While the Lloyd’s of London insurance and reinsurance market set out a desire to embrace reinsurance convergence and new capital sources, as part of its recently published strategic plan, it doesn’t intend to open its doors to every capital provider showing interest.
In an interview with A.M. Best TV at RIMS, Lloyd’s CEO Inga Beale reiterated the markets desire to only accept capital from those that can bring new business or talent into the market.
This was stated in the recently published strategic plan, where Lloyd’s said that ‘Reinsurance Convergence’ is one of the; “Six strategic priorities which are either key to the delivery of Vision 2025, or are critical to the ongoing successful performance of the market.”
Lloyd’s said that its response to reinsurance convergence and the growing influence of third-party capital would be; “To be proactive and to embrace this trend. Over the longer term there is an opportunity to harness capital from both traditional and new sources.”
Inga Beale discussed alternative capital in her interview with A.M. Best TV, stressing that it needs to be on Lloyd’s terms; “At Lloyd’s, we set our stall out to be very much providing indemnity-based insurance products. That goes to the heart of what we’re good at, which is our expert underwriting. We believe in that risk-transfer model. But there are ways, I think, to tap into this capital and convert it into something that then is in line with our indemnity products that we’re offering.”
One of the caveats around welcoming new capital into the Lloyd’s market is that it has to either bring new business with it or new talent, something that direct investors may not be able to offer.
Beale explained; “We’re out there looking to entice new capital in but at the same time we want them to be bringing something to the table. So if it’s just capital wanting to come into Lloyd’s that cannot bring new business streams in, or new talent pools in, we’re not really opening our doors to them.”
It would seem that there is no shortage of new capital seeking to get into the Lloyd’s market; “We are being pretty tight on that but there are people queuing up to get into Lloyd’s because of our expertise, our specialist lines of business, so we’re not short of capital,” said Beale.
But for investors such as pension funds, which may like to gain access to the Lloyd’s market to access the returns of the diverse insurance and reinsurance market, Beale hinted that currently this type of capital or investor may not be right for Lloyd’s, saying; “We just want to make sure that they’re bringing new business in when they do and I’m not sure the pension funds are at that stage of being able to do that for us yet.”
The question of whether a new source of capital brings incremental business or new talent into Lloyd’s is an interesting one, especially in light of initiatives such as the Aon and Berkshire Hathaway sidecar deal. That particular initiative sees Berkshire Hathaway follow Aon’s brokerage placements at Lloyd’s providing up to 5% of the capital. Does that bring business to the market or talent?
Perhaps, in terms of new business, Aon believes that the Berkshire deal has increased the business it puts through Lloyd’s. But wouldn’t the same be the case if a similar facility was backed by a number of large pension funds? It’s a difficult distinction to see.
In terms of talent, we wonder whether Lloyd’s would count insurance-linked securities managers entering the market with collateralized products, in a similar manner to Nephila Capital’s syndicate, an injection of talent worth having? What if this new talent was backed by pension funds and what if the business it largely brought with it was once underwritten using traditional re/insurance capital, perhaps even at Lloyd’s?
Lloyd’s job of deciding which capital to accept and which to decline is not that straightforward. More third-party and alternative capital is certainly in Lloyd’s future. How quickly it will be embraced and what form it takes is as yet uncertain, but it will be fascinating to watch how it changes the world’s oldest insurance market as its adoption increases.
View the full interview with Lloyd’s CEO Inga Beale below:
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