Lloyd's Establishes Framework for Broker-Originated Reinsurance Structures

Lloyd's has issued a new framework establishing its expectations and approval requirements for broker-originated reinsurance structures, effective January 1, 2027. The guidance, outlined in Market Bulletin Y5493, Framework for Broker-Originated Reinsurance Structures within Lloyd's, addresses the growing use of broker-led reinsurance portfolios supported by third-party capital.

In these arrangements, brokers assemble portfolios of reinsurance contracts supported by external investors, rather than reinsurers independently constructing their own portfolios. According to Lloyd's, the growth of broker facilities and third-party capital solutions has created new opportunities for these structures, and demand is expected to increase.

The framework applies to all broker-originated reinsurance structures seeking approval to operate within Lloyd's. These arrangements will remain subject to the market's standard new entrant approval process and ongoing oversight requirements.

Eligibility and Capital Requirements

Lloyd's has established an initial limit allowing up to 10 percent of an individual broker's treaty portfolio to be placed into these structures. Brokers are prohibited from owning or providing capital to the arrangements.

The framework also requires at least 25 percent of capacity to come from lead reinsurers and a minimum capital participation of 19.99 percent from the member aligned with the managing agent. According to Lloyd's, these requirements are intended to address concentration risks and support underwriting discipline.

Certain types of business fall outside the framework's scope, including hybrid fronting insurers, managing general underwriters, and legacy providers. Captive involvement is subject to a prior submit arrangement, according to the bulletin.

Managing agents must demonstrate strong reinsurance pricing capabilities, experience with portfolio solutions, and sufficient access to data to independently evaluate the risks involved.

Governance and Oversight

The framework establishes ongoing reporting and oversight requirements, including regular engagement with Lloyd's, quarterly data sharing, and monthly information provided to managing agents.

According to Lloyd's, governance, underwriting, and portfolio management requirements must be agreed upon with the market and contractually established between capital providers and managing agents.

Lloyd's also expects cedents to share in the operational and capital efficiencies generated by these structures through a client dividend.

The framework takes effect January 1, 2027, and will operate alongside Lloyd's existing approval and oversight processes for new markets.