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Methods of Investment

New third party capital must invest on a limited liability basis

Invest through a Nameco (limited company) or a Limited Liability Partnership (LLP) structure

Set up a new or buy an existing LLP or Nameco?

Limited Liability Vehicles (LLVs)

All new third party private capital investors in the Lloyd’s market invest on a limited liability basis through one of the three members’ agents and the relationship is governed through a standard Members’ Agent’s Agreement.

Alpha will help a prospective new investor make a decision on the most appropriate underwriting vehicle (a Nameco or a LLP) and the most suitable method of entry (to purchase or to set up a LLV).

Nameco or LLP?

It is very important to consider carefully whether to underwrite through a LLP or Nameco as this is dependent on each individual’s personal and financial circumstances. This decision must be made at the outset of the application as it is expensive and complicated to change the structure after set-up.

Subjects to be considered will be the tax treatment (see our brochure), including inheritance tax and pensions, the addition of new participants and the distribution of profits or payment of losses, amongst others.

Broadly speaking, a LLP (Limited Liability Partnership is a vehicle (the corporate member) which retains a separate legal identity from its partners (the individuals or companies) and is subject to personal taxation. A Nameco allows the member(s) to underwrite in a limited company over which they have complete control and this type of LLV falls under standard corporation tax rules.

Overseas members must invest through a UK company either as a Nameco or as a limited company in a LLP.

We strongly recommend consulting both an independent personal financial advisor and an accountancy firm specialising in Lloyd’s (eg Duncan & Toplis, our joint venturers in Fidentia Services LLP) before making a final decision.

Set up new or purchase an existing vehicle?

Depending on personal circumstances and market conditions, Alpha will advise on whether it is preferable to purchase an existing vehicle or set up a new entity.

Setting up a new vehicle allows a member to select the size and make-up of the underwriting portfolio in accordance with their bespoke requirements. In addition, since there is no legacy from previous years of account, there is no inherent reserving risk. Given that capacity in the October/November auctions can be illiquid and prices can be difficult to predict means there is the potential for an unbalanced portfolio and cash flow will also be delayed (due to three year accounting). There is a strict timetable for the setting-up of a new vehicle which must be in place by the end of September.

An alternative way to invest is to buy an existing LLP or Nameco which are put up for sale from time to time and are advertised on the members’ agents’ websites. Standard valuations of vehicles for sale are based on the previous year’s auction prices and the latest syndicate midpoint forecasts on the open years. No value or liability is attributed to the current underwriting year. Bids can be made at a premium or a discount to the valuation depending on supply and demand, the outlook on the open years and future underwriting prospects. Whilst the purchase of a vehicle does mean taking on the liability of the back years, the reserving risk can be reflected in the bid price. This method of entry allows immediate cash flow (when the open years are profitable), the certainty of a balanced portfolio (any unwanted capacity can be sold or dropped at the next auctions) and a more flexible timescale.