Attractions of Lloyd’s Membership
Membership of Lloyd’s has a number of key attractions for both institutional and private investors. These are as follows;
Direct investment into the Lloyd’s market
Members of Lloyd’s obtain direct access to the insurance and reinsurance business that is transacted by underwriting syndicates in the Lloyd’s market.
Direct investment into a historically low-correlated asset class
Returns from underwriting at Lloyd’s have, historically, had a very low correlation with those of other asset classes.
Since 2003, all new Members of Lloyd’s have traded through a limited liability vehicle (LLV), where liability is limited to the assets of the LLV. Underwriting at Lloyd’s is a high risk/high return venture and potential members should familiarise themselves with the associated risks (see here).
Double use of assets
Members of Lloyd’s enjoy the double use of their assets, in that qualifying investments (such as stocks, shares, or bonds) can be used to support the underwriting of their LLV. The Member earns a return from both their investments and from their Lloyd’s underwriting, which is supported by those assets. Members of Lloyd’s may also use letters of credit or bank guarantees in order to support their underwriting, so do not have to pledge their assets directly.
The potential to make underwriting profits and capital gains
Underwriting at Lloyd’s has the potential to make profits, not only from the results of underwriting, but also from any capital gain that might accrue from the acquisition and disposal of the Member’s syndicate capacity.
Potential tax and estate planning benefits
Underwriting at Lloyd’s is not considered to be an investment, but is deemed by HMRC to be a trade, and it is taxed accordingly. Amongst the benefits of such treatment are the availability of Business Property Relief and Entrepreneurs’ Relief. This is an important and complex area where specific advice from an accountant should be sought. As from 1st January 2015, the Council of Lloyd's mandated that all members of Lloyd's must be UK tax resident. This effectively means that investors may only participate through UK tax resident companies, or if trading in a Limited Liability Partnership (LLP) all of the partners must be UK tax resident.
For further information, or if you wish to discuss any aspect of Lloyd’s membership in more detail, please contact the Association of Lloyd’s Members’ CEO, Chandon Bleackley