ILS backed Helios beats Lloyd’s market by 5.7% in 2020, despite COVID

Helios Underwriting, the Lloyd’s of London focused investment and underwriting vehicle that has a significant amount of backing from insurance-linked securities (ILS) market sources, outperformed the wider Lloyd’s market for 2020, despite feeling the effects of COVID related losses.

Helios raised £53.5 million of new capital earlier this year, the majority of which was allocated by insurance-linked securities (ILS) market sources.

Specialist insurance-linked securities (ILS) and reinsurance investment firms ILS Capital Management and Hudson Structured Capital Management are now among Helios’ backers, after the pair took a significant proportion of Helios’ recent capital raises.

As a result, Helios continues to build-out its portfolio of Lloyd’s insurance and reinsurance business, with the backing of investors who fully-understand the intricacies of generating insurance and reinsurance linked returns.

In reporting its final results for 2020 today, Helios revealed that its performance beat the wider Lloyd’s market by 5.7% in 2020, despite the results being heavily impacted by losses related to the COVID-19 pandemic.

Helios reported that its profit, before impairments and tax, fell to £336,000 in 2020, down from 2019’s £2,427,000, which was largely a result of poor underwriting conditions and the impact of COVID-19 losses.

Other income reported was up for 2020 over the prior year, while costs were down, but the underwriting hit from COVID-19 to the Lloyd’s market couldn’t be avoided and was the main cause of the deterioration in profits.

Nigel Hanbury, Chief Executive of Helios Underwriting, commented, “Whilst the results for 2020 were impacted by the poor underwriting conditions and the impact of Covid-19, which severely tested the insurance industry, Helios has nevertheless continued to pursue its growth strategy. We successfully raised £75m of new capital to acquire LLVs and take up pre-emption capacity.

“We have grown our portfolio of capacity for 2021 to £110m by acquiring five LLV’s in 2020, taking up freehold capacity offered for nil cost by way of pre-emptions and building stakes on syndicates with good prospects offering tenancy capacity. We increased the value of the capacity fund by 17% to £30.8m as pre-emption capacity acquired for no cost increased the value of the portfolio by £2.4m.

“It is pleasing to note that we outperformed the Lloyd’s market by 5.7%.”

Growth is on the cards though for Helios, as it puts its new investment capital to work in buying additional limited liability vehicles (LLV’s) exposed to Lloyd’s underwriting.

The company is in discussions to complete new acquisitions, disclosing that outline terms have been agreed with eight LLV’s, amounting to around £10.9m of capacity.

Interestingly though, Lloyd’s vehicles are not available with the discounts that had been on offer prior to the hardening of the insurance and reinsurance market.

Helios said that improved market conditions mean that the discounts have been reduced, while vendor expectations of value have increased and other purchasers have been paying higher fees given the improved prospects in the Lloyd’s market.

But, of course, it all comes down to results of the underwriters and the performance of their insurance or reinsurance portfolios, as that is what Helios is buying into.

By selectively acquiring underwriting exposure that it believes can outperform the wider Lloyd’s market, Helios is having some success in providing its investors a route to access returns from the market, while trying to beat it at the same time.

“Looking ahead, the strong upward momentum in premium rates on renewal business is expected to continue and should continue to enhance the underwriting performance in 2021 and 2022. We see opportunity for further growth and we intend to continue to take advantage of the improving market environment, whilst judiciously optimising our portfolio to enhance value for shareholders,” Hanbury said.

The selective approach, to backing specific underwriting vehicles rather than the entire Lloyd’s market, is clearly working for Helios. Which demonstrates that, while the Lloyd’s market’s underwriting performance has perhaps been lacking, it still includes plenty of underwriters capable of delivering returns for investors.

Helios’ CEO explained to us previously that the company has been targeting ILS fund managers and other sophisticated and experienced insurance sector investors.