Lloyd’s has released guidance establishing its regulatory expectations and approval requirements for broker-originated reinsurance structures, in response to growing industry demand for efficient mechanisms connecting capital with reinsurance risk.
The guidance follows news of Aon’s partnership with Blackstone on a broker-originated reinsurance structures vehicle codenamed “Cortina”, which sees Aon looking to bring Blackstone into Lloyd’s to back broker-originated business, highlighting capital market demand for diversified insurance returns. The framework appears partly designed to address the questions triggered by that news, offering clear parameters for entities aiming to develop comparable structures to attract new capital entrants.
The surging popularity of broker facilities and alternative capital partnerships has unlocked commercial demand for broker-led portfolios. However, Lloyd’s stressed that growth cannot come at the expense of underwriting discipline and protecting the Central Fund. The new framework is anchored around Lloyd’s cross-cycle 95% net combined operating ratio target, and establishes clear requirements relating to market concentration, ownership and capital, governance, managing agent capabilities, underwriting guardrails, portfolio oversight, and eligibility criteria. Broker-originated reinsurance structures remain subject to the standard new entrant approval process and ongoing oversight.
Key features of the framework include an initial market-wide risk appetite capping placements into these structures at up to 10% of an individual broker’s treaty portfolio. Brokers cannot own or capitalise the structures themselves. There must be a minimum capital participation requirement from the member aligned to the managing agent of 19.99%, while at least 25% of capacity must be provided by the lead reinsurers, with the panel agreed by the managing agent.
Some business is considered out of scope, including hybrid fronting carriers, MGUs, and legacy providers. Captive involvement requires a prior submit arrangement, and there can be no exposure to Cyber war “type 4” language. Lloyd’s also requires clear commitment from participating cedents.
“Once the participation cede has been determined as part of the overall proposition, cedents must cede either all of their eligible portfolio with the respective broker to the structure, or none of it,” Lloyd’s stated.
The managing agent must have strong reinsurance pricing capabilities, existing portfolio solutions expertise, and sufficient data access to validate, verify, and challenge the assumptions provided by the broker. Reporting and oversight will be central, with regular engagement with Lloyd’s and data sharing, alongside agreed guardrails that the capital provider and managing agent must contractually agree.
To prevent these vehicles from operating indefinitely without sufficient adoption, Lloyd’s requires that if a structure fails to achieve at least 70% indexation by its third year, the managing agency and Lloyd’s must determine appropriate corrective measures, which may involve winding down the operation. Annual plans and any mid-year changes will need to be approved, as they are for more traditional Lloyd’s underwriting structures.
Lloyd’s also expects cedents to participate in the operational and capital efficiencies created by the structure, through a client-divided mechanism. The framework, published in a market bulletin issued by Rachel Turk, chief of performance and strategy, applies to all broker-originated reinsurance structures seeking approval to operate within Lloyd’s.
