Lloyd’s as an ILS investment has “unique capital efficiency” – TigerRisk’s Cooper

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Investing in Lloyd’s insurance and reinsurance market through its insurance-linked securities (ILS) structure exhibits ‘unique capital efficiency’ and TigerRisk’s Bill Cooper thinks the initiative could attract billions of funds from investors in the financial markets.

The Lloyd’s market is already a unique proposition in the world of insurance and reinsurance related investment, given the global franchise, expertise and scale of the market, according to Bill Cooper, director Managing Director and Head of Capital Advisory, TigerRisk Partners.

Speaking to Artemis in an interview around the Monte Carlo Reinsurance Rendez-Vous 2022, TigerRisk’s Cooper explained that while the ILS business at Lloyd’s has been relatively slow to get off the ground, the recent launch of a new ILS structure, in London Bridge 2 PCC, could accelerate the trend and result in a significant growth capital opportunity.

Cooper cited Lloyd’s market ambition to double its premium base to underwrite 10% of the global premium pool for specialist commercial business insurance and reinsurance, a goal cited by CEO John Neal.

“To support this growth, Lloyd’s needs to broaden its collective investor base and is actively exploring ways to achieve this, including attracting investors who have historically allocated funds to the ILS market. The ILS market is estimated at $103 billion, making it a market segment worth pursuing,” Cooper said.

He explained that London Bridge 2 PCC is a new proposition that can help Lloyd’s achieve its ambitious goal, as it is “a completely new protected cell company which has much broader licenses for ILS activities, offering the market and investors greater flexibility and choice”.

He said the new ILS structure “will allow the market and investors greater choice in how they trade and connect (re)insurance risk with third party capital, and hopefully allow Lloyd’s to catch up with offshore ILS jurisdictions and attract billions in funds from capital market investors.

Adding that the UK’s ILS regulatory regime has also helped enable Lloyd’s to “compete with jurisdictions such as Bermuda and the Cayman Islands to attract ILS investors”, while opening doors for Lloyd’s underwriters and companies to ” tap into ILS markets and attract more diversified forms of capital.

Lloyd’s looks even more attractive to ILS investors now, given the tightening of specialty insurance and reinsurance market prices, Cooper explained.

“Furthermore, Lloyd’s management wants to put in place the necessary structures to make Lloyd’s more attractive as an ILS location – hence London Bridge, which helps ILS investors invest in Lloyd’s in the same way as they would do it in a Bermuda-based sidecar,” Cooper continued.

Adding that, “Today the advantages of Lloyd’s as an ILS site are considerable, including credit rating, franchise and business distribution, which is unique in the world.

“Lloyd’s market diversity means your capital can work harder than in a standardized sidecar.”

Cooper told Artemis that TigerRisk has worked hard to educate investors and explain the opportunity to invest at Lloyd’s.

He noted that the macro environment may have been a hindrance at present, but also said it was essential to explain to investors that the opportunities are more attractive at this time given that the supply of capital in the global insurance and reinsurance markets is declining, while demand is increasing. .

Cooper sees Lloyd’s investment opportunity as a particularly attractive ILS proposition, as it presents a “particularly efficient way of investing capital”.

Going on to explain that, “With most ILS investments, you are investing $1 for $1 of risk, but if you are investing in ILS through Lloyd’s, when you invest a dollar, you can write more than $1 of risk because the capital required at Lloyd’s to underwrite business is less than it would be for a single non-Lloyd’s insurer.

In closing, “The diversity of the Lloyd’s of London market gives investment a unique capital efficiency. »

Find all our interviews with professionals from the ILS market and the reinsurance sector here.

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