Wealth Strategies

Investing In The Lloyd’s of London Insurance Market – “A New Golden Era” – Through Hampden

John Mocatta 4 April 2023

Investing In The Lloyd’s of London Insurance Market – “A New Golden Era” – Through Hampden

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 tom.burroughes@wealthbriefing.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. 

Underwriting at Lloyd’s is a qualifying trade for Business Relief purposes enabling UK tax payers to claim 100 per cent of the value of the underwriting business (which includes the necessary capital pledged to support the underwriting) against inheritance tax after two years of ownership. Family offices and trusts are also taking advantage of the diversified earnings opportunities and succession planning options available through ownership of an underwriting business. Investors can use either a limited company or partnership as their Lloyd's underwriting business which can be passed down to the next generation. Business Asset Disposal Relief applies after two years’ ownership.

ESG Investment
The worldwide insurance industry has a global capital pool of $30 trillion and through this depth of capital it plays a vital role in the global economy as it allows companies to manage their risks, free up capital, and so to invest in new ventures and to generate higher returns. On a global scale, insurance supports the transition to a low carbon economy and builds resilience and sustainability through the sharing of risks in an increasingly interconnected world. Each syndicate that we support has developed an ESG framework that is suitable for their business and in line with industry practice and embeds sustainability in its underwriting and investments. Our ESG policy and values align with those of Lloyd's and we are committed to engagement with our stakeholders to embed and develop the ESG principles in our market.

Thanks to the uncertainties in other asset classes and the hardest market conditions seen for a very long time, we are seeing increasing interest in setting up or acquiring an existing Lloyd’s business for the benefit of potential earnings and capital gains. Hampden is the largest advisor at Lloyd’s, providing clients with comprehensive services and market-leading returns since 2001. If you would like more information to discuss the above in more detail please contact: alistair.troughton@hampden.co.uk  

Hampden Agencies Ltd is authorised and regulated by the Financial Conduct Authority and Lloyd’s. These services are not being offered publicly to US persons or in the United States, nor are they being offered publicly in any other jurisdiction where such offers may be unlawful. Past performance is not necessarily a guide to future performance. Underwriting at Lloyd’s is a high risk investment. Members underwriting through Limited Liability Vehicles (LLVs) are exposed to the potential of losing the entire assets of the LLV. Independent financial advice should always be sought before any underwriting commitment is made by a potential or existing member.

The bases and levels of taxation, and thus the financial planning benefits to an underwriting Member, may change. The content of this article does not represent a prospectus or invitation in connection with any solicitation of capital. Nor does it constitute an offer to sell securities or insurance, a solicitation or an offer to buy securities or insurance, or a distribution of securities in the United States of America or to a US person, or in any other jurisdiction where it is contrary to local laws. The material in this article is designed for information purposes only. The article includes forward looking information and statements which reflect our current thinking and information about the Lloyd's market and may be subject to change.

Registered Office: 40 Gracechurch Street, London EC3V 0BT   Hampden Group | Hampden Agencies

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