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The Rough Notes Company Inc.



April 25
08:54 2018

Coverholders and Risk Takers

Terminology from across the pond and spreading the word about Lloyd’s

George Bernard Shaw once famously observed: “The United States and Great Britain are two countries separated by a common language.” Domestic insurance professionals who deal with the London marketplace can certainly attest to the accuracy of that statement. Some of the nomenclature used by our friends across the pond may sound foreign to U.S.-based agents. Let’s take a closer look at a few of these terms and offer some definitions.

The London market maintains a strong U.S. presence. The U.S.-based team plays an important role in educating a variety of audiences about how Lloyd’s works.

We begin with Lloyd’s of London. Contrary to popular belief, Lloyd’s is not an insurance company. Rather it is a corporate body governed by Parliamentary regulation that operates as a marketplace in which multiple backers—called Syndicates or Risk Takers—come together to pool and spread risk. The Underwriters (also referred to as “members”) are a collection of both corporations and individuals, the latter being traditionally known as “Names.”

A Managing Agent is a company that is set up to manage one or more Syndicates on behalf of the members. These firms have the responsibility of employing staff, overseeing results, and supervising day-to-day operations.

Writing business through Lloyd’s is usually done with the assistance of a Broker. Brokers act as intermediaries for the placement of both programs and one-off risks.

In the United States, insurance companies sometimes delegate underwriting authority to insurance agencies through a PA (Program Administrator) agreement. Entities that possess such authority are referred to as Managing General Agencies (MGAs) or Managing General Underwriters (MGUs). Similar arrangements can be made through the London market, but the terminology is different. Agents who are given the power to bind business on behalf of Lloyd’s are called Coverholders.

The process of becoming a Coverholder is sometimes referred to as Tribunalization. Although an investment of time and effort is required to complete the process, the result is well worth it. The first step is to find a Broker and Managing Agent who are willing to support the agency’s application. After the appropriate sponsorships have been secured, the vetting process can begin in earnest. In reviewing the application, Lloyd’s will pay particular attention to such factors as the suitability/experience of the agent, historical financial results, and licensing/compliance matters.

The ties that bind

A binding authority agreement gives an agent the authority to accept risks on behalf of Lloyd’s and to issue evidence of coverage for these risks without further approval. This contract is usually made between a Managing Agent and a Coverholder. The agreement itself is comprised of sections that address such topics as the limits of underwriting authority being delegated, the coverage wordings to be used, and the commission levels to be paid.

Other provisions in the agreement specify the parameters for premium reporting and remittance. Transactional data that relates to the business that is bound during the appropriate period is submitted on a bordereau (also referred to domestically as an accounts current document).

A section of the binding authority agreement is called “Security Details.” It is not unusual to see multiple Syndicates listed here—a practice developed by Lloyd’s to help provide adequate spread of risk. This strength-in-numbers approach helps the market maintain its reputation of being able to offer broad and diverse coverage for many different kinds of exposures. This practice also helps mitigate the possibility of one particular Syndicate becoming insolvent.

All Syndicates that assume a portion of the risk within a binding authority agreement are considered subscribers. The entity that is responsible for setting the terms of coverage, establishing underwriting guidelines, and overseeing claim administration is referred to as the “lead.” The others are considered “following” Syndicates.

Blueprint for the future

Lloyd’s of London has plans in place to maintain its status as a leader and an innovative force in the insurance industry. The blueprint is referred to as “Vision 2025.” It sets forth bold plans to expand business, especially in faster growing markets. Highlights of this “Vision” (visit to learn more) include:

  • Lloyd’s will be an international, London-based market, built on trusted relationships and focused on specialist property and casualty business requiring bespoke underwriting and brokering.
  • Lloyd’s world-class underwriting and claims management will be supported by an industry-leading infrastructure and service proposition with efficient central services and seamless processing.
  • Lloyd’s will be known around the world for its integrity. The Lloyd’s brand will be globally admired and recognized. Lloyd’s will be respected for its reputation as the world’s specialist center for (re)insurance.

Technological innovation will be required to turn Vision 2025 into a reality. The Target Operating Model (TOM) is a London market-wide initiative designed to make conducting business easier from both a local and a global perspective. TOM was developed around two principles. The first will implement “one-touch data capture” to reduce redundancy and mitigate the possibility of data entry error. The second principle is to introduce a global shared central service to the market. Many of the nonproprietary tasks would be handled more efficiently if they were delivered from a single source—as opposed to the current method of having each Syndicate or Broker repetitively performing the same function on a single risk.

Spreading the word

The London market maintains a strong U.S. presence. The U.S.-based team plays an important role in educating a variety of audiences about how Lloyd’s works. The staff also ensures regulatory compliance in all 50 states. Lloyd’s U.S. has several regional offices across the country.

The CHART Exchange was established in 2015. Its core purpose is to expand the U.S./London marketplace through the identification and pursuit of new business opportunities. The organization offers several tools to help both agents seeking to establish a relationship with Lloyd’s and Coverholders who are looking to grow their business. These tools include:

  • Program Questionnaire— Sometimes a little structure can help an agent more clearly articulate his or her ideas about a new program. This form helps agents quantify marketing strategies, administrative considerations, premium projections, and target niche demographics.
  • Market Finder Facility— This platform matches new program proposals with Syndicates that possess the most compatible risk appetites.
  • Incubator Facility—Securing Delegated Underwriting Authorities from London takes time; some agencies with new program ideas want to launch as soon as possible. The Incubator initiative helps expedite the process.
  • CHART Markets—CHART Markets is an online shopping mall established for the retail agent community. Much like its bricks and mortar counterpart, this London-centric facility provides participating Coverholders virtual storefronts from which their product and service offerings can be promoted. Marketing campaigns targeting the retail agent community are used to drive traffic to this Internet platform.

The author

Coverholders and Risk Takers is a periodic column written by principals or “early adopters” of the CHART Exchange ( The group’s core mission is to facilitate more U.S./London commerce via personal interaction, education, and technology. Francis J. “Frank” Huver is senior vice president and chief financial officer at Claymont, Delaware-based Rockwood Programs, a Lloyd’s Coverholder for more than 15 years and a CHART Exchange early adopter.

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