Return of the Lloyd's private investors

Just mentioning the two words “Names” and “unlimited liability” is enough to bring a shudder down the spine of those who worked in the Lloyd’s market during the 1980s and early 1990s.

But that was then and this is now. Today risk is all ‘limited liability’ and so-called Names are known as corporate members. Private investment in Lloyd’s is booming and it’s really a game for big boys only.

Corporate members know the risk, and theoretically, they should be able to absorb any possible losses from potential claims – unlike the Names, many of whom were finically ruined by bottomless pit nature of unlimited liability.

Private investors need assets realistically worth at least £5m to invest. The set up is better managed and potential liabilities for private investors are more in relation to their assets. In other words, there is much greater transparency.

With the equity markets looking very shaky amid the economic turmoil, and who knows how much further stock markets will plunge, Lloyd’s is shaping up as a preferable option.

Rates are hardening, and that to many clients, spells possible lucrative returns. Despite the many positives, private investment is not without risk.

Unlike a buying shares in a company, for instance, where you can look at a companies business fundamentals to assess risk, it is virtually impossible to know what potential natural and man-made disaster are around the corner.

Who knows how devastating the next hurricane season will be? How was anyone to know about the Pipa Alpha disaster oil rig blaze in 1988 which cost Lloyd’s insurers so much.

That is where investors must have faith that the risk assessment of the managing agents is top-notch and they have been well-advised by members agencies.

Perhaps for the corporate members, it is best to look at investment as a long-term game, where hopefully the good years outweigh the bad. And with rates hardening, now is a good time to play the game.

For the Lloyd’s markets, although corporate members provide only a fifth of all risk, their return is welcome. The cost of reinsurance is going up, many have suffered battered balance sheets in the economic turmoil and the currency plunge of the pound means extra capacity is needed.

Everyone’s a winner? Who knows, but quite possibly.