Lloyd’s agency to set up special purpose syndicate to boost capacity as sterling tumbles

Hampden, the largest members’ agency at Lloyd’s, is on the verge of securing private investor funding to help insurers struggling with the effects of a weakening pound.

Hampden aims to set up a special purpose syndicate (SPS) – a way of creating parallel underwriting capacity to an already existing Lloyd’s syndicate – by the end of the first quarter.

The news comes as Lloyd’s insurer Chaucer confirmed it was looking to boost capital, raising the prospect of funding from private and corporate investors.

Nigel Hanbury, chief executive of Hampden, said devaluation of the pound was a “contributing factor” in creating fresh demand. He also said private and corporate investors were attracted by the prospect of higher rates that could lead to lucrative returns.

Hanbury said Hampden was “concluding discussions” in creating the SPS for capacity in catastrophe lines business.

The SPS is unlikely to be as large as Amlin’s new Syndicate 6106, which raised £50m from corporate members in December, but it is expected to be a significant capacity provider.

Hanbury said: “What is causing demand is clearly improving rates in certain classes, but also the devaluation in the pound. We would like to help if we can. It is a great way, of course, for members’ agencies to provide capital and to show their flexibility over the coming months.”

Late last year, Lloyd’s wrote to the syndicates warning them to review their capital requirements because of the plunging exchange rate. Business plans for 2009 calculated the exchange rate at $1.99 to £1, but the rate has since fallen steeply. Sterling now stands at about $1.39, with some experts predicting the pound may get close to parity by the end of the year.

Ian Clark, partner at Deloitte, said Chaucer could raise capital through a rights issue or private investors. “If you look across the market, a number of their peers have done that and they are doing very well,” he said.

News of Chaucer’s attempt to boost its funds has not been received well so far. As Insurance Times went to press, the insurer’s share price had fallen 11.1% to 42p.