Nephila helped Lloyd’s get comfortable with ILS capital: Bolt

Tom Bolt, the Director of Performance Management at insurance and reinsurance market Lloyd’s, says that working with insurance-linked investment manager Nephila Capital has helped Lloyd’s to get comfortable with how ILS works.

Third-party reinsurance capital is seen as both a friend and foe to Lloyd’s, according to Tom Bolt’s comments in an article on the Lloyd’s website.

In one respect, the growing use of third-party capital and insurance-linked securities (ILS) in high level catastrophe excess of loss business in regions such as Florida is pushing Lloyd’s property catastrophe reinsurers further down the tower, writing more volatile layers of reinsurance business.

“This business is not hard to underwrite well – but it is different,” said Bolt.

At the same time as posing a threat to traditional reinsurance firms at Lloyd’s, the use of new capital and new structures has also been embraced by some syndicates in the oldest insurance and reinsurance market in the world, Bolt explained.

The use of third-party capital structures can be beneficial, with respect to both the rates and the terms available, Bolt said.

Nephila Capital, of course, was the first ILS manager to launch a syndicate at Lloyd’s which is wholly backed by third-party capital raised through an ILS structure. It is also the only syndicate which underwrites entirely using an industry-loss based produce, with the country-weighted CWIL approach that Nephila is known so well for.

“Nephila has proved to be a great partner and helped us get comfortable with how the ILS market works and we may see the model replicated in the future, depending on market conditions,” Bolt commented.

Other ILS players are actively exploring ways to enter Lloyd’s, some are already reported to be well underway with initiatives to access the market and bring their capital to its members while leveraging the market’s return potential for investors. This is expected to be an increasing source of interest for ILS managers, as they look for new opportunities to access reinsurance business, or to benefit from the way Lloyd’s can help them find leverage in the future.

Lloyd’s itself added the use of third-party capital and convergence techniques to its strategic plan earlier this year, saying that as long as the capital brought with it new business it could be welcomed.

We’ve said before, almost a year ago, that alternative capital should be looked on as a compatriot and a way to grow new business opportunities, rather than being stuck on the fence as to whether it is friend or foe. Encouragingly, Lloyd’s view of alternative capital and ILS is moving firmly in this direction.