The Market Reform Contract (MRC) Steve Hulm (MRPO) Agenda • Background • Key changes • Implementation arrangements Market Reform • Relationship to other work – Contract certainty guidance – Contract documentation – QA Tool • Binders & Line-Slips • Market Reform Contract – future direction • What do you need to do? • Questions • Further assistance 2 Background Lloyd’s First LMP Third LMP Market standard slip slip slip reform slip Market Reform introduced 1971 10/2001 4/2005 6/2006 1986 11/2003 2/2006 6/2007 Second ACORD Market Lloyds A4 LMP GPD reform slip BRAT slip contract 3 Background - Why do we need another “slip” version? • Reform activity generates “slip” changes • So do other changes (e.g. regulatory) • This is because the “slip” contains product details, Market Reform documentation requirements & processing requirements. If any of these change, it potentially affects the “slip”. • Recent examples: – Contract certainty (expression of period etc. etc. etc.) – Contract Documentation (1 July changes) – Updates from Lloyd’s (Fiscal & Regulatory) – Repository usage: ECF & A&S (Bureaux arrangements) 4 Background – Scope (as for MRS open-market) • This is the standard for open-market business & not (yet) for placing Binding Authority Agreements or Line-Slips. • All firm quotes and firm order open market insurance and Market Reform reinsurance business placed by London Market brokers. • All marine open cargo covers and declarations attaching thereto. • Declarations or off-slips attaching to line-slips. • Applicable declarations off limited binding authority agreements, where the coverholder, broker and insurers agree that it is appropriate. • “Client Exempt” slips do not need to conform to these guidelines, although preferable if they do so as far as possible. 5 Key Changes – Overview 1 • Standard renamed as the Market Reform Contract, recognising that the placing document will often form the final contract documentation. • Style and format of MRC documentation enhanced, Market Reform clarifying the required structure of the contract document. • Sections and headings re-ordered to make it more appropriate as a client-facing document. • Supports the possible separation of Subscription Agreement, Fiscal and Regulatory & Broker Remuneration & Deductions. Does not mandate this. • Insurer Contract Documentation now appears within Risk Details. 6 Key Changes – Overview 2 • Security Details contains all headings related to insurer participations. New (Re)insurer’s liability clause – LMA3333. • Use of Subscription Agreement & Fiscal & Regulatory Market Reform sections clarified. • New Broker Remuneration & Deductions section. • Content of headings – little change, some clarification of guidance. • New “Market Reform Contract – Data Dictionary” 7 Market Reform Potential separation from client documentation 8 Key Changes - Risk Details • New heading INSURER CONTRACT DOCUMENTATION which replaces DOCUMENT PRODUCTION • Broker/Leader can specify placing document to be the contract document; or Market Reform • XIS to sign policy on policy form “xxxx”. • Separate FORM heading typically not required • A following insurer may also outline any requirements that are specific to them e.g. need for a policy. • Headings removed from Risk Details: • Order Hereon, Several Liability, Signing Provisions (Security Details) • Brokerage, Other deductions from Premium (Broker Remuneration & Deductions) • “Typical” order of headings changed – not mandatory • Based on relevance to client & like fields together 9 • INSURERS within heading titles rather than UNDERWRITERS Key Changes - Information • No change in usage from MRS to MRC. • Guidance expanded in relation to schedule of locations. Market Reform 10 Key Changes – Security Details • A new (RE)INSURERS LIABILITY heading containing a new clause (LMA3333). This was based on merged ATTESTATION & SEVERAL LIABILITY clauses avoiding the need for separate LSW1001 & LMA3036A. Market Reform • ORDER HEREON, BASIS OF WRITTEN LINES, BASIS OF SIGNED LINES and SIGNING PROVISIONS have been moved into this section • Allows page-numbering to restart after Security Details. • “Stamp conditions should be removed and recorded elsewhere in the contract, where there is provision to do so.” • Guidance on line conditions – same for MRC as for MRS. • Expression of Orders – guidance note issued in Q1 2007 incorporated into MRC. 11 Key Changes – Security Details (LMA3333) • Establishes several liability of each (re)insurer. • Where a Lloyd’s syndicate is involved establishes the several liability of each member. Market Reform • Confirms how the (re)insured can obtain the membership of a syndicate (now Lloyd’s not LPSO). • Clarifies the relationship between written and signed lines, and that a schedule of signed lines may be appended. • Allows for signing-down & signing-up clauses used (e.g. up to 5% subject to leader agreement). • Corrects grammatical discrepancies within original LMA3060. 12 Key Changes – Subscription Agreement • Guidance notes (Q1 2007) incorporated into MRC • Headings re-ordered – like fields together • Market Reform New heading called AGREEMENT PARTIES FOR CONTRACT CHANGES FOR THEIR OWN PROPORTION ONLY, for those that want to agree their own endorsements • Usage of renamed heading, OTHER AGREEMENT PARTIES FOR CONTRACT CHANGES FOR PART 2 GUA CHANGES ONLY, clarified • Renamed - INSTALMENT PREMIUM PERIOD OF CREDIT • Not just applicable to deferred scheme. 13 Key Changes - Fiscal & Regulatory • Guidance notes (issued Q1 2007) incorporated into MRC • LICENSE INFORMATION heading withdrawn • Market Reform TAXES PAYABLE BY UNDERWRITER becomes TAXES PAYABLE BY INSURERS 14 Key Changes - Broker Remuneration & Deductions • New section • Can be used to express either TOTAL BROKERAGE or RETAIL & WHOLESALE BROKERAGE Market Reform • Also includes FEE PAYABLE BY CLIENT? & OTHER DEDUCTIONS FROM PREMIUM 15 Key Changes – MRC Data Dictionary • New publication (c.f. MRS). Based upon Global Placing Document (GPD) documentation • MRC identifies usage & content of key headings (within Market Reform Appendices) • Data Dictionary • Lists usage of all headings • Identifies heading name variations (not exhaustive) • Shows whether heading mandatory, conditional or optional • Maps the content onto ACORD Reinsurance & Large Commercial (RLC) Placement XML message data items • This is of value in developing electronic processing solutions, because it enables electronic messages & paper documents to operate in parallel. 16 Relationship to other work • QA Tool • MRC, the QA Tool, Crystal and the CC checklist material all set out requirements of relevance to checking the placing document. Market Reform • The MRC standard applies to the whole London Market. • MRC maintained by MRPO on behalf of all of the Market Associations and Lloyd’s. • The QA Tool applies to Lloyd’s participations (although many of the requirements could apply equally to companies) • The QA Tool is maintained by Lloyd’s, on behalf of Managing Agents. • The QA Tool incorporates the original CC checklist. 17 Binders & Line-Slips • The MRC standard currently only applies to open-market business, as defined in the scope. • For placing Binding Authority Agreements and Line-Slips Market Reform the current MRS-style standards should continue to be used for now. 18 Market Reform Contract – future direction • Recognise implementation costs of new standards – but need to reflect changes occurring in market. • Aim to have no more than one update each year, avoiding Market Reform implementation within peak renewal periods (for the majority of business). • The standards for Binding Authority Agreements and Line- Slips will remain consistent with the open-market standard. 19 Evidence of Cover to the Client • The LMA board have agreed that some sections of MRC (including broker remuneration) can be removed and it remains Insurer authorised. If there are any changes to the authorised section this becomes a BID. • The IUA board endorses the MRC as an insurer approved evidence Market Reform of cover, subject to: - The inclusion of, and no changes to the Risk Details, Information and Security sections, save for the addition of signed lines. and recommends - Either the inclusion of the broker remuneration section, or reference in the Risk Details section to the client’s rights to request remuneration details. • Any additions or extra documents have BID status. • Broker Insurance Documents (BIDs) are a valid evidence of cover, but should not be referenced within MRC. • The contents/title of a BID are a matter for the broker except that they must not be represented as insurer authorised. 20 The Market Reform Contract (MRC) Questions?