Master Coverholder Arrangements and Master Broker Arrangements

Types of DA this guidance is relevant to

Binding authority agreements and coverholder appointment agreements. This guidance does not apply to digital platform providers, Portfolio business or instances of controlled sub-delegation that have been pre-agreed by Lloyd’s with individual Managing Agents.

Key definitions

Master coverholder arrangement: A binding authority or coverholder appointment agreement (the ‘primary contract’) where the named coverholder is given authority to oversee one or more other coverholders via connected binding authorities or coverholder appointment agreements (‘secondary contracts’). This is in addition to any business that the master coverholder itself writes.

Master broker arrangement: An arrangement where a broker is appointed by a managing agent to provide broking services for a number of connected binding authorities or coverholder appointment agreements. In this arrangement there is no delegation of underwriting authority to the broker as a coverholder and the involvement of the broker is limited to supporting the managing agent with administrative and processing activities. Where the broker is also an approved coverholder, if the entity is only carrying out broking services, then it would still fall under a master broker arrangement.

Master Coverholder: The coverholder named on the primary contract in a master coverholder arrangement.

Why guidance is needed

Master coverholder and broker arrangements can involve some complexity and must be carefully structured. This guidance is intended to promote consistency across the market and better data transparency into Lloyd’s.

Lloyd’s requirements

Master coverholder arrangements

Delegation: The master coverholder on the primary contract is given authority to manage one or more other coverholders named on secondary contracts. This may include providing technical and product expertise to the other coverholders or access to systems to support the underwriting.

The master coverholder must be given authority to bind risks, issue policy documents, or determine claims, however, this may be given under a secondary contract. The primary and secondary contracts must specify which is which and how they interrelate. To avoid sub-delegation, while the master coverholder may work with and provide support to the other coverholders, the secondary contracts must be agreed and signed by Lloyd’s underwriters.  

Subscription:

• The capacity that can be given to secondary contracts must be clearly set out in the primary contract, and the master coverholder’s compliance with these limits should be monitored.
• Any mid-term capacity changes will affect both the primary and secondary contracts. Therefore, all contracts must be endorsed to reflect the change in capacity.
• Secondary contracts must clearly show the capacity.
• Master coverholder arrangements may have mixed market (ie Lloyd’s and non-Lloyd’s) capacity.

UMRs: Each agreement (both the primary and all secondary contracts) must have their own unique UMR.

Timing:

• Wherever possible, secondary contracts should be agreed and executed by the parties at the same time as the primary contract.
• Where this is not possible, as with all binding authorities, the secondary contracts must at least be entered into by the capacity providers set out in the primary contract prior to the inception date of the secondary contract.

Endorsements: Changes to primary and secondary contracts must be agreed by lead underwriters (or all, per contract terms).

Coverholder approval: All coverholders named on the primary and secondary contracts must be Lloyd’s approved coverholders and therefore registered on Lloyd’s systems.

LIC Specifics:

• Complaints and claims must be handled by the entity closest to the policyholder in the distribution chain unless otherwise agreed and approved by LIC.
• LIC specific contracts must confirm direct delegation from LIC to the coverholders named on the secondary contracts.

Limits: Secondary contracts should not ordinarily have levels of authority in excess of the primary contract. However, where the coverholder on a secondary contract has higher levels of authority, managing agents must ensure the master coverholder has in place the capabilities and controls to manage those authority levels.

Permissions: Coverholders on both the primary and secondary contracts must have appropriate permissions on Lloyd’s systems. Therefore, the primary entity must have at least the same permissions on Lloyd’s systems as those given to any coverholder on a secondary contract.

Linking: Secondary contracts must be linked to the primary contract in Lloyd’s systems. To do this, please use this knowledge article: https://marketsupport.lloyds.com/csm?id=kb_article_view&sysparm_article=KB0010702

Expiry: Secondary contracts must not expire later than the primary contract, unless the primary is cancelled or terminated, at which point the below run-off provisions take precedence.

Run-off provisions: Include run-off provisions in both primary and secondary contracts. Where the primary contract is terminated or cancelled, this will automatically have implications for the secondary contracts. Appropriate wording must be included in both the primary and secondary contracts to cater for this scenario. Therefore, the primary and secondary run-off provisions must be consistent and not contradict each other.

Master broker arrangements 

Delegation: In master broker arrangements the broker only provides broking services and has no delegated underwriting authority under a binding authority agreement. Therefore, while this arrangement has similar features to a master coverholder arrangement it falls outside the above guidelines.

UMRs: Each secondary agreement must have its own unique UMR.

Linking: The primary contracts are not binding authority agreements and so are not considered linked to the secondary contracts for the purposes of registering the agreements with Lloyd’s. Therefore, only secondary contracts need to be registered on Lloyd’s systems.

Subscription: Each secondary contract must be individually executed by the subscribing underwriters.

Endorsements: Changes to primary and secondary contracts must be signed by the relevant capacity providers individually.

Templates: The LMA does not have published model wordings that are tailored for use in master broker arrangements. Primary contracts should use custom wordings whilst secondary contracts must be binding authority or coverholder appointment agreements.

Coverholder approval: All coverholders named on the secondary contracts must be Lloyd’s coverholders and therefore registered on Lloyd’s systems.

Lloyd’s expectations for managing agent oversight

Managing agents should avoid a portfolio oversight approach to master coverholder arrangements and master broker arrangements and must have oversight of the individual agreements. This is so that the managing agent can identify any poor performing agreements and make appropriate adjustments.

Managing agents should therefore:

• Conduct due diligence on both the coverholders on the primary and secondary contracts.
• Track premiums and claims by individual contract.
• Be able to identify the coverholder that bound each risk underwritten.

Everything else should be overseen as part of the managing agent’s usual oversight processes for an individual contract of delegation.

Processing requirements

Master coverholder arrangements

• Common signing numbers and dates are allowed, only with full market agreement. The use of these must be specified within the primary and secondary contracts. For information, premiums and claims bordereaux are submitted under the secondary contract UMRs but the monies are processed under the signing number and date set up for the primary contract. There is no distinction within systems used for processing between normal signing number and dates and common ones.
• For both the primary and secondary contracts, the UMRs and coverholders must match Lloyd’s systems.
• Secondary contracts must align with the same year of account as the primary contract. If these are written on a continuous contract basis, please refer to the continuous contracts guidance regarding year of account transfer

Master broker arrangements

• For the secondary contracts, the UMRs and coverholders must align with Lloyd’s systems.
• Each secondary contract must be processed separately with a separate signing number and date. To do this, the ‘type’ of contract should be submitted to Velonetic on the primary and secondary contracts as a binding authority to ensure they are processed correctly.
• As these are not considered as linked contracts, the year of account can vary per contract. However, if this is the case, the primary contract will need to state that the year of account per the secondary contracts will vary and the secondary contract will need to specify the year of account it will be processed into.