Global contracts guidance

A global insurance contract covers risks located in more than one country. Examples include:

• Covering immovable property (such as buildings), situated in more than one country.
• Where there is more than one (re)insured and the (re)insureds are situated in more than one country (e.g. an insured defined as a named company 'and subsidiary and associated companies'.)
• Covering fleets of aircraft or ships, where the aircraft or ships are registered in different countries, and registration determines the legal location of the risks.

International fiscal and regulatory obligations arise in territories where risks or (re)insureds are situated.

The international insurance laws and regulations permitting or prohibiting insurance transactions vary in their application and impact on the insurer, insurance intermediaries and (re)insureds.

Legal repercussions may arise for each of the contracted parties where coverage is placed with a non-admitted insurer breaching local insurance laws and regulations.

Global contracts presentation (for Market participants only)

Rules on risk location differ by territory and can give rise to conflicting obligations. Lloyd’s Risk Locator tool offers guidance on how to determine the location of a risk and how to handle a global contract.

Requirements for contractual evidence validating proof of cover can mean the issuance of multiple-policy documents where risks are located in more than one territory. Care should be taken to ensure a contract does not have any exposure where international sanctions apply, prohibiting or limiting insurance transactions.

Risk Locator tool

Under a global contract Lloyd’s must ensure that taxes and para-fiscal charges are collected and paid where they apply.  Further, global contracts, covering relevant risk locations, are subject to Lloyd’s prudential reporting and trust fund/deposit obligations under its licences worldwide. Lloyd’s seeks to ensure that underwriters can accept risks in compliance with the prudential requirements applicable to Lloyd’s business model in these territories. 

Premium allocation

When allocating premium to the relevant territories, the underwriter with input from the broker, should apportion premium as appropriate to the particular contract concerned.
A common sense approach to premium allocation and apportionment should be adopted. Determining premium is in principle a commercial judgment. Consequently if an underwriter decides not to take into account a minor exposure in a particular country, as to do so would not be economic, it is reasonable that no premium is allocated to that country. However the underwriter must be in a position to justify why they have not charged a premium for a particular risk.

It should be noted however that in the case of global reinsurance contracts, if a cedant is specifically named on the contract then premium must be allocated to that cedant if they are located in a territory listed under Appendix A.

LPAN requirements for reinsurance global contracts

A reinsurance global contract is a reinsurance contract that covers insurance companies / cedants located in more than one country.  Lloyd’s has reviewed its obligations and as a result has identified those territories for which separate LPANs are required for reinsurance global contracts are detailed in Appendix A.

Lloyd’s underwriters and brokers are reminded that any LPAN reinsurance premium allocation to the US must be supported by the NAIC company code of the ceding US reinsured.  If the contract reinsures more than one ceding US insurer, the NAIC code of each US cedant must be included. If the cedant does not have an NAIC code, its FEIN may be stated instead.  This information permits Lloyd’s to complete regulatory filings in accordance with Lloyd’s accredited/trusteed reinsurer status in the US.

LPAN requirements for direct global contracts

A direct global contract is an insurance contract that covers risks situated in more than one country.  This may arise if, in the case of direct business:

• There is more than one insured on the policy, and those insureds are located in more than one country, or
• The policy covers property at more than one location, and those locations are more than one country, or
• The policy covers more than one aircraft, ship, boat, or vessel and the insured items are not all registered in the same country, if registration is used to determine the legal location of the risk.

Those territories for which separate LPANs are required for direct global contracts are detailed in Appendix B.  Xchanging has been advised that it only needs to query the failure to split out risks into separate LPANs from countries that appear on Sections A and B.

If you have any further queries relating to LPANs, please contact:

LITA
t: 020 7327 6677
e: LITA@lloyds.com
www.lloyds.com/crystal