Underwriting Submission – Theory and Practice

David Pereira

Aon’s 11th Energy Insurance Training Seminar

What is in the Slip?

Contents:• The Underwriting Submission (the “Slip Contract”)• The Insured• Period• Interest• Sum Insured/Limit of Liability• Deductible/Excess• Situation/Territorial Scope• Conditions• Notices• Law & Jurisdiction• Premium/Rate• Payment Terms• Claims Information• Slip Discounts/Credits• Signing Page

The Underwriting Submission (Slip)

• Slip evidences contact with Insurers.

• Outlines main policy components including:

Insured, Period, Interest, Sum Insured, Excess or Deductible, Conditions etc.

• Acts as record of information provided to underwriters and cover provided.

• Based on the contents of the slip underwriters agree to accept a share of the risk.

• Slip acts as a prelude to the full wording

The Insured

• Defines who the Insured is (including address).

• Details other parties who have rights under the contact including:

Additional and Named Insureds.

Example:

Piminca Petroleum Company and/or parent and/or subsidiary and/or affiliated and/or associated and/or inter-related companies as they may now exist or may hereafter be constituted and their directors, officers, employees and/or contractors and/or agents.

Period

• States duration of contract.• Stipulates inception time and date.• Will makes reference to applicable time zone (linked to Insureds

address).• Must be specific to ensure no gaps in coverage with expiring

policy.• Will state a time or phrase such as “both days inclusive” catch

all.

Example:From 1 October 2011 to 1 October 2012 both days 12.01am Local Standard Time at the address of the Original Insured.

Interest

• States the type of coverage afforded by each section of the policy.

• Summarises the extent of coverage.

Example:

Section 2 - Onshore Property 

All real and tangible personal property of every kind and description, belonging to the Insured or for which the Insured is responsible or has assumed responsibility prior to the occurrence of any damage.

Sum Insured/Limit of Liability

• Is it a limit or declared value policy?

• State currency of limit e.g. USD, EUR etc.

• Are limits/values declared for 100% or for Insureds interest? (very important to understand).

• Any one occurrence or aggregate for period.

• State additional limits e.g. Debris Removal (25%).

Example:

USD 700,000,000 (for interest) each and every accident or occurrence.

Deductible/Excess

• What is the Insured expecting?

• Deductible or Excess what’s the difference?

• Is deductible / excess for 100% or for Insureds interest? (very important to understand).

Deductible/Excess

Deductible:

Deductible sits within the limit.

e.g. Limit USD100m / Deductible USD10m / Loss USD120m.

So, Limit USD100m – Deductible USD10m

= USD90m paid by Underwriters

USD20m of loss not recoverable

Deductible/Excess

Excess:

Limit sits on top of the excess.

e.g. Limit USD100m / Excess USD10m / Loss USD120m.

So, Excess USD10m. USD100m paid by Underwriters.

Underwriters pay USD100m and USD10m of loss not recoverable.

Situation/Territorial Scope

• Stipulates geographical scope of the policy.

Example:

Worldwide or limited to a particular country (Australia) or territory (Arabian Gulf).

Conditions

• State clauses and wording specific to each Section.

• If clause or wording non standard state “amended”.

• Detail GENERAL CONDITIONS applicable to all Sections e.g. War & Terrorism Exclusion Clause.

Notices

• Contract entered into in good faith.

• Insured must disclose any information that may influence the Underwriter whether to write the risk or not and if so at what terms and conditions.

• Most common example: Misrepresentation or Withholding previous claims information.

Law & Jurisdiction

• Jurisdiction = which countries courts will hear a dispute in relation to the contract.

• Law = the laws of which country will be used to interpret the contact and make a ruling on a dispute.

• Law & Jurisdiction do not have to be the same.

• It is recommended that a reinsurance contract has the same law & jurisdictions as the insurance contract.

Premium/Rate

• States the cost of the contract, including applicable currency.

• Per annum or for period.

• Is premium for 100% or for slip order.

• Maybe rate % or lump sum premium.

• Gross or Net

Payment Terms

• Settlement Due Date (premium due date).

• Specific Premium Payment Condition / Warranty imposed.

• Warranty = cover automatically ceases per terms of clause.

• Condition = underwriters reserve the right to end coverage per the terms of clause.

Claims Information

Year by year claims history:

• Minimum last five years but as far back as possible.

• Asset involved in the claim.

• Nature of the claim (fire or flood etc)

• State whether gross or net of deductible/excess.

• Indicate whether a claim amount is paid or outstanding.

Slip Discounts/Credits

Way of reducing cost to the insured without reducingactual rate.

Examples:• Prompt Payment Discount

• No Claims Bonus

• Renewal Incentive Bonus

• Profit Commission

• Package Discount

Signing Page

• Underwriters enter their stamp which evidences their acceptance of a share (%) of the risk.

• Slip Leader enters their stamp first (Slip Leader agrees the terms).

• Balance of risk written by “following” market.

• Must be clear whether writing lines of whole or order.

The Titanic Slip