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Lloyd's targets fresh capital with new vehicle

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Lloyd’s has marked another milestone in its transformation plans, gaining regulatory approval for an arrangement that will make it more appealing for institutional investors and help attract more diverse sources of capital.

The Prudential Regulation Authority and the Financial Conduct Authority have given approval for Lloyd’s to set up a second Protected Cell Company (PCC), which Lloyd’s says will provide a broadened range of capabilities for the market and enhanced accessibility for investors.

The approval builds on the launch last year of its London Bridge Risk PCC, which has led to participation by Ontario Teachers’ Pension Plan and investment manager Nephila. Lloyd’s said then that the PCC would provide an access point for both UK and international investors, including insurance-linked securities (ILS) investors.

“I am delighted that we are able to build on the success of our initial risk transformation vehicle to offer the market a new vehicle with broader capabilities, thus enabling market participants to have more options to attract capital markets investors to support their underwriting at Lloyd’s,” CFO Burkhard Keese said.

“Both PCC vehicles will complement the more traditional approaches to deploying capital and managing risks at Lloyd’s, with LB2 offering an efficient route for institutional investors to support the growth and diversity of risks written in the market.”

LB2 will allow investors to deploy funds in a tax transparent way into the market, while Lloyd’s members and managing agents will be able to use the new vehicle to manage their capital and risk management requirements by attracting new sources of capital and reinsurance protection.

Lloyd’s says LB2 will be authorised, for a corporate member, to be able to write excess of loss coverages in addition to quota share reinsurance.

For a syndicate, it will be able to provide collateralised reinsurance, on both an excess of loss and quota share basis, and for all structures it will be able to fund the reinsurance obligation through the offer of preference share or debt securities, by the segregated cells of the PCC.