ILS ambitions could help Lloyd’s harness its innovation progress: Aon

While the Lloyd’s of London insurance and reinsurance marketplace has been advancing an innovation and modernisation agenda in recent years, broker Aon believes the market’s insurance-linked securities (ILS) ambitions could help it harness the progress its made.

The pace of digital modernisation is a question Lloyd’s needs to answer, Aon believes, but the broker is positive on the market’s general progress of late and a new report notes that the management team deserves credit, having created opportunities that can now be built on.

With improving underwriting results and performance management remaining at the top of the Lloyd’s agenda, insurance and reinsurance broker Aon believes investors may be more attracted now.

How Lloyd’s underwriters and syndicates source their capital and capacity is evolving as well, with the London Bridge 2 ILS structure seen as a key tool that can be used going forwards.

Aon believes that the London Bridge 2 ILS structure that Lloyd’s launched in 2022 and that has since been used to bring capital in by some players, “creates the potential for significant new capital resources to be drawn to Lloyd’s to support future growth.”

Attracting institutional investors to deploy capital into Lloyd’s via a dedicated ILS structure has been part of Lloyd’s strategy for a few years now and the launch of London Bridge 2 has helped to accelerate that, with the vehicle more flexible and suited to more use-cases, it seems.

Aon notes that London Bridge 2 has a broader range of permissions for how capital can connect to Lloyd’s underwriters, making it both simpler to use and more useful to market participants and importantly to the investors Lloyd’s wants to attract.

Aon notes that it continues to support the London Bridge ILS initiative at Lloyd’s.

“From a broader perspective, the recent drive for innovation is welcome against a backdrop of seemingly continual elevated risk,” Aon explained.

Adding that, “There is potential for it to be harnessed to significantly greater capacity if London Bridge 2 succeeds in capturing the imagination of institutional investors.”

Aon is relatively bullish on the forward potential for Lloyd’s underwriting business to perform.

Mike Van Slooten, head of business intelligence, Reinsurance Solutions at Aon, said, “Lloyd’s has strong forward momentum under a senior leadership team that has successfully guided the market through a very challenging period and is thinking very strategically about its global role.”

Rupert Moore, UK CEO, Reinsurance Solutions, also said, “Lloyd’s performance and capital are strong, positioning the market to meet the challenges of an ever more complicated global risk environment. A healthy marketplace is critical to enabling innovation and meeting clients’ complex needs.”

Moore also noted that Lloyd’s is looking to capture a greater share of the reinsurance market, saying, “We are encouraged to hear John Neal expressing his belief that Lloyd’s treaty reinsurance book could, and should, be 50% larger. We will be working with the leadership team to find ways additional to support this and recapture market share and market leadership.”

This is a clear opportunity for third-party capital from institutional investors to support that growth and London Bridge 2 could be a conduit through which capital can flow, to assist as Lloyd’s businesses expand into the improved reinsurance market conditions.

Join us on September 5th in London for our next insurance-linked securities conference in the city, where Burkhard Keese, CFO / COO of Lloyd’s, will join us and speak about the market’s ILS activities.