Here are just a few insights from our recent Lloyd’s Investment Breakfast… kindly sponsored by New England Asset Management Ltd.

The following provides insights into the investment strategies and considerations some Lloyd’s managing agencies' investment committees are considering. This was just one of the topics discussed at the cio investment club’s Lloyd’s Investment Breakfast on 20th March 2024.

Many of the managing agencies expressed a focus on duration, which constitutes a significant factor in their portfolios. A number had already increased their duration to align more closely with their liabilities with one managing agent increasing their benchmark duration and leaving it to their asset managers to decide whether to be short, neutral, or long of it. Others were exploring the timing of switching their money market funds to a longer duration.

All managing agencies are paying close attention to Environmental, Social, and Governance issues, which Lloyd's consistently discusses. There appears to be a need to be more stringent in this area and some are exploring ways to achieve that objective.

Generating the best return is a common objective of any investment committee, and all were looking at it.

Asset liability matching is another area that is being focused on. The issue some have is actuaries are continually revising their liability estimates, making matching a challenging exercise. It appeared that most were short relative to their liabilities across their investment portfolios, which is not an ideal situation.

Some were suggesting they might consider being less risk-averse and investing in different asset classes later this year, once the world's political climate is clearer.

That said, whilst private markets are still of interest, there was concern about the extent to which private market assets are stressed and that this not being reflected in their valuations. For some, the last couple of years had seen a focus on allocating to private assets where liquidity allowed. Where this may have happened, some were now having discussions around whether now is the right time to allocate more investment in this area or whether to hold off until later in the year.

Not everyone was concerned about the volatility around credit spreads and interest rate movements. There was, however, more concern about liquidity, which is linked to duration, and being able to cater to claims volatility that can hit at any time.

Syndicates with third-party capital must also ensure they have enough liquidity to pay out their profits to names annually. As a result, they are very much linked to mark-to-market valuations thus reducing the potential opportunities that other managing agencies might benefit from. That said, a point was raised that many names tend to stay on any one syndicate for many years and therefore this might be worth the investment committee considering when discussing the investment strategy.

Most were monitoring the Lloyd’s investment platform closely. Some were yet to decide whether to invest through it, some were concerned about the issues if everyone wanted their money out at the same time, and some had already invested in one of the funds on the platform.

There was then a discussion about the newly imposed limits on letters of credit exposure for Funds at Lloyd's based on issuing banks' credit ratings. There were concerns if a bank goes on credit watch, putting it below a rating of A, then there is a ridiculously short period of time (30 days) to move to another provider. It is understood this is currently being contested. There was also a view that if you are buying LoC’s then you really need to feel very comfortable with your bank. There was also a wider view that the market should build more connections with banks willing to enter the market in order to be able to tap into them for LoC’s for future use.

In general, everyone is carefully positioning their portfolios to prevent adverse outcomes. They are reviewing all the relevant investment factors that could affect their returns while also exploring the available opportunities.

New England Asset Management Ltd. also presented and showed how they work with Lloyd's managing agencies using their proprietary Enterprise Capital Strategy Services, which has been built for the insurance industry and can be leveraged to analyse insurers' unique balance sheets and investment portfolios. Further details can be found here - https://www.neamgroup.com/insurance-solutions