Lloyd’s outgoing CFO John Parry has confirmed reports by this publication that ILS investors have shown little interest in providing reserve risk cover for the Central Fund.
Parry said that while investors have demonstrated an appetite for the natural catastrophe risks that make up a small proportion of the Central Fund, ILS interest in adverse development cover had been muted.
“While there’s plenty of interest [from ILS investors for the Central Fund] it is not universal in getting behind all risks,” Parry said.
Speaking today (11 May), on an ILS panel run by the LMA in the Lloyd’s Old Library, Parry added: “The sticking point is retrospective risks and getting behind the reserves.”
He said the Central Fund has to hold more capital for reserve risks over nat cat perils due to the weighting of business at Lloyd’s.
Parry’s comments come on the back of a “non-deal” ILS roadshow, testing the appetite of investors for a securitisation of the Central Fund to provide an extra layer of capital security to policyholders.
A number of ILS investors who attended the road-show told re-Insurance.com there was a reluctance to incorporate adverse development cover in a Central Fund ILS, with it unlikely the Corporation would end up incorporating reserve risk into a potentially innovative securitisation.
Re-Insurance.com first revealed in January that Lloyd’s was contemplating a securitisation of the Central Fund.
The £2.04bn Central Fund is at the heart of Lloyd’s mutualised chain of security which means if an individual Lloyd’s insurer burns through its capital then the Society’s central assets come into play to ensure a policyholder’s liabilities are met.
Parry has previously said there are three types of underwriting risk that can be contemplated for the Central Fund - catastrophe risk, other risk and reserve risk.
He also said that an ILS structure could either sit entirely within the discretionary Central Fund or bridge the Central Fund and individual syndicate capital stacks. Another possible alternative could be a tier one debt issue, Parry said.
Parry is leaving the Corporation later this year.