Lloyd’s has potential to create a casualty ILS market: CFO

The Lloyd’s insurance and reinsurance market has clear ambitions to broaden its offering to investors seeking insurance-linked returns, with CFO Burkhard Keese saying today that it views the creation of a casualty insurance-linked securities (ILS) market as possible.

Having launched the London Bridge Risk PCC insurance-linked securities (ILS) vehicle in 2021 and now gaining traction with that structure Lloyd’s is looking at ways to expand its activities in ILS.

We understand that the London Bridge Risk structure itself is likely to have its regulatory approvals broadened, to enable investors to connect with insurance and reinsurance business at Lloyd’s in additional ways.

But alongside this, it’s clear Lloyd’s has big ambitions and wants to welcome more third-party capital into the marketplace.

Speaking today, during the Lloyd’s earnings call, CFO Burkhard Keese highlighted casualty risks as an area of potential.

“The London Bridge vehicle, which is the only ILS platform in London, can now accommodate institutional investors at Lloyd’s and we have the possibility to leverage our reinsurance-to-close mechanism to develop an ILS market for casualty.”

Casualty ILS has been a relatively niche part of the overall insurance-linked securities (ILS) market to-date.

But if Lloyd’s can help investors to access the returns of casualty risk through an ILS structure, such as London Bridge Risk PCC, while benefiting from a clear exit opportunity thanks to its reinsurance-to-close mechanism, that could be a particularly compelling route to access casualty ILS returns.

Separately, Keese also announced a new Lloyd’s investment platform today, on which more details are set to be announced next week.

This new “investment platform” will enable investors to co-invest with Lloyd’s, into a range of asset classes, including green and sustainable investments.

Keese explained, “I’m also pleased to announce today that Lloyds is creating an investment platform which allows market participants to co-invest.”

“This initiative will create access to a broader range of assets, particularly private assets, including green assets, realise economies of scale supporting the transition to net-zero and make investing within the Lloyds framework much simpler for participants.

“This will make it easy to take well-managed investment risk within Lloyds market and enable higher risk-adjusted returns to be achieved, increasing the competitiveness of Lloyd’s as a marketplace. We will announce details next week.”

While this isn’t ILS related, it is still interesting, not least as it does mean those participating at Lloyd’s could improve their investment returns, with all the access to assets and economies of scale Lloyd’s can provide, but also as it those better returns can turn into better results for Lloyd’s members, which will flow to those investors backing the members as well.

Additionally, this investment platform could perhaps be switched around, to enable investors to co-invest into the risk side of the Lloyd’s business, so the underwriting, across a central portfolio-wide view of the market. That, or anything similar, would be a particularly compelling ILS investment opportunity.