The London Bridge Risk PCC insurance-linked securities (ILS) structure that enables quota share access to the Lloyd’s insurance and reinsurance market for third-party investors helps to “simplify” investment structures for the first backer of a deal, Ontario Teachers’ Pension Plan (OTPP).
As we explained towards the end of October, Lloyd’s was on the verge of securing the backing of insurance-linked securities (ILS) capital from Ontario Teachers’, which is the first transaction to utilise its London Bridge Risk PCC special purpose structure.
Lloyd’s confirmed this morning that Ontario Teachers’ Pension Plan, a Canadian pension investment manager with approximately $227.7 billion in net assets, was the first investor to provide capital through its London Bridge Risk (LBR) Protected Cell Company (PCC).
The capital has gone to a single Lloyd’s Member, which in turn funds three syndicates in the Lloyd’s market: CFC Syndicate 1988, Beazley’s Syndicate 5623 and Beat’s Syndicate 1416.
Coverage begins in 2021 and is expected to be expanded in 2022, with initial capital in excess of £100 million expected to be deployed and which is expected to grow over time.
Burkhard Keese, CFO, Lloyd’s commented on the news, “I am delighted to welcome major global pension investor Ontario Teachers’, who are well regarded in the ILS community, as the first to utilise LBR PCC to participate in underwriting at Lloyd’s. It is a great achievement to see the PCC used, on-shore in the UK, to deliver reinsurance coverage and I am confident that this will be the first of many ILS investments into Lloyd’s as investors, members and syndicates increasingly appreciate the potential of this transformer vehicle.”
The London Bridge Risk PCC structure has clearly shown OTPP a way it can access returns from selected underwriters in the Lloyd’s market more efficiently and directly, simplifying its access to Lloyd’s market returns.
Nick Jansa, Senior Managing Director, EMEA, at Ontario Teachers’ explained, “We invest in a range of global assets, including insurance-linked securities, and are always looking for efficient opportunities to maximise returns and increase value for our members. LBR PCC provides an innovative and efficient way to simplify our investment structures as we continue to grow our global footprint.”
OTPP has long been an investor in the insurance-linked securities (ILS) market and as well as allocating via ILS fund managers, it has also entered into ILS arrangements more directly as well.
Using London Bridge Risk PCC, OTPP gains access to three syndicates via a single Lloyd’s Member, it’s not clear whether the pension owns that Member or not.
But either way, it does make accessing returns from syndicates that it wants to follow in the fortunes of, much simpler and more efficient, as well as putting more of the deployment under its own control, possibly also reducing fees it might have paid through other routes of backing such underwriters.
Adrian Cox, CEO Beazley Group, added, “Beazley is pleased to see the successful launch of the first LBR PCC acting as a transformer for institutional capital to access one of our most innovative underwriting portfolios. As those portfolios continue to grow over the coming years, Beazley hopes to see further users of the new UK ILS infrastructure benefiting from low cost, efficient access to the group’s underwriting expertise.”
Matt Taylor, Active Underwriter at CFC Syndicate 1988 also said, “As a newly established syndicate, we are delighted to have been able to benefit from capital support via LBR PCC, with its pre-approved status as an onshore transformer vehicle in the UK. For a syndicate with CFC’s high growth expectations, capital delivery mechanisms like LBR PCC, that allow simplified investor access to our unique premium portfolio, are crucial when attracting sophisticated large-scale institutional investors.”
Paul Rayner, Partner, Beat Capital Partners also commented, “Beat is excited to have partnered with LBR PCC in the formation funding of Syndicate 1416. Given our perpetual third-party capital outlook, LBR PCC is a strategically important innovation that allows us to efficiently connect with high quality alternative capital partners alongside our existing capacity supporters.”
London Bridge Risk PCC does have a limited scope, so investors can only access risk by entering into quota share reinsurance transactions with a Lloyd’s member using standardised documentation.
But this seems an ideal way for a large investor like OTPP, which has the capabilities internally to assess and measure the performance of the syndicates, to access the market and be selective about who it provides reinsurance capital to.
OTPP can access a diversifying array of risks from the Lloyd’s market through this route and it’s entirely possible the pension investor was already funding Lloyd’s underwriters via Funds at Lloyd’s, or another route, as well as likely also sourcing some risk via ILS funds.
But this makes the whole process simpler, if quota share exposure is what you’re looking for and could be a way to position yourself as a cornerstone investor to the market, all without having to take on the corporate and entity risks associated with equity investments into Lloyd’s underwriting vehicles.
If access to insurance-linked returns is what you’re looking for, then partnering with the best underwriting teams at Lloyd’s via the London Bridge Risk PCC structure is a great way to achieve that.
As a reminder, we explained back in March that Lloyd’s told us it hoped the ILS structure would be used in advance of the year-end ‘Coming into Line’ process, which is typically in November.
Lloyd’s then said in May that it was in “advanced discussions” with some major investors that were looking to use its insurance-linked securities (ILS) structure, London Bridge Risk PCC.
London Bridge Risk PCC is managed by Horseshoe, while Aon supported negotations for both Beazley and CFC as part of this Ontario Teachers’ arrangement.