Lloyd’s plan to transform the world’s oldest insurance marketplace into a modern digital powerhouse now has a price tag: £300 million (around US$400 million).
Chief executive John Neal said this week that the money, which it raised from a debt offering in November, would be used to pay for the near and medium-term cash requirements of the Future at Lloyd’s plan. He also announced a new technology and transformation committee that will guide the makeover.
“With robust governance and oversight now in place, and the funds for delivery secured, we have every confidence in the successful delivery of the Future at Lloyd’s.” John Neal, Lloyd’s.
Unusually, Lloyd’s raised almost all of the funds from investors in the US. The private placement was divided into four tranches of different maturities, ranging from 10 to 25 years, and appealed to investors swapping the debt into dollars.
Tapping investors for the cash avoided the need to increase levies on its loss-making members, though Lloyd’s explained its decision by saying that it was taking advantage of the low interest-rate environment — UK yields are roughly a third lower than a year ago.
“With robust governance and oversight now in place, and the funds for delivery secured, we have every confidence in the successful delivery of the Future at Lloyd’s,” said Neal.
Although the money is in place, Lloyd’s will run the transformation on what it calls an “agile” basis, releasing the funding quarterly based on how well it is meeting certain goals — a strategy intended to keep things moving to schedule and on budget. It aims to publish detailed plans and deliverables for implementation of the first phase in February.
Alt capitalOne significant part of the transformation will be a new capital platform supported by simpler, nimbler rules and processes that aim to make it easier to attract alternative capital providers.
“We have designed a compelling proposition for institutional investors.” Matthew Wilson, Brit.
Indeed, some members are already working with Lloyd’s to bring these new sources of capital into the marketplace. Just this week, Brit launched a first-of-its-kind insurance-linked securities (ILS) fund that offers institutional investors direct access to Lloyd’s-underwritten specialty risks.
“Brit has worked closely with Lloyd’s as part of its strategy for The Future at Lloyd’s and the launch of Sussex Specialty Insurance Fund is closely aligned to the objectives laid out in its recent blueprint, in particular around capital,” said Matthew Wilson, Brit’s chief executive. “We have designed a compelling proposition for institutional investors.”
Lloyd’s unusual capital structure and processes have made it difficult for the marketplace to take advantage of this kind of capital in the past. The Sussex ILS fund will access Lloyd’s by providing collateral (known as Funds at Lloyd’s) to support Syndicate 2988, Brit’s third-party capital backed syndicate.
However, Lloyd’s envisages a much simpler process that produces structures that are more familiar to investors and more straightforward to put in place. Several pilots are scheduled for launch in 2020, it says, after about 20 proposals were submitted to the so-called capital lab. The pilots are related to three opportunities: ILS, follow-only and tracker products.
Lloyd’s eventually plans to roll out a state-of-the-art digital platform that will offer a variety of structured investment opportunities, and a central capital platform that makes it easier to match risk and capital.
For ILS investors, such a platform would provide the ability to diversify their exposures through access to a broader range of risks. The vast majority of risks currently available in the ILS market cover US perils, but opening Lloyd’s to ILS investors would provide access to a host of non-US risks — including Asian risks.
TransformationOf course, the Future at Lloyd’s plan will encompass much more than just an ILS platform. It will define the marketplace for the next generation and beyond. While Lloyd’s hasn’t yet said what exactly will be included in the first phase, the broad outline has been laid out. Some low-hanging fruit will be picked next year in the form of policy and rules changes that can deliver quick results, as well as getting a start on making meaningful changes to processes and procedures.
The next phase will see solutions being built and scaled with a view to the full transformation of the market by 2023. This first round of funding will provide much of the cash needed to cover the costs of the plan but, as ever with any project of this scale and ambition, the key will be execution.

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