market bulletin

Ref: Y4535

Title

Master Policies & Group Schemes

PurposeTo provide updated guidance on worldwide master policies and groupschemes written at Lloyd’s and to notify the market of changes to the review
process for the United States

Type

Event

From

Peter Montanaro, Head, Delegated Authorities

Date

30 November 2011

Deadline

1 January 2012

This bulletin sets out updated guidance regarding the writing of master policies and groupschemes worldwide, including US and multi-jurisdictional master policies.
The main changes with which managing agents need to familiarise themselves are:•

The introduction of new guidance on the writing of master policies and groupschemes worldwide to ensure compliance with Lloyd’s delegated underwriting
requirements, international licences and tax obligations (see Appendix 1).

•

Changes to the process for master policies/group schemes written in the US,
effective 1 January 2012. Managing agents will be able to adopt the approach
which is most appropriate for their syndicates in order to ensure that all US tax andregulatory requirements are met. It will no longer be a requirement for all
arrangements to have the prior approval of Dewey & LeBoeuf LLP. Lloyd’s will,
however, continue to monitor managing agents’ compliance.

•

Changes to the requirements for writing master policies in the US, in accordancewith the Non-admitted and Reinsurance Reform Act (‘NRRA’). For now, the process
in respect of Australian master policies/group schemes described in Appendix 1
remains unaltered, but is currently being reviewed.

Although the terms master policies and group policies are used by different parts of themarket, for the purposes of this bulletin these terms are interchangeable.

Market bulletin 111129 final.doc

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

Page 1 of 9

MARKET BULLETIN

1. General requirements for writing master and group policies
Lloyd’s recognises that master policies and group schemes have become a common way ofproviding coverage to individuals who belong to a group or association without the need toissue separate policies to each of the individuals. These types of arrangement can makematters administratively more convenient and reduce costs.
Master policies and group schemes, however, have a number of features that requireparticular attention:
1. To ensure that the arrangement does not constitute delegated underwriting(which requires compliance with Lloyd’s delegated underwriting requirements);
and2. To ensure that the arrangement complies with Lloyd’s international licences andtax obligations. Particular issues can arise where the individuals covered by themaster policy are in multiple locations.
To assist managing agents in ensuring compliance with the above, Lloyd’s has prepared
updated guidance on how it expects managing agents should approach the writing ofmaster/group policies. The updated guidance is set out at Appendix 1 and managing
agents are asked to ensure that these requirements are implemented. The requirements
apply to all master policies and group schemes written in all territories (including the US).
Managing agents should note that, as set out in Appendix 1, it is now a requirement that arecord be kept of all master policies written by a syndicate. Managing agents must all beable to evidence that an appropriate and proportionate review of each master policy iscarried out at suitable intervals to ensure compliance with the requirements in Appendix 1.
For master policies/group schemes written in the US, this review needs to include thematters addressed in Section 2 below.
During the first part of 2012 Lloyd’s will discuss further with managing agents its
expectations in this regard, including organising a presentation for the market. A review ofthe processes put in place by managing agents will be carried out towards the end of 2012.
The Delegated Underwriting Code of Practice will be updated to reflect these newrequirements and they will be made available on Crystal.

2. Requirement for master policies written in the U.S
Lloyd’s has previously treated US master policies differently to master policies issued inother jurisdictions, requiring independent review and sign off of these policies to ensure allcompliance and taxation issues are being properly addressed.
Lloyd’s has conducted a review of the arrangements for US master policies. In view of the
updated guidance provided in Appendix 1, Lloyd’s has decided that there is no longer aneed to differentiate US master policies from policies written in other jurisdictions.
Accordingly, from 1 January 2012, Lloyd’s will no longer require that US master policies bereviewed and signed off by Dewey & LeBoeuf LLP (‘D&L’) prior to inception.
While Lloyd’s is removing the requirement for prior review and approval by D&L, Lloyd’s
nevertheless expects that managing agents will conduct their own review of US master
policies/group schemes, to ensure that all legal, regulatory and tax requirements have beenaddressed before the policy is incepted, as well as annually on renewal. It is expected that

Page 2 of 9

MARKET BULLETIN

managing agents will familiarise themselves with the requirements relating to master
policies, and will review their compliance regimes to ensure that they have adequate
controls in place for the underwriting of these policies. Managing agents that intend to carryout the review of master policies/group schemes internally, without recourse to external
legal advice, must be able to demonstrate an appropriate level of expertise. Managing
agents that do not have the necessary in-house expertise should ensure the programme isreviewed by external lawyers who are familiar with the applicable rules.
The obligation to ensure that the master policy/group scheme complies with the relevant US
requirements is a matter for managing agents. Managing agents must not delegate
responsibility to the broker.
To assist, D&L has prepared guidance for US master policies/group schemes, a summary
checklist of which is attached as Appendix 2. The associated guidance memorandum isavailable to managing agents in the US section of Crystal 1 . This has been amended in thelight of the changed procedures outlined below and of the recent legal changes arising as aresult of the Non-Admitted and Reinsurance Reform Act (‘NRRA’). As a result of this Act,
the National Association of Insurance Commissioners (‘NAIC’) developed the Non-admitted
Insurance Multistate Agreement (‘NIMA’) to facilitate premium tax sharing between thestates on multistate surplus lines placements. NIMA adds to the NRRA definition of ‘home
state’ to create a separate definition of the terms in the context of group insurance. Thisdefinition has been adopted by some states and could be read to require individual
regulatory compliance (i.e. diligent search of the admitted market) for each group member.
The US General Cover Conditions for use in conjunction with the Model Binding Authority
Agreements for US coverholder arrangements include references to the current approval
process for US master policy/group schemes. Lloyd’s will be liaising with the LMA to update
those wordings. In the meantime, with effect from 1 January 2012, managing agents may
wish to agree suitable endorsements to their Binding Authority Agreements to reflect the
new arrangements.
2.1 The Current Requirements (prior to 1 January 2012)
Lloyd’s currently requires that before any US master policy/group scheme is placed with
underwriters, the underwriters (or Lloyd’s broker acting on behalf of the underwriters) mustarrange for the programme to be reviewed and approved by D&L.
2.2 Lloyd’s Requirements from 1 January 2012
From 1 January 2012, managing agents will no longer be required to present details of their
US programmes to D&L for review prior to writing the business.
However, managing agents should conduct a thorough review of any US master
policy/group scheme business prior to binding the risk and on renewal. This may include
seeking advice from D&L or engaging another legal firm with a recognised insurance
regulatory specialism, to provide advice on US placements.
2.3 Transitional arrangements for 2012
In order to support managing agents placing US master policy/group scheme business,
Lloyd’s will maintain a limited retainer with D&L for a transitional period of 12 months, from 1
January 2012 to 31 December 2012.

1

Crystal: US > Routes into Lloyd’s > Master Policies

Page 3 of 9

MARKET BULLETIN

During this time Lloyd’s encourages managing agents to contact D&L with any specificqueries they may have relating to US master policy/group scheme business. D&L can assist
managing agents with their compliance issues during this period, and provide advice as to
how to structure US master policy/group scheme business.
Following this transitional period, managing agents should continue to seek legal advice
where they have compliance concerns about US master policy/group scheme business.
However, Lloyd’s will no longer maintain a retainer with a specified law firm for this purpose.
Lloyd’s will continue to monitor the way in which managing agents manage their US master
policies/group schemes. Where Lloyd’s is concerned about the compliance capabilities of amanaging agent in respect of master policies, Lloyd’s may still require the managing agent
to submit any master policy/group scheme programmes to D&L for review, either on a one
off basis, or annually.

Further Information
Questions relating to compliance with Lloyd’s delegated underwriting requirements should
be directed to your Delegated Authorities Team account executive.
For questions or more information on the change to the process for the approval of US
master policy/group schemes, please contact:
Lloyd's International Trading Advice
Tel: 020 7327 6677 or Email: LITA@lloyds.com

Page 4 of 9

MARKET BULLETIN

Appendix 1 - Requirements for writing master and group policies
A master or group policy is an insurance policy issued to a master or group policyholder(the “policyholder”) who purchases the insurance to provide the benefit of insurance
coverage for others, usually individuals (the “covered parties”). The individuals who arecovered parties, however, are not parties to the insurance contract.
Although the terms master policies and group policies are used by different parts of themarket for present purposes these terms are interchangeable. 2
Where the master/group policy permits the policyholder post-inception to declare additional
covered parties to the policy, which underwriters are bound to accept, then Lloyd’s issatisfied that this type of arrangement does not require coverholder approval, subject to therequirements below being met. Nevertheless, a master/group policy arrangement does
have some similarities to delegated underwriting. Lloyd’s therefore expects managing
agents to manage the associated risks and comply with the requirements set out in thissection. It is important that managing agents do not use master/group policies
inappropriately as a mechanism for avoiding Lloyd’s delegated underwriting requirements
and accordingly the use of master/group policies by managing agents will be kept underreview.
Master/group policies can also raise difficult regulatory and licensing issues in somejurisdictions. Where these arise it is important that they are properly addressed.
Where the managing agent cannot comply with the requirements set out below, thearrangement must not be written as a master/group policy without the agreement of theDelegated Authorities Team. In these cases, it may be appropriate to write the scheme
under a binding authority agreement through an approved coverholder.
Managing agents should note that while master/group policies are common arrangements,
the legal principles which apply to them in the United Kingdom and in other countries
remain uncertain and under-developed. The correct legal analysis of such arrangements
may also differ in different jurisdictions and suitable local legal advice may be required.
Managing agents should consult Crystal for advice on any local regulatory requirements.
Specific Requirements for the writing of master/group policies
Managing agents should only write insurance schemes as master/group policies, where
they comply with the following requirements. We expect that managing agents will regularly
review master/group policies to ensure ongoing compliance with these requirements. The
policy renewal date provides an opportunity to complete such reviews.
1. The covered parties must be individuals and must belong to a clearly identifiable andgenuine group, for example by virtue of common employment, association,
occupation or activity. This connection must arise other than by reason of the2

Master/group policies should be distinguished from Risk Purchasing Groups (RPGs) or Risk Retention Groups(RRGs) in the United States. These arrangements are governed by specific US federal laws and are not the
subject of this guidance. See further below and the content on the United States on Crystal for further
information on these groups.

Page 5 of 9

MARKET BULLETIN

master/group policy. Customers whose only connection is that they purchased thesame product from a vendor will not satisfy this requirement unless there is agenuine ongoing customer relationship (through the continuing provision of a noninsurance service) arising from that group of customers purchasing the product suchthat a clearly defined group can be identified.
Examples which would be considered a group: (1) An employer holding amaster/group policy for the provision of employee group health policies. Therefore
the employees are the covered parties. (2) A professional association holding amaster/group policy providing liability insurance for the individual members (3) Abank holding a master/group policy providing travel insurance as a benefit for thecurrent account customers of the bank.
Examples which would not be considered a group: (1) Individuals who havebooked a holiday through the same travel agent are not part of the same group andcannot be declared to a travel insurance master/group policy issued to the travel
agent. (2) A supermarket creates an association, members of which are entitled to
special offers from the supermarket, including certain insurance products. As theassociation exists only to sell the insurance and other special offers a master/group
policy arrangement is not appropriate in this case.
2. The policyholder must have a legitimate interest in providing cover for the definedgroup of members. Lloyd’s would not regard the ability of the policyholder togenerate a fee, commission or other payment for providing cover to the members as
being, a sufficient “legitimate interest” for these purposes. The policyholder should
not have as its principal purpose the procurement of insurance for its members.
Implicit in this requirement is that the policyholder provides substantial noninsurance benefits to its members.
3. The policyholder may receive some form of remuneration as a result of
administering the master/group policy. Ordinarily this will be limited to covering theadministrative costs of the policyholder. However, where financial benefits do go
beyond meeting expenses, the potential conflict of interest that arises for thepolicyholder must be considered. A way of addressing this would be full declarationof such benefits to its members but managing agents may manage this issue inother ways. Note that in some jurisdictions, policyholders may require approval tocarry on regulated activities as an intermediary before they are able to receive
remuneration. In these cases, managing agents should ensure that the policyholder
has the necessary regulatory authorisations. See paragraph 8 below.
4. The policyholder should have no discretion as to who can be declared to the policy
or as to the premium charged or terms of coverage, nor should they provide any
advice regarding the insurance coverage. This, however, does not prevent themaster/group policies providing different options to proposed covered parties whowish to obtain the benefit of the master/group policy. For example, a group healthscheme may offer different options for family and individual cover with the rates
varied according the package adopted. Similarly, the policyholder should not haveany authority to deal with claims on behalf of underwriters.
5. The policyholder should not produce insurance documentation on behalf ofunderwriters. However, appropriate confirmation or details of the cover that has
been purchased must be provided to the covered parties. Subject to any local
licensing requirements, these details may be provided by the policyholder. Any such

Page 6 of 9

MARKET BULLETIN

details provided to the covered parties must make clear that the only insuring
document is the master/group policy document and that a copy of that document
may be viewed at the request of the covered party. The agreement between the
managing agent and the policyholder should clearly specify who is responsible forproviding any such details to the covered parties. This includes any explanatory or
promotional material.
In certain circumstances, policies that do not meet all the above requirements may still be
written as master/group policies, however guidance must be sought from the DelegatedAuthorities Team.
-

Regulatory and tax matters

6. The type of cover provided to the covered parties must be permitted to be written
under relevant local regulations. Managing agents should have regard to thelocation of the covered parties as a relevant factor to consider in ensuring
compliance. Where covered parties come from different jurisdictions more difficult
questions can arise and where appropriate suitable legal advice should be obtained.
7. Local tax requirements must be satisfied. Managing agents should refer to Crystal,or seek professional advice, to determine which are the relevant local tax
requirements. Consideration should be given to the location(s) of the covered parties
as well as the location of the policyholder.
8. The master/group policy must comply with local conduct of business requirements.
Such requirements could include filing of wordings, approval of sales literature andcomplaints handling. Consideration should be given to the location of thepolicyholder as well as the location(s) of the covered parties. Managing agents musttake particular care as to whether the activities of the policyholder in administering
the master/group policy constitute regulated intermediary activity in the relevant
territories. If the activities of the policyholder could constitute a regulated activity,
the managing agent should ensure that the policyholder has the necessary
regulatory authorisations. Whether the policyholder is carrying on regulated
activities will depend on the rules of the local territory and the activities that thepolicyholder will be required to perform to administer the master/group policy.
9. Managing agents should take steps to ensure that any business underwritten or
arranged by or under the master/group policy does not result in coverage being
arranged or any claim paid or benefit provided to or for any party that would expose
the Managing Agent or underwriters to any sanction, prohibition or restriction under
any applicable international trade or economic sanctions, laws or regulations.
10. Where the tax or regulatory rules of more than one jurisdiction may apply it isimportant that managing agents ensure that risks are coded appropriately to ensure
there is compliance with Lloyd’s reporting and statutory tax requirements.
USA and Australia
In two territories, additional requirements apply to the underwriting of master/group policy
programmes. These are:
1.

The United States – Because of the detailed rules that govern master policy/groupscheme arrangements in the US, from 1 January 2012, ahead of the renewal ofPage 7 of 9

MARKET BULLETIN

each scheme, managing agents are expected to conduct a review of all US master
policies written by them to ensure that all legal, regulatory and tax requirements
have been addressed before the policy incepts, as well as annually on renewal. It is
expected that managing agents will be familiar with the requirements relating tomaster/group schemes and will review their compliance procedures to ensure thatthey have adequate controls in place for the underwriting of these policies.
Managing agents that intend to carry out the review of master policies/groupschemes internally, without recourse to external legal advice, must be able todemonstrate an appropriate level of expertise. Managing agents that do not have thenecessary in-house expertise should ensure the programme is reviewed by externallawyers who are familiar with the applicable rules. The obligation to ensure that themaster policy/group scheme complies with the relevant US requirements is a matterfor managing agents. Managing agents should avoid delegating this responsibility to
the broker. Further information regarding master policies in the US can be found on
Crystal.
Insurance underwritten to US Risk Purchasing Groups (RPG) / Risk Retention
Groups (RRG) is permitted and these arrangements are governed by the US
Federal Liability Risk Retention Act (1986). Guidance should be sought from a law
firm with appropriate expertise where a RPG or RRG is being established. Whilesome of the risk management principles outlined in this guidance may be applicable
to RPGs / RRGs managing agents will be expected to comply the specificrequirements set out in the federal legislation to the extent it conflicts with theseprinciples.
Lloyd’s Underwriters are admitted in Kentucky and Illinois and there may be special
requirements as to insureds that reside in those states that are covered bymaster/group policies. Additional information may be obtained from Lloyd’s
Kentucky, Inc. or Lloyd’s Illinois, Inc.
2.

Australia - Master/group policies cannot be written at Lloyd’s without approval fromthe Lloyd’s general representative in Australia. This is to ensure that Australianmaster/group policies are constructed and issued in such a manner to be incompliance with all Australian regulatory and tax obligations. Underwriters should
ensure that when placing their lines on such contracts that they have had sight of
the letter of approval from the Lloyd’s general representative confirming that thecontract of insurance is in order. Further information and details of the information
required by the general representative in Australia can be found on Crystal.

Recording and Monitoring Compliance
So that Lloyd’s is better able to monitor managing agent’s approach, managing agentsshould keep a record of all master/group policies written by a syndicate. Managing agents
must also be able to evidence that an appropriate and proportionate review of eachmaster/group policy is carried out at suitable intervals to ensure compliance with therequirements set out above. For master policies/group schemes written in the US,
managing agent reviews need to address expressly and demonstrate compliance with theparticular regulatory and tax requirements that apply there.

Page 8 of 9

MARKET BULLETIN

Dewey & LeBoeuf LLP
1 Minster Court
Mincing Lane
London EC3R 7YL
DX:520 London/CityT
F+44 20 7459 5000
+44 20 7459 5099

GROUP INSURANCE PROGRAMS IN THE UNITED STATES:SUMMARY CHECKLIST FOR LLOYD'S BROKERS AND UNDERWRITERSManaging agents may access the memorandum that accompanies this checklist in the US sectionof Crystal. The following preliminary information must be considered for all group (or association)
insurance programs in the United States.
1.

Complete details about the group, including the date of establishment, a copy of its articles ofassociation (or incorporation) and bylaws, the requirements and benefits of membership, etc.;2.

Copy of the Confirmation of Coverage or the Notice or Evidence of Insurance that will be
issued to each insured member of the group;3.

Copy of the Slip and the Master Policy wording;

4.

Specification of the state in which the group is headquartered (i.e., the “home state”);

5.

Identification of all U.S. brokers involved, and information as to the states in which they holdsurplus lines licenses and non-resident brokers' licenses;

6.

List of states in which insured members reside and, therefore, where Evidences will be issued;

7.

Premium payment: explanation of whether the premium is assessed as part of the insured
member's membership fee or as a separate payment, and how and to whom the premium is paidby the insured member (e.g., directly to the broker or to the group);

8.

Security: The name of the leader and confirmation as to whether the coverage is underwritten
100% at Lloyd's and, if not, as to which companies are involved and their respective percentage
participation; and9.

Marketing: Explanation of how the insured members are initially informed about the coverageavailable and a copy of any promotional or marketing material used in connection with thecoverage or in connection with the solicitation of new members of the group where the material
mentions the coverage, together with an explanation of how, to whom, and by whom suchmaterials will be distributed.
To the extent applicable, please ask for our separate guidance regarding risk purchasing groups
formed pursuant to the Liability Risk Retention Act of 1986 as amended.

Dewey & LeBoeuf LLP is a limited liability partnership registered in England and Wales under number OC355432
and is a law firm regulated by the Solicitors Regulation Authority. We use the word 'partner' to refer to a member of the LLP, or an employee or consultant
who is a lawyer with equivalent standing and qualifications. A list of the members of Dewey & LeBoeuf LLP is available for inspection at the registered office
above, together with a list of those non-members who are designated as partners.
NEW YORK | LONDON | W ASHINGTON, DC | A BU DHABI | ALBANY | A LMATY | B EIJING | BOSTON | BRUSSELSCHICAGO | DOHA | D UBAI |F RANKFURT | HONG KONG | HOUSTON | J OHANNESBURG ( PTY ) LTD . | LOS A NGELESMADRID | MILAN | MOSCOW | P ARIS | R IYADH AFFILIATED OFFICE | R OME | SAN F RANCISCO | SILICON V ALLEY | W ARSAWPage 9 of 9