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Alternative investments: Investors want Lloyd’s exposure

Hedge funds are main drivers into insurance underwriting. An increasing number of hedge funds and private investors are looking to the insurance markets as a source of attractive returns and diversification.

Expectations of a profitable 2006 and 2007 in insurance underwriting have led to the creation of vehicles enabling the two investor bases to provide direct capital to London’s Lloyd’s insurance market.

CBS General Partners Limited, Lloyd’s second largest member agency, has launched a collective investment scheme, Insurance Capital Partners, targeting hedge funds and high net-worth investors. It is intended to give direct exposure to insurance underwriting. Ordinarily, exposure is gained through shareholdings in insurance companies but this fund will provide capital directly to the best Lloyd’s syndicates. “There does appear to be a growing trend of investors wanting to gain access to the market,” says CBS’s group finance director, Andrew Castell. “Hedge funds, in particular, seem to be the main movers of capital into insurance underwriting.”

In terms of timing, the insurance underwriting market does indeed look profitable. A large number of names (Lloyd’s syndicate members) are expected to leave the market soon, decreasing capital available to insurers.

The main reason for the present interest, however, is the expected increased demand for insurance and reinsurance following the hurricane losses of 2005, say participants. John Francis is a research director with Hampden Agencies, the largest Lloyd’s members’ agent, which advises on £1.1

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