Lloyd’s of London secures £650m five-year cover for Central Fund

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With the backing of eight reinsurers, the cover will act as a ’significant buffer’ against adverse solvency

Lloyd’s of London has secured a landmark £650m, five-year cover for its Central Fund, helping to support sustainable and profitable long-term market growth.

The Central Fund protects policyholders and covers the costs of any valid claims that cannot be met from the resources of any underwriting member, at the discretion of the Council of Lloyd’s.

The £650m protection has been structured and placed by Aon.

The multi-layered cover will reimburse aggregate payments from Lloyd’s Central Fund that are in excess of £600m and up to £1.25bn.

Serving as a key component in Lloyd’s chain of security, the structure will also provide increased protection for Lloyd’s customers and the market against severe tail end events, as well as working to further improve the quality and financial strength of Lloyd’s of London’s balance sheet.

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Burkhard Keese, Lloyd’s chief financial officer, said: “We are very proud to place this innovative cover with eight of the world’s leading reinsurance companies and secure the support and commitment from one of the largest investment banks, JP Morgan.”

This follows Lloyd’s boss John Neal revealing that he has big ambitions for the Future at Lloyd’s initiative to build “the world’s most advanced insurance marketplace”.

Significant buffer

The £650m protection is a layered structure supported by a newly created cell company, Constellation IC Limited, and financed by JP Morgan.

It also has backing from a panel of eight reinsurers, including Arch, Berkshire Hathaway, Everest Re, Hannover Re, Munich Re, RenaissanceRe, Scor and Swiss Re.

In addition to protecting the Central Fund, the cover will provide a significant buffer against adverse solvency developments - the new cover could even increase Lloyd’s central solvency ratio.

The capital buffer will additionally help with growth opportunities.

Keese added: “This unique structure will enable us to support the market’s growth ambitions over the next few years, whilst also strengthening the resilience of our balance sheet.

”Our capital management and position are now more resilient than ever, providing enhanced protection for customers.”