The Insurer: Landmark Fidelis Syndicate 3123 to use "modernised" freehold capacity
Lloyd’s Names providing capital to Fidelis Partnership’s landmark start-up Syndicate 3123, established with members’ agent Hampden Agencies, will benefit from freehold capacity rights albeit with some variations, this publication can reveal.
Sources indicate that Fidelis and Hampden have designed a version of the freehold capacity model with some modifications, intended to be appealing to investors while retaining some flexibility for the Richard Brindle-led $4bn MGU.
Third-party capital, which makes up ~9 percent of Lloyd’s capacity, can invest in syndicates on an either freehold or leasehold (also known as limited tenancy) basis.
Names with freehold rights have permanent ownership of their share of the capacity, which provides both security of tenure and the right to trade the capacity in the annual Lloyd’s syndicate auctions. The latter is an added attraction as the typical value of syndicate capacity has risen sharply in recent years, from an average of 29.2 pence for each £1 of capacity traded in 2022 to 43.3 pence last year.
In contrast, investors in a leasehold arrangement risk their participation being terminated by the managing agent and cannot sell their capacity, but it does provide them with a greater diversity of syndicates to support in a marketplace where most are now wholly owned by international insurance groups or investment houses.
News that Syndicate 3123 is offering a form of freehold capacity will likely be welcomed by third-party investors, especially as freehold capacity has been less common among Lloyd’s syndicates set up in recent years.
Of the 40+ Lloyd’s syndicates underwriting with third-party capital today (see table), 18 have freehold and the remainder leasehold capacity. In recent years, the trend has been skewed towards leasehold (in part because the limited timespan of SPAs and SIABs) although the NormanMax parametric Syndicate 3939 which has recently launched is freehold, in addition to the much larger Fidelis syndicate.
Hampden – which has exclusive rights to offer Syndicate 3123’s initial start-up capacity – is expected to shortly contact prospective investors with greater details on the syndicate, the launch of which was welcomed widely last month.
Lloyd’s CEO John Neal said the market is the “perfect place for forward-thinking companies to come together and innovate to find solutions to some of the world’s most complex and challenging risks, and we’re delighted that The Fidelis Partnership will be joining us to solve these problems for our customers”.
While his colleague Patrick Tiernan, Lloyd’s chief of markets, said the move “supports our ambition of having the world’s best underwriters operating on the Lloyd’s platform”.
The move also sees the return of Brindle to Lloyd’s after 26 years, having first made his name in the market as an entrepreneurial risk trader working alongside John Charman.
Commenting on the development, Brindle praised Lloyd’s financial strength, global licences and flexible capital structures, adding that “private capital remains highly relevant in insurance”.
The modifications to the freehold capacity model for Syndicate 3123 are not clear but they are likely to ensure that Fidelis has greater flexibility if it decides to introduce additional capital partners in later years.
Lloyd’s Names, through Hampden, will be allocated up to 80 percent of capacity in H2 2024, reducing to 70 percent in 2025. Fidelis Insurance Group, the NYSE-listed “balance sheet” which was divided from the MGU business last year, will be a 9.9 percent capacity provider as well as providing various reinsurance arrangements for the syndicate.
Fidelis Syndicate 3123 will write multiple insurance and reinsurance classes including contract frustration and political risk, credit, property catastrophe, political violence, marine and aviation. It is targeting $180mn in GWP
in H2 2024, rising to $450mn in 2025, making it the largest ever launch of a Lloyd's syndicate with third-party capacity.
The syndicate will be managed by Asta, the leading third-party Lloyd’s managing agent, and will be led by the experienced Fidelis underwriter Daniel O’Connell.
Fidelis Insurance Group has consistently outperformed the market average since its launch in 2016. In 2023, its net combined ratio was 82 percent.