A new study by Aon’s UK Capital Advisory team and the Lloyd’s Market Association (LMA) shows that intragroup reinsurance is favoured as the primary capital optimisation technique among managing agents.
A survey of Chief Financial Officers (CFOs) at 28 Lloyd’s managing agents, representing 75% of the market’s capacity for 2021, found that intragroup reinsurance was utilised by 78% of participants.
The report also revealed that for most survey respondents, capital availability was not a constraint for growth, a trend highlighted in the underutilisation of Tier 2 Funds at Lloyd’s.
Respondents generally agreed that capital optimisation was critical in developing a dynamic and proactive approach to capital management.
Other key findings showed that 87% of survey respondents wanted to increase their stamp capacity at Lloyd’s.
Additionally, a third of respondents intended to implement legacy solutions in the near future, and 40% managed the volatility of underwriting returns by explicitly looking at a variety of return periods.
“Following a couple of difficult underwriting years, the start of the COVID-19 pandemic and the tightening of rules on the use of Tier 2 capital, it appeared timely to look at how syndicates’ approach to capital management has evolved,” explained Eric Paire, Head of Aon’s UK Capital Advisory team.
“In this regard, our report offers insight into the key considerations of Lloyd’s CFOs, and highlights their evolving role, which includes setting strategy, facilitating growth, managing risk and optimising capital.”
Paul Davenport, Finance and Risk Director at the LMA, also commented: “This report aims to provide LMA members with a comprehensive overview of how capital and business strategy are connected within the Lloyd’s market. We would like to warmly thank all those CFOs who took the time to answer our questions and comment on their capital strategy.”