Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Securis to exit from direct Lloyd’s business as returns fall below targets


Securis Investment Partners, the London-headquartered insurance and reinsurance linked investment manager, is exiting from the Lloyd’s marketplace as its platforms no longer deliver the returns required by its investor mandates.

Securis has been active in the Lloyd’s market for a number of years as a provider of reinsurance and retrocession capacity to a wide range of Lloyd’s participants, and more directly through two corporate members which provide capital to both third party syndicates and to its own SPA (Special Purpose Arrangement) vehicle.

Recently, Securis attempted to evolve the existing SPA vehicle, 6129, into a fully independent and diversified syndicate, but Lloyd’s has been unable to support the ILS manager’s ambitions during a period where, more broadly, it has taken a very hard line with both new entrant proposals and existing players, forcing significant and even total cuts to underperforming classes and syndicates.

Lloyd’s offered Securis the opportunity to continue the existing SPA syndicate, which would have been renamed as syndicate 2005, but only with a substantially reduced stamp capacity year-over-year and with a continued sole focus on capital intensive US property business.

The ILS manager has recently determined after a detailed review that the prospective returns this strategy at Lloyd’s could make no longer meet the return requirements of its funds.

Vegard Nilsen, CEO of Securis Investment Partners LLP told Artemis that presently the Lloyd’s activities “basically don’t make enough money” meaning that the investment manager “cannot justify continuing to commit investor capital.”

Herbie Lloyd, Portfolio Manager (Non-Life) at Securis, added that the firm’s direct Lloyd’s activities “faced significant profitability challenges heading into 2019” and added that “A reduced scale SPA with limited scope lacks many of the strategic and economic advantages that a full syndicate could have offered; high fixed costs, reinsurance inefficiencies and diversification challenges combine to produce a return profile that Securis cannot accept on behalf of its investors.”

Securis has also undergone a review of its broader activities in the Lloyd’s market and has concluded that the capital provision model to third party syndicates is no longer profitable enough to meet the return expectations of its fund investors either.

Nilsen added, “As well as exiting from the SPA arrangement, due to similar profitability challenges we will also discontinue investing capital into LCM1, which has directly invested capital with third party Lloyd’s syndicates.”

“There are several impressive and successful syndicates at Lloyd’s which we would like to support with capital, but most are already very well capitalised. Having said that, we will continue to support them as we have done for years through other more traditional avenues, specifically via reinsurance and retrocession offerings which remain core to Securis.” Nilsen said.

“Securis is an asset manager and our fiduciary duty is to our investors, it’s all about our ability to deliver the best risk adjusted returns going into 2019.”

“We have to select the best possible investments for our funds, and if something no longer meets our investors’ targets, it cannot fit within our portfolios.”

“We are encouraged by the changes happening at Lloyd’s, and we will be watching the new management team closely. But for now, we will focus on our core business and maximize our investors’ chances of a profitable 2019. Now is the time to sharpen portfolios and be disciplined and selective,” he continued.

Jon Hancock, Performance Management Director at Lloyd’s, also commented on the situation saying, “Lloyd’s has been working closely with Securis on their 2019 business plan, and regret that we have not been able to find a commercially viable way forward. We welcome that Securis will continue to have an important role to play in the Lloyd’s market, and look forward to keeping an open dialogue with them on future opportunities.”

While the focus at Securis right now is firmly on ensuring a successful year-end Non-Life renewal and a profitable 2019 for its investors, the Securis Life business continues to go from strength to strength.

Securis has a well-established Life ILS business and has significantly grown its life ILS assets across the firm.

The main driver of this increase in life ILS assets was the launch of the closed ended fixed-term Fund, which launched with approximately $250 million of capital. This was followed by a second vintage with $340 million of capital.

“With additional commitments and Life investments within other fund products, Securis has in excess of $1.1 billion invested in high yielding Life business,” Nilsen explained, adding “We have always been very innovative on the Life side, creating value by opportunistically tailoring solutions for individual counterparties.”

For Securis current focus is to source lines of business that deliver better returns to its investors and at lower cost, than it can find in the Lloyd’s market currently.

But the ILS manager will maintain a close watch over developments at Lloyd’s, hoping to find more cost-efficient ways to deploy capital directly into the market in the future.

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