In its 333-year history there is only one thing certain about Lloyd’s: about once a generation people make the mistake of writing it off.
Be it the punitive tax rates and seeming anti-business death wish of the UK in the 1960s and 1970s, the self-inflicted wounds of the 1980s and 1990s or the capacity crunch of the early 2000s, there has always been a reason to turn one’s back on this unique institution.
But with hindsight such times have always been precisely the moment to double down and reinvest in the market’s future rather than to move away.
Viewed through such a lens Canopius’ move for AmTrust at Lloyd’s seems particularly shrewd.
The Lloyd’s market’s pains have been writ large on these pages in the past 18 months, but this is not a fair reflection of the market’s real competitive position.
Lloyd’s often receives a disproportionately negative press precisely because it is such a public institution and is governed in the full glare of media attention. It suffers the same as all of its peers but because of its huge number of stakeholders the minutiae of what it is doing is scrutinised on these pages.
Rivals can count on more discretion and can suffer in relative silence for longer.
But it is now clear that the pain has been spread far more equally around the specialty world than some would have had us believe. When even the most ultra-conservative find it hard to write to a combined ratio below 100, you know conditions are unsustainable.
As any value investor will tell you, sometimes you can get great stocks at knockdown prices.
When they are available for a bargain you should be brave and fill your boots. Lloyd’s is a high-quality platform so building scale there while others are withdrawing and valuations are low is positively Buffettesque.
And the timing couldn’t be better.
Lloyd’s has a dynamic new CEO with hugely ambitious plans to build on a major reform agenda that already had some momentum before he arrived.
Meanwhile, the wider global specialty market is only beginning to acknowledge some of the pain that Lloyd’s diagnosed so publicly and acted so decisively to remediate last year.
Underwriting dynamics are changing to Lloyd’s advantage in core markets, deal submission is up, and pricing and terms and conditions are improving.
The only latent worry is that too sharp a market upturn might remove any incentive or urgency for Lloyd’s’ to continue to pursue the difficult reforms it must achieve to secure its long-term future. If profitability returns too easily it may be tempting to postpone necessary but difficult changes once again.
Into this upswing Canopius is set to emerge as a top-five Lloyd’s underwriter with a seat at the table and the ability to influence the vision of the brave new market John Neal wishes to construct.
Buffett always says that only a fool that makes long-term bets against the strength and dynamism of the US economy.
In the insurance world, you could substitute the US economy with the Lloyd’s market.
In this context, Canopius’ latest deal is a sensible bet on a long-term success story.