Lloyd’s chair mulls ways to lure new investors; ponders AI joining its board

Lloyd’s must attract more big capital providers if it is to remain competitive and relevant—but high costs and regulatory hurdles must be tackled head-on to make this a reality, the chairman of Lloyd’s has told Monte Carlo Today. 

In a candid interview, Bruce Carnegie-Brown spoke openly about the attractions of Lloyd’s as a place to invest—and also the challenges. 

“We want to bring more capital into the market, not just for capital’s sake, but because we see some very big insurance capital providers out there who don’t have businesses at Lloyd’s. Lloyd’s looking at changes to attract capital to flow in,” Carnegie-Brown said.

First, he wants the regulatory approval process for new capital to be more efficient. 

“The process for approving new capital is overly long, and it’s a competitive disadvantage for us versus other financial centres.” He noted that the UK government is adding a growth agenda into the objectives of the regulator, the Prudential Regulatory Authority.

“We have a pilot scheme around the approvals process, which might help. But the regulatory burden is clearly a challenge. We have to keep exploring how we can make that a more efficient process, while also being prudentially smart and sensible.”

Second, he acknowledges that the market’s three-year-accounting policy can be prohibitive to investors used to being able to withdraw capital quickly. 

“Should we use a one-year accounting structure in the way that the general insurance market works? We need to have those debates, with both existing and new capital.”

New capital

London Bridge 2, the protected cell company formed in 2022 with the explicit intent of offering capital market investors easier access, has enjoyed some success, Carnegie-Brown reported. By January 2024, the platform had issued and brought an aggregate $750 million in securities to institutional investors. In March, Lloyd’s CFO Burkhard Keese suggested the structure was targeting $1 billion of deals this year.

Carnegie-Brown said such a target is still possible—but is cautious. “If our most optimistic projections develop, we’d comfortably have more than $1 billion of new capital coming through London Bridge 2. But that may not happen. The pipeline is strong, but it’s binary as to whether investors choose to attach or not. 

“Names’ capital is an important differentiator for Lloyd’s.”

“The platform is attracting a lot of interest. There isn’t much that competes with it—most other insurance-linked securities (ILS) products are more traditional and narrow in focus,” he said.

He added that Lloyd’s has many attractions for so-called non-traditional capital. “We are a pretty good platform for that capital to attach to the market, either in aggregate or via a managing agent or even by line of business. It represents a good opportunity for investors to tailor their risk appetites to what Lloyd’s can offer.”

Lloyd’s has one unique form of capital: that supplied by Names, private individuals who invest in the market. In March, the biggest new syndicate backed by Names since the 1990s was launched: a new syndicate launched by Richard Brindle’s Fidelis Partnership.

The launch was indicative of what Carnegie-Brown sees as a growing appetite among such individuals. This is partly to do with the cyclical nature of pricing, which is strong. But, he notes: “The market and the risks have grown. There’s a challenge making sure we can attract Names with the right level of capital appetite. Names’ capital is an important differentiator for Lloyd’s and we want to encourage it, but we must ensure it’s attractive to underwriting syndicates, and efficient in the way that it attaches.”

“Intangible assets now represent the core value of companies.”

Innovate, innovate

“Lloyd’s has a good reputation for innovation—including being home to the Lloyd’s Lab Innovation Hub. But there’s a lot more we need to do,” Carnegie-Brown said. 

“The risks of our customers have changed. Intangible assets now represent the core value of companies. If insurance is going to remain relevant, we have to be insuring those risks, not just the good old traditional property risks that we started doing 200 years ago.

“Complexity offers opportunity. The development of the internet led to cyber risks, yet we found a way to insure that—we underwrote the first ever cyber risk policy at Lloyd’s in 1999.

“We’re going to have the same challenges with artificial intelligence (AI). It’s going to mean huge economic opportunities globally, but it’s also going to be a space in which bad actors operate. It clearly is a risk that sits in the boardrooms, and we must be responsive to those kinds of issues.”

The idea of being responsive could mean many things. Perhaps one unexpected possibility is embracing AI in the most innovative way: by inviting it to board meetings. “We haven’t discussed it, but it could be a pretty smart thing to do,” he said.

The challenge around innovation is not focused only on technology. Carnegie-Brown cites four great challenges of modern times: climate, technology (including cyber and AI), geopolitics, and financial risks. “Climate is probably the biggest of those: the classic definition of a systemic risk.”

He advocates partnerships with governments and the public sector to manage it. “Some risks are simply too large for the insurance industry alone to support without partnering.”

In such a diverse market, there is always the fine line between encouraging innovation and ensuring the market remains robust, but Carnegie-Brown is confident the right mechanisms are in place now. “We feel there is a good balance. I am sure mistakes will be made but the worst thing we could do is pull out completely if a category blows up,” he concluded. 

For more news from the Rendez-Vous de Septembre (RVS) click here.

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