10th August 2022 – The LMA, with the assistance of the Lloyd’s Market Association (Lloyd’s) and the International Underwriting Association (IUA) has published a model form of Credit Risk Insurance Policy (CRI Policy). The CRI Policy is drafted:

• for the purposes of insuring single borrower credit risk arising from a loan agreement; and
• with a view to the CRR requirements for unfunded credit protection.

The CRI Policy was put together by an experienced working party, consisting of representatives from law firms, banks, brokers, insurers, A2Z Risk Services, Lloyd’s and the IUA and was based on their first-hand experiences of undertaking such transactions.

In undertaking the project to produce a model form, it was recognised by the parties involved that the CRI product is sophisticated, and therefore a template document cannot be used as a substitute for expert advice, which is needed to ensure that it is tailored to suit the particular needs of each client and the nature of the risk to be insured. Similarly, the CRI Policy is not intended to be a substitute for, or to override, terms already negotiated between, and agreed by, specific insured lenders and their insurers. However, whilst it was accepted that it was not possible to produce a “one size fits all” document, it was felt that the basic formulation of a model template with a recognisable framework and boilerplate would be a big step forward in achieving greater efficiencies and standardisation across the CRI market, particularly for new entrants. This in turn allows participants to focus on the commercial drivers which govern their transactions.

Commenting on the document, Amelia Slocombe, Managing Director and Head of Legal, at the Loan Market Association (LMA), said: “In view of our general recognition in the market as a provider of template loan documentation, we felt that we were well placed to assist with this project. We believe that this document will be extremely beneficial to new bank entrants in particular, and give well deserved recognition to a product which is fast becoming a very valuable risk mitigation tool for lenders.

“The creation of this document is further evidence of the LMA’s ongoing commitment to fostering market growth and liquidity throughout EMEA. This being the first time we have produced an insurance policy document, it is a very welcome addition to our existing suite of documents and one which we hope to continue to finesse over time, alongside all the members of our working party who were very much instrumental to this process.”

Arabella Ramage, Director of Legal for Lloyd’s Market Association said: “Insurers in Lloyd’s and the wider London market have been embracing the expanding opportunity to support banking clients with individual credit insurance coverage. To support our members, the insurers, we brought together experts from across the market to set down a baseline for the coverage we are able to offer. This is especially valuable since blocks of risk are often shared between insurers; it allows everyone to approach such risks from an agreed starting point. We expect the CRI Policy will encourage more insurance capacity (or supply) into the market. That said, the CRI Policy is not a prescribed form which must be used. We have delivered it as a starting point for each policy which, in the strongest tradition of Lloyd’s and the London market, can be customised for each insurance case. These types of products never stand still so we expect it will be adapted and improved and look forward to working with the other associations on an on-going basis refining the product.”

Joe Shaw, Senior Market Services Executive at the IUA said: “Credit risk insurance is an expanding sector and many IUA members are keen to further their support for such coverage. Establishing a standardised template policy will help the market operate more efficiently, providing a tangible benefit to both clients and insurers. By retaining the ability to amend the model, however, firms will still be able to conduct individual negotiations where necessary.”