Aon Cell Company + 8 Reinsurers Back Lloyd’s Central Fund; $900M Cover

Late last week, Lloyd’s announced that the marketplace has secured a five-year £650 million (roughly $900 million) reinsurance cover for its Central Fund—a move should protect against severe tail risk and supports market growth.

According to a media statement, the £650 million protection, structured and placed by Aon, is supported by a newly created cell company financed by investment bank JP Morgan along with a panel of eight reinsurers: Arch, Berkshire Hathaway, Everest Re, Hannover Re, Munich Re, RenaissanceRe, SCOR and Swiss Re.

Lloyd’s further describes the cell company, Constellation IC Limited, as an Incorporated Cell of White Rock Insurance (Guernsey) ICC Limited, a subsidiary of Aon and Managed by Aon Insurance Managers (Guernsey) Limited.

The Lloyd’s Central Fund is available, at the discretion of the Council of Lloyd’s, to meet any valid claim that cannot be met from the resources of any member.

Lloyd’s capital structure, referred to as the Chain of Security, has three components: syndicate assets, or working capital; member capital deposited at Lloyd’s, known as “funds at Lloyd’s”; central assets, which include the Central Fund.

Should syndicates need additional assets to meet their liabilities, the funds at Lloyd’s ensure that members have additional resources available.

In the rare event that a member’s capital is insufficient and that member is not able to provide further assets to the relevant syndicates, Lloyd’s central capital provides further financial support to ensure valid claims are paid.

Source: Capital Structure page of Lloyd’s website

According to Lloyd’s, the new coverage has multiple layers designed to reimburse aggregate payments from the Central Fund in excess of £600 million ($828 million) up to £1.25 billion ($1.725 billion), which will serve as a key component in Lloyd’s chain of security.

In a media statement about the coverage, Burkhard Keese, CFO, Lloyd’s said: “We are very proud to place this innovative cover with eight of the world’s leading reinsurance companies and secure the support and commitment from one of the largest investment banks, J.P. Morgan. This unique structure will enable us to support the market’s growth ambitions over the next few years, while also strengthening the resilience of our balance sheet.”

“Our capital management and position are now more resilient than ever, providing enhanced protection for customers,” Keese said.

In addition to protecting the Central Fund, the cover will create a significant buffer against adverse solvency developments, Lloyd’s said. It is expected that the new cover will increase Lloyd’s central solvency ratio.

Alluding to currently favorable conditions in the specialty insurance market, Lloyd’s said te capital buffer will also facilitate growth opportunities.

The effective date of the coverage is January 1, 2021.

Source: Lloyd’s