The Standards Board for Alternative Investments (SBAI), an organisation that looks to create consensus on issues of note and share knowledge in the alternative investments sector, has highlighted Lloyd’s managing agents as an entity similar to an asset manager.
Recently, specialty reinsurance firm Ariel Re has cited allocating capital to the Lloyd’s marketplace, through an entity such as itself, as a “compelling alternative to ILS investment manager fund structures,” as it announced becoming a Signatory of the Standards Board for Alternative Investments (SBAI).
The SBAI has now stated that it sees a Lloyd’s managing agent as a similar entity to an investment manager, for a number of reasons.
Following an in-depth review of the framework of the Lloyd’s insurance and reinsurance market, the SBAI noted that “Lloyd’s managing agents are eligible to become signatories to the Alternative Investments Standards.”
“Lloyd’s facilitates the risk transfer between insurance policy holders and Lloyd’s members, who provide the capital to underwrite the risk through “syndicates”, which are managed by Lloyd’s managing agents,” it explained.
The SBAI concludes that “Lloyd’s managing agents have significant resemblance to an asset manager,” saying that they have “fiduciary responsibility towards the investor (member), governance by an adequate regulatory framework,” and they have their own set of standards in place for transparency, valuation, risk management and governance.
After this review, Ariel Re became the first to sign up to the Standards, the SBAI said.
Thomas Deinet, Executive Director of the SBAI commented, “This is an excellent example of how our Standards apply flexibly to other areas of finance and can help lead to better outcomes beyond traditional alternative investments, for the benefit of institutional investors.”
“The structured ecosystem of Lloyd’s, with governance, business planning and reporting requirements, creates an environment for providing “asset management” type activities with a strong third-party control element,” added Michael Hamer, Partner and Senior Investment Due Diligence Analyst covering Insurance at Albourne Partners, the alternatives investment consultant.
Burkhard Keese, Lloyd’s CFO and COO also stated, “We are delighted that the analysis confirms the similarity between the role of the managing agents and alternative investment managers. The SBAI’s Standards can play an important role in enhancing the accessibility of Lloyd’s for new investors.”
This is a very positive assessment for the Lloyd’s market’s prospects in attracting new capital from investors interested in ILS type returns.
While investing via Lloyd’s in this way, through a member or managing agent, is not exactly like investing via an ILS fund or structure of their own, an end-investor can access the returns of the Lloyd’s market, or of its underwriting shops, in this way, which could prove a compelling addition to the range of insurance-linked returns options available.
Overall, this could drive more third-party capital into insurance and reinsurance, so in time it could lower the Lloyd’s cost-of-capital as well.