Opinion: The changing face of the Lloyd’s market
Last week this publication revealed that Aviva was exploring the possibility of launching a Lloyd’s syndicate.
No formal application has been submitted and talks are in the early stages, but it would mark the first major P&C composite this side of the Atlantic to make an entry into One Lime Street.
The arrival of Aviva would be a win for the Corporation, after a spell in which a number large corporates lost confidence in Lloyd’s and pulled their presence from the market (think AFG’s closure of Neon, Sompo International’s exit, and The Hanover’s sale of Chaucer to name just three from recent years).
However, the Corporation also has an ambition to attract new types of businesses and capital to Lloyd’s.
At the heart of the Future of Lloyd’s vision is the goal of making Lloyd’s an attractive place to put capital at risk for a broader cohort of parties – be it major corporates, entrepreneurs, MGAs or investors.
The Corporation is also positioning Lloyd’s as a solution for these parties to achieve their strategic goals by leveraging the market’s unique attributes – such as its risk syndication capabilities, its capital leverage or its vast licensing network.
This is arguably the case with the Aviva project. After significant restructuring at a group level and the sell-off of numerous international outposts, Aviva is looking for a licensing solution so it can continue the expansion of its specialty business – which is currently registering double-digit growth.
A glance at the list of Lloyd’s start-ups since the launch of Blueprint One in late 2019 lends weight to the argument that the Corporation is actively positioning Lloyd’s as an enabler and moving away from the types of “traditional” launches we have seen in the past.
With the exception of Inigo and to an extent Mosaic, this is a list of niche or purpose-focused vehicles.
Five are capacity vehicles for established MGA businesses (CFC, Volante, MCI, Victor, Carbon). Two are specifically follow-only for incumbent players (Ki, Nephila) and another two are reinsurance-to-close syndicates (Compre, Marco).
A further two – Parsyl and Munich Re’s innovation syndicate – provide ringfenced capacity for new insurance solutions, while the Oman Insurance Company SIAB is the first syndicate to operate from the Lloyd’s Dubai platform and will support the Corporation’s plans to develop regional distribution capacity.
Meanwhile, AIG Syndicate 2019 leverages Lloyd’s syndication to reduce volatility for its parent resulting from the accumulation of cat risk in its high-net-worth portfolio.
However, Lloyd’s stated ambition was also to bring new sources of capital to the marketplace – with a taskforce dedicated to achieving that goal outlined in Blueprint One.
With work under that capital workstream now complete, we are now seeing new names coming to Lloyd’s as Funds of Lloyd’s providers.
Canadian pension fund Ontario Teachers was confirmed as the first to use the new London Bridge vehicle, putting an initial £100mn+ of capital up behind CFC Syndicate 1988, Beat Syndicate 1416 and Beazley’s smart tracker syndicate 5623.
But we have also seen new private equity names come to invest in Lloyd’s businesses since the launch of Blueprint One – and more pertinently, since the remediation work started to bear fruit and a rating tailwind buoyed the market.
Blackstone co-invested alongside Fairfax in Ki, while Golden Gate came in for Mosaic.
Inigo lined up Caisse de dépôt et placement du Québec (CDPQ), Qatar Investment Authority and Oak Hill alongside cornerstone backer JC Flowers (which also acquired Ariel alongside Pelican).
All in all, the look and feel of Lloyd’s is slowly changing.
The Corporation would never go so far to say that Lloyd’s is no longer the go-to place for entrepreneurial underwriters with a narrow focus, a small stamp and Names capital. But it appears to be evolving away from the “classic” Lloyd’s start-up model in its approvals.
Many will feel this is a sad evolution, but it is necessary.
If Lloyd’s is to combat any questioning over its relevance it is key for it to have a versatile proposition: to be able to offer capital optionality for the MGA; access to specialty insurance risk for a pension fund; a rapid, capital-efficient start-up to private equity; or a license vehicle for a large corporate looking to expand.
Way back in 2019 when Neal first painted his vision for Lloyd’s, he envisaged a market which originated a wide spectrum of risk via multiple channels, and married it to real-time capital.
This three-year cohort of start-ups gives us some evidence that Lloyd’s is making headway on that ambition.