Imagine a world in which capital has an easy, eﬀective way to access a diverse set of insurance risks on the Lloyd’s platform
As the fund manager of a wealth management firm, I am always looking for alternative investment opportunities that have attractive risk-return profiles and which give my investment portfolio additional diversification.
Previously, I could only invest in the insurance sector by making direct debt or equity investments in insurance companies, by investing in catastrophe bonds or by backing Special Purpose Arrangements at Lloyd’s. Although this gave me exposure to a portfolio of risks, my equity was still exposed to financial markets and firm-specific risks, while cat bonds focused only on catastrophe risk. I always felt that this particular investment segment could benefit from a greater choice of products and risk-return profiles, more transparency, and a deeper, more liquid market.
That’s when I heard about the opportunities at Lloyd’s. Lloyd’s has created the go-to place for capital to invest in insurance risks, and a wealth of new investment opportunities for investors like me. It has made it possible to invest easily and efficiently in diﬀerent types of insurance linked products beyond property cat, without needing to be a licensed insurance-linked entity or having to invest in a typical insurance company. This allows me to access several new types of insurance risk, as well as diﬀerent options for attaching my capital to risk, each with diﬀerent risk-return expectations and diﬀerent investment time horizons. In addition, it provides market performance data, and hence performance transparency, enabling better investment decisions. There are several ways I can invest at Lloyd's - for example, through a Lloyd's tracker or as approved follow capacity to a recognised lead - and Lloyd's continues to create more. Today, I am follow capacity for a lead, and define my investment appetite through detailed parameters. I set them in the system, including my return expectation and risk tolerance, the carriers I am willing to follow, and the types of risk and territories I’m interested in. My preferences are then automatically matched with business in the Lloyd’s market, and my chosen carriers can allocate individual risks, or portfolios of similar risks, directly against my capital.
I can also invest directly in Lloyd's-created portfolios that back a particular class of risk (e.g. cyber), a motive (e.g. an ethical portfolio) or the entire Lloyd’s market. The amount of capital I need to hold at Lloyd’s is calculated and released back to my account as the outcomes become known and the risks mature, and it’s easy to value my investments.
Lloyd’s capital efficiency means that I need to deploy less capital than if I sought the same exposure to insurance risk elsewhere. I understand from friends in the market that Lloyd's also helps syndicates become more capital efficient.
Underwriters have a real-time understanding of the capital required for each risk, can make informed decisions about how much syndicate capital to hold against new business, and choose how much third-party capital they wish to deploy. For me, there are diﬀerent maturity and exit options in the event my needs change over time. These depend on how I’ve said my capital can be used and the type of risk it can be matched to. These include waiting for the risks to mature, reinsurance or leveraging the robust, independent valuations to sell risks on to other approved investors on the platform’s secondary market.
This is an exciting development for investors. I am now able to deploy capital in several new risk areas: non-cat property, general liability, political risk, marine, aviation and even cyber. Returns have been in line with expectations and I expect more investment options to become available over time.
Lloyd's gives me an opportunity to invest in several new, uncorrelated investment segments that further diversify my portfolio. It’s good for the Lloyd’s market, too: syndicates are now writing larger lines of risk with the easily accessible capital.