Wednesday, July 24, 2024

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Lloyd’s “not in a hurry” to form its first captive

Lloyd’s of London will not rush its first Captive Syndicate formation and is keen to find the right candidates, according to CEO John Neal.

Lloyd’s has been consulting on reintroducing the Captive Syndicate proposition since 2019, with its latest offering approved by the Council of Lloyd’s in August 2021.

It has been working with prospective captive syndicate applicants since last year but speaking at its annual results media briefing today, Neal said getting the first captive up and running was not high on the priority list.

“As we sit today, the only UK onshore authorised domicile for captives is Lloyd’s,” Neal said.

“All of the analysis that we have done looks at quite a thin wedge of captive markets that ought to be interested in a Lloyd’s proposition, so we are not trying to compete with the other captive domiciles.

“It is trying the find the right constituents that would value the captive structure at Lloyd’s and going through the process diligently and appropriately.

“We think there is a value proposition, but we are not in a hurry to get the first captive off the ground.”

In a GCP Short episode released last year Davies’ Lloyd’s experts Keith Nevett, head of business development, and consultant Bob Stevenson demystified Lloyd’s and how a Captive Syndicate would work.

While the required annual premium volume to make it cost-effective is expected to be around £20m and a £100,000 application fee is significantly more expensive compared to traditional captive domiciles, the benefit of the Lloyd’s licence network could be a pull factor for large corporates with complex international insurance programmes.

“My understanding of what you would be getting if you are setting something up in Guernsey or Bermuda is you are getting your captive licence,” Stevenson said on the podcast.

“Whereas, with Lloyd’s, you’re getting your insurance licence, you’re getting immediate access to the full range of Lloyd’s services. You immediately tap into the rating, you immediately tap into the brand, and there is no ongoing franchise fee.

“On the one hand you are getting a certificate, but you’re not getting much more than that, you’re getting the opportunity to build your platform. Here, you are already tapping into a franchise, you are being plugged into something.”

It is also expected that prospective users of a Lloyd’s Captive Syndicate could do so as part of a multi captive strategy, and potentially using their existing captive to reinsure its Lloyd’s syndicate.

“The Lloyd’s Captive Syndicate is complementary to an existing captive they currently have in the group,” Nevett said in June 2023.

“If those captives within the group are well capitalised, you could leverage those funds to provide the funds at Lloyd’s to support the syndicate.

“In addition, the captive in Bermuda in that example, could reinsure the corporate member in terms of reinsuring the result of the syndicate as such. We believe there’s a number of structures that could facilitate if they have existing captive structures.”