Lloyd’s new policy on reinsurance, effective from 2027

Int’l Insurance Desk: To reduce the financial pressure of large losses, an insurance company transfers a portion of its risk to another institution. This is known as reinsurance. Now, Lloyd’s, the international insurance market in London, has announced a new policy to bring in new investors into reinsurance. The rules will come into effect from 1 January 2027.

Under the new policy, brokers or intermediaries will bring a designated portion of the reinsurance contracts of various insurance companies under a specific arrangement. External investors will provide capital to bear the risks of these contracts. However, the broker cannot own this arrangement or provide capital. There is a risk of conflict of interest because the broker has influence over the distribution of contracts and the opportunity to earn commission.

Initially, a broker will be allowed to bring a maximum of 10 percent of its total treaty reinsurance business into the new arrangement. This may reduce the risk of excess business being concentrated in one place.

In the new arrangement, a managing agent will be responsible for risk assessment and business operations. The associated Lloyd’s member will have to provide 19.99 percent of the total capital. 25 percent of the total risk-bearing capacity must come from leading reinsurers. In the event of a loss, the members who accept the risk under the contract will pay the claims. Brokers generally do not bear the liability for compensation.

All eligible reinsurance contracts according to the designated portion must be brought under the new arrangement. Only profitable contracts cannot be selected. The broker will provide business data every month. The managing agent will verify it. Lloyd’s will receive reports every three months.

According to reinsurance broker Gallagher Re, global reinsurance capital stood at 688 billion dollars in the first half of 2026. Of this, capital from alternative sources was 147 billion dollars. During the same period, the rate of reinsurance premiums at Lloyd’s decreased by 6.7 percent. New investment may further reduce the cost of reinsurance. However, taking higher risks at lower premiums will also increase the possibility of future losses.

In the long term, Lloyd’s aims to keep claims and operating expenses within 95 taka for every 100 taka of premium. There are also arrangements for regular risk assessment, financial supervision, and capital protection to handle large losses. There is a 70 percent condition related to “indexation” in the third year. If the condition is not met, Lloyd’s and the managing agent may decide whether to continue or shut down the related initiative. However, how the condition will be calculated is not clear in the published explanation.

If operating and capital management costs decrease, there is an expectation that a portion of the savings will be returned to the insurance companies that buy reinsurance. However, the rate of return is not specified. It is also not certain whether the premiums of ordinary policyholders will decrease.

Meanwhile, international reinsurance broker Aon and investment firm Blackstone have a plan for a reinsurance initiative named “Cortina.” Media reports have stated that approximately 500 million dollars in investment may come from funds managed by Blackstone. However, the initiative has not yet been finalised.

According to Bangladesh’s Insurance Corporation Act, 2019, there is a provision to place 50 percent of the reinsuranceable portion of non-life insurance with Sadharan Bima Corporation. However, the government has planned to withdraw this obligation.

Under the new arrangement, domestic companies may get the opportunity to obtain reinsurance protection against large risks at a lower cost. In this regard, the financial capacity of foreign institutions, certainty of claim settlement, the country’s laws, and the supervision of the insurance regulatory authority IDRA will be important.