20 April 2023ArticleAnalysis

Could Lloyd’s play as important a role in the future of captives as it did in their past?

In 1953 Lloyd’s of London was pivotal to the success of a new initiative, when it agreed to provide reinsurance support for the Steel Insurance Company of America (widely regarded as the first captive).

At the time, Lloyd’s was already 265 years old and the source of many of the innovations that have shaped the modern insurance industry. Now, over 70 years later, could Lloyd’s be responsible for the next “big thing” where captives are concerned?

Probably not but, for the right kind of captive owner looking for a particular kind of solution, it may just have all the answers.

Lloyd’s of London is a market rather than an insurer in its own right, playing host to nearly 100 syndicates underwriting a variety of specialty insurance risks. Each syndicate benefits from access to a licence network of around 200 territories, allowing even the smallest of them to write business globally, and an ‘A’ rating from agencies*. Over the last couple of years, Lloyd’s has been working on a framework to enable captives to be part of the market, with all the benefits that come with it, as part of their captive syndicate proposition.

This may come as news to many, but Lloyd’s has done this before. In the late 1990s, the global pharmaceutical company Smith Kline Beecham established a syndicate at Lloyd’s to write its global first-party insurance business. Access to the licence network meant the requirement for fronting was reduced significantly and the rating impacted favourably on reinsurance, greatly reducing the cost of both. However, a merger with Glaxo meant a change of risk management strategy and the Lloyd’s syndicate was put into run-off after only two years.

Now, changes to the global captive insurance environment, such as the move to onshoring and the reduced emphasis on the tax benefits of an offshore location, as well as the increasing attractiveness of captives in a hardening market, have encouraged Lloyd’s to look again at the proposition.

What is a syndicate?

  • It’s the underwriting vehicle through which the member accepts insurance risk. It is an annual venture with no legal status. 

OK, so what’s a member?

  • A UK-based registered limited company that provides the capital to support the underwriting of the syndicate, backed by the captive owner. 

All syndicates at Lloyd’s are managed by a managing agent (not to be confused with a managing general agent [MGA]) who is responsible for the day-to-day management of the syndicate on behalf of the member, including compliance with the regulatory requirements.

Compared to other captive insurance domiciles there are significant benefits to doing business at Lloyd’s.

The licence network

With the growth in captive formation and the competition for fronting capacity from a growing MGA community, finding a suitable fronting partner is becoming increasingly difficult. Lloyd’s licence network reduces dependence on fronting capacity hugely, if not entirely. This results in up-front cost reduction as well as a reduced capital requirement, not to mention the saving in management time negotiating and renegotiating these arrangements.


At the time of writing, all syndicates at Lloyd’s, including captive syndicates, are rated A (Excellent) with AM Best, AA- (Very Strong) with Fitch Ratings, and AA- (Very Strong) with Kroll Bond Rating Agency. This can reduce reinsurance costs and provides greater flexibility regarding risk transfer options.

Location neutral

All functions, including underwriting, policy issuance, premium collection and claims payments can be delegated to existing captive or central risk management functions. This provides flexibility, minimising disruption and leveraging knowledge and experience.

Infrastructure cost efficiencies

No employees or offices need to be established in London or anywhere else. Regulatory, reporting and compliance functions are provided by the managing agent (based in London and regulated by the Prudential Regulatory Authority) meaning there are no ex-pat or local director/employee costs. In addition, the costs and environmental impact of international flights are reduced as there is no requirement for the captive owner to attend meetings unless they want to.


Lloyd’s enjoys a strong global brand recognised for its expertise, innovation, financial security and ratings as well as a reputation for integrity and ethical principles. This can ease discussions with local and international tax authorities and reduce any negative impression on the captive owner from operating an offshore financial subsidiary.

Expertise, knowledge and experience

London is the centre of the global insurance industry, providing unrivalled access to skills and experience. Lloyd’s has a reputation for the coverage of new and unusual risks and can support captives in the development of unique and bespoke insurance solutions.

Of course, there are some aspects of the Lloyd’s proposition that may not be as attractive.

Realistically, the minimum size of a Lloyd’s captive is currently around $20 to $25 million in annual gross written premium terms, although plans are in discussion to provide a solution to the smaller captive entity. It’s likely, however, that the benefits of the captive syndicate solution, particularly licensing and rating, would be of most interest to captive owners with global coverage requirements and complex programmes, so would probably be at the larger end of the premium spectrum.

Lloyd’s operates under Solvency ll rules, which can have an impact on the amount of capital required to support the syndicate. Operating in a highly regulated environment may seem restrictive to some, but if you (or a client of yours) is looking for a responsive, flexible captive insurance solution with unique benefits, then Lloyd’s may be the perfect partner.

John Keen is a partner at Mustard Consulting, helping businesses navigate Lloyd’s and the London Market. He was head of the working party tasked with developing the captive syndicate initiative. He can be contacted at: