War & NCBR Exposures

Requirements for writing War and NCBR Risks Syndicate Business Plan agreement Delegated underwriting Civil nuclear risks

In this section War and NCBR are defined as follows:

  • War - includes all war related perils, including war, civil war, invasion, act of foreign enemies, hostilities (whether war be declared or not), rebellion, revolution, insurrection, military or usurped power. War related perils, however, does not include terrorism or SRCC (strikes, riots and civil commotion).
  • NCBR - means nuclear, chemical, biological or radioactive material used as a weapon. Losses arising from the use of NCBR weapons can occur as a result of war related perils. They can also arise from criminal or terrorist acts or incidents. NCBR perils may result in direct or indirect losses.

When can War and NCBR risks be written?

1.   Except as provided for in 2. below, all insurance and reinsurance policies written at Lloyd’s must contain a clause or clauses excluding all losses caused by War and NCBR perils.

2.   Coverage for War and NCBR perils can only be provided in the following circumstances:

a.   Syndicates have Lloyd’s express agreement through the business planning process;

b.   Where exclusions for War and NCBR perils are prohibited by reason of local legal or regulatory requirements. This does not include the writing of non-compulsory War and NCBR risks, such as reinsurance of the French GAREAT pool; or

c.   The exposures fall within one of the following exempt classes of business:

i.     Legal Expenses (LE)

ii.   All Casualty risk codes (which includes all risk codes within, Casualty FinPro, Casualty Treaty and Casualty Other) other than:

  • BBB/Crime (BB)
  • Workers Compensation (US & non US) (W4, W5 & W6)
  • Cyber (CY, CZ, RY & RZ)

iii.  All Political Risk, Credit and Financial Guarantee risk codes (PR, CF, CR FG, SB FM, WT & ST)

Performance Management – Supplemental Requirements and Guidance, page 29

Requirements for writing War and NCBR Risks

In all cases where coverage is provided for War and NCBR perils the following principles should be applied:

Policy language

Where cover is to be given, the scope of cover must be clearly stated. This can be most easily achieved by using a separate policy, a separate insuring clause or a separately identifiable section of the policy. Managing agents should not seek to provide cover merely by omitting a suitable exclusion clause (“remaining silent”) in view of the risk that a court may decide the scope of cover is wider than that intended.

Specific requirements for state-backed cyber attacks can be found in Market Bulletin Y5381 and Market Bulletin Y5433.

The LMA has developed a number of model clauses that specifically exclude or provide coverage.

It is important to ensure that, where policies are specifically extended to cover War perils, the wording of the extension does not override any NCBR exclusion contained within the policy.

Where local law or regulations impose requirements on how coverage should be provided for in policy documentation it is acceptable to follow those requirements.

Monitoring and control of exposure

Managing agents are required to demonstrate that they are monitoring and controlling the exposure of their syndicates to War and NCBR perils. This includes all exposures, however written by the syndicate, including where any coverage given is only included because War and NCBR exclusions are prohibited by local legal or regulatory requirements. Exposures within exempted classes should also be included when syndicates are monitoring and controlling exposures.

Syndicates should have in place processes and procedures to monitor exposures from War and NCBR perils. These exposures should be assessed against the syndicate’s risk appetite for these exposures on a regular basis.

Exposure control is reviewed by Lloyd’s through the provision by managing agents of the War and NCBR Return as part of the business plan and RDS processes. The War and NCBR Return should be completed for all exposures other than categories i. and ii. of the exempted classes (Legal Expenses and Casualty).

Performance Management – Supplemental Requirements and Guidance, page 30

Syndicate Business Plan agreement

Where syndicates intend to write War and NCBR risks they must complete the War and NCBR Return (other than for categories i. and ii. of the exempted classes (Legal Expenses and Casualty)) and submit it as part of the syndicate business planning process. Agreement to any plans for the writing of War and NCBR will be provided as part of the business planning process. Mid-year changes to business plans in respect of War and NCBR can be made in the usual way.

Performance Management – Supplemental Requirements and Guidance, pages 30-31

Delegated underwriting

Subject to appropriately robust underwriting controls being in place for any delegated authority arrangements and subject to compliance with the requirements in the rest of this section, the underwriting of War and NCBR perils by coverholders or by way of line slips or consortium arrangements is permitted.

In all cases, underwriters should ensure that there are arrangements in place to provide them with prompt advice of exposure assumed under such delegated authorities.

Performance Management – Supplemental Requirements and Guidance, page 31

Civil nuclear risks

The restrictions on NCBR coverage, as noted above, only apply to the use of NCBR material as weapons. Accordingly, the requirements do not apply to the underwriting of civil nuclear incidents. Most of such coverage is currently provided by insurance pools and industry mutuals, which may be reinsured by Lloyd’s underwriters. This business currently forms a discrete specialist class the underwriting of which is agreed in the business plan process. Managing agents underwriting this class should nevertheless satisfy themselves that the exposure generated by participation in the pools, reinsurance of pools and industry mutuals, when aggregated with ancillary coverages such as personal accident catastrophe reinsurance of life companies, falls within their business plans.

Performance Management – Supplemental Requirements and Guidance, page 31