This sponsored content examines the benefits and approaches to investing in this market.
John Mocatta, private client director, Hampden Agencies, talks about the risk management and portfolio benefits from investing in this specialised field. (This news service has explored the Lloyd’s of London market in the past.) The usual editorial disclaimers apply. Email email@example.com
By accessing the underwriting profits and capital gains of the Lloyd's market, Hampden’s clients have received average annual returns of 9 per cent since 2005.
About Lloyd's of London
The value and purpose of insurance is constantly growing worldwide and Lloyd's, as the world’s leading insurance marketplace, often leads the insurance industry in developing innovative insurance products for customers located in over 200 different territories. Lloyd’s annual premiums for 2023 are expected to be £56 billion.
The Lloyd’s of London market currently offers investors a once-in-a-generation opportunity to make largely uncorrelated returns at a time of very attractive insurance market conditions. According to JP Morgan Cazenove, the Lloyd's market is now on the cusp of a “new golden era.” It is Hampden’s view that Lloyd’s is currently experiencing one of those cyclical inflection points when premiums charged by underwriters reach such heightened levels across several lines of business that the expected profitability increases significantly and clients are able to build portfolios which access the very best businesses in the Lloyd's market.
Since 2017, underwriters have imposed multiple annual increases in the amount of premium they charge to insure specific risks and these have produced compound increases of 170 per cent in US property insurance and 180 per cent in US property catastrophe reinsurance. It is not just the premiums that have increased: whilst the underwriters sit on the premium income, they also earn investment income from US Treasury portfolios at the current higher yields – many times higher than those obtainable just a few years ago – thanks to the higher interest rate environment.
Furthermore, underwriters have significantly tightened terms and conditions which will reduce their policies’ exposure.
Hampden is one of the few regulated firms permitted by Lloyd's and the Financial Conduct Authority to advise private capital at Lloyd's. Hampden is anticipating double-digit returns for its clients with an expectation of some permanency in these “hard” market conditions for some time to come.
These exciting prospects do appear to be in contrast with some other asset classes which are enduring more challenging circumstances at the moment as a result of the prevailing economic and political uncertainty and volatility; so, investing in Lloyd's is helping to diversify clients’ investment strategies.
The benefits of investing at Lloyd’s
Private investors at Lloyd’s pledge some of their capital to a choice of syndicates, to provide them with the regulatory capital to write insurance policies, and in return to receive a pro rata share of those syndicates’ profits and losses. Historically, these returns have a low correlation to other asset classes and, as such, allow an investor to diversify their investment returns.
Underwriting at Lloyd’s enables investors to make “double use” of their assets: for example, they can provide an existing equity portfolio as collateral for their underwriting so that the capital growth and dividend income on the share portfolio is still received by the investor whilst underwriting returns are generated as an additional source of return. It is also possible to lodge a bank guarantee or letter of credit secured against less liquid assets, such as secondary property.