Lloyd’s 1st Syndicate-in-a-Box, Operated by Munich Re, Aims to Be an Innovation Lab

By | February 4, 2020

One of the cornerstones of the “Future at Lloyd’s” project is to make it easier for new sources of capital to come into the market, facilitated in part by its so-called syndicate-in-a box (SiaB) initiative, which Lloyd’s describes as a new way “to bring innovative, accretive and profitable business into the market for a set period without the need for a physical presence in Lloyd’s.”

The first company to announce its own syndicate-in-a-box is Munich Re Syndicate Ltd. (MRSL), a longstanding Lloyd’s managing agent and Munich Re subsidiary. At the end of September, it announced it is launching Munich Re Innovation (MRI) Syndicate 1840, as the market’s first SiaB. MRI was ready to begin underwriting in January 2020.

In keeping with Lloyd’s mandate that such vehicles underwrite business that is new and different and not currently available in the traditional Lloyd’s market, MRI will focus on emerging risks, green energy solutions, autonomous vehicles and on mitigating the financial risks of extreme weather events including the use of parametric products.

But Munich Re is unlikely to be alone for very long in its SiaB venture. Lloyd’s said about 30 companies have expressed interest in its newest business concept.

Stuart Newcombe

In an interview with Carrier Management last year, Stuart Newcombe, active underwriter of the MRI syndicate, described the unique attributes of SiaBs and the benefits of the offer for Lloyd’s and Munich Re.

“A key premise of a syndicate-in-a-box is that we can’t be just another source of underwriting capacity for normal lines,” Newcombe emphasized. “You won’t find us writing conventional lines such as property and casualty or motor, for example. We must offer something that makes it unique and therefore brings value to the Lloyd’s market.” (Related article: “The Unique Requirements of a Lloyd’s Syndicate-in-a-Box“)

Fail-Fast Initiative

The syndicate-in-a-box concept is designed and run by Lloyd’s as a “fail-fast initiative,” Newcombe said, noting that both Lloyd’s and Munich Re want the SiaB to provide an innovation lab, a sandbox for innovative products.

“I see it very much as an incubator—offering products, which are innovative, new, and don’t fit naturally and comfortably with traditional products,” he said.

Newcombe would like to see these products move rapidly from the incubator box to become more standard specialty insurance offerings. “Then we can start looking at whatever the next new thing is. I would like to see that progression of risks from test-bed to fully established and then move on to the next round of testing for a new product,” he said.

Products in MRI’s Pipeline

For its green energy offering, MRI will offer a product that supports the investors that back renewable energy projects. If a solar farm develops a systemic fault and ceases to operate in a few years, the investors would first turn to the manufacturer to fix the fault by way of warranty or repair, Newcombe explained. If, however, the manufacturer is no longer trading, the investor would own “a huge number of broken solar panels with little ability to repair or replace them, while it still had a significant amount of debt.”

Newcombe said MRI covers that gap, which allows people wishing to invest in green energy to secure funding because their funding is protected.

On the other hand, MRI will not cover physical loss or damage for the solar farm, which would be in the remit of a traditional Lloyd’s syndicate, such as Munich Re Syndicate Ltd.

The use of parametric products is another area of interest for MRI. “While parametrics aren’t new and there are lots of them around, what we’re seeing now is that they’re moving down the customer scale from large commercial clients to SME,” Newcombe noted.

Big data and data modeling are enabling insurers to write parametric products in a more scientific manner to reduce the basis risk. “In the near horizon, we’d like to use that data in digital distribution to give the customer the certainty provided by parametric products,” he said.

Newcombe cited as examples hail coverage for valuable goods stored in the open, or crop protection against flood, drought or excessive frost.

“If you’re a market gardener with crops particularly susceptible to a late frost, you might be interested in such protections,” he said, noting that these products would be enhancements to traditional insurance products, not replacements.

Parametric cover “would give the customer more options about how they can financially manage their risk.”

MRI also is focusing on emerging risks such as the testing of autonomous vehicles, much of which has been handled thus far in the United States. “However, that’s now going global,” he said. “Companies are now looking to make sure the tests of autonomous vehicles fit the peculiarities of their nation’s roads.”

Hitting the Ground Running

MRI is making sure it hits the ground running when it begins underwriting in January. It has spent the final three months of 2019 having conversations with Munich Re units and brokers so the product pipeline is ready.

Initially, Newcombe sees a lot of business coming from Munich Re business units, which are looking for solutions to insurance problems. “Lloyd’s has one of the best primary license networks in the world—if not the best—and that’s obviously a very attractive feature for a Munich Re colleague who might be looking to find a good, efficient way to place a primary risk,” he said.

MRI has also already had inquiries from Lloyd’s brokers who are looking to find markets for their clients.

“So business is going to come both ways: It’s going to come from the Munich Re side, and hopefully, the syndicate will also provide capacity for the wider London market,” he said.

What will success look like? “We want to make sure we are writing the right balance of business with sufficient scale to achieve our expense and profitability targets,” stressed, Newcombe, who confident the new venture will be a success. “Top-line growth is not the goal, but we will need to achieve a certain amount of scale to make everything else work. It’s very much about getting the business mix right.”

A version of this article was first published in the March/April print edition of Carrier Management, and published online on Jan. 31.

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