Lloyd’s CFO: Collaboration between Bermuda and London could help lower cost of capital

By David Bull

March 11 - (The Insurer) - The London market and Bermuda could work together to reduce capital costs by creating pools of diversified risk, according to Lloyd’s CFO Burkhard Keese, who also said the recent AIG-Blackstone reinsurance syndicate could be the first of many such transactions.

Speaking on a panel at the Bermuda Risk Summit on Tuesday alongside Lloyd’s chief of markets Patrick Tiernan and Ariel Re CEO Ryan Mather, Keese noted that more generally in the insurance sector money is flowing in from the private sector, including private equity and private debt.

He said that there is a perception among investors that Lloyd’s needs to generate better returns from its underwriting and investments for its cost of capital.

The executive said that the market must not concede on the current level of pricing, which he described as “OK-ish across most lines of business”, with maintaining discipline key.

“We must do everything to lower our cost of capital … maybe in the future (we can) lower the price but not lower our return on capital. I do believe that the collaboration between Bermuda and the UK is ideal to do this," he added.

“There’s so much business, property cat business in Bermuda, and there's much more casualty business in Bermuda. If you find ways where you basically create a large pool of underwriting which is fully diversified, you can lower your cost of capital.”

Keese pointed to the recent example of Lloyd’s Syndicate 2478, which launched on January 1 this year to participate on AIG’s outwards reinsurance program in a tie-up between the insurer and investment firm Blackstone.

Third-party capital from funds managed by Blackstone support the syndicate through Lloyd’s London Bridge 2 PCC structure.

“This is I believe the first transaction of many. And it doesn’t matter where the money comes from – it can come from private debt, private equity, hedge funds … but we need to pull every lever we can find,” he told the audience in Hamilton.

London Bridge 2, the risk securitisation platform designed for institutional investors, reached total capital deployment of $1.92 billion across 19 cells at the end of 2024, with $2.55 billion committed from institutional investors.

Keese made the comments after Lloyd’s issued a trading update on Monday. He also highlighted a 5.6% average annual return for investors in the market since 2017 and said there is a long way to go before Lloyd’s meets its 10% to 15% return target.

Speaking on the Bermuda Risk Summit panel, Keese added that the industry needs to open up for new classes of business to attract private debt, which he described as the fastest-growing asset pool over the last decade.

“We need to find ways where this money can be deployed to support underwriting,” he said.

Keese described the London Bridge 2 platform as a “truly global tool” to attract investors.

On the same panel, Mather added: “London Bridge 2 is a superb innovation. We've used it several times. We brought money from Wall Street effectively, to London via London Bridge 2. And the reason why is because it's smooth, it allows efficient risk transfer, and we avoid the double taxation treaties.”

BERMUDA-LLOYD’S RELATIONSHIP

Meanwhile, Tiernan commented on the relationship between Lloyd’s and Bermuda.

“From my point of view, Bermuda is an absolutely critical and integral part and partnership for everything that we do in Lloyd's and in the London market,” he said.

He noted that nearly 50% of the syndicates at Lloyd’s have a presence in Bermuda, while 20% of the managing agents write business directly on the island through a service company.

The premium written by the service companies in Bermuda and Lloyd’s has grown more than fivefold in the last four years.

“Bermuda is also the biggest counterparty for reinsurance at the Lloyd’s market. And I think probably our most strong ties are through the joint capital that supports our market, so certainly (there is) more that binds us than divides us,” he commented.

Mather said that Ariel Re, which operates in Bermuda writing on behalf of its Lloyd’s syndicate, benefits from both jurisdictions.

“Lloyd’s confers so many advantages on us, from the licensing, through the superior ratings, through the way that capital is assessed to us. Meanwhile, Bermuda represents something like 85% of our production, and the reason for that is that we mostly fish in the U.S. pond.

“And obviously Bermuda is much closer to the U.S. than London is. So therefore we can we have the benefits of proximity and time zone, etc. So we are trying to take advantage of everything we can in front of us to build the best model possible,” he said.