Ironshore to convert special purpose syndicate to permanent Lloyd’s syndicate

Bermuda based insurance and reinsurance holding company Ironshore is to become the first firm to successfully convert a special-purpose Lloyd’s of London syndicate into a permanent syndicate backed by third-party capital from Lloyd’s Names.

This is a good example of another avenue through which third-party capital can gain access to the returns of the re/insurance market through reinsurance-linked investments. It’s a method of accessing re/insurance as an asset class that will likely increase in popularity given the attractiveness of the diverse business underwritten in the Lloyd’s market.

The syndicate, currently known as special-purpose syndicate 6110 and managed by Ironshore’s Lloyd’s managing agent Pembroke. SPS 6110 has to date only underwritten quote-shares of business underwritten by one of Pembroke’s permanent syndicates, Syndicate 4000.

The special purpose syndicate had been formed in 2012 with £25m ($40m) of capacity provided solely by Lloyd’s Names. It has been involved in quota-shares on property treaties, personal accident and contingency as well as some short-tail lines

Once converted the syndicate will be known as Acappella Syndicate 2014. It aims to launch for the 2014 underwriting year and will target £65m (or $106m) of premium income in its first year of operation.

Ironshore and Pembroke clearly have an appetite to leverage external sources of capital at Lloyd’s. Justin Wash, MD of Pembroke, said; “This is a significant step toward Pembroke developing its third-party business, while leveraging Ironshore’s distribution network to bring new business into the Lloyd’s market that is supported by private investors. We have a strong appetite to grow the third-party business and actively engage with other potential investors, providing distinctive distribution benefits to the Lloyd’s market.”

Special purpose syndicates are one way that third-party or alternative capital has been able to access the Lloyd’s insurance and reinsurance market to date. By converting to a permanent syndicate, it will allow third-party sources of capital to build a permanent revenue stream from the Lloyd’s market, in a similar way to Nephila Capital, the ILS investment manager which launched a syndicate earlier this year.

Because of the diverse range of business available to underwrite at Lloyd’s it is a very attractive opportunity for institutional investors such as pension funds which are seeking to access the returns of insurance and reinsurance as an asset class. In the future we expect to see increasing numbers of special purpose and permanent syndicates backed by the type of capital we have seen access the ILS space so far.

Of course the Lloyd’s market has always been backed by third-party capital, whether by high-net worth individual names, corporate investors or other sources of institutional capital. As insurance and reinsurance receive ever more attention from capital market investors the Lloyd’s market will likely receive an increasing amount of capital from these alternative sources.