Lloyd’s pioneering transformer vehicle London Bridge 2 has a full pipeline and could secure an additional “$500mn to $1bn” of capital for entry into the Lloyd’s market by the end the year, according to the Corporation’s CFO Burkhard Keese.
Speaking at the Guy Carpenter Reinsurance Symposium in Baden-Baden, Keese outlined the continued demand for the Lloyd’s ILS platform and highlighted its success in enhancing the accessibility of the market to the investment community.
Launched in early 2021, the PCC operates under the UK risk transformation regulations and provides an access point for both UK and international investors, including ILS investors, to deploy funds into the Lloyd’s market in a tax-transparent way.
The first London Bridge transformer achieved a number of early wins, including securing Ontario Teachers’ as its debut investor in a move which saw the pension fund provide reinsurance cover to CFC Syndicate 1988, Beazley’s Syndicate 5623 and Beat’s Syndicate 1416.
Now in its second iteration, Keese said the current London Bridge 2 structure has a capital pipeline of $500mn to $1bn, and predicted that a third transformer would be launched to meet demand.
In addition to the capital pipeline, the CFO – who joined Lloyd’s in April 2019 after 14 years at Allianz Group – told the conference that the platform was also poised to achieve a number of significant firsts.
This included the launch of a listed vehicle as well as the launch of the first catastrophe bond via the London Bridge ILS structure.
“We will hopefully see the first London-listed vehicle which will put capital into the market. We will also see the first cat bond into the market,” said Keese.
Keese also told the symposium that the London Bridge platform is working on its first reinsurance-to-close transaction and its first stop-loss treaty placement, a series of moves he said represents “good news” both for investors looking to enter the market and for risk carriers seeking alternative capacity.
The CFO’s comments regarding a “London-listed vehicle” comes shortly after Financials Acquisition Corp, a special purpose acquisition company launched by sector executives William Allen and Andrew Rear, announced the formation of London Innovation Underwriters, which is designed to deploy up to $1bn in capital into the Lloyd’s market via London Bridge 2.
Keese also sought to address the “rumour” that capital could only be taken out of the platform after two or three years, confirming that users could take capital out of the platform in the first year.
More broadly, he called on the market to focus its efforts on investor returns and underlined the importance of achieving price adequacy to ensure reinsurers are earning their cost of capital. Meeting this minimum would be vital for reinsurers in their competition for investor capital against private equity and private debt, said Keese.
The CFO’s comments came alongside a warning from industry leaders that the (re)insurance sector must make better use of ILS/non-traditional capital and alternative reinsurance structures to meet the changing needs of clients or face losing relevance at a time of heightened risk.
Also speaking at this year’s symposium, Scor CEO Thierry Léger highlighted a mismatch between the structured reinsurance solutions being demanded by clients and the industry’s current offering.
“Where demand and offer are not aligned, clients will look elsewhere,” he said. “It is clear that structured solutions will be in higher demand because they are able to respond better to the needs that are out there,” he said.