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Complexity the main challenge for investors using Lloyd's: panel


Lloyd's of London needs to use terminology which is easier for capital market investors to understand, panellists at Trading Risk’s ILS Week said.

Andre Perez, executive chairman of Horseshoe Global, said complex systems and terminology used to explain the market was one of its major issues.

“One of the [drawbacks of Lloyd's] is this sort of shroud of mystery and complexity around it.”

For Adam Beatty, CEO London of Nephila, ILS managers should take some responsibility for explaining the intricacies of the world’s largest specialty insurance market.

“There is a role for an ILS manager to do that translating [from capital market to insurance jargon] on behalf of their investor clients,” he said.

One way Lloyd's is attempting to improve accessibility and capture ILS capital is with its new London Bridge vehicle.

It will allow investors to provide whole-account quota shares to syndicates via funds-at-Lloyd's support, funnelled through an ILS cell company structure to reduce complexity.

Perez, whose firm Horseshoe is managing the vehicle, said it would allow backers to access the market in a more streamlined way.

“The advantage of a platform like this is that it will make it easier for investors to get in because they will be dealing with standard documentation, they’re not going to have to worry whether the process is being followed.

“It’s one step forward in simplifying the way investors can come into Lloyd's,” he said.

Beatty said that it may prove to be a good way of injecting extra ILS funds into Lloyd's.

He said: “I think It could be a very valuable way of plugging capital into both existing agents and new products and I think there will be some innovation around London Bridge in the coming years.”

The panel also raised concerns about the price of operating out of the EC3 insurance market.

“One of the big burdens of Lloyd's is that it is an expensive system to run,” said Perez, pointing to high acquisition costs.

Beatty suggested that a decline in ILS managers at the insurance hub was an indicator of its problems for some firms.

“We’ve gone from three managers in Lloyd’s to one. It’s obviously not necessarily the easiest thing for ILS managers to do and I think that’s because a platform at Lloyd’s does require a significant commitment of resources,” he said.

Despite this, he argued that the “the unique benefits of Lloyd’s” justified its cost structure, which helps the firm channel risk into its underlying catastrophe funds.

He cited its rating and global licensing network among other advantages.

Beatty said: “That provides a lot of value that we feel justifies the investment.”

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