Lloyd’s ILS offering “different to Bermuda but complimentary” – Neal

John Neal, CEO of Lloyd’s of London, explained that the insurance-linked securities (ILS) offering being developed for the market will be “different to Bermuda, but complimentary,” as he acknowledged Lloyd’s was slow to embrace the ILS opportunity.

Speaking during a virtual fireside chat with Dominic Christian, Global Chairman, Reinsurance Solutions at broker Aon today, Neal was asked about innovation in the Lloyd’s market and what is being done to allow capital to enter the market and access risk within it more easily.

Neal acknowledged that Lloyd’s has not always had the best strategy when it comes to supporting insurance-linked securities (ILS) capacity and alternative reinsurance capital structures.

“We were slow off the mark,” Neal explained.

Adding that by comparison, “Bermuda was really super in that space.”

But now progress is seemingly being made and Lloyd’s aims to be much more welcoming to ILS capital, ILS funds and investors in 2021.

Neal said that, “Within the environment that operates in the UK, which is different to Bermuda, for 2021, we’ll have the first ILS PPC structure set up at Lloyds.”

As we explained recently, Lloyd’s wants to enable insurance-linked securities (ILS) style investors, such as pension funds, to access insurance and reinsurance linked returns from its marketplace more easily.

As a result, Lloyd’s is in the application process with regulators for a UK iSPV structure which is expected to create a more compelling proposition for ILS investors wanting to access the Lloyd’s market.

It seems this will be ready for 2021.

Neal said that ILS and alternative reinsurance capital will, as a result, be able to “set up at Lloyds from 2021.”

“It’ll be different to Bermuda but complimentary,” he explained.

Neal added that it is “really, really important” for the right governance and performance controls to be in place.

But also important that, “we encourage and incubate different forms of capital and different ways of establishing a new business.”

Questions remain about how the iSPV, or PPC structure for ILS activity at Lloyd’s will be set up and managed.

Being a multi-use insurance special purpose vehicle, it will be able to have different cells dedicated to individual investors, or transactions, or perhaps syndicates.

But who administers them and the vehicle itself isn’t clear, whether this will be a recognised industry service provider or Lloyd’s itself.

More information on Lloyd’s ILS plans are likely to be forthcoming as we near year-end, we expect, as the market looks to ramp up selling these new options to access risk from the market to investors.

How welcomed this new capital source is by incumbents in Lloyd’s remains to be seen, especially at this hardening stage of the market cycle.