To identify the territory of regulation and tax of a financial loss risk consider:
1. The nature of the cover provided;
2. The location of the insured’s residence(s) or business establishment(s); and
3. (For business interruption only) the location of the property to which the insurance relates.

Financial guarantee
Contract frustration
Trade credit
Business interruption
Event cancellation
Miscellaneous financial loss

Financial guarantee

Financial guarantee is a contract of insurance (which includes any indemnity, guarantee bond, contract of surety or other similar instrument) where the insurer agrees to make a payment to the insured in the event of:

(i) the financial failure, default, insolvency, bankruptcy, liquidation or winding up of any person whether or not a party to the contract of insurance; or
(ii) the financial failure of any venture; or
(iii) the lack of sufficient receipts, sales or profits of any venture; or
(iv) the lack of or inadequate response or support by sponsors or financial supporters; or
(v) a change in levels of interest rates; or
(vi) a change in rates of exchange of currency; or
(vii) a change in the value or price of land, buildings, securities or commodities; or
(viii) a change in the levels of financial or commodity indices; or
(xi) any liability or obligation under an accommodation bill or similar instrument.

For further details, please see Lloyd’s Market Bulletin Y4396.

The risk location is the territory in which the insured’s business is established.

If more than one business establishment is covered, then each may individually create a risk location.

Contract frustration

Contract frustration insurance is a form of financial guarantee. Such insurance indemnifies an insured for loss under:

(i) a specified contract or contracts for the sale, purchase, lease or delivery of assets, goods or services; or
(ii) an agreement which relates directly to the financing of such specified contract(s); or
(iii) an agreement concerning financing which is secured against assets, goods or services and/or payment for assets, goods or services due under a specified contract or contracts, or where repayment is to be effected by the sale or receipts of such goods or services, or assets, royalties or other specified receivables; or
(iv) a bond, or bonds, provided in accordance with the terms of a specified contract, tender document or project.

Losses must be directly due to a political force majeure event (e.g., strikes, civil war or invasion) and/or an event resulting from the action of a supra-natural authority or government entity.

For further details, please see Lloyd’s Market Bulletin Y4396.

The risk location is the territory in which the insured’s business is established.

If more than one business establishment is covered, then each may individually create a risk location.

Trade credit

Trade credit insurance covers a business for losses arising from the failure of debtors to pay their debts.

The risk location is the territory in which the insured’s business is established.

If more than one business establishment is covered, then each may individually create a risk location.

Business interruption

Business interruption insurance covers lost income due to an event that impedes the operations of a business.

The risk location is the territory in which the insured’s business is established.

If more than one business establishment is covered, then each may individually create a risk location.

However where business interruption is written as part of a property package, the risk location is determined by the territory in which the insured property is situated.

Event cancellation

Event cancellation insurance covers financial losses incurred if an event is cancelled due to non-appearance, damage to venue, bad weather, strikes or other causes.

The risk location is normally the territory in which the insured is resident or its business establishment is situated.

If the contract covers more than one individual insured or business establishment and these are situated, in more than one territory, each resident or establishment will create a separate risk location.

Please note: the territory in which the event takes place does not normally determine the risk location.

Miscellaneous financial loss

Miscellaneous financial loss insurance covers a wide range of financial loss insurances.

The risk location is normally the territory in which the insured is resident or its business establishment is situated.

If the contract covers more than one individual insured or business establishment and these are situated, in more than one territory, each resident or establishment location will create a separate risk location.


Definition of 'business establishment'

European Union (EU) legislation defines the term ‘establishment’. Outside the EU the term is not so well defined, so in the absence of any contradictory guidance, it is appropriate to follow the EU approach.

Examples of business establishments:

  • subsidiary companies 
  • branches of companies 
  • representative offices 
  • offices managed by businesses’ own staff 
  • tied selling agents 
  • factories and workshops 
  • mines and quarries 
  • oil and gas wells 
  • drilling platforms fixed to sea bed

 

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Risk locator tool

Risk Locator | Establish the location of your risk

Frequently asked questions 

Introduction to Risk Location

What is risk location and why is it important ?

Introduction to risk location

Establishing the risk location

To help establish risk location please consider the questions provided via the link below

How to establish the risk location

Class of business guidance

To help you establish the risk location please consider the class of business

Class of business guidance 

Risk Location Examples

The interaction of different territorial rules can make a given scenario complex. Applying the principles set out will assist market participants in establishing the risk location.

Risk location examples

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Contacts

Lloyd's International Trading Advice
(LITA)

Lloyd's Desk,
Ground Floor,
Underwriting Room

t: +44 (0)20 7327 6677
e: LITA@lloyds.com