Emma Dunkley and Lee Harris tell us
The changes come amid a broader slowdown in L&G’s core market of pension risk transfer deals, in which insurers take over British pension liabilities. Deals slowed in the first half of this year due to lower demand from the largest UK pension schemes, according to consultancy LCP.
This from a round up of insurance news in the FT this morning
Why Blackstone’s plans at Lloyd’s sparked a firestorm
Elsewhere, Blackstone, recent friend to L&G in helping fund the L&G buy-in/out deals is turning to by-passing insurers altogether..
Blackstone was the hot topic at the insurance industry conference this year in Monte Carlo after its plans to create a new insurance vehicle at Lloyd’s of London leaked, sparking a firestorm of criticism.
“Why the eff is Lloyd’s doing this? They’re bringing the wolf in with the sheep,” one senior insurance broker told the FT. “I don’t know if it’s a late-cycle stupid idea or . . . the future of reinsurance.”
The New York asset manager has held talks with Aon, the world’s largest reinsurance broker, about creating a syndicate that could allow it to earn returns on up to $2bn of premiums annually, people involved in the discussions told the FT.
Tensions have grown between private capital groups that have muscled into the insurance sector, and Blackstone’s move only adds to those. Reinsurers fear that they will lose business to more aggressive investors, writes Lee Harris.
Traditionally, insurance brokers discuss with clients any risks they wish to cover, such as cyber attacks or flooding, and then shop around for the best rates from carriers that will insure those risks.
But brokers have increasingly set up facilities in which they package up risk and send it to pre-selected carriers. This gives the insurers guaranteed business but has proved contentious since they give up control over vetting individual risks and setting prices.
The Blackstone-Aon syndicate would take broker facilities a step further, giving a broker the ability to send risks straight to a private equity backer. This would allow Blackstone, in effect, to substitute its funds for the balance sheet of a traditional insurer.
“All our Lloyd’s investments will continue to be made within the established Lloyd’s approval and oversight frameworks, alongside existing established market participants,” according to Blackstone.
Aon said that its clients “expect our firm to develop . . . solutions that consider all forms of available capital”.
“It’s not generating new business, it’s just more capital for existing business” that could push prices down, Aki Hussain, chief executive of insurer Hiscox, told the FT, at a time when the price of commercial insurance is tumbling.
I must admit to liking the sound of cheaper insurance but is cheaper value for out money? Is the backing of insurance company deals maintained by giving it to a private equity house. We have been asking that question for some time in the Life Assurance annuity market. Now it looks like Lloyds of London is asking the same question.
What is happening in the UK now has been happening in the US for some time. This from today’s FT
Buyout funds, the private capital industry’s largest asset class, have for the past four years returned far less cash to their backers than in the previous decade as a result of sluggish dealmaking. That has left backers of those funds, including large pension funds, buyout executives and increasingly individuals, seeking other sources of liquidity while their investment remains locked up.