London-based insurance and reinsurance linked investment manager, Securis Investment Partners, is exiting the specialist Lloyd’s of London marketplace as its platforms no longer deliver returns that are required by its investor mandate.
The firm has been active in the Lloyd’s insurance and reinsurance market for some years now, as a provider of reinsurance and retrocession capacity to a broad set of Lloyd’s players, as well as more directly through two corporate members.
Securis recently attempted to evolve the existing SPA vehicle, 6129, into a fully independent and diversified syndicate. However, the Lloyd’s market was unable to support the investment manager’s ambitions, and this is during a time when Lloyd’s has taken a harder line with both new entrant proposals and existing participants.
The Lloyd’s marketplace did offer Securis the opportunity to continue the existing SPA syndicate, which would have been renamed as syndicate 2005, but only with a reduced stamp capacity year-over-year, and with a continued focus solely on capital intensive U.S. property business.
After a detailed review, Securis has reportedly decided that the prospective returns of this strategy at Lloyd’s could make, no longer meets the return requirements of its funds.
Our sister publication, Artemis, spoke with Securis’ Chief Executive Officer (CEO), Vegard Nilsen, who said that presently, Lloyd’s activities “basically don’t make enough money,” adding that the firm “cannot justify continuing to commit investor capital.”
Herbie Lloyd, Portfolio Manager (Non-Life) at Securis, said that the firm’s direct Lloyd’s activities “faced significant profitability challenges heading into 2019.” Continuing to explain that, “A reduced scale SPA with limited scope lacks many of the strategic and economic advantages that a full syndicate could have offered; high fixed costs, reinsurance inefficiencies and diversification challenges combine to produce a return profile that Securis cannot accept on behalf of its investors.”
The firm has also undergone a review of its broader activities in the Lloyd’s marketplace, concluding that the capital provision model to third-party syndicates is no longer profitable enough to meet the return expectations of its fund investors as well.
“As well as exiting from the SPA arrangement, due to similar profitability challenges we will also discontinue investing capital into LCM1, which has directly invested capital with third party Lloyd’s syndicates,” said Nilsen.
Nilsen, continued to tell Artemis: “There are several impressive and successful syndicates at Lloyd’s which we would like to support with capital, but most are already very well capitalised. Having said that, we will continue to support them as we have done for years through other more traditional avenues, specifically via reinsurance and retrocession offerings which remain core to Securis.
“Securis is an asset manager and our fiduciary duty is to our investors, it’s all about our ability to deliver the best risk adjusted returns going into 2019. We have to select the best possible investments for our funds, and if something no longer meets our investors’ targets, it cannot fit within our portfolios.
“We are encouraged by the changes happening at Lloyd’s, and we will be watching the new management team closely. But for now, we will focus on our core business and maximize our investors’ chances of a profitable 2019. Now is the time to sharpen portfolios and be disciplined and selective.”
Performance Management Director at Lloyd’s, Jon Hancock, also commented on the situation: “Lloyd’s has been working closely with Securis on their 2019 business plan, and regret that we have not been able to find a commercially viable way forward. We welcome that Securis will continue to have an important role to play in the Lloyd’s market, and look forward to keeping an open dialogue with them on future opportunities.”
It appears that currently, the focus for Securis is to source business lines that deliver improved returns to investors, and at a lower cost, that the firm can currently find in the specialist Lloyd’s marketplace.
