The Market Reform Contract (MRC)

1. The Market Reform Contract (MRC) June 2007 Steve Hulm (MRPO)

2. Agenda • Background • Key changes • Implementation arrangements • 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

3. Agenda • Background • Key changes • Implementation arrangements • 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

4. 1971 10/2001 4/2005 6/2006 1986 11/2003 2/2006 6/2007 Background Lloyd’s standard slip introduced First LMP slip Third LMP slip Market reform slip Second LMP BRAT slip ACORD GPD Market reform contract Lloyds A4 slip

5. 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, 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)

6. 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 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.

7. Agenda • Background • Key changes • Implementation arrangements • 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

8. 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, 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.

9. 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 sections clarified. • New Broker Remuneration & Deductions section. • Content of headings – little change, some clarification of guidance. • New “Market Reform Contract – Data Dictionary”

10. Potential separation from client documentation

11. 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 • 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 • INSURERS within heading titles rather than UNDERWRITERS

12. Key Changes - Information • No change in usage from MRS to MRC. • Guidance expanded in relation to schedule of locations.

13. 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. • 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.

14. 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. • 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.

15. Key Changes – Subscription Agreement • Guidance notes (Q1 2007) incorporated into MRC • Headings re-ordered – like fields together • 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.

16. Key Changes - Fiscal & Regulatory • Guidance notes (issued Q1 2007) incorporated into MRC • LICENSE INFORMATION heading withdrawn • TAXES PAYABLE BY UNDERWRITER becomes TAXES PAYABLE BY INSURERS

17. Key Changes - Broker Remuneration & Deductions • New section • Can be used to express either TOTAL BROKERAGE or RETAIL & WHOLESALE BROKERAGE • Also includes FEE PAYABLE BY CLIENT? & OTHER DEDUCTIONS FROM PREMIUM

18. 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 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.

19. Agenda • Background • Key changes • Implementation arrangements • 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

20. Implementation arrangements • The MRC standard may be used immediately • There is a four month implementation period before it becomes mandatory i.e. until 1 November 2007 • This allows time to change templates & systems, brief staff etc. etc. • Contract Documentation changes being applied in same period (using MRC or MRS). • Organisations will move at different rates i.e. your counter-parties will be at different stages of the change (NB. Not ideal but neither would be “big bang”)

21. Agenda • Background • Key changes • Implementation arrangements • 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

22. Relationship to other work • Contract certainty guidance • Harmonised terminology e.g. “insurers” rather than “underwriters” • Signing Provisions & Subjectivities guidance aligned. • CC checklist now an example rather than prescriptive. • Contract documentation • MRC designed to support contract documentation changes from July 1st 2007. • MRC supports, but does not mandate, removal of sections from client documentation. Whether this is done, or not, re-ordering of MRC still of value. • LMA Board have agreed to the principle of the removal of brokerage from client documentation. IUA Board are considering. • Contract documentation approach (removal of stage 2) can still operate with old-style (MRS) slips

23. 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. • 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.

24. Agenda • Background • Key changes • Implementation arrangements • 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

25. 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 the current MRS-style standards should continue to be used. • We will issue consistent MRC-style standards as soon as possible (expected to be August 2007). • Allowing a minimum 4 month implementation period • Avoiding implementation during peak renewal periods (even if this means setting the mandatory date to be in 2008)

26. Agenda • Background • Key changes • Implementation arrangements • 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

27. 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 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. • MRG have agreed an intention to adopt the ACORD (GPD) slip standard in 2008, subject to further work to confirm the feasibility and benefits: • Work-group review by Q3 2007. • Proposals reviewed by MRG Q4 2007.

28. Agenda • Background • Key changes • Implementation arrangements • 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

29. What do you need to do? – the easy stuff • Review the MRC documentation & ensure that you understand the changes. • Ensure that all affected staff in your organisation understand the changes relevant to them. • This may mean the development of more tailored information. • Ensure the inclusion of the relevant changes in document templates, systems, processes, training & induction procedures. • Check the successful implementation of the necessary changes – resolving any queries or issues arising. • Recognise that your counter-parties implementation efforts may be proceeding at a different pace. • Resolve any implementation issues with your counter-parties, or via your Associations.

30. What do you need to do? – the hard stuffContract Quality up-front • The contract is being negotiated & agreed during the placing process • Removal of stage 2 - implies no long-stop in the form of XIS • Removal of stage 2 – implies less 2nd chance for brokers and insurers to identify errors after placing • It becomes more important to get it right up-front • CC guidance – “The insurer and broker (where applicable) must ensure that all terms are clear and unambiguous by the time the offer is made to enter into the contract or the offer is accepted. All terms must be clearly expressed, including any conditions or subjectivities.” • Brokers and insurers each have a responsibility to ensure contract certainty.

31. What do you need to do? – the hard stuffClient perspective • Arguably client demands and “contract quality” set a higher standard than “contract certainty”. • Clients will expect high-quality documentation, with well-defined coverage that meets their needs and wants – and with any queries rapidly resolved. • What will clients’ reaction be if these expectations are not met? • Brokers and insurers each have a responsibility to ensure that these issues do not arise. • Brokers and insurers will each suffer reputational damage, and costs of re-work, if they do.

32. 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 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.

33. Agenda • Background • Key changes • Implementation arrangements • 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

34. The Market Reform Contract (MRC) Questions?

35. Agenda • Background • Key changes • Implementation arrangements • 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

36. Further assistance Brokers: Email: chris.buer@LMBC.co.uk Phone: 020 7397 0213 Lloyd’s Insurers: Email: peter.martin@lmalloyds.com; or Neil.smith@lmalloyds.com Phone: 020 7327 3333 IUA Insurers: Email: john.hobbs@iua.co.uk Phone: 020 7617 4445 General Queries: Email: chris.croft@marketreform.co.uk Phone: 020 7327 5278

37. The Market Reform Contract (MRC) June 2007 Steve Hulm (MRPO)