Hamilton to run-off Acapella syndicate at Lloyd’s, citing lack of return

Hamilton Insurance Group is placing its Acappella Syndicate 2014 (Acappella) into run-off, citing an expected inability to produce adequate returns and adding to the Lloyd’s of London market casualties of recent months.

Hamilton’s Acapella syndicate, which it acquired as part of the Pembroke deal, is the second Lloyd’s operation in less than one-week to go into run-off citing issues with the vehicles return-potential.

Acapella syndicate is backed by third-party capital and it seems clear that Hamilton does not feel that renewing the syndicate for 2020 is in their interests, as the returns would be too low.

Acapella will cease underwriting new business immediately, the company said, having reviewed its prospects for 2020 and deemed it not promising enough.

“As we completed the capital raising process at Lloyd’s, we concluded that Acappella was unlikely to produce an adequate return on capital,” explained Hamilton Group CEO Pina Albo.

Last week Pioneer Underwriters put its Syndicate 1980 at Lloyd’s into run-off, saying that “the syndicate structure is no longer economically efficient when compared with its other capital arrangements.”

It seems Hamilton has reached a similar conclusion, leading to the company deciding not to move forwards with the Acapella syndicate for the coming year.

Albo continued to explain, “As conscientious stewards of both our and third-party investors’ capital, and with our focus on underwriting profitability, it was determined that the best course of action would be to discontinue the business.”

It’s the latest signal that underwriting at Lloyd’s and making an adequate return for the capital investors backing a syndicate is no easy task.

A number of syndicates have found operating in the market increasingly challenging and losses of recent years, combined with reduced profits in many lines of business, have reduced the returns of some Lloyd’s underwriting businesses to levels where they are now being deemed less viable to continue with.

It’s no surprise that Lloyd’s is working hard to reduce the cost of doing business in the marketplace, but the high operating costs and lower returns available in insurance and reinsurance markets are a hurdle to any but the largest of syndicates, or most efficient, it seems these days.

Lloyd’s has significant work to do to keep operators in the market it seems, as examples such as Pioneer and Hamilton could likely underwrite the same business on their other capital platforms outside the market at a more efficient cost-of-capital.

“We anticipate the continued smooth handling of policyholder obligations,” CEO Albo explained, adding that, “In addition, we are currently in discussions with those employees who are impacted by this decision.”

As the cost of doing business at Lloyd’s of London becomes ever more evident it makes the successful implementation of its Blueprint initiatives even more vital, as capital will clearly go to wherever it can make the best returns in insurance and reinsurance.

While it currently looks like underwriting at Lloyd’s cannot deliver the returns some deem viable, it presents an opportunity for the ILS market as well to attract investors to their efficient platforms for underwriting and investments and to show that there are other ways to access similar (or even in many cases the same) business and its insurance-linked returns.