LMA has produced an endorsement (LMA 5097) for attachment to Lloyd’s modelbinding authority agreements where permission has been granted for a coverholder to issue
combined certificates.
The clause and endorsement are available on the Lloyd’s Wordings Repository. See
www.lloyds.com/Lloyds_Market/Tools_and_reference/Lloyds_Wordings_Repository.htm
4.

The combined certificate must clearly set out the name, address and proportion of risk
assumed by each syndicate/other insurer participating on the risk. (For the purposes ofLloyd’s syndicates the address of Lloyd’s may be given (ie One Lime Street, London EC3M
7HA, UK). Where there are several Lloyd’s syndicates on the combined certificate theLloyd’s address only needs to be shown once on the schedule of insurers.
Lloyd’s is aware that where non-US combined certificates have been permitted to be issued
to-date, the Lloyd’s participation has been shown on the combined certificate as a single
proportion rather than per syndicate (eg as X% Underwriters at Lloyd’s). In thosecircumstances only managing agents may continue to permit its coverholders to issue
combined certificates showing the Lloyd’s participation as a single figure. However, Lloyd’s
would encourage the disclosure of syndicate participations where possible.

5.

The managing agent must ensure that is has appropriate mechanisms in place, such as aregular audit, so that it is satisfied that each combined certificate is issued with the necessary
several liability clause and complies with the other requirements set out above. In particular,
the managing agent should ensure that the binding authority clearly requires the inclusion of
the new several liability wording in each combined certificate that will be issued. (If using an
LMA model wording this several liability clause should be included in the binding authority
schedule.)

6.

The other requirements set out in the requirements in the Intermediaries Byelaw must becomplied with.

The several liability clause attached to this bulletin has been prepared in order to minimise therelevant legal and credit risks. However, no clause can entirely eliminate these risks and it must be
for each managing agent to determine on a case by case basis whether it is satisfied that it isappropriate for combined certificates to be issued.

Reporting requirements regarding use of combined certificates
Until further notice managing agents are requested to inform the Lloyd’s Delegated Authorities Teamof all cases where they have authorised coverholders to issue combined certificates. This is for
Lloyd’s information purposes.
Please provide details to coverholders@lloyds.com

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Procedures for all non-combined certificates (ie only underwritten by Lloyd’s underwriters)
In respect of certificates that are only underwritten by Lloyd’s underwriters, managing agents may
continue to use their existing several liability clause (such as LSW 1001).

Amendments to the Underwriting Requirements
Lloyd’s has amended the several liability clause contained in the requirements made under theIntermediaries Byelaw to bring it in line with the new several liability clause.
However, where a managing agent is using the current several liability language contained atparagraph 16(d) of Chapter 2 of the Underwriting Requirements then they may continue to permit
their coverholders to use that clause until that current binding authority expires (although managing
agents are encouraged to adopt the new several liability clause as soon as possible). All new andrenewal binding authorities where combined certificates will be issued must include the several
liability clause referred to in this bulletin.
This bulletin has been discussed with the LMA and LMBC. If any managing agent or Lloyd’s broker
has any queries relating to any matters set out in this bulletin they should in the first instance contact:•

Paul Brady, Lloyd’s Legal & Compliance - 0207 327 5750/paul.brady@lloyds.com•

Peter Martin, LMA – 020 7327 4595/peter.martin@lmalloyds.com

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Annex 1
Several Liability Clause

PLEASE NOTE – This notice contains important information. PLEASE READ CAREFULLYThe liability of an insurer under this contract is several and not joint with other insurers party
to this contract. An insurer is liable only for the proportion of liability it has underwritten. Aninsurer is not jointly liable for the proportion of liability underwritten by any other insurer.
Nor is an insurer otherwise responsible for any liability of any other insurer that may
underwrite this contract.
The proportion of liability under this contract underwritten by an insurer (or, in the case of a
Lloyd’s syndicate, the total of the proportions underwritten by all the members of thesyndicate taken together) is shown in this contract.
In the case of a Lloyd’s syndicate, each member of the syndicate (rather than the syndicateitself) is an insurer. Each member has underwritten a proportion of the total shown for thesyndicate (that total itself being the total of the proportions underwritten by all the membersof the syndicate taken together). The liability of each member of the syndicate is several
and not joint with other members. A member is liable only for that member’s proportion. Amember is not jointly liable for any other member’s proportion. Nor is any member
otherwise responsible for any liability of any other insurer that may underwrite this contract.
The business address of each member is Lloyd’s, One Lime Street, London EC3M 7HA.
The identity of each member of a Lloyd’s syndicate and their respective proportion may beobtained by writing to Market Services, Lloyd’s, at the above address.
Although reference is made at various points in this clause to “this contract” in the singular,
where the circumstances so require this should be read as a reference to contracts in theplural.

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