Investment checkup on the Lloyd’s market with Hampden CEO Alistair Wood

The latest Voice of Insurance podcast features the Chief executive of a business that has been a cornerstone of the Lloyd’s market for a generation and with a pedigree that stretches much further back than that.

For anyone wanting an investment perspective on the Lloyd’s market and specialty re/insurance business, the latest Voice of Insurance podcast provided a handy indicator of the health of the market.

Hampden is a specialist asset manager, a dedicated investor into Lloyd’s, with some £2.2bn of assets under management, and the largest provider of third party capital into Lloyds, representing about 5% of Lloyd’s capital.

Its CEO was quick to squash talk of a gold rush – too far, it seems – but the current hard market momentum is a strong one for investors, with opportunities to be had, Alistair Wood told host Mark Geoghegan.

“It is a great time to be coming into Lloyd’s. Market conditions are really good, syndicates are growing for all the right reasons – rating opportunity – and that is giving investors an opportunity not only to make better profits, but also to access some of the best businesses in the market,” Wood said.

Mark suggested there was “headroom for growth” at Lloyd’s, particularly for the reinsurance business that has seen the biggest rate rises at recent renewals.

“Even though rates are up, it’s still isn’t an easy product,” said Wood. “Investors globally are still wary for obvious reasons about reinsurance given the difficult time that it’s had recently. Yes, I think there is room for the whole market to grow on a risk appetite basis, but we haven’t seen material growth in reinsurance within business plans for 2024, its pockets without being across the board.”

Restrictions, such as how much catastrophe business Lloyd’s will allow syndicates to write, especially inexperienced or new entrants, can make primary insurance more attractive than reinsurance, as well as the relative pricing advantages of trying to transfer some of the risk on, whether to reinsurers or retrocessionaires, respectively.

“There is a huge amount of flux on the insurance side of what’s going on in California and Florida, where companies are reducing what they’re doing, and so the flow of businesses into Lloyds from that side is good,” said Wood.

Quality underwriting, whether on the insurance or reinsurance side, is vital for investors with many options in the market. Despite improved rates on offer, profits can quickly fall away if unserious underwriting leads to serious claims problems, with current concerns around US casualty business and social inflation in the world’s most litigious country. It’s no gold rush, Wood emphasised.

“Gold Rush implies that what you need to do is turn up and, suddenly, you make money,” he said. “Even in times like this, with rating, there are so many different things that we need to be careful of, whether that’s social inflation, climate change, or the wars and events that are occurring. You can’t just come in blindly and hope that the rising tide will float all boats. You have to still select the right people to underwrite and have a balanced portfolio.”