Global contracts guidance

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

This section provides information on territories where separate London Premium Advice Notes (LPANs) are required for both direct and reinsurance multinational contracts.  The section provides an update to market bulletin Y5392. Details of the changes are as follows:

• Inclusion of Ecuador in Appendix B. 
• Removal of certain French overseas territories (COMs / DROMs / CTUs) from Appendix A to align with business written by Lloyd’s underwriters (this bulletin is only in respect of business written by Lloyd’s underwriters).
• Removal of reference to US territories from Appendix A following the relinquishment of US licences. Lloyd’s has US surplus lines status in all US territories.
• Changes to the main body of the bulletin to concentrate specifically on the provision of LPAN’s rather than country specific detail. Specific details of Lloyd’s international regulatory and taxation requirements can be located in Crystal.

Lloyd’s parafiscal and regulatory obligations can change. Lloyd’s will continue to update its guidance as new requirements arise.

The detail in this item is effective from 1 June 2024.

What are multinational contracts?

A multinational contract is an insurance contract that covers risks situated in more than one territory. To be compliant, the insured and insurer must adhere to the laws, regulations, and tax obligations in all territories where there is a risk location.

Please refer to Crystal for territory specific regulatory and taxation requirements.

Further information on identifying regulatory and tax risk locations, please refer to Market Bulletin Y5325.  The Risk Locator Tool also provides risk location rules and can be used by Lloyd’s market participants to determine the risk location(s) under a multinational contract. If the regulatory rules of more than one territory apply with contradictory effect, a reasonable approach is necessary, and the underwriter should ensure arrangements provide appropriate protection to the insured.

Prudential requirements

Multinational contracts, covering relevant risk locations, are subject to Lloyd’s prudential reporting and trust fund/deposit obligations under its licenses worldwide. Lloyd’s seeks to ensure that underwriters can accept risks in compliance with the prudential requirements applicable to Lloyd’s in those territories.

Taxes and parafiscal charges under a multinational contract

A multinational contract may give rise to tax exposures in several different jurisdictions.  Compliance with tax requirements will normally require the premium to be apportioned between jurisdictions and may result in more than one country’s tax being applied to the same premium. In addition, tax liabilities may be triggered by several factors beyond the location of a risk, including, residence of insured, route of the business into Lloyd’s and Lloyd’s status in each jurisdiction. A contract may also be subject to parafiscal charges to levy money for a particular purpose. The money raised is usually paid to a body other than a national tax authority.

Premium allocation

When allocating premium to the relevant territories under a multinational contract, the underwriter, with input from the broker, should apportion premium as appropriate to the territory concerned. Allocating premium ensures that business is correctly reported to regulatory authorities and taxes and other fiscal charges are paid correctly.

A reasonable approach to premium and apportionment should be adopted.  Determining premium is in principle a commercial judgement.

If an underwriter decides not to consider a minor exposure in a particular territory as to do so would not be economic, it is reasonable that no premium is allocated to that  territory. It should be noted that Lloyd’s cannot provide advice  on what would be considered a minor exposure and therefore a minor premium allocation. In the event of a query in respect of a minor  exposure where no premium has been charged, the underwriter must be able to justify why they have not charged a premium for a particular risk.

It is important that the apportionment methodology used to allocate premium can be evidenced as the regulators and tax authorities may request to see it and potentially question the method used.

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

Velonetic

Premiums are usually settled to underwriters via Lloyd’s central accounting. To create accounting entries, the slip and a London Premium Advice Note (LPAN) must be submitted to Velonetic for signing and processing. The LPAN is produced by the broker and contains all details relating to a premium transaction. Upon signing the premium, Velonetic will allocate an appropriate foreign insurance legislation (FIL) code taking into consideration the tax and regulatory category.

Velonetic has been advised that it only needs to query the failure to split out risks into separate LPANs from countries that appear on the lists attached at Appendices A and B. Velonetic has been advised to begin querying for the correct splits on the new territories mentioned within Appendices A and B from 1 March 2024.

Who should I contact?

If you have any queries regarding this communication, please contact:

Lloyd’s International Trading Advice (LITA)

t: +44 (0)20 7327 6677

e: LITA@lloyds.com

 Appendix A – LPAN requirements for direct multinational contracts

Please refer to Crystal for territory specific regulatory and taxation requirements.

Lloyd’s Europe

The following table is only in respect of business written by Lloyd’s underwriters. All EU business must be referred to Lloyd’s Insurance Company S.A. as per the detail on Crystal. This will include any applicable French overseas departments and regions which is considered to be part of the EU.

 Appendix B – LPAN requirements for multinational reinsurance contracts

Please refer to Crystal for territory specific regulatory and taxation requirements.