Despite a couple of headwinds, Helios increased its capacity portfolio to £233 million for the 2022 underwriting year, and management is confident about the prospects and future profitability of the firm ahead of further market hardening.
In late September, Helios Underwriting, the Lloyd’s focused investment vehicle, reported a significant rise in gross written premiums on the back of growth within the capacity portfolio, as the underwriting result improved by 76% to an impressive £3.3 million.
Overall, however, mark to market losses within bond portfolios on the back of rising interest rates dented the H1 2022 result, although it’s expected that higher yields will make a positive contribution in the future.
Against this backdrop, Reinsurance News spoke with Nigel Hanbury, Chief Executive Officer (CEO) and Arthur Manners, Finance Director, about the company’s half-year performance, market conditions, and what the future holds for Helios – the only listed investment firm offering returns from exposure to the specialist Lloyd’s re/insurance marketplace.
“We have been growing the capacity, the underwriting exposures now for the third year running, significantly, and with underwriting results it takes a bit of time for those profits to flow through to the bottom line,” said Manners. “But it is starting to show in the increase in the premiums written. It’s doing what it says on the tin.”
While the improving underwriting performance is clearly a positive, Helios has had to navigate some headwinds, including investment losses on the back of financial market volatility, although this trend is evident across the re/insurance industry.
“The second headwind is because we’ve grown the exposure significantly for calendar year 2022, the initial losses for that underwriting year are recognised in the first six months. So, we’ve come up against a couple of headwinds, but overall, we’re pleased to be in the position that we wanted to be in, growing the top line of the business,” said Manners.
Expanding on the firm’s impressive capacity growth, Manners suggested that this was ahead of plan and explained some of the reasons for this.
“We’re taking advantage of the better underwriting conditions within the Lloyd’s market and the rates are continuing to rise, and the syndicate managements we’re talking to are very positive about the prospects of the future, so we are positive as well,” he said.
Hanbury agreed, adding that Helios is getting significant pre-emptions.
“Lloyd’s has taken the foot off the brake slightly, particularly for the better-quality syndicates, and there are some nice pre-emptions coming out now,” said Hanbury. “This is helped by the fact they’re getting increased rate, the dollar has strengthened, obviously. And, so, to have an underwriter with a little bit less capital than they would want is the most perfect way of improving your combined ratio.”
With rate momentum set to persist, both Hanbury and Manners expect underwriting returns to continue to improve.
“I look on a three-year time basis,” said Hanbury. “Yes, there’s inflationary pressures but I think that is being taken care of in rate. Don’t forget terms and conditions are also being tightened and improved, and I expect people are reserving pretty conservatively. So, all in all, this has the same feel as several of the other cycles one’s been involved with in 40 years in the business.”
Interestingly, Hanbury went on the note that we only experience a really hard market about once a decade.
Now, however, he feels “we are heading into a really, really hard market, and people are learning all sorts of things.
“Brokers can go for seven or eight years flogging their wares with not a huge amount of skill. But now they really do work at it and have got money and are keeping it in their trouser pockets. But from my history and for Helios, having money from a slightly different world, private money and so forth, is very, very beneficial to the insurance industry,” he explained.
Looking to the future, Manners told Reinsurance News that he expects the existing capacity portfolio to start delivering decent underwriting profits to Helios’ shareholders.
“Although our results don’t look that fantastic, I think once the underwriting profits start earning, and you understand how the premiums earn over a period, and then the profits are recognised by the management teams. It takes a couple of years for that to happen.
“So, we are very positive about the future prospects and profitability of Helios. And, within this market, we see there are opportunities to grow the portfolio as well, and we are actively investigating those growth opportunities at the moment.”