Michael Wade: “The potential £25bn follow market within Lloyd's cannot be ignored”

Michael Wade, a veteran in the (re)insurance industry and chairman of Lloyd's investment vehicle Helios, has hailed the follow market at Lloyd’s as playing a “crucial role” in supporting the market’s growth and attracting more third-party capital.

In a recent interview with The Insurer TV, Wade said its potential could no longer be ignored.

Wade emphasised the importance of the follow market in Lloyd's ambition to grow beyond £80bn, reminiscing about the past structure of Lloyd's, with thousands of members across numerous syndicates, and contrasting it with today’s more concentrated market with about 50-60 leading syndicates.

“From a follow market point of view, the excitement is to be part of the infrastructure,” said Wade.

Wade explained the role of this capital is not to lead, but to support, thereby providing the capital with greater flexibility as the market inevitably changes.

“I think it has a really important role to play and there'll be, I imagine, out of that £25bn, half a dozen players evolving. Of course, we very much hope Helios will be one of those, but you can see the sort of scale and scope available, and most importantly, I think Lloyd's welcome it,” said Wade.

According to Wade, the follow market can also be part of the London Bridge initiative – “which is obviously something I hugely admire and welcome”.

The ideal investor pool for such markets, according to Wade, should primarily consist of pension funds rather than private equity. These long-term capital holders are crucial for sustaining the follow market, in his opinion.

“Unquestionably the ideal investor in this magic wand scenario would be to have a broad spread of pension funds supporting these, and have it ongoing.

“So, not necessarily private equity, which comes and goes in that way, but the most ideal are long-term holders of the stock, who see the cycles through, and that's what we would most like as a market. I'm talking about the Lloyd's market, so not just any one vehicle. It's that long-term capital, which the individual members used to provide in the 1980s, which would be great for the following market,” he explained.

With a career spanning broking, underwriting, capital markets and ILS, Wade's experience and foresight are invaluable to understanding the dynamics of the insurance industry.

Wade’s current roles include chairman of listed investment fund Helios, and senior adviser to Mitsui Sumitomo Insurance, which recently celebrated 100 years of being in the UK.

But his career is steeped with experience at Lloyd’s since first entering the market in 1975 as a trainee aviation underwriter. Between 1988 and 1991, Wade served on the Council and Committee of Lloyd’s, along with various sub-committees including the Parliamentary Liaison Committee.

Between 1991 and 1996, he served on the Lloyd’s task force committee under the chairmanship of David Rowland and managed, in conjunction with McKinsey and Co, a deep analysis of the Lloyd’s market in financial crisis.

Wade’s current roles at Helios and Mitsui Sumitomo and his involvement in key government projects like Pool Re and Flood Re demonstrate his deep commitment to the industry.

Reflecting on his career, he identified the crisis period of 1991 at Lloyd's as a “dark moment” but also highlighted the successful integration of government and industry perspectives as a high point.

Better promotion of Lloyd’s

While discussing the challenges faced by Lloyd's capital structures, Wade highlighted the introduction of the risk transformation legislation in 2017. The aim was to create a framework akin to Bermuda's, facilitating tax-efficient accumulation and distribution of profits. The evolution of the London Bridge vehicle, now in its second iteration, and the potential for expanding into the captive market, were key points of discussion during the interview

But Wade also stressed the importance of brokers and other market practitioners promoting London to help make it a more competitive and attractive option.

“But generally speaking,” he added, “It has to be the practitioners that promote this. Where's the incentive? Well, if it's sitting in Bermuda already, then why would you change would be the obvious question. If it's something new, however, then I would suggest it was a much easier pitch to capital providers.”

However, he acknowledged that significant barriers still exist, particularly in explaining complex structures like the annual joint venture to new investors. Simplifying these structures and making them more accessible to institutional investors is a critical challenge.

In terms of regulatory competitiveness, Wade expressed disappointment at the secondary status given to the competitiveness of regulatory standards in the Financial Services Bill. He sees this as a missed opportunity for London's insurance market and hopes for future revisions in government legislation.

“I think it's a rather poor message actually, to industry, that if you think that the objective of competitiveness of regulatory standards is a secondary objective,” he said.

“I think we miss a trick in London and it's not something you can change quickly. But I think we had a great opportunity of making it a joint objective last year, but as I say, all the political parties wouldn't support that point of view. It's not a party political point, but politicians wouldn't sign up to the idea of embracing a regulatory structure, which, on the one hand was regulation, and on the other hand, also jointly and equally, one that was required to be competitive in the world.”

But Wade is optimistic that it can be changed. “Governments come and go, and I hope things will change, but there’s plenty more to be excited about,” he said, while citing the work going ahead between the Treasury and regulators on establishing captives in the UK.

“There's a consultation now for this and the Treasury has asked for evidence and opinions by March with the Chancellor's initiative. And I think that's absolutely fantastic. So we're definitely going in the right direction, in terms of thinking about it, delivery of tax certainty and regulatory culture really matters in all this,” he said.

Watch the 20-minute video interview with Michael Wade to hear more about: