Beazley to channel facilities business via SPA 5623 to third-party capital

by Artemis on December 5, 2017

Lloyd’s specialist insurance and reinsurance player Beazley is planning to launch a new special purpose arrangement (SPA) syndicate 5623, which will take a quota share of the firm’s business underwritten from broker facilities and be backed by a range of third-party investors, including some capital from the ILS market.

Matching risks sourced through broker facilities with efficient sources of reinsurance capacity from the capital markets, to provide a spread-like return of the Lloyd’s market to investors is a strategy that makes perfect sense.

Particularly so right now, when investors are looking to gain broader access to Lloyd’s with the support of established players, such as Beazley. It’s a concept we first wrote about back in 2013.

Beazley explained to Artemis that SPA syndicate 5623 will look to provide its investor backers with a way to access lower volatility “market average” returns, by allocating capacity solely to broker facilities.

Syndicate 5623 will accept new business in the form of a 75% quota share from Beazley’s established syndicate 3623. Syndicate 3623 will retain 25% of the risk, while the SPA will underwrite the other 75% through the quota share.

A Beazley spokesperson explained the strategy, “Syndicate 5623 is being created as part of the on-going drive to create efficiencies to maintain London as the world’s foremost insurance market.  It is an innovative concept that provides clients with lower cost insurance solutions and investors with access to low volatility, market average returns through the low cost operation of the SPA.”

Backers of the syndicate will be third-party investors and capital providers, the kind “who are interested in the type of return the SPA is designed to deliver” Beazley said.

We understand from sources that this includes some insurance-linked securities (ILS) capital, although it’s not clear whether this is through direct institutional investors that also allocate to ILS vehicles, or from an arrangement with an established ILS fund manager.

Beazley sees the facilities SPA syndicate as a solution to a problem that has dogged facilities brokers, helping them to place the business more efficiently.

“Brokers have been designing solutions to enable them to more efficiently acquire the smaller slip lines that follow on risks placed within the Lloyd’s market.   This enables them to offer more competitive terms to their clients than they would otherwise be able to do.  Syndicate 5623 will allow brokers to “bundle” these smaller lines together and place them efficiently as single packages,” a spokesperson said.

It’s another sign that Lloyd’s of London is gradually opening up to allow third-party capital providers (including ILS) to back business underwritten in the market, while the fact this is facilities business demonstrates that the need for efficiency is understood.

Ultimately a facility-focused syndicate at Lloyd’s, backed by investors looking for a market-spread like return, could help to keep the costs of insurance and reinsurance lower for customers, while for Beazley the SPA will augment its capacity and enable it to offer a compelling product in the marketplace.

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