Alt Investments

Lloyd’s of London - The Role It Can Play In Succession Planning

Author is Robert Flach Argenta Private Capital Managing Director 1 November 2023

Lloyd’s of London - The Role It Can Play In Succession Planning

This news service carries this article from Argenta Private Capital on the subject of investing via the Lloyd's of London insurance market and what it can do for diversification and the protection of wealth.

The following article comes from Argenta Private Capital. The editors are pleased to share this content; we also have this link to a recent webinar discussion around the issues in the following article. The usual editorial disclaimers apply. Email if you wish to comment.

At Argenta Private Capital, we are lucky enough to have long-standing relationships with many of our clients, sometimes over several generations. This has led to honest and open conversations on a range of topics with succession planning being one that almost inevitably comes up time and time again. 

That’s because investments at Lloyd’s of London, the world’s leading and oldest insurance market, are structured in such a way that they complement other approaches that a wealth manager may adopt in the succession planning process.

Having the necessary, sometimes difficult conversations, between clients, advisors and ourselves about how wealth is to be passed between generations at an early enough stage is key to maximising the potential benefits to everyone involved and ensuring that everyone is on the same page when the time comes.

What does an investment at Lloyd’s look like?
But taking a step back, why is this particular investment often used as part of succession planning? Investors at Lloyd’s of London pledge their capital to a pool of specialist insurance syndicates, all of whom underwrite a variety of different risks across the globe. In good years, premiums exceed pay-outs and investors profit, while in bad years, pay-outs exceed premiums and a limited loss is incurred.

This is an investment which, by its very nature, has a low correlation to traditional asset classes, meaning that it can be an attractive diversifier as part of a long-term portfolio and a balanced strategy.

Moreover, the Lloyd’s insurance market itself operates on long-term investment horizons, something which fits naturally with wealth being passed through different generations.

Additionally, depending on their tax jurisdiction, investors in the Lloyd’s insurance market qualify for Business Relief, which provides 100 per cent relief for the value of their assets for Inheritance Tax purposes. 

An investor at Lloyd’s can retain ownership and income from the collateral that is lodged to support a Lloyd’s investment. Such capital can take the form of cash, equities or bonds, thus generating two returns from these assets, i.e. income from these investments used as collateral and underwriting income from the portfolio of syndicates. 

As the graph below demonstrates, the Lloyd’s market is cyclical, and whilst there can be no guarantee, right now the returns profile for investors is the best in a decade - with returns of more than 20 per cent predicted for the current year. 

Over the longer-term, average annualised returns for investors have been in excess of 10 per cent over a 15 year period, excluding income from the double use of underlying assets.

Source: Argenta Private Capital advised private clients’ Return on Funds at Lloyd’s net of costs and assuming standard fee terms. Return on FAL assumes FTSE all share annual return of 5.07 per cent from 2005-2022  

* 2021, 2022 and 2023 based on estimates as at 30th June 2023. 2021 and 2022 are Managing Agent’s forecasts and 2023 is a Research forecast

The opportunity to make use of an investment at Lloyd’s as part of succession planning has never been greater than it is now. Argenta Private Capital has been advising clients on investments at Lloyd’s for more than 60 years and has been involved in succession planning throughout. These are important decisions, which should be made with as much information as possible, with clarity about the outcomes that individuals and families are looking to achieve. As a leading experts in investments at Lloyd’s, APCL is well placed to advise on all aspects of the planning of investments at Lloyd’s, with multiple generations of families, to preserve wealth into the future.

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