8 leading reinsurers lend support to Lloyd's US$900m innovative cover

Lloyd's, the world's leading marketplace for the underwriting of commercial, corporate and specialty risk solutions, yesterday announced it has secured a landmark GBP650m (about $900m) five-year cover for its Central Fund which supports sustainable, profitable long-term market growth.

The GBP650m protection was structured and placed by Aon. It is a layered structure supported by newly-created cell company Constellation IC Limited – financed by investment bank JP Morgan – as well as a panel of eight well-regarded and respected reinsurers, namely Arch, Berkshire Hathaway, Everest Re, Hannover Re, Munich Re, RenaissanceRe, Scor and Swiss Re.

The new and unique structure will provide increased protection for Lloyd’s customers and the market against severe tail-end events and further improve the quality and financial strength of Lloyd’s balance sheet, says Lloyd's in a statement. Tail-end events are low-probability but high-impact events, such as the 2008 financial crisis or a global pandemic.

The new multi-layered cover will reimburse aggregate payments from the Central Fund in excess of GBP600m up to GBP1.25bn, which will serve as a key component in Lloyd’s chain of security.

Lloyd’s Central Fund is available, at the discretion of the Council of Lloyd’s, to meet any valid claim that cannot be met from the resources of any member. Should syndicates need additional assets to meet their liabilities, the funds at Lloyd’s ensure that members have additional resources available. In the rare event that a member’s capital is insufficient and that member is not able to provide further assets to the relevant syndicates, Lloyd’s central capital provides further financial support to ensure valid claims are paid.

Solvency

In addition to protecting the Central Fund, the cover will create a significant buffer against adverse solvency developments. It is expected that the new cover will increase Lloyd’s central solvency ratio. The capital buffer will also facilitate growth opportunities against the backdrop of current favourable market conditions.

Mr Burkhard Keese, CFO, Lloyd’s, said, “This unique structure will enable us to support the market’s growth ambitions over the next few years, whilst also strengthening the resilience of our balance sheet. Our capital management and position are now more resilient than ever, providing enhanced protection for customers.”

The most recent claim made against the Central Fund was in respect of the 2007 underwriting year, and in all circumstances, there have never been aggregate claims in any one year to exceed the GBP600m retention applied to this new contract.

Source: Asia insurance review