Earlier this year, we laid out five segments that Lloyd’s would target as it embarked on a two-year strategy to build a $100bn premium market.
Since then, it has already brought in several big wins across multiple categories – the latest being the first captive syndicate since the turn of the century, which sources said was backed by Google.
This followed Aviva’s agreement to buy Probitas in March. Aviva ticked all the boxes Lloyd’s wanted in a multi-national carrier new entrant, as we wrote previously.
Meanwhile, fitting across the MGA/entrepreneur categories, Richard Brindle’s The Fidelis Partnership is launching a syndicate to give it a diversity of paper sources.
As concern grows around how Lloyd’s syndicates will meet growth targets in a slowing rate environment, finding more wins like these will be all the more pivotal to hitting its expansion targets in the coming years, alongside convincing existing multi-platform players to do more in London.
But it also marks a win from one of its five target segments that is arguably among the least important more broadly.
With that said, it is of course necessary for Lloyd’s to present a “many faces of Lloyd’s” offering to chase down its $100bn target.
Not all segments will be worth the same premium, but offering a specific value proposition for the captives, for MGAs and globals is part of what should help get it to that target. (Although arguably, some minnow syndicates, if they are not bringing the right type of business to Lloyd’s to succeed, would create more supervision headache than they’re worth.)
It shouldn’t go as far as trying to be all things to all people – but it does mean Lloyd’s is getting more targeted in its appeal.
On top of these two major wins, another positive point for the Corporation is looking at its new syndicate list for 2024 – the highest volume years for new start-ups in the past five years (although this is arguably not the best year for peak start-ups).
Here, it is clear that the organisation is emphasizing the point around finding new lenses on risk sourcing. Even with property cat risk as in the Norman Max syndicate, it is coming in parametric form.
The energy transition theme is also popular, given it shows up in multiple new offerings – which comes as Lloyd’s is also offering additional options to add bolt-on premium to existing syndicates through a larger innovation class of business and a new transition class.
Captives: Finding the right client
Back to captives. Arguably, there is nothing new about this, since Lloyd’s has been targeting this business for many years, yet struggled to gain traction, given the easy appeal of offshore domiciles.
While there are various factors that could give it some momentum in this area, the pool of potential captives that might suit Lloyd’s remains small, and the business opportunity is niche.
Before Google, which will launch under a revamped captives framework, the last to use the market was pharmaceutical company SmithKline Beecham, now GlaxoSmithKline, which operated a Lloyd’s captive from 1999 to 2001.
The power of securing a new major captive should lend Lloyd’s project some momentum. Companies like to follow the herd, and a name like Google attracts interest.
In a statement from Apollo accompanying the launch, Lloyd’s commercial director Dawn Miller said the Corporation looked forward to “welcoming further businesses to our captive platform in the near future”. This reads as a fairly confident indicator of other examples being well along the process, though the first launch was a long time in the making.
But earlier this year, sources said the appeal of the Corporation was also gaining sway with potential captives due to shifting market forces in the fronting market.
The principle advantages of having a captive at Lloyd’s are:
International licences and AA rating
Proximity to specialty reinsurance expertise
Access to third party capital via London Bridge
On the licensing front, Lloyd’s paper is an advantage to captives that might otherwise have to pay fees to fronting carriers to manage international risks.
Turmoil in the fronting market over the past year, following the Vesttoo scandal and an AM Best sector review, has raised some questions for cedants over reliance on fronting counterparties, some argued.
This makes the certainty of an in-house solution look more attractive.
Meanwhile, the London Bridge platform, set up in 2021, could also help captives connect more readily to capital market users. Google parent Alphabet has already done a cat bond in the past, most recently through the 2021 $276mn Phoenician Re earthquake bond. It could conceivably issue future deals through such a platform.
Cyber risk is another topic that could focus corporations on captive solutions. Operating at Lloyd’s offers proximity to specialty reinsurance expertise that could be an advantage in managing these risks, as awareness of cyber risk and the need for cover grows.
Of course, even if captives bring in theoretically large exposures to cyber or other risks, Lloyd’s is not a free backstop for them.
Sources emphasized that Lloyd’s would focus on protecting the Central Fund and setting stringent performance standards to attract high-profile captives.
Targets
Given that most captives are domiciled in low-cost, light-touch jurisdictions such as the Cayman Islands, Lloyd’s is clearly never going to be a mainstream solution.
However, there are a few groups that could fit its offering: both complex global organisations such as Google, as well as insurance groups looking for internal reinsurance vehicles. Coming at a time when reinsurers have moved away decisively from certain layers of risk, this could be an opportune moment for the latter category to appear.
There are, however, some companies that are very unlikely to be on Lloyd’s wishlist: companies linked to oil and gas activities are likely to attract undue ESG scrutiny as the Corporation is under pressure to reduce its exposure to these sectors.
Ultimately, even if captives are the minor prize among Lloyd’s big five targets – a win is a win.
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