International hedge funds and private equity firms are increasingly investing in Lloyd’s of London’s tax-exempt investment vehicle, as the 300-year-old UK institution expands its efforts to attract global investors, according to a report by the Financial Times.
The report cites data from professional services company Aon as revealing that Lloyd’s introduced the investment scheme in 2021 to capitalise on the growing market for insurance-linked securities (ILS), which reached $113bn in 2024.
While the scheme has only captured a small portion of the market, the second phase of the “London Bridge” initiative saw its size double in 2024, growing to $1.9bn compared to the previous year. This has drawn increasing attention from alternative fund managers. Despite this success, it remains a fraction of Lloyd’s overall $70bn in gross written premiums underwritten by its syndicates, groups of companies and individuals who take on insurance risks.
Some members of Lloyd’s have resisted participating in the ILS scheme, with one long-established insurer stating that there was no compelling reason to move its ILS business from Bermuda, a major competitor to London in the market.
However, Lloyd’s CFO Burkhard Keese defended the scheme, stating it has helped restore London’s competitive edge. The key advantage of the program is that it allows investors to avoid corporation and withholding taxes — unlike syndicate members, who must pay tax on their profits. This tax exemption has been a significant draw for investors, contributing to the inflow of new capital into the scheme, Keese added.
Notable investors include Blackstone, a New York-based alternative investment firm, which now has direct access to a wide range of risks underwritten at Lloyd’s, from oil tankers to high-risk insurance for athletes. Pension funds, such as the Ontario Teachers’ Pension Plan, have also participated in the programme.
A key feature of the scheme is its ability to fund reinsurance contracts through debt securities, known as catastrophe bonds (cat bonds). These bonds allow insurers exposed to natural disasters to pay investors to take on some of the associated risk. Cat bonds made up nearly half of the ILS market in 2024, totalling $46bn, according to Aon.
The platform also simplifies regulatory processes and expands excess-of-loss contracts, where reinsurers assume responsibility for losses beyond a certain level.
Despite criticisms of the UK’s financial regulators for slow approvals of ILS transactions, which led some business to shift to places like Bermuda, the scheme has attracted increasing interest.
The ILS platform, managed by Artex Capital Solutions, works as a collateralised reinsurance contract with a Lloyd’s insurer. The funds are housed in “cells” that are exempt from corporation tax on profits and withholding tax on distributions, according to Lloyd’s.
