Smaller investors increasingly considering ILS

By George Abbott

Feb 27 - (The Insurer) - Smaller investors are increasingly looking to get involved in insurance-linked securities (ILS), according to Henry Paddison, head of capital development and investor relations at Ariel Re.

“Traditionally, the ILS asset class has been aimed at large institutional investors, like pension funds. However, as the asset class evolves, it's natural to expect it to appeal to smaller ticket sizes," Paddison stated.

He made these remarks following the launch of Ariel Re Capital Partners (ARCP), a response to demand from noninstitutional investors to participate in Lloyd’s.

"In recent years, we've had numerous discussions with investors. Investors acknowledge that Lloyd's market has been strengthening over the years, and they recognise the current rate environment, with rates at historically high levels offering attractive, uncorrelated returns," said Paddison.

However, investment in Lloyd’s presents hurdles, especially for smaller investors.

"We found there are certain barriers to entry for investing at Lloyd’s. The traditional route involves a wholly owned corporate member or a London Bridge-style setup, which requires establishing your own structure," said Paddison.

This challenge prompted Ariel Re to launch the ARCP commingled fund, distributing costs among multiple investors and alleviating day-to-day management concerns, for those wishing to invest in Lloyd's.

"We've established a commingled fund through a single London Bridge cell, positioned before a corporate member. This setup involves a fixed upfront cost, shared among a larger number of investors, making the expenses manageable relative to their investment size," Paddison explained.

"There’s no need for the investor to manage it long term. We handle everything. They evaluate the investment opportunity, make the investment, send us the funds and we take care of the rest," he added.

The fund was established through London Bridge 2, which ensures no additional UK tax, making it appealing across jurisdictions.

"The key advantage of London Bridge 2 is its tax efficiency; no UK tax is applied. We aim to offer Ariel Re Capital Partners across various jurisdictions," said Paddison.

The fund is structured as a multiyear investment vehicle with a three-year investment period. "We draw down the funds over this period," he explained.

Paddison added that ARCP targets investment sizes between $5 million and $10 million, and he wouldn’t expect it to comprise more than 5% of an investor’s total portfolio.

Watch the full interview to hear more about:

• The USP of Ariel Re

• Expected growth ARCP for 2026

• Why Ariel Re never try and solve a tax situation for individual investors