Hampden CEO: Lloyd’s rules to attract private capital “could be simpler”
The rules governing private capital at Lloyd’s are too complicated, with Hampden Agencies and Hampden Capital CEO Alistair Wood describing them as a “complicated onion” which could deter capital from entering the market.
“I'm sure the rules [at Lloyd’s] have been put in place for a very good reason. But I think we need to probably have another look at whether they're all fit for purpose today,” he told The Insurer TV.
“Once the capital is in place, and you've set up your portfolio of syndicates, there are then so many different rules about what happens with different syndicates – what they can do, and what they can't do, and how capital can come in and out – and this just becomes a slightly ever more complicated onion, as you unpeel it, as you work out what it is,” he added.
Wood suggested that due to the intricacy of Lloyd’s, Hampden can face difficulties in appealing to investors lacking a specific degree of "financial sophistication".
“Complexity is always going to make things a little bit harder to sell,” Wood said, although he acknowledged that a better job could be done in explaining the private client product.
Capital being put off by the complexity of Lloyd’s also comes at a time when the insurance industry as a whole is struggling to attract capital.
Towards the end of last year, a number of Lloyd’s carriers had to shelve growth plans or shutter the launch of new vehicles for 2024 following the failure of London Innovation Underwriters (LIU)
London-listed special purpose acquisition company Financials Acquisition Corp negotiated provisional syndicate capacity participations of up to £1bn for LIU for existing and new 2024 syndicates – but failure to attract sufficient investor support led to its termination in early November.
But Lloyd’s CEO John Neal is enthusiastic about attracting private capital, hoping it will make up 20 percent of capital at Lloyd’s.
“Investors, I think, are very keen to control liquidity, and make sure that they are not overextending themselves after what happened with the bond market in the previous years.
“There's been a certain amount of investor fatigue about insurance. Those that went into cat haven't necessarily had a great experience from that.
“Put all of those things together, that's why we saw capital really start to dry up in our sector [insurance] and it's taking time for them to regain confidence,” said Wood.
Regardless of the complexities of investing in Lloyd’s, Wood viewed current “market conditions as really attractive”.
One of the attractive aspects of Lloyd’s, according to Wood, is the ability to foster the creation of interesting new syndicates.
“There's been new syndicates coming in, providing a number of unusual and different opportunities,” said Wood. “I think investors are looking for something different to enable them to diversify.”
While discussing the syndicates Hampden “likes”, he said: “We have a diverse portfolio, a number of syndicates, and a number of classes of business. We like new ideas and people that are pushing boundaries and coming up with new solutions. Maybe it's a new distribution channel, it could be a new technology or a class of business which we haven't really had in Lloyd's.
“But we also like the established players and their market-leading position, and we think that they will also have a great chance of making good profits in this market,” he said.
The attractive market conditions have led Hampden to increase the amount it has invested and mull the creation of an LSE-listed Lloyd’s fund, according to Wood.
“So, we're always looking at new ways to bring capital into this market and a listed entity is another channel that we could look at. We're still exploring it and something we will continue to look at.
“[Hampden’s] advised capacity will be about £2.7bn in 2024. About £2bn of that is coming from private clients, so they've grown by about 34 percent since 2019,” said Wood.
Elsewhere in the Hampden portfolio is the repositioned follow-only syndicate Hampden Risk Partners 2689, which is targeting significant expansion in 2024 and entry into the cyber class.
Commenting on this, Wood said the syndicate has been through considerable change since Chris Sharp joined as active underwriter in 2022, leading the new underwriting team.
“The capacity level expected for 2024 really just brings it back up to the level it was for 2022. For '23, as [Sharp] went through the portfolio and re-underwrote and repositioned the whole portfolio, the standard capacity fell back and now it's really just getting back to that previous level, of £75mn,” Wood said.
“The syndicate is set up to be another distribution channel for Hampden's clients. It's a way of them accessing, and providing capital to syndicates that they may not be able to do through traditional capacity, but doing it through consortia, backing the best syndicates in the market,” he added.
Watch this 17-minute video to learn more about:
- How Hampden manages its investment portfolios
- Why the rules for private capital at Lloyd’s need to be simpler
- How to choose which is the right syndicate to back
- Wood on his leadership style