Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Alternative capital to help Lloyd’s re-balance towards reinsurance: Beale


By welcoming alternative reinsurance capital into Lloyd’s of London, the world’s oldest re/insurance market can rebalance its portfolio, which is becoming overly weighted to insurance due to current market conditions, according to Inga Beale.

Last week, Lloyd’s acknowledged that the reinsurance world has changed, announcing that it is actively looking to develop structures to welcome alternative capital into the market, with further announcements expected on the progress of this initiative in Autumn 2015.

During the Lloyd’s half-year earnings analyst call recently, we asked Chief Executive Inga Beale what motivated the market to decide to welcome alternative capital more openly, with the idea of dedicated structures to enable the capital providers to enter the market a recent development.

Beale explained that the work Lloyd’s is putting into developing alternative capital structures and an entry-point into Lloyd’s for ILS is taking place alongside the London Market Group (LMG) and HM Treasury initiative, which we now know to be targeting collateralised reinsurance primarily.

Interestingly, Beale hopes that by bringing investors and their alternatively sourced capital into the Lloyd’s market, the balance between insurance and reinsurance can be restored.

Beale said that it is early days for the initiative, but that; “We feel that because of the pressure from alternative capital, particularly in the reinsurance space, the insurance portfolio is becoming a dominant one, as reinsurance is shrinking.”

Due to the fact that reinsurers have been under pressure, at Lloyd’s as much as anywhere, as reinsurance pricing has declined making returns harder to maintain, many reinsurers have diverted capacity to primary insurance business lines.

Clearly this would be as evident at Lloyd’s as anywhere else and the market needs to maintain a mix of insurance and reinsurance, for better diversification and also to maintain the claims and return profile that the market has historically achieved.

“We feel we’re in a good place to leverage our expertise to access some of this capital,” she continued.

For Lloyd’s there is a need to innovate and continually find new ways to be at the forefront of both insurance and reinsurance, making ILS and alternative capital a necessary addition to the market’s capital profile.

Beale said; “We continue to think about Lloyd’s as the innovation hub for insurance, looking at the emerging risks landscape and have every expectation that the creativity seen in the last century will continue.”

Lloyd’s is trying to think specifically about what it can do to bring alternative capital into the market, Beale explained. But she noted that any initiative that is announced has “got to be for the benefit of the current participants, as we don’t want to undermine them.”

It’s all about creating “links into the expertise that’s in the market now,” Beale continued. More concrete information is likely to be made available later this year, she said.

The entry of ILS and alternative capital into the Lloyd’s market has been a slow process, but traction is beginning to be seen.

Nephila Capital were among the first, with its Syndicate 2357 venture. Credit Suisse Asset Management followed, working on an SPS with Barbican first and now launching a dedicated syndicate venture as well. Also, London-based ILS specialists Securis Investment Partners has launched a fund-at-Lloyd’s, to provide risk capital financing to syndicates in the market.

Whatever structures Lloyd’s and the LMG create to help new capital enter Lloyd’s, in a collateralised or fronted manner, will increase capital market and ILS investor access to the returns of the world’s oldest re/insurance marketplace.

That’s a prospect that many ILS investors will welcome and be looking forward to.

Register today for ILS Asia 2023, our next insurance-linked securities (ILS) market conference. Held in Singapore, July 13th, 2023.

Artemis ILS Asia 2023 - Insurance-linked securities conference in Singapore

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.