Participating in the Lloyd’s Market

We believe that ongoing participation in the Lloyd’s Market can offer the following benefits:

Double use of assets
Members have the opportunity to make a return on profitable underwriting at Lloyd’s while continuing to benefit from the capital growth or income on the assets supporting their underwriting (e.g. share portfolios).

The assets deposited as Funds at Lloyd’s (FAL) to support underwriting through a limited liability vehicle (LLV) are usually 40% (a minimum of £350,000) of the total premium that may be underwritten. These funds may take the form of cash, shares, letters of credit, and bank guarantees. The same FAL can be deployed for successive years, subject to annual solvency tests.

An example to illustrate this gearing effect:
If a LLV underwriting a premium income limit of £1m (with £400,000 deposited as FAL) makes a profit of 5% (£50,000) of premium income limit on a particular year of account, this would be equal to a return of 12.5% on FAL. However, the return on capital could be greater since any capital growth or income produced by the underlying assets deposited as FAL would be in addition to this.

Limited liability
If claims and expenses exceed premiums then an underwriting loss would be made. However, liability for losses would be restricted to the totality of the Funds at Lloyd’s plus any assets of the LLV and any profits due to it. New Members can only underwrite through a LLV, e.g. a Nameco or limited liability partnership (LLP).

Low correlation with other asset classes
Participation at Lloyd’s has low correlation with other asset classes because, although insurance is a cyclical business, its cycles are different to those of other asset classes. The insurance market is often resilient when asset classes such as property or equities are producing low returns.

HAL works to ensure that its clients are able to take advantage of improvements in market conditions whilst having restricted exposure at times when the cycle is against the insurer. Our objective is to make sure that the investor makes an acceptable return over the whole cycle.

Pension and tax benefits:
Limited Liability Partnerships are tax transparent on income and chargeable gains in the UK. A LLP member’s proportion of profits and losses are deemed to be earned income and income tax is paid or relief claimed accordingly. Profits may be paid into a personal pension plan (subject to personal limits) gaining full income tax relief. Losses in excess of the capital at risk can be carried forward and set against future profits. 

Namecos are liable to Corporation Tax and UK shareholders to income tax on dividends. However, the value of shares in a Nameco and the assets of a LLP member qualify for 100% Business Property Relief. On death, the interest in a LLV can be transferred to a beneficiary who is then entitled to profits and liable for losses in place of the deceased. 

Past performance should not be seen as an indicator of future performance.
Capital invested is at risk as it is exposed to underwriting losses.
Current tax legislation may be subject to amendment and change.
If FAL are used to settle losses this could impact on the premium income limit for future years.