LMA Risk Location and Stamp Decision Guidance (Lloyd's Brussels)

When to use the Lloyd’s Brussels (“LBS”) stamp

In the event of a hard Brexit in March 2019, Lloyd’s syndicates will no longer be licensed to write EEA (and Monaco) insurance risks on syndicate paper. Lloyd’s has therefore mandated that insurance risks incepting on or after 1 January 2019 and located in the EEA must be written using an LBS stamp (It should be noted that Lloyd’s Brussels will also be licensed to write UK risks). It is therefore important that underwriters are able to identify risks which create an EEA risk location and use the LBS stamp accordingly.

The use of existing Lloyd’s tools (Crystal, Risk Locator and Stamp Decision Tool) should always be the first step when trying to identify risk location. These resources will cover most straightforward scenarios. In addition, they provide guidance on acceptable routes to market, tax, local clauses etc. However, establishing risk location(s) can be complex and there may be inconsistencies, overlaps and potential contradictions over how different jurisdictions define risk location and approach licencing. Non-compliance may result in regulatory or fiscal investigations.

In general, regulators and Lloyd’s are more likely to look favourably on a managing agent that has taken an informed and consistent approach to compliance. Therefore, the LMA has, with input from members of the LMA Regulatory and Underwriting Committees, developed guidance (available here) to support managing agents in establishing an achievable and consistent approach within the market, including between multiple underwriters on a single placement.

Full compliance with all local laws can be challenging, particularly for complex risks, and those which trigger multiple regimes. Therefore, although the guidance seeks to provide clarity on the determining factor for risk location (and the resultant stamp decision), in some cases there is no definitive answer due to divergent approaches to risk location in different territories. In such circumstances underwriters should consider the guidance and respond as they deem appropriate to the specific risk (to reflect their own legal advice and/or risk appetite).

Given the complexity of determining risk location, the LMA recognises the possibility that there will need to be changes made to the guidance. If such changes are made, an updated version of the guidance will be circulated to reflect developments.

This guidance looks at when to use the LBS stamp but this is not the only consideration when writing global business (e.g. there may be tax payable to overseas authorities which is not covered in this guidance). While this guidance may make reference to those requirements, this is not an analysis of those requirements.

When determining risk location (including when using the LMA guidance), underwriters should:

1.   Understand the nature of the risk and who is the Insured. 

Underwriters are required to undertake their own due diligence to determine the risk location(s) and what stamp is to be used.

The features that determine risk location vary by class (see class-specific guidance attached), but in order to establish whether an EEA risk location exists, it is important to understand the nature of the risk being insured, who is/are the Insured(s) and where is/are the covered exposures. One significant consideration is the potential for a broad definition of “Insured(s)” in policy documentation  (e.g. including “all associated companies…”) While this may have been used historically as a convenient ‘catch all’, it may now cause ambiguity and, potentially, multiple risk locations requiring multiple stamps. It is therefore even more important to be as specific as possible.

The features of a risk that can create an EEA risk location may include:

• Domicile of the Insured(s)
• The location of exposure(s) (e.g. insured assets, subsidiaries and business operating locations)
• The country of registration of vehicles/vessels/aircraft
• Where claims will be paid (e.g. will individuals/subsidiaries based in the EEA have the right to claim directly under the policy)
• Whether the product is a compulsory class e.g. Third Party Motor, Employers’ Liability/Workers Compensation.

Having a firm grasp on these details will make it far simpler to determine risk location in most cases. 

2.   Escalate for review if the position remains unclear

In establishing this guidance, the LMA has sought to focus on the key classes and generic scenarios. If underwriters have circumstances that are not clearly covered by the guidance, these should be directed to your internal Compliance Teams (or equivalent) for assistance. Lloyd’s International Trading Advice (LITA) should be consulted as usual if managing agents remain unsure on how to proceed.

3.   Keep a record of your rationale on file

Managing agents are strongly advised to keep a record of their approach. This will be important in demonstrating your rationale behind the decision. A managing agent’s ability to demonstrate robust systems and controls is paramount.

The following classes of business are covered in the guidance: