Coverholders at Lloyd's

An introduction to what a coverholder is, how they work and how they fit into Lloyd’s.

  • What is delegated underwriting?

    Delegated underwriting is the phrase commonly used at Lloyd’s to describe what happens under a binding authority. The managing agent delegates its underwriting authority within defined terms to the coverholder.

  • What is a coverholder?

    A coverholder is a company or partnership authorised to write contracts of insurance on behalf of the managing agent in accordance with the terms of a binding authority.

    A coverholder may also have authority to issue insurance documents. Insurance documents include certificates of insurance, and other documents acting as evidence of contracts of insurance.

    Coverholders may be known under different titles in other countries for example, in the USA they are known as managing general agents (MGAs) whilst in some parts of Europe they can be described as underwriting agents or multi agents.

     

    Global map showing number of coverholders worldwide

     

    Global map showing number of coverholders worldwide

     

  • What is a binding authority?

    A binding authority is an agreement under which a managing agent delegates their authority to enter into contracts of insurance to a coverholder.

    The binding authority agreement will set out all of the coverholder's responsibilities, including any authority to issue insurance documents, collect premiums and agree claims.

     

  • How do coverholders fit at Lloyd's?

    Coverholders are a vital part of Lloyd’s distribution network, enabling Lloyd’s managing agents to operate in a region or country to compete with local insurers and access small and medium sized business efficiently. This is achieved by Lloyd’s managing agents delegating their underwriting authority and other responsibilities to the coverholder.

     

    Coverholder GROSS signed Premium 2010 by region

    Coverholder GROSS signed Premium 2010 by region

     

    See about us for an easy overview as to how Lloyd’s works

  • Who are the key parties in the placement of business as a coverholder?
    Key parties in the placement of business as a coverholder

    This table outlines the key parties in the placement of business as a coverholder and the legal position of the parties (who owes a duty to whom):

     Party  Role Who owes a duty to whom?
    Policy Holder  A person or company who buys or holds an insurance policy; usually, the client in whose name an insurance policy is written. The policyholder is the client of the retail broker and has a duty to disclose material facts to the managing agent when an insurance contract is being negotiated, subsequently amended or renewed.
    Retail Broker The retail broker advises the policyholder about insurance options, choice of cover and risks to be insured for the policyholder, from a range of insurers. The retail broker is the agent of the policyholder and the client of the coverholder and has a duty to act in the policyholder’s best interests.
    Coverholder The coverholder is a company authorised by a Lloyd’s managing agent (on behalf of the Lloyd’s syndicate) to enter into contracts of insurance and/or issue insurance documentation, on behalf of the members of a syndicate.

    A coverholder may also be authorised by the Lloyd’s managing agent for collecting premiums and handling claims. The exact nature of the coverholders authority to act for the Lloyd’s managing agent must be set out in the binding authority.    		 The coverholder acts as the agent for the managing agent, rather than as the policyholder’s agent. When a coverholder, acting under the terms of a binding authority with the managing agent, enters into contracts of insurance to be underwritten by the managing agent, or issues insurance documents, they are acting as the agent for the managing agent.

    A coverholder also acts as agent for the managing agent for collecting premiums or handling claims. The exact nature of the coverholders authority to act for the Lloyd’s managing agent is set out in the binding authority.
    Lloyd’s broker

    The role of the Lloyds broker, on behalf of the
    coverholder is to:

    • Arrange and administer the binding authorities.
    • Negotiate terms and conditions of the binding
      authority with the managing agent.
    • Sponsor new coverholders.
    • Manage the day to day relationship with
      the coverholder.
    • Arrange renewal and find new syndicates
      if necessary.
    • Handle items which fall outside of the terms
      of the binding authority.
    • Preparation and submission of reporting to the
      managing agent and to Xchanging.
    		 A Lloyd’s broker usually acts as the agent for the coverholder and acts as the point of contact between the managing agent and the coverholder.
    Xchanging A company which provides the Lloyd’s and the London market with a single processing of regulatory and tax information and cash settlement of premiums and claims. Within Xchanging XIS (Xchanging Ins-sure Services) and XCS (Xchanging Claims Services) responsible for Lloyd's market processing.
    Managing Agent These are companies approved by Lloyd’s and authorised by the FSA to manage one or more Lloyd’s syndicates. The managing agent is responsible for managing all aspects of a Lloyd’s syndicate.

    Managing agents have the authority to enter into binding authorities. The managing agent acts on behalf of all of the capital providers of the Lloyd’s syndicate. It is the agent of the capital providers and has a duty to act in their best interests.

    This includes:

    • Establishing the syndicate business plan
    • Establishing the syndicate’s capital
    • Managing and modelling the syndicate’s risks
    • Appointing underwriting and claims staff
    • Setting reserves
    Syndicates Capital providers at Lloyd’s are called Lloyd’s members. A Lloyd’s member can provide capital to one or more Lloyd’s syndicates. The syndicates operating within the market specialise in many areas of insurance including:

    - Marine
    - Aviation
    - Property
    - Non- Marine
    - Motor
    - Reinsurance

    Syndicates work with Lloyd’s brokers to tailor solutions to respond to the specific needs of the client, thus offering choice, flexibility and continuing innovation. Syndicates compete against each other. Syndicates cover either all or a portion of the risk. They are staffed by underwriters, the insurance professionals on whose expertise and judgement the market depends.    		 Syndicates operate as independent business units within the Lloyd’s market and are managed by Lloyd’s managing agents. Syndicates are formed for one year and reformed each year, sometimes with the same and sometimes with different capital providers.
    Members Members are the insurers and accordingly provide the capital to support syndicates’ underwriting. Members include some of the world’s major insurance groups and companies listed on the London Stock Exchange, as well as individuals and limited partnerships. Members of Lloyd’s underwrite insurance by forming groups of members known as syndicates. Members authorise the managing agent of the syndicate to underwrite insurance risks on the behalf.
    Corporation of Lloyd’s

    Lloyd’s is not an insurance company, it is a market where members join together as syndicates to insure and reinsure risks. Much of Lloyd’s business works by subscription, where more than one syndicate takes a share of the same risk.

    The Corporation of Lloyd’s main activities include:

    • Establishing and maintaining the standards that are expected of all the managing agents.
    • Overseeing the performance of all the managing agents.
    • Making sure all the managing agents are adequately capitalised, including the central fund.
    • Obtaining and maintaining insurance and reinsurance licences for Lloyd’s throughout the world.
    • Undertaking financial and regulatory reporting on behalf of the Lloyd’s market.
    • Protecting and promoting the Lloyd’s brand globally.
    • Maintaining the overall credit rating for the Lloyd’s market.
    		 Lloyd’s has the statutory power to supervise the Lloyd’s market and those who operate in it. In practice it does this through the franchise board, which is responsible for the day to day management of the Lloyd’s market.

    Lloyd’s supervises coverholders as part of its statutory role in supervising the Lloyd’s market.

    This supervision is carried out through the approval process and then through Lloyd’s ongoing supervision of all approved coverholders. The department that is responsible for coverholders on a day to day basis is the Delegated Authority Team.

  • Who regulates Lloyd's?

    The Corporation of Lloyd’s is regulated in the UK by the Financial Services Authority (FSA) and subject to the FSA’s rules. The FSA also directly regulates all Lloyd’s managing agents.

  • What does the FSA expect of Lloyd's?

    One of the key areas the FSA expects from Lloyd’s is the oversight and control of delegated underwriting and Lloyd's delivers this through its standards framework which is why it has the standards for delegated underwriting.

  • How does Lloyd's meet the FSA expectations?

    To meet the FSA requirements, Lloyd’s has established franchise standards, with which managing agents need to comply. There is a franchise standard for delegated underwriting which is summarised as follows:

    • Each managing agent must have a clear strategy for writing and managing delegated underwriting business as part of its overall business plan.
    • Each managing agent is expected to carry out thorough due diligence of coverholders to which it proposes to delegate authority.
    • Each managing agent must have binding authorities in place with each coverholder to which it delegates authority clearly defining the conditions, scope and limits of that authority and which comply with contract certainty requirements, including the requirement to demonstrate regularly that insurance documents have been issued within required timescales.
    • The managing agent must proactively manage delegated underwriting contracts once incepted to ensure compliance with contract conditions.

    To help managing agents understand better how they can meet the Lloyd’s franchise standard, further guidance has been provided by Lloyd’s in the Code of practice – delegated underwriting.

    Although the code is aimed at managing agents, coverholders may find it useful to familiarise themselves with it.

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Coverholder Toolkit | Coverholder at Lloyd's  pdf file
Chapter 2: Coverholders at Lloyd's

This chapter gives an introduction to what is a coverholder, how they work and how they fit into Lloyd’s.

Related Links

Code of Practice (Delegated Underwriting)

More about Lloyd's

More about coverholders

Key Coverholder Facts

  • There are approximately 2,500 approved coverholders at Lloyd’s.
  • They produce approximately 30% of Lloyd’s premium income each year.
  • 85% of coverholders have been with Lloyd’s for more than 5 years.
  • From a recent Lloyd’s survey some of the biggest advantages of being a coverholder for Lloyd’s has been identified as:
    - Flexibility in underwriting solutions
    - Freedom to make own underwriting decisions
    - Access to Lloyd’s brand and security rating
  • For the experienced coverholder, Lloyd’s managing agents will give the underwriting authority to empower them.
  • For those coverholders who are not so experienced, Lloyd’s managing agents will work with them, so that over time they are able to be empowered further.