Placing and binding risks in the subscription market, including slips and lines
Placing and binding risks in the subscription market, including slips and lines
This domain tests the mechanics of placement: how a slip is constructed, when it becomes binding, and how lines are completed.
The slip and the MRC
The slip is the evidential record of the contract. The Market Reform Contract (MRC) standardises layout: risk details, insured, period, interest, limits, conditions, exclusions, subscription agreement and signing provisions. Underwriters initial each line; when lines total 100% (or the agreed order is satisfied), the risk is bound.
Binding and "subject to"
- Subject to wording ("subject to survey", "subject to satisfactory information") binds only if the parties objectively intended it to; usually it is a condition precedent to cover.
- Firm order means the broker holds authority to bind on the terms offered.
- Line slips authorise a leader to accept agreed lines for followers within set parameters; binding authorities do the same for classes of business.
Order and signing
Subscribers sign in a set order, leaders first. A slip may be "signed down" - reduced to fit capacity - only with the broker's agreement; a line signed at a higher figure is not automatically reduced.
Worked example. A broker presents a £60m D&O risk on firm order. The leader writes 40%, two followers 25% and 20%. Total is 85%, so the risk is not fully bound for the programme. The broker returns to the leader for a top-up to 90% and finds a new follower for 10%, then binds at 100%. Until 100% is achieved, subscribing insurers are bound for their lines only and the insured is uninsured for the balance.
Traps. Assuming a line slip is a broker-held binding authority (it is a facility authorising a leader). Assuming "subject to" always binds. Forgetting that signing down requires all parties' agreement. Confusing a line (a percentage) with a limit (a monetary amount). And remember: the slip, not the later policy, is the contract.
Key points
- The slip is the contract; the MRC is the standard market layout.
- Lines are percentages adding to 100%; binding occurs when lines are complete.
- "Subject to" wording binds only if objectively intended; usually a condition precedent.
- Line slips delegate follower acceptance to a leader within parameters.
- Signing down needs broker and subscriber agreement.