11 April 2019

Lloyd's syndicates open up about investment outsourcing

Research by Insurance Risk Data reveals the 2018 winners and losers of the mandated asset managers for Lloyd's syndicates. David Walker reports on who won which mandates, who received applause and who wasn't that lucky.

Conning Asset Management and New England Asset Management (Neam) ran neck and neck to be the manager named in most 2018 annual reports as serving Lloyd's syndicates – and Neam won, just.

Neam counted 14 syndicates as clients, two more than Conning, according to research by Insurance Risk Data, the data arm of Insurance Asset Risk.

Each of these two managers worked for more than twice the number of syndicates as the next most popular delegated investors – BlackRock and Payden & Rygel – which each counted five syndicates as clients.

A further three - Goldman Sachs Asset Management, Wellington and AII Insurance Management Limited – had four Lloyd's clients each.

A further 25 asset managers followed, named as manager for fewer syndicates.

Some 12 of the asset managers were somehow affiliated to the syndicate. In some cases the link was clear – QBE Group Services Pty Limited runs investments of syndicates owned by QBE Insurance Group. Other times the connection was more nebulous. For example, one of syndicate 1084's managers is Opus Investment Management which is attached to The Hanover Insurance Group, which in turn owns the syndicate's managing agent Chaucer.

However, 52 of 116 syndicates that filed 2018 annual reports either declined to name their external manager, as it was not mandatory; or chose to run their own investments.

Were it not for the £333m ($435.2m) investment return generated at syndicates by the 32 named investment managers and by yet more unnamed, Lloyd's 2018 pre-tax £1bn loss in 2018 would have been one-third higher.

In its own 2018 annual report Lloyd's acknowledged the "significant reduction on the [investment return of the] previous year, also well below the five-year average. In terms of key drivers, an allocation, albeit conservative, to equity and risk assets generated losses for the year, but this was offset by positive returns in cash, government and investment grade corporate bonds."

Syndicates' managing agents, too, freely acknowledged that investing over the year was tough for mandated managers.

Yet, a number of managing agents singled out their chosen investors for plaudits.

At syndicate 33 for example, Hiscox Syndicates said of Alliance Bernstein, Wellington Management, and Fiera Capital Corp: "In addition to our sensible, tactical asset allocation position, our selection of asset managers benefited our return. Each manager either outperformed or equalled its respective index. 2018 has demonstrated the value of active management in volatile markets."

Yet others lost some business. Amundi Asset Management was ousted At AM Trust syndicate 1861. However, the fact an affiliate of the underwriter, in All Insurance Management, replaced Amundi suggests various factors other than raw performance may have helped inform the decision to switch managers.

At syndicate 2121, Argenta Syndicate Management managing director Andrew Annandale said a multi-asset absolute return programme which was run by Insight Investment Management, was redeemed in the second half of 2018 "due to unsatisfactory returns in this asset class".

That programme had represented 14% of the syndicate's assets. Annandale added that Insight was still "investing the large majority of the syndicate's assets within a fixed income portfolio".

Interestingly, one syndicate spelled out how quickly change could come to its investment managers. Allied World Managing Agency at syndicate 2232, which has several asset classes under delegation with unnamed managers, added it could terminate mandates in just 30 days.

Another syndicate went perhaps 'beyond the call' in transparency about its outsourcing habits. Canopius Managing Agents' syndicate 4444 revealed the names (and addresses) of all 11 asset managers that it uses. They are: Aviva Investors, BlackRock, Federated, Gresham, H2O AM, JP Morgan, LGIM, Loomis Sayles & Company, New England Asset Management, Schroders, and Wellington

In the second part of our two-part series on Lloyd's syndicates and their investments available here, read about portfolio allocations,and performance.

  • Insurance Risk Data will be making every 2017 and 2018 financial statement for all the underwriting syndicates at Lloyd's available as part of its service to subscribers in 2019. The full details of outsourcing arrangements by the syndicates will also be listed in Insurance Risk Data's second annual European industry report, being published later in 2019. For further details on both contact phil.manley@fieldgibsonmedia.com