Nephila & Credit Suisse syndicates show attractiveness Lloyd’s: Aon

Alternative reinsurance capital continues to enter the Lloyd’s of London marketplace via Special Purpose and full syndicates, according to Aon Benfield. Underlined by the establishment of syndicates from ILS players Nephila and Credit Suisse, which provided a combined capacity of £212 million in 2016.

Reinsurance broker Aon Benfield has commented on the inflow of alternative reinsurance capital within the specialist Lloyd’s of London re/insurance market, highlighting the continued attraction the Special Purpose Syndicate (SPS) structure offers third-party capital providers in accessing global insurance risk via the Lloyd’s market.

“The SPS structure continues to be a popular vehicle for third party capital. Nephila and Credit Suisse, the two largest managers of alternative capital dedicated to insurance risk, have gone further and established their own syndicates, with combined capacity of £212 million in 2016,” said Aon Benfield in its latest Lloyd’s Update report.

According to the report, Nephila Capital’s Syndicate 2357 that’s managed by Asta, provided capacity of £122 million, while Credit Suisse’s Syndicate 1856, which is managed by Barbican, had capacity of £90 million in 2016, combining to total £212 million.

Nephila Capital, the world’s largest manager of catastrophe and weather insurance and reinsurance linked assets, with current assets under management (AuM) of $9 billion+, launched its syndicate in 2013 as the first Lloyd’s syndicate backed by an ILS manager.

The Credit Suisse ILS team’s Syndicate 1856 started trading on January 1^st 2016, the second Lloyd’s syndicate backed by an ILS manager and fully capitalised by the Credit Suisse ILS investment management team.

As reported by Artemis previously, the Nephila syndicate has performed well since its inception, enabling capital markets investors with access to Lloyd’s market insurance and reinsurance risk, something that is becoming increasingly attractive and important to ILS participants.

The solid performance of the Nephila syndicate and the establishment of the Credit Suisse platform highlights the increased comfort the Lloyd’s marketplace has with ILS capital and structures, something Lloyd’s has committed to embracing in recent times.

“The UK government has been working with the London Market Group (LMG) to create a tax and regulatory infrastructure to enable insurance-linked securities (ILS) business to thrive in the UK.

“Lloyd’s was planning to launch an insurance index alongside this initiative in mid-2016, but has decided to delay it to concentrate on the implications of the ‘Brexit’ vote and ongoing demands of challenging market conditions. Ultimately, the intention is to leverage the market’s extensive loss ratio history in a way that will give brokers and underwriters new derivative-type options for hedging risk, while offering alternative capital providers access to specialty business,” said Aon Benfield.

The LMG continues to aim for ILS business to be conducted in London from January 1^st 2017, with the UK Treasury and the Lloyd’s marketplace keen to establish the region as a global hub for ILS business.

But until the regulatory and tax environment is amended to support ILS business, third-party capital providers can utilise structures from Nephila and Credit Suisse to access the Lloyd’s market.

Furthermore, other entities, such as ILS specialist investment manager Securis, are also active in the Lloyd’s marketplace via an SPS structure that’s fully capitalised by ILS capacity, and “other fund managers are looking to establish a presence in the market,” explained Aon Benfield.

ILS capacity continues to grow its presence and expand its global footprint, and it seems that as comfort and understanding of the ILS market and its features continues within the Lloyd’s marketplace, more and more alternative reinsurance capital will look to access Lloyd’s.

Away from ILS capital, Aon Benfield notes that insurer and reinsurer interest in establishing a Lloyd’s platform remains strong, and in 2016 the marketplace began with 98 active syndicates, with underwriting capacity of £27.7 billion, up 6% on the previous year.

Market headwinds continue to hinder profitability and growth remains challenging. However, gross written premiums increased by 1.1% in 2015 to £26.7 billion, despite an average renewal rate reduction of 4.6%, says Aon Benfield.

The Lloyd’s market reported a combined ratio of 90% in 2015, higher than the 88.4% reported in 2014 and which takes the five-year average to 92.3%.

The Lloyd’s market appears set on cementing its place as global hub for insurance and reinsurance business, underlined by the establishment of new platforms in Dubai and India and the ongoing work to facilitate ILS operations in the market.

Market conditions remain challenging for all markets across the world, so it’s promising to see that Lloyd’s is looking to expand and diversify its capabilities in order to remain relevant and secure its global position in the risk transfer industry.