The specialist Lloyd’s insurance and reinsurance marketplace has received approval to establish a second protected cell company (PCC), building on the success of its London Bridge Risk PCC vehicle.
The second London Bridge PCC has received regulatory approval from both the Prudential Regulatory Authority (PRA) and the Financial Conduct Authority (FCA) and will provide a broadened range of capabilities for the market and enhanced accessibility for investors.
As part of the Future at Lloyd’s strategy, the marketplace sponsored the formation of London Bridge Risk PCC Limited in 2021, utilising the UK’s PCC legislation which was introduced in 2017.
Since the launch, the structure has funded a number of Lloyd’s underwriting operations, including by Canadian pension Ontario Teachers’ and insurance-linked securities (ILS) fund management giant Nephila Capital.
Lloyd’s says that it is building on the success of the first London Bridge PCC by sponsoring a second vehicle, which will offer numerous extensions in the coverages it can write and the way in which those obligations can be funded. Additionally, the new vehicle with feature improvements in the execution of these collateralised transactions, says Lloyd’s.
The second London Bridge PCC will provide an access point for qualifying institutional investors to access the Lloyd’s market in a tax transparent manner. Both members and agents at Lloyd’s will be able to leverage the new vehicle to manage their capital and risk management requirements by “attracting new sources of capital and reinsurance protection.”
The additional capabilities that the second London Bridge PCC at Lloyd’s is authorised to undertake, includes a Corporate Member now being able to write excess of loss coverages as well as quota share reinsurance. For Syndicates, the new vehicle enables them to provide collateralised reinsurance, on both an excess of loss and quota share basis. And, for all structures, the new vehicle will be able to fund the reinsurance obligation through the offer, by the segregated cells of the PCC, of either preference share or debt securities.
At the same time, Lloyd’s says that through its work with regulators, it has developed a set of mandatory terms for the principal transaction documentation, designed to provide greater commercial flexibility while maintaining regulatory compliance.
“This is embodied in a Scope of Permissions that enables new cells to be set up and reinsurance written without the need for any additional regulatory approval, providing these permissions are complied with,” explains Lloyd’s.
Commenting on the new vehicle, Burkhard Keese, Chief Financial Officer (CFO) at Lloyd’s, said: “I am delighted that we are able to build on the success of our initial risk transformation vehicle to offer the market a new vehicle with broader capabilities, thus enabling market participants to have more options to attract capital markets investors to support their underwriting at Lloyd’s. Both PCC vehicles will complement the more traditional approaches to deploying capital and managing risks at Lloyd’s, with LB2 offering an efficient route for institutional investors to support the growth and diversity of risks written in the market.”
For Lloyd’s, the hope will be that the second London Bridge PCC will enable it to catch up with offshore ILS jurisdictions, with the expansion of the vehicle designed to attract billions in funds from capital market investors.
