How Lloyd’s broke the bottleneck for Canadian MGAs

Editor’s Note: This article has been revised to clarify the rules around continuous binding authorities emanating from Lloyd’s.

 

Managing general agents (MGAs) with a binding authority contract from Lloyd’s — and where the capacity under the contract is provided 100% from a single Lloyd’s syndicate — are now able to enter into a ‘continuous contract’ indefinitely.

Previously, all Lloyd’s binding authority contracts had a 12-month expiry period. In the latter months of the contract, the delegated authority is typically reviewed, meaning MGAs couldn’t bind or renew any existing customers until it was confirmed the contract was renewed by the relevant syndicate(s).

Now, based on Lloyd’s changes, syndicates demonstrating the appropriate level of oversight of their delegated authority business are able to provide MGAs and other coverholders continuous binding authority contracts, with no stated termination date, according to Steve Masnyk, executive director of the Canadian Association of Managing General Agents (CAMGA).

Initially, the ability to grant continuous binding authority contracts will apply only when a single syndicate is granting 100% of the capacity contemplated in the binding authority contract. Over time, however, it’s anticipated the ability to grant continuous contracts will be extended to binding authority contracts where more than one syndicate is providing capacity.

“This makes the Lloyd’s markets and all their syndicates a lot more attractive for MGAs to deal with, because it’s simpler, it’s more efficient, it’s faster, it’s more stable,” Masnyk told Canadian Underwriter in an interview. “They’re more attractive now for MGAs to trade with having improved this process.”

Marc Lipman, president of Lloyd’s Canada, added where the syndicate in question has demonstrated the appropriate level of oversight of their delegated authority business, that syndicate has the ability to convert existing contracts, as well as new binding authority contracts into continuous contracts (provided 100% of the underwriting authority is coming from one syndicate), effective immediately.

“It is anticipated that over time the ability to grant continuous binding authority agreements will be extended to those situations where there are multiple subscribing syndicates providing underwriting capacity pursuant to a single binding authority agreement,” said Lipman, who is also attorney-in-fact in Canada for Lloyd’s Underwriters.

Before this option, customers were essentially in limbo for a month or longer, Masnyk said. Typically during the fourth quarter (October-December), syndicates would conduct a review of the contract with the MGA, which could take six to eight weeks or longer.

“During that October-November-December period, that’s when obviously a lot of renewals get re-negotiated by the MGA with their customers,” Masnyk said. “However, until the MGA gets an approval that their capacity contract with the syndicate is officially renewed on Jan. 1 the following year, they cannot bind or renew any of their existing customers.”

For example, say an MGA is waiting for its contract renewal in November. “Meanwhile, I’m talking to my existing customers saying, ‘I can’t renew your policy through the broker until I get my okay that my contract is going to be renewed,’” Masnyk said. “And sometimes that a-okay from the syndicate doesn’t come until the end of December, early January. So, the customer is basically in limbo. And the broker doesn’t know whether to look elsewhere or cross his fingers and hope for that MGA to come back.”

Providing the choice of continuous contracts removes inefficiencies. “Lloyd’s is simply removing unnecessary processes where the requisite governance and skills have been demonstrated by the relevant managing agent (i.e. syndicate) and permit such change, and is aimed at supporting high quality, profitable business, allowing market participants to trade in the manner they deem most appropriate,” Lipman said.

“In short, Lloyd’s has recently issued guidance to the market to enable binding authority contracts to be granted as continuous binding authority agreements (i.e. ‘evergreen’ contracts). The granting of evergreen contracts and/or the conversion of an existing binding authority contract into a continuous contract is entirely optional and is a commercial matter of the parties involved to decide whether it is right for their business.”

Masnyk said CAMGA pushed for this change. It also allows for the association’s members to meet one of the elements of CAMGA’s code, giving brokers 45 days notice of non-renewal to brokers.

The change makes “life a lot easier” for all parties, Masnyk said. “It’s a win for consumers. It’s a win for brokers. It’s a win for MGAs. And it makes Lloyd’s more attractive as a market to trade with for MGAs in Canada.”

 

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