Scepticism around Lloyd’s abating, investor interest is really strong: Argenta (APCL)

Investor sentiment for accessing the specialist Lloyd’s insurance and reinsurance marketplace is very strong as scepticism around the market following some turbulent years has eased on the back of impressive results, according to executives at Argenta Private Capital Limited (APCL).

Artemis spoke with Robert Flach, Managing Director and Kate Tongue, Executive Director of APCL around the annual meeting of the reinsurance industry in Monte Carlo to discuss interest in accessing Lloyd’s business, where ILS fits within the market, and what the near future holds for APCL.

“Investor interest is still really positive and the market’s still really strong, with a combined ratio of 84% Lloyd’s is delivering their market message well,” said Tongue. “We are seeing a lot of interest, but we haven’t seen any significant levels of capital coming in at this stage.”

For investors looking to access Lloyd’s, some of the main benefits of participating in the world’s oldest re/insurance market include strong returns, a lack of correlation, and also the ability to use assets twice to support that.

Lloyd’s reported its best underwriting result in recent history for 2023, but as noted by its CFO, one good year isn’t sufficient to earn back the trust of capital.

“I think there has been a bit of scepticism around Lloyd’s because of a few rocky years and we’ve had investors that have said in the past that Lloyd’s needs to prove itself before they’re ready to jump,” said Flach.

“Where we’ve been selling Lloyd’s, it’s a case of but have they turned the corner? Have they’ve done everything they said they would do? I think with some of the numbers that have been coming out recently, it is showing that it has,” he added.

Of course, Lloyd’s benefitted from the lack of hurricane and earthquake activity in 2023, but in any situation, a combined ratio of 84% is solid and has certainly helped to improve the credibility of the marketplace.

As explained by Tongue, the fact that Lloyd’s has made it easier to start up new syndicates has also fuelled greater interest, including from corporates.

“The new syndicates need a corporate member to support and to provide the funds at Lloyd’s, but we’re also seeing interest from the single US state insurance companies, any ILS players, family offices and so on,” said Tongue.

Although investor interest in Lloyd’s is strong, there still haven’t been any significant levels of capital entering the market, which applies to the broader reinsurance space.

However, money is still coming in, and Tongue explained that APCL is encouraging new participants to start off at a smaller level and then grow.

“I think you need to evidence the availability of that capital and that you will get off the ground. We always advise our clients to manage the market cycle as well, you wouldn’t necessarily want to come in and grow into a soft market.

“Really, it’s determining when that capital is coming in, what syndicates are available. There are quite a few new syndicates starting up, and those that have started up over the last few years, and also those that are now more open to third-party capital, have the majority of the opportunities. Whereas for the more permanent, long standing ones we’re not expecting huge amounts of growth or pre-emptions. So, it depends on the relationships,” said Tongue.

Expanding on this, Flach told Artemis that there are also numerous businesses at Lloyd’s that have had their capital in place since 2017-2020, and they still want to grow, but the capital they brought in isn’t able to grow at the same rate.

“Private equity doesn’t necessarily have the appetite to grow, then they’re looking elsewhere as well,” said Flach. “I think that people are embracing that third-party and institutional model. We set a business up, we’ve grown it, we’ve got it to a steady state, let’s get some more capital in to help us grow some more. That is happening, there’s evidence of that. There are opportunities for investors, both established and new business.”

The conversation then turned to the insurance-linked securities (ILS) space and where Lloyd’s fits into this expanding asset class.

According to Flach, people are now trying to have a better understanding of what Lloyd’s is, and messaging is getting out that Lloyd’s as an alternate asset class is quite similar to ILS but with significantly less risk.

“So, people are sitting up and taking notice for the same reasons they wanted to invest in catastrophe bonds and other ILS. There’s the same non-correlation, but at a far lower risk, with a structure that’s similar to a cat bond, but unfortunately, slightly more complicated,” explained Flach.

One way investors can access Lloyd’s is via London Bridge 2, the second version of the market’s ILS platform, which essentially works as a transformer for capital to come in and support a portfolio of syndicates.

“We sell the benefits of using a corporate member alongside the London Bridge structure, so that you can get the diversification capital benefits through supporting a portfolio in that way. So, the cell would reinsure the corporate member, and the corporate member would participate on a portfolio, and then the profits would come back out and out to the end investor,” explained Tongue.

In terms of investor interest in the London Bridge 2 platform, Tongue told Artemis that most of the initial conversations APCL has with any corporate, institutional, or trade capital centres on whether London Bridge 2 is the platform for them.

“It’s really understanding what the specific capital providers structure looks like and determining whether it is the best route. But I think it has allowed additional flexibility,” said Tongue.

“It does happen, as Kate said, on occasion, where we have a potential investor come to us and say, right, I’ve been told that I need to come in by London Bridge 2, and we then have to unpick that and say, that’s just one option, and it may not be the only option,” added Flach.

To end, Tongue and Flach provided Artemis with an outlook for APCL in 2025 and beyond.

“We’ve got a strong pipeline of new investors for 2025, which is very encouraging. We’re still hoping and expecting to be the main provider of these services for large corporates.

“We entered into a joint venture with Helios to set up starter home vehicles, which were really successful and allowed us to get around some of the tight timeframes that Lloyd’s requires – a new investor needs to be onboarded by the end of September. We have seen interest in those from large corporates as well, and we’re hoping to do a similar but larger project for 2025,” said Tongue.

Expanding on this, Flach said, “It is about growth, and I think with Lloyd’s plans for growth, opening the doors to new businesses, new syndicates to come in and looking to grow the market and keep their costs lower, they need advisors like Argenta to help them through the process.

“We’re looking to work with anybody that’s looking to bring capital and anybody looking to set a business up to help them with that process, as well as getting access to our capital providers to diversify their portfolios with these new businesses. So, it is very much more of the same, but as Kate said, trying to find different mechanisms, such as the Helios project, to make it easier for capital to come in the same way that Lloyd’s setting up London Bridge has allowed.”

“It’s also about trying to make it more efficient from our end as well, and to remain flexible to the needs of different types of investors. So, different reporting requirements and different structures and how we can better support them,” concluded Tongue.