Helios’ Hanbury: New MAPA vehicles are going like “hotcakes”

The response to Lloyd's advisory firm Argenta and listed investment fund Helios’ new Lloyd’s “starter homes” has been “game changing”, with both firms optimistic the initiative will renew in 2025.

The Members' Agent Pooling Arrangement (MAPA) is a collaborative effort between Argenta Private Capital Limited (APCL) and Helios Underwriting that aims to revolutionise investor access to the Lloyd's market.

In an exclusive interview with The Insurer TV, Argenta director Kate Tongue explained that traditionally, investors would enter the market via limited liability vehicles, where a significant portion of capital was allocated to purchasing capacity in Lloyd's auctions.

“But what we've seen in the last few auctions is actually that the capacity value is really expensive,” she said. “It's gone up something like 17 percent from last year and, given where we are in the cycle and the potential returns, our view is that we should really be focusing on the underwriting and using all of that capital to develop and generate underwriting returns,” Tongue added.

The MAPA seeks to change this dynamic by offering investors free capacity, enabling them to access underwriting returns without allocating capital towards purchasing capacity.

Tongue emphasised that this innovative approach is particularly timely, considering the current underwriting conditions. And while the MAPA is initially structured as a one-year deal, it holds potential for long-term success.

“It certainly can be a long-term thing,” she said. “There may be future opportunities, but it's exciting because it enables members to get on the 2024 year of account, which we're expecting to generate significant returns,” Tongue added.

Nigel Hanbury, executive deputy chairman at Helios, expanded on the company’s involvement in the initiative, highlighting the challenges private capital faces in the Lloyd's market, mainly related to complexity and the cost of access. He commended the MAPA for addressing these issues, simplifying the process and making it more cost-effective.

“We have gone in there to try and tap into some syndicates that have very little private capital involvement. So, this is a different portfolio. It's more diverse, and we think it will perform better than the average,” he said.

While legal constraints limit the initiative to a one-year deal, Hanbury expressed hope for its renewal in the future.

“I think this has changed the whole game and there's two different skills here,” he explained. “There's the skills of owning capacity and there's the skills of carrying out underwriting and we've actually separated the two out. A typical Name would do both. He would own capacity, and he would manage his portfolio and so forth in his capital management.

“I think this has really opened it up,” he continued. “We just tried 10 ‘starter homes’ to see how it went and the signs are really encouraging. We have until June next year to dispose of them and there's a lot of interest.

“I think they will go like hotcakes and I would like to immediately start on a much bigger number of vehicles and just get going on it,” he added.

When asked about the selection process for the 35 syndicates in the portfolio, Hanbury credited Helios CEO Martin Reith and his team for their extensive research and experience in the Lloyd's market. Their goal was to identify non-aggregating business, often from new syndicates, to create a diverse and promising portfolio.

Confident in strong returns and future renewal

APCL has projected returns on capital, excluding any returns that might be generated on the capital provided, of circa 24 percent for the 2024 year of account for its clients.

Tongue pointed out that return projections for the MAPA are based on in-depth market analysis by APCL's research team, which considers business plans, market cycles and projected returns for various business classes.

As for the potential challenges related to hardening rates across different lines of business, Tongue emphasised that the MAPA's approach is adaptable.

“One of the reasons why we're really excited to launch the Helios ‘starter homes’ is because word is getting out that we're in such a great place in the cycle. We may be nearing the peak or the top, so it's really important to get in on the 2024 year of account,” she said.

“The way we deal with clients, obviously we ride the cycle. So, in strong periods of return, we would encourage, where appropriate, our clients to grow and take pre-emptions and in soft periods, or periods of losses, we would ask them to pare back, so that they reduce the impact of those losses on the bottom line,” Tongue added, meaning investors can adjust their participation based on market conditions, allowing them to maximise returns while minimising risks.

Looking ahead, both Tongue and Hanbury expressed optimism for the MAPA's future.

Hanbury shared his excitement about the project's potential to change the landscape of private capital in the Lloyd's market, expressing interest in expanding the initiative in the coming years.

Tongue noted the success APCL had seen in offering the MAPA portfolio to existing clients and predicted strong demand for the "starter homes" in the near future.

“We've offered the Helios MAPA portfolio to our existing clients and it's been incredibly successful. investors that understand the market, like the portfolio. I think these "starter homes" are going to sell,” said Tongue.

In closing, Hanbury praised Lloyd's for its cooperation and support in making the MAPA a reality.

“As far as Lloyd's is concerned, actions speak louder than words and they've been nothing except helpful on this to us both and we're very grateful for their cooperation,” Hanbury concluded.

Watch the 12-minute interview with Argenta’s Kate Tongue and Helios’ Nigel Hanbury to hear more on: