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Continuous contracts wordings

Checklist for contract changes to LMA3113A for continuous contracts

Managing agents seeking to implement continuous contracts will need to include appropriate contractual terms in their binding authority agreements. 

The following guidance provides a checklist of the contractual provisions that should be considered and includes the applicable model amendments (based on LMA3113A).  The guidance indicates changes that are Mandatory (M) and those that are Advisory (A).

If you do not propose to use LMA 3113A as the basis for the continuous binding authority agreement you must still apply this checklist and incorporate the Mandatory provisions. 

The LMA are currently reviewing and updating their template model wordings. Continuous contract wording templates are included in this review. The LMA will be releasing these updates in 2023.

IssueResolutionModel Wording Amendment based on LMA 3113A
1. Current binder wording has proposed end date.
The contract needs to clearly provide that it is continuous (until terminated).

SECTION 2

2.1  [Delete existing sub-section and insert:]

Subject to Section 1, the Agreement is effective from the inception date stated in 2.1 of the Schedule until terminated in accordance with Sub-section 4.3, Section 36 or 37A.4;

2.2       [Delete existing section.]


SCHEDULE

2.1       [Delete existing schedule item for sub-section and insert:]

PERIOD:

From {Inception Date}


(M)
2. Oversight and compliance is currently linked to the annual renewal process.
Managing agents should have an effective ongoing oversight process which is ensures performance is monitored and not “linked” to an annual renewal/annual re-sign.

SECTION 4

4.10      [Insert new sub-section:]

Underwriters may from time to time, in consultation with the Coverholder, set performance or operating metrics under this Agreement and the Coverholder shall participate in such reviews or provide such information as may be necessary to assess compliance with those metrics.


(A)
3. Managing agents must continue to allocate premium and claims on a YOA basis.
Premium and exposure limits should be set by the managing for each annual period, commencing 1/1.

SECTION 12

Heading            [Amend the section heading to:]

ANNUAL GROSS PREMIUM INCOME LIMIT

[Subsequently, amend all references to ‘gross premium Income’ to ‘annual gross premium income’.]

12.1      [Delete existing sub-section and insert:]

In each 12 month period commencing on 1 January in each year, during the period of the Agreement, the Coverholder shall not bind total gross premium income in excess of the limit stated in 12.1 of the Schedule.  If the Agreement incepts after 1 January in a year, then for the initial period until 1 January following the inception the limit stated in 12.1 of the Schedule shall be reduced pro rata;

12.2      [Delete existing sub-section and insert:]

The Coverholder shall monitor the total gross premium income bound and shall promptly notify the Underwriters if it becomes apparent that the total gross premium income in any 12 month period (or pro rata period thereof) referred to in Sub-section 12.1 is likely to exceed the percentage of the limit for the 12 months period (or pro rata period thereof) stated in 12.2 of the Schedule;

SECTION 23

23.2.3   [Delete existing sub-section and insert:]

in each 12 month period commencing on 1 January in each year during the period of the Agreement not bind total aggregate exposures in excess of the limits stated in 23.2.3 of the Schedule. If the Agreement incepts after 1 January in a year, then for the initial period until 1 January following the inception the limit stated in 12.2.3 of the Schedule shall be reduced pro rata;


SCHEDULE 

12.1 Heading     [Amend the section heading to:]

ANNUAL GROSS PREMIUM INCOME LIMIT


(M)
4. Transparency of termination of the agreement.
Adequate provision within the contract which allows termination should Coverholders fail to meet obligations including performance requirements.

SECTION 36

36.6      [In the introductory paragraph amend the reference to ‘36.6.6’ to ‘36.6.7’;]

36.6.6 & 36.6.7 [Renumber sub-section 36.6.6 as sub-section 36.6.7 and change the reference to ‘36.6.5’ in that sub-section to ‘36.6.6’. Then, insert as new sub-section 36.6.6:]

the Coverholder fails to comply with ongoing due diligence requirements or fails to meet any agreed performance metrics, and is unable to rectify compliance within 30 days of being notified by Underwriters;


(A)

5. Contract is currently annual and requires a renewal.
Move to continuous via removal of reference to ‘non-renewal’ where necessary.

SECTION 37

37.2      [Delete existing sub-section and insert:]

Once the Agreement has terminated (in accordance with Section 36) the Coverholder:

37.2.1   [Delete existing sub-section and insert:]

shall have no authority to offer terms, bind insurances, renew, cancel, extend, amend or alter in any way insurances already bound without the prior written consent of the Underwriters. Such written consent shall only be effective where it is not in contravention of local law;

37.5      [Delete]


(M)
6. Annual transfer process needed to facilitate Lloyd’s annual venture processes.
Contracts must allow for the annual transfer of the binding authority to each following year of account as at 1st  January.

[Insert below section:]

SECTION 37A

TRANSFER FROM ONE UNDERWRITING YEAR OF ACCOUNT TO THE NEXT

37A.1   The Coverholder acknowledges that syndicates at Lloyd’s are annual ventures and that although commonly syndicates will be reconstituted in the immediately following underwriting year of account, in some cases that will not happen.  The Underwriters and the Coverholder agree that where possible, and unless this Agreement has been terminated, the benefit (and burden) of the provisions of this Agreement, so far as concerns the Underwriters and at their option, should be transferred as and from 1 January of each year following its inception to the underwriting members of the syndicates in the immediately following year of account and for that purpose the Underwriters and Coverholder agree as follows.  

37A.2.  If this Agreement has not been terminated under Section 36 above or Section 37A.4 below, then with effect from and including 1 January of each year following the inception of this Agreement (“the Transfer Date”):

37A.2.1 the Underwriters and the Coverholder agree that the appointment of the Coverholder under this Agreement shall take effect for all purposes as an appointment by the underwriting members of Lloyd’s for the same participating syndicates at the time of the transfer for the immediately following year of account (“the Incoming Underwriters”) in place of the underwriting members of Lloyd’s for the participating syndicates at the time of the transfer (for the purposes of this Section referred to as “the Outgoing Underwriters”);

37A.2.2 insurances falling within the scope of this Agreement and bound by the Coverholder on or following each Transfer Date shall be underwritten by the Incoming Underwriters and not by the Outgoing Underwriters;

37A.2.3 the individual proportions of the Incoming Underwriters of each syndicate shall be the same as the individual proportions of the same syndicate of the Outgoing Underwriters;

37A.2.4 the Incoming Underwriters shall assume and be bound by and subject to the terms and conditions of this Agreement and shall have and be entitled to exercise all powers, authorities and discretions conferred in this Agreement in relation to the period as and from the each Transfer Date as if the Incoming Underwriters had been a party to this Agreement as from the inception of this Agreement, and for these purposes “Underwriters” in this Agreement shall be interpreted so as to refer to the Incoming Underwriters where a transfer to which this Section 37A applies has taken place;

37A.2.5 the Incoming Underwriters shall have no liability for the period before the applicable Transfer Date; and

37A.2.6 the Outgoing Underwriters shall remain bound by and subject to the terms and conditions of this Agreement, and shall have and be entitled to exercise all powers, authorities and discretions conferred in this Agreement, in relation to the period prior to the applicable Transfer Date but shall not be responsible for the performance of this Agreement as and from that Transfer Date.

37A.3   For the purposes of sub-section 37A.2, the Outgoing Underwriters in each year shall be responsible for obtaining the Incoming Underwriters’ agreement to the transfer of the benefit and burden of this Agreement to the Incoming Underwriters in place of the Outgoing Underwriters as and from the applicable Transfer Date. The Coverholder waives any requirement of notice of the acceptance of transfer. The transfer shall be evidenced by an endorsement which will be completed by or on behalf of the Incoming Underwriters and provided to the Coverholder. The transfer will take place, and will bind the Outgoing Underwriters, the Incoming Underwriters, and the Coverholder, even if no such endorsement is produced.


(M)
*This section allows for the annual transfer of the binding authority each year. No changes can be made to this wording without the prior agreement of Lloyd’s.

Paragraph 10 of the requirements made pursuant to the Intermediaries Byelaw has been amended to remove the requirement for binding authorities to have a limited period of 36 months or 18 months, but only where prescribed by Lloyd’s and provided managing agents comply with any requirements prescribed by Lloyd’s.  Accordingly, provided managing agents comply with the requirements set out here, Continuous Contracts that do not have a fix period are permitted.