Lloyd’s ILS vehicle paves way to first captive

London Bridge 2, Lloyd’s insurance linked securities (ILS) vehicle, is being used as a conduit for capital that could soon include a captive for the first time, according to Lloyd’s chief financial officer Burkhard Keese.

Speaking to Captive International at the Baden Baden Rendez-vous, Keese said that there was a shortfall in global reinsurance capacity that might be as high as $100 billion.

London Bridge 2 is designed to allow investors to participate in the Lloyd’s market more easily. Launched in August 2022, it was created to try to ease some of the limitations of London Bridge 1 by allowing more flexibility in contract language and facilitating more structures, including stop-loss treaties and the use of sidecars.

The two platforms have successfully attracted some $500 billion of capital to date – but Keese says the pipeline is bullish to the tune of another $1 billion. He also anticipates a number of firsts via London Bridge 2 including a first ILS deal, a stop-loss, a first captive as well as some equity raises by syndicates. More information on the captive will be revealed by Lloyd’s in the near future.

He added that he is also taking a close interest in how the world deals with emerging risks, such as those associated with a societal transition to net zero as well as things like cyber risks. In some cases, he said it should be appropriate for the industry to look at means of self-insurance and the use of captives to manage risks too big to be handled by the industry alone and where an alignment of interests is preferable.

“There are certain risks such as perhaps a cyber cat event, which are very dangerous and difficult to manage,” he said. “We don’t have the capital to deal with such a risk but perhaps having dedicated pools of capital, perhaps in a captive, is the way to manage this risk so that it is removed from the main balance sheet. The risks are so high, an alignment of interests is also needed.”