Pole position: Helios seeks more opportunity at Lloyd’s

In January 2023,  Helios Underwriting unveiled a 39 percent hike in its  Lloyd’s retained capacity year on year and completed its latest acquisition with the purchase of  Risk Capital.

With these achievements already banked, it’s no surprise that chief executive officer Nigel Hanbury is feeling bullish as the market enters the “peak of an up-cycle” and opportunities for his firm abound.

The firm offers private capital investors access, or more specifically exposure, to the Lloyd’s of London market, and in the past five years has outperformed the Lloyd’s market by between 4 and 6 percent, he said.

Calling time

Helios began by buying small companies from the group of private individuals that make up Lloyd’s. Many of these private individuals had been in the Lloyd’s market for some time and had begun to find that the regulatory regime was too tough and the work required was too much, Hanbury said.

The company bought between 75 and 80 of these small companies. Hanbury explained that when Helios acquires these smaller companies or limited liability partnerships, it consolidates them so that they become much more cost-effective. These companies also tend to be on the very best syndicates in Lloyd’s, he added.

The company has “added massive liquidity to that”, he said, being an AIM-listed investment company (AIM is a sub-market of the London Stock Exchange).

By taking advantage of this market opportunity as members looked to dispose of their involvement in Lloyd’s, Helios has created a capacity fund that currently stands at close to £300 million ($366 million). Hanbury said the firm built up this fund because it wants to make an underwriting profit from its pool of syndicates.

“We allow other people—quota share underwriters, which is a mixture of professional reinsurers we’ve had in our business for a very long time—to use our fund. We also have private individuals who come in through a protected cell company in Guernsey who share in our fund.”

Anyone using Helios’s fund gets exactly the same return as the company, minus a fee and profit commission. “The hassle has gone, the expense is gone and they get access to pure underwriting exposure, which we hope makes a profit.”

Outperforming Lloyd’s

Hanbury confirms that Helios has outperformed the Lloyd’s market “significantly”, explaining that it did this over the past five years “by avoiding making mistakes” in the down-cycle.

Success has hinged on two things, Hanbury said. First, from 2016 to 2020 the firm chose its syndicates very carefully to avoid poor performers. Second, “we quota-shared-out a very big proportion of what we did”.

“The bottom line is that our creditor underwriters did very well. They benefited from this very pure portfolio of excellence,” he said.

The opportunities continue as the up-cycle of the market enters a peak.

“Every cycle is slightly different and has different flavour. This looks like a very strong cycle,” he said. “I’ve been at this game for 40 years and I’ve seen four cycles. Usually another class of 2002 or whatever sets up in Bermuda to ruin the party, but it hasn’t happened this year.

“So we may have a slightly longer period when we have this very strong rating environment where terms and conditions are acceptable.”

However, Hanbury said, it will now become “increasingly difficult” to outperform Lloyd’s as in the past few years the market has recognised the syndicates that weren’t up to scratch and brought in its massive remedial programme, Decile 10.

He referred to this shift to improve performance at Lloyd’s as “terribly good news” because it means Decile 10 has worked. It has dragged up the bottom decile and made them good performers, he said, adding: “I’m delighted that it will be more difficult for us to outperform Lloyd’s. The rising tide has raised all boats and I think Lloyd’s is in a very good place with very competent people in charge. We are able now to take risk and can expect an adequate reward for taking that risk.”

M&A in 2023

Helios’s significant growth in 2021 and 2022, particularly in retained capacity, was achieved, mainly, through the acquisition of limited liability vehicles (LLVs) owned by long-standing members of Lloyd’s.

In Hanbury’s opinion, the best option for those looking to sell their LLVs is to sell to Helios.

“If Lloyd’s members sell their LLVs as a whole they can make use of what used to be called entrepreneurs’ relief, now called business asset disposal relief,” he said. This reduces the capital gains tax to 10 percent for the first £1 million of the gain; after that it’s 20 percent.

“These are large chunks of money—£1 million, £2 million—coming in, and we can do a deal in one month from our offer being accepted to completion. I call that quite liquid,” Hanbury explained.

He said that the alternative route out for veteran Lloyd’s members is to cease trading. He said this would entail selling the capacity, selling the syndicates, on which the sellers have to pay corporation tax and potentially a myriad of other taxes depending on the circumstances.

The return they get can be “massively less” than Helios can offer them even with Helios’s price discount to fair value. “So we’re both winners when Helios buys these vehicles,” he said.

The most recent acquisitions include the Harris Family UTG, Whitehouse Underwriting and Risk Capital. With so much opportunity in today’s market, Hanbury is adamant there will be more acquisitions for Helios in 2023.