Reinsurance News

Lloyd’s CFO Keese predicts strong interest in market’s ILS platform

14th January 2021 - Author: Luke Gallin

As the specialist Lloyd’s of London insurance and reinsurance marketplace continues to evolve and enable additional modern ways of insurance financing, interest in the market sponsored London Bridge Risk PCC is expected to be robust, according to Burkhard Keese, Chief Financial Officer (CFO) at Lloyd’s.

Burkhard KeeseEarlier today, Lloyd’s announced that UK regulators approved the creation of a new multi-Insurance Special Purpose Vehicle (mISPV), providing the oldest insurance market in the world with a new platform to improve both the ease and transparency of managing capital.

The result is London Bridge Risk PCC Limited, an independently owned and managed UK protected cell company (PCC), designed to provide an access point for UK and international investors.

“For many institutional investors, investments in insurance business is quite interesting because it is uncorrelated to other investments,” said Lloyd’s CFO Keese, in an interview with Reinsurance News around the launch of the new platform.

“One of the issues we wanted to tackle was agility, as to date activity in this area has proven to take considerable time and effort. What we hope we have done is to have made the investment upfront for the marketplace, to set up a more standardised approach, that will allow members to seek alternative sources of capital in a more repeatable and cost-effective way, should they wish to do so,” he continued.

When announcing the new PCC, Lloyd’s explained that standardised documentation and processes have been developed to make the processes quicker and importantly, more tax transparent.

For many entrepreneurial investments, Keese explained that tax transparency is lacking but that for institutional investors, tax transparency is something which is of the utmost importance.

“This is because most of them are pension funds, and you don’t want to be taxed on the investment level, and then again taxed when you distribute the money to the pensioners. So, therefore, you have a certain embedded double taxation in it, which makes investment completely inappropriate for a pension fund,” said Keese.

The creation of a tax transparent, easy to use ILS platform where investors can deploy money in a much easier way is a direct product of the capital work stream under Blueprint One, part of the Future at Lloyd’s programme.

Of course, Lloyd’s already has ILS, or alternative reinsurance capital in the market where a member can co-invest with a provider of third-party capital. But the PCC offers a new way of doing this and enables members to leverage institutional investors as well as private capital and share capital from insurers.

“This is not necessarily about increasing the overall amount of capital in the market but providing additional options to our members to tap into potentially more efficient capital sources, when we have good underwriting ideas they wish to support. The feedback from managing agents was overwhelmingly positive, including the LMA. This is about enabling additional modern ways of insurance financing, which many of our listed peers have already utilized,” said Keese.

According to Keese, there’s an expectation for strong interest in the platform as demand from institutional investors to invest in good insurance assets is high. However, he stressed that it’s important to remember that first, there needs to be interest to deploy money into the insurance market and that also, Lloyd’s needs to go through the practicalities to make it really work.

“So, I think there will be a lot of interest, that’s good to have and there will be some great partners to work with,” he said.

Alongside the development of a tax transparent and easy to use ILS platform, the capital work stream component of Blueprint One also promised to give Lloyd’s members greater transparency and more modern technology, as well as revised rules around membership and underwriting in the Lloyd’s market, and introduce easier processes.

Keese told Reinsurance News that the introduction and implementation of the InvestCloud platform has addressed the technology element, and that the market has “made a huge step forward in providing easy to understand rules and very simple processes, which are no longer a secret science.”

“With these three components; we have fulfilled all our commitments of the Future at Lloyd’s programme in respect of capital, and we have done it within a year. I think this is quite remarkable, it was a lot of work and a lot of effort.

“And, overall, hopefully that changes our reputation towards a modern financial institution. It’s now a modern platform and I think that will help us a lot, and it proves that we can execute,” he concluded.

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