Lloyd’s and Lloyd’s Insurance Company (LIC) line slips.
Line slips as a term is used to describe a wide range of arrangements in the market, many of which will not involve any delegation of authority. Those arrangements are outside the scope of the guidance, which applies to line slips where there is a delegation of underwriting authority to a managing agent.
Line slip: in this guidance means an agreement by which one or more Managing Agent(s) delegate(s) authority to enter into contracts of insurance to another Managing Agent or authorised insurance company in respect of business introduced by a Lloyd’s broker named in the agreement (see the Definitions Byelaw).
Bulking Line slip: Premiums from multiple risks are grouped and processed via Velonetic as bulk transactions by the broker. The broker produces premium bordereaux at the intervals specified in the line slip and they may also provide risk bordereaux.
Non-Bulking Line slip: Individual risks are processed via Velonetic as separate transactions by the broker. The broker doesn’t normally produce bordereaux and premium payments terms are specified per risk.
To ensure consistent oversight of line slip arrangements, where there is delegation from one or more managing agents to another managing agent or an insurer.
Line slips do not require registration with Lloyd’s or on any Lloyd’s Delegated Authority (DA) systems. While there is no registration or DA approval of line slips, Lloyd’s and LIC still expect the market to follow the guidance relating to line slips, set out here.
Line slips can be continuous as set out in the continuous contracts guidance.
Managing agents must ensure that brokers are not delegated authority to handle claims or underwriting activities that require Coverholder status. Line slips must not be used to circumvent Lloyd’s requirements for binding authorities.
Any delegation of authority, including the ability to bind risks, agree endorsements, issue insurance contract documentation, or handle claims to a third party (other than to the specified agreement parties) is likely to require that the third party obtains coverholder approval or, for claims, is approved as a delegated claims administrator.
Even if a broker named on a line slip is approved as a coverholder, it does not permit the broker to conduct coverholder activity under the line slip without there being an appropriately documented delegation of authority.
If managing agents intend to delegate coverholder activities to a third party that is not an insurer or managing agent, they must do so through a Binding Authority agreement or a Coverholder Appointment Agreement, ensuring the third party is approved as a coverholder.
Lloyd’s does not expect binding authorities to be written under line slip agreements due to the risks associated with such arrangements. If managing agents wish to implement such arrangements, please contact coverholders@lloyds.com.
Managing agents should have an appropriate documented risk appetite and strategy for the writing of line slips.
Managing agents should also have internal procedures for the oversight and management of line slips.
There should be no difference in oversight between a bulking and non-bulking line slip.
Sharing information with the follow market
The lead managing agent should ensure that they are providing followers on the line slip with sufficient data on a timely basis to satisfy the Underwriting Profitability principles for doing business at Lloyd’s. The LMG has separately developed guidance on providing appropriate information to following underwriters, which can be found on the LMG website. It remains each managing agent’s responsibility to ensure the agreement clearly defines the lead managing agent's reporting duties.
Reporting
All parties should ensure that bordereaux formats contain sufficient information about the risks bound, allowing them to meet Underwriting Profitability Principles, Principle 1, and other Regulatory and internal reporting requirements.
Hold Cover Authority
Under a line slip, in line with longstanding market practice, Brokers may sometimes be given authority to ‘hold cover’ on behalf of managing agents. This means that:
Managing agents should remain vigilant in monitoring the use of hold covered clauses.
While the practice of ‘hold covered is widely accepted, the broker must not be permitted without appropriate coverholder approval, to:
Master/Group policies
Master policies/Group policies must not be written by line slips and this should be documented in the line slip agreement.
Drop-Down Leaders and Alternative Leaders Arrangements
A drop-down arrangement is a provision in a line slip that allows another insuring party, other than the original named lead (i.e. a follower on the line slip), to underwrite a risk or group of risks in place of the specified claims lead. Lloyd’s expects this provision to be triggered only when the named lead is unable to write the risk, such as when the maximum line has already been committed through another placement.
In contrast, an alternative leaders arrangement allows for multiple named leaders on the line slip. In this scenario, the broker may approach any of the named leaders at the outset, while those not chosen to lead a particular risk would still be bound as part of the follow market. Managing agents should be aware that increasing the number of potential leaders can make due diligence more complex and may reduce visibility for the follow market regarding risks written under such arrangements. Lloyd’s encourages managing agents to exercise caution and maintain effective communication throughout the lifecycle of the line slip to ensure sufficient underwriting and claims information is available to all parties.
Where drop-down leaders or alternative leaders are utilised, their operation must be carefully considered. These arrangements should be clearly documented, ensuring transparency for all participating managing agents, and must be legally certain. Their use should be suitably limited to acceptable circumstances.
Under both arrangements, following managing agents should assess:
For all queries related to line sips please contact coverholders@lloyds.com.
For queries relating to Lloyd’s Insurance Company, please also address the email to LloydsEurope.DelegatedAuthority@lloyds.com.