Lloyd’s creates new and expanded London Bridge ILS vehicle to attract capital

The  Lloyd’s of London insurance and reinsurance market has received regulatory approval from the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA) to significantly expand its insurance-linked securities (ILS) structure London Bridge Risk, designed to provide a broad range of capabilities for the market and an enhanced accessibility for investors.

Lloyd’s said it will set up a second protected cell company (PCC) that will offer a number of extensions in the coverages it can write and the way in which those obligations can be funded, together with improvements in the execution of these collateralised transactions.

Lloyd’s previously announced a number of successful deals through London Bridge Risk PCC (LBR), which was designed to provide an access point for qualifying institutional investors to deploy funds in a tax transparent way into the Lloyd’s market.  Lloyd’s members and managing agents will be able to use the new vehicle to manage their capital and risk management requirements by attracting new sources of capital and reinsurance protection..

LB2 is authorised to undertake three additional capabilities. For a corporate member, in addition to writing quota share reinsurance, it will also be able to write excess of loss coverages. For a syndicate, it will be able to provide collateralised reinsurance, on both an excess of loss and quota share basis. For all structures it will be able to fund the reinsurance obligation through the offer, by the segregated cells of the PCC, of either preference share or debt securities.

Working closely with the PRA and FCA,  Lloyd’s has developed a set of mandatory terms for the principal transaction documentation, that will provide greater commercial flexibility whilst maintaining regulatory compliance. This is embodied in a Scope of Permissions that enables new cells to be set up and reinsurance written without the need for any additional regulatory approval, providing these permissions are complied with.

Burkhard Keese, chief financial officer of  Lloyd’s, said: “I am delighted that we are able to build on the success of our initial risk transformation vehicle to offer the market a new vehicle with broader capabilities, thus enabling market participants to have more options to attract capital markets investors to support their underwriting at  Lloyd’s. Both PCC vehicles will complement the more traditional approaches to deploying capital and managing risks at  Lloyd’s, with LB2 offering an efficient route for institutional investors to support the growth and diversity of risks written in the market.”

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