Bite-sized Blueprint One: What are the Capital Solution Proposals?

r10 have undertaken a detailed study of the contents of Blueprint One and over a series of bite-sized articles will be providing a breakdown of the proposed changes to help you digest what they will mean for your business.  Here in the fifth article, we look at the proposals for the Capital Solution.


What are the Capital Solution Proposals?

Lloyd’s will streamline and simplify their rules and processes to make it more cost-effective to invest at Lloyd’s, thereby attracting new and alternative capital providers and improving the experience of existing members.

These new processes will be accompanied by new, complimentary, opportunities to deploy capital within the Lloyd’s market.  Three opportunities have been outlined as follows;

Opportunity 1 – Insurance Linked Securities

On 8th December 2017, the UK’s Insurance Linked Securities (ILS) regulations were passed, creating the framework for the establishment of an ILS market in the UK.  Lloyd’s aims to leverage its brand, licensing and strength of capital to enable ILS cell-structures to be created.

Managing agents will be able to offer a range of structured investment opportunities for ILS capital, and benefit from access to this lower cost of capital.  ILS pilots being developed include proposals based on a syndicate supported by private capital.


Opportunity 2 – Introduce follow-only capacity

Work is already underway with the Lloyd’s Market Association to review the roles and responsibilities of lead / follow Underwriters.  The proposed changes are core to many of the objectives within Blueprint One, e.g. chapter 4 – Claims solution and are explained in more detail in chapter 10 – Modernising the way risk is syndicated.

Follow-only capacity will enable organisations to evaluate at lower cost the opportunity to enter a class of business, reducing the risks of market-entry.


Opportunity 3 – Create market tracker products

The final proposal is for Lloyd’s to enable capital providers to participate in a new kind of “market tracker” capacity, designed to track the performance of multiple syndicates across one or many lines of business.


So, how will it work?

Lloyd’s will facilitate these changes through the introduction of simpler capital rules and processes underpinned by a central capital platform that aides the matching of risk and capital.  Clearly there is a lot of work to be done with both regulators and market associations to deliver the changes proposed in Blueprint One, however, the direction of travel is clear.


What will the timeline be?

Lloyd’s have published the following outline

How will the new capital solution impact your business?

Such significant proposals for change will affect all market participants.

Capital providers will benefit from even greater choice as to how they invest in the Lloyd’s market of the future.  ILS and Tracker opportunities clearly have the potential to have a significant impact and it will be interesting to see how the Corporation addresses the capital and internal oversight challenges these opportunities will bring.

The polarisation of Lead & Follow roles will force Managing Agencies to closely examine their costs and underwriting performance when deciding upon the role they wish to play in the future.  Lloyd’s will need to carefully monitor the impact of these changes to ensure that a vibrant community of Lead underwriters remain across all classes.

Broker’s strategic market relationships will have to evolve.  Tracker funds could be seen as a credible alternative to the Broker facilities that have emerged over recent years.  The value propositions of broker “capacity solutions” will need to be re-evaluated and revenues may be impacted if found wanting.  The proposals could result in fewer lead opportunities, narrowing options for brokers to find alternative quotes.


How r10 can help

With our in-depth London Market expertise, r10 is uniquely placed to help guide your organisation through the Future at Lloyd’s change programme and over the coming weeks will be updating our blog with insights & guidance on what the changes may mean for you.

Please get in touch for more information on how r10 can help you prepare to play your part in the market of the future.


Read the next bite-sized article in our Bite-sized series “What are the Syndicate in a Box Proposals?”, which is the fifth out of the twelve proposed Future of Lloyd’s capabilities.


Author: Chris Carney