ILS investors show “huge interest” in Lloyd’s currently: CFO, Burkhard Keese

Insurance-linked securities (ILS) fund managers and investors are showing “huge interest” in accessing the returns of the Lloyd’s market currently, according to its CFO Burkhard Keese.

Speaking this morning during an analyst briefing on the interim results of the Lloyd’s insurance and reinsurance market, Keese answered our question on whether Lloyd’s is seeing increasing levels of interest from ILS funds and direct ILS investors since the launch of its prospectus.

The prospectus includes plans to make it easier for third-party capital to access the Lloyd’s market and the next steps on this initiative are due to be published at the end of this month.

But Keese said the interest is strong right now, which backs up a number of our conversations with ILS managers who continue to explore efficient ways to access the reinsurance linked returns of the Lloyd’s market.

Keese responded, “Yes, there is a huge interest from ILS investors in the Lloyd’s market.”

He continued explaining that Lloyd’s remains too complex for most ILS investors, but the market is working to improve the process of accessing the underwriting that goes on there.

“We are a bit complicated, we don’t only get this from ILS investors, we get this from all our investors,” Keese explained.

“We are complicated, but we will have a very close look within the next 12 months to revise the rules and procedures, and definitions, to become less complicated and much more simple than we are,” he said.

ILS market’s have shown interest in accessing the returns of Lloyd’s for a long time, with a number already embracing it. Some going as far as establishing their own syndicates and managing agent, such as Nephila.

But it’s been difficult for ILS fund managers and direct investors to find ways to get into Lloyd’s that don’t require significant time, effort and cost, as well as a slow ramp up that adds even more expense, leaving many to prefer to stick with the traditional marketplaces where they can participate more easily.

However, following 2017 and 2018’s catastrophe losses, the ability to benefit from Lloyd’s rating, leverage and market access through licenses, looks even more appealing than before.

As too would the chance to access the specialist business that enters Lloyd’s and is harder to access from outside.

Hence interest in accessing Lloyd’s seems to be rising in some ILS circles.

As a result, Lloyd’s has placed ILS and third-party capital in its prospectus, although questions remain as to how it will get to participate, as ILS capital does not (in the main) want to be a follower.

Lloyd’s detailed a digital vision for ILS capital accessing insurance linked returns from the market, although this did position investors as following capacity, or supportive retrocession it appeared.

But initiatives such as the syndicate in a box, which is designed to make it easier for new entrants and innovators to underwrite at Lloyd’s have heightened interest once again, it seems.

Recently I explained that it’s key Lloyd’s embrace ILS capital now, as otherwise it is attempting to modernise and innovate without considering what could be one of its biggest future constituents.

The Lloyd’s market continues to make all the right noises in this respect, but as ever the proof will be in the actual new routes to risk it can create for capital providers looking to participate in it.

Lloyd’s interim results were announced today and have been covered over on our sister site Reinsurance News. The market reported a strong pre-tax profit, but almost solely delivered by the investment return, with the underwriting result actually declining year-on-year.

Looking at the performance of the market, if ILS investors are looking for underwriting linked returns it might suggest that following capital is less likely to be an easy solve for Lloyd’s and it’s time may be better spent finding ways to enable professional ILS managers and their underwriting teams to bring capital into the market.

That leaves a decision as to whether to allow more competition, rather than supportive capital in. Without underwriting performance improvements though, the type of investors looking for relatively uncorrelated insurance linked returns may find a managed and selective approach to risks far more compelling than being a following source of supportive capital for syndicates.

More details are expected at the end of the month when Lloyd’s publishes its blueprint, the next step on from the prospectus initiative.