Lloyd’s offers real alternative for captive owners looking for flexibility, efficiency, and control

12th October 2023

Davies Head of Business Development, Insurance Services, Gemma Grainger was part of a panel discussion at the recent Bermuda Captive Conference, where she highlighted the benefits of establishing a captive in the Lloyd’s market.

A Captive Syndicate at Lloyd’s offers licensed paper, reduced reliance on fronting partners and competitive fees. It is a highly effective alternative for Captive Owners to diversify their risk financing, reduce collateral requirements and minimise costs. Davies, via our managing agency operation Asta, has been at the forefront of the work undertaken by Lloyd’s to create the captive syndicate platform, which makes Davies/Asta ideally placed to talk about how companies can manage their risks via Lloyd’s.

The flexible platform provided by a Lloyd’s Captive Syndicate could suit Captives that have over $25m GWP  – from the large blue-chip to the smaller privately owned Captive – with multi-national risk exposure and seeking a cost-effective alternative to fronting, more control over its working insurance layers, and reduced tax and regulatory risk.

Whilst the ability to establish a captive syndicate is now available, there remains some perceived barriers. Lloyd’s did try to access the captive market in the 1990s but abandoned the project. This has left a degree of scepticism, and there were also those at the event who cited the potential expense of doing business at Lloyd’s, and others saying they already have strong relationships with their fronting partners.

However, the current opportunity comes at a time when there are growing numbers who are keen to take control of their own operations, and this is something a captive syndicate can offer. It also offers the option to assume not only first party but also related third party risks without the need for a separate licence to do so. For instance, in Bermuda, you would require a separate licence to assume third party risk.

There is also the benefit that with Lloyd’s you have access to their global licences which allows organisations to bring risks from a wide range of countries and territories under a single syndicate structure. You are essentially gaining your insurer license and tapping into an existing global network, the Lloyd’s brand, financial rating and its market expertise.

The structure is also clear. The captive owner will be the corporate member and as such will be the capital provider, they will work with the managing agent of the syndicate, but the captive manager will support the operations of the syndicate whilst retaining their role. This will reduce the need for additional packaged services provided by a fronting partner.

The syndicate can set their own coverage, retentions, and wordings. The reduced reliance on fronting partners also enables the syndicate and those behind it to have control over risk appetite. A captive syndicate will also enjoy Lloyd’s financial strength rating, which in turn reduces collateral requirements where fronting arrangements are still utilised.

Trapped capital has long been an issue for captive owners however at Lloyd’s under its reinsurance to close system profits are released every three years.

While the benefits of a captive syndicate are numerous, captive owners need to ensure they find a partner that understands the journey they are about to take. Asta has extensive experience of launching and managing a variety of businesses at Lloyd’s and can now provide the same range of expertise and services to new and established Captive Owners, and their Managers, to help them achieve greater consistency and control over their risk management strategy.

It looks likely that we will see the first Lloyd’s captive syndicate open in time for 1 January 2024. It will be a key stage in the market’s efforts to establish its captive programme as we have often seen in this industry no one seems to want to be the first. This is very much analogous to the launch of the SIAB platform at Lloyd’s, a slow uptake at the start but the opportunity of operating under a lighter oversight framework and lower cost base as an introduction to working within the Lloyd’s ecosystem proved very attractive and has been a huge success to date.

Our work with Lloyd’s in the creation of the market’s captive syndicate scheme has built a strong relationship with the market. It is a relationship that will benefit our clients in the months and years to come as the captive syndicate becomes part and parcel of Lloyd’s offering.

If you would like to continue the conversation, get in touch with Head of Business Development of Insurance Services, Gemma Grainger at gemma.grainger@davies-group.com

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