Lloyd’s of London has set out plans for the launch of a new investment vehicle, with a view to drawing in billions from institutional investors.
The London insurance market today announced plans to set up a second protected cell company (PCC) following the successful launch of its London Bridge Risk PCC vehicle last year.
The launch of Lloyd’s new vehicle comes as an expansion of the insurer’s original London Bridge project that let investors, including the Ontario Teacher’s Pension Plan and Nephila Capital, channel millions into the centuries’ old insurance market.
The new vehicle expands on Lloyd’s original London Bridge PCC in offering various new “capabilities,” by extending the types of coverages it can write and the way in which those obligations may be funded.
The new capabilities on offer include the ability for investors to fund reinsurance contracts via debt securities for the first time in the marketplace’s history – with a view to allowing access to a wider array of investors.
Lloyd’s financial chief Burkhard Keese said: “I am delighted that we are able to build on the success of our initial risk transformation vehicle to offer the market a new vehicle with broader capabilities, thus enabling market participants to have more options to attract capital markets investors to support their underwriting at Lloyd’s.”
The vehicle’s launch comes after Lloyd’s plans gained approval from the UK’s Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) regulators.
As legal entities, PCCs operate using “hub-and-spoke” structures that see a potentially unlimited number of independent cells governed by an overarching board of directors. The corporate structures see profits from individual cells are exempt from UK corporation tax and distributions exempt from withholding tax.
The assets and liabilities of each cell are also separate from all other cells and from the core of the PCC, meaning creditors are unable to pursue other cells assets in the case of bankruptcies.
“Both PCC vehicles will complement the more traditional approaches to deploying capital and managing risks at Lloyd’s, with LB2 offering an efficient route for institutional investors to support the growth and diversity of risks written in the market,” Keese said.
However, Matt Carter, from financial services software company Altus, said Lloyd’s plans “could be seen as another pre-emptive move by Lloyd’s to route more capital into it rather than its competition”.