New index seeks to peer inside Lloyd’s of London insurance market

Two former Lloyd’s of London researchers have created a proxy stock index for the specialist insurance market, aiming to provide a rare glimpse into its performance for investors in the sector.

Insurance Capital Markets Research, a London-based company founded last year by former Lloyd’s analysis and research leads Markus Gesmann and Quentin Moore, developed the index, presenting what Moore describes as a “sensible outside-in view” of its daily value.

The index, which launches on Monday, draws on the equity prices of the insurance and reinsurance companies that make up more than 80 per cent of the market’s capital, according to ICMR.

It then gives them a weighting that relates to the size of their Lloyd’s presence. The idea is to answer the question of how the capital markets would “regard an entity that looked like Lloyd’s”, Moore told the FT. 

Its authors present it as an alternative benchmark to the general insurance indices provided by the likes of Standard & Poor’s, and one that allows users to track the performance of the specialist market, which is used to price complicated and esoteric risks affecting anything from satellites to footballer David Beckham’s legs.

The index, which comes alongside a total return version, has no connection to Lloyd’s. It will be calculated and administered by Moorgate Benchmarks.

Institutional investors have poured capital into the specialist insurance sector in recent years through assets such as catastrophe bonds, seeking returns that behave differently to mainstream investments. 

Historical data show that ICMR’s main price-appreciation index took a hit during the early months of the coronavirus crisis, and is sitting just below its early 2020 high. Its authors say it is not immune to the wider financial markets, but the correlation is lower.

The index would allow third-party investors in Lloyd’s to benchmark their performance against the specialist insurance market as a whole, said Andreas van Embden, an analyst at broker Peel Hunt.

“From my perspective, it’s quite useful because it increases the transparency of the performance within Lloyd’s,” he added. 

Lloyd’s, a marketplace where brokers and underwriters meet to buy and sell commercial policies, has recently moved to attract more outside capital. In January, it received regulatory sign-off for a vehicle called “London Bridge”, which allows investors to gain direct exposure to underwriters’ performance through a reinsurance contract with a member of the market. 

That structure, managed by specialist fund administrator Horseshoe, promises investors exposure to a syndicate’s investment and underwriting returns, or losses, but exempts them from corporation tax and a drawn-out regulatory approval process. Burkhard Keese, Lloyd’s chief financial officer, said it was in “advanced discussions” with two large investors about setting up such an arrangement.

Pension funds, sovereign wealth funds and family offices are “hunting” for non-correlated investments, Keese said. The London Bridge channel “gives a perfect opportunity to our members and syndicates to reduce [their] cost of capital by a more efficient capital structure,” he added.

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