The Lloyd’s of London insurance and reinsurance market has put its plans to launch an index for diversified insurance risks, featuring loss ratios and data on the insurance market’s performance, on hold as understanding the impact of Brexit takes priority.
The Lloyd’s Index service was being designed to offer either line specific or whole-of-market indices and date, which could be used in risk transfer transactions, such as an industry loss warranty (ILW) or other derivative type structures.
The Index could provide a way for alternative capital to gain greater access to Lloyd’s business, as well as a way for market participants, or those on the outside but in insurance and reinsurance, to hedge the market’s performance.
Lloyd’s market data is a great barometer for the health and performance of the global specialty insurance and reinsurance market as well, hence the promised Index service which had been announced last December was keenly awaited by many.
The Index work has now been put on hold, as the Lloyd’s market’s attention is currently being placed on working out exactly what the UK’s Brexit vote will mean for it.
A Lloyd’s spokesperson explained; “In light of the immediate focus Lloyd’s must give to the implications of Brexit as well as the ongoing demands of current market conditions, the Franchise Board and Council have decided to put the launch of the index on hold for the next few months.
“The Corporation is conscious that we must prioritise our resources appropriately and focus on our preparedness for a changing environment.”
The Index had been slated for a mid-2016 launch originally, but delays had already pushed that back. For Lloyd’s it is completely understandable that Brexit should take a priority and for those in the insurance-linked securities (ILS) and reinsurance market looking for a benchmark or index based on Lloyd’s performance, there are potential alternatives as we detailed recently here.
A mechanism to hedge or trade against the performance of the Lloyd’s insurance and reinsurance market could be extremely useful, both to those underwriting there and those who might like to. It is to be hoped that Lloyd’s picks this initiative up again in good time, once it has a better handle on the potential impact of Brexit on the marketplace.