Helios Underwriting — Surfing the wave

Underwriting driving NAV growth and distributions

FY25 earnings benefited from healthy underwriting results relating to the 2023
and 2024 years of account (YOA), with 2025 also starting positively. The 2024 and 2025 YOAs are set to continue delivering strongly in FY26, with the latter thus far avoiding any above-average catastrophe losses or large impacts from the Middle East conflict. In addition, FY25 NAV growth benefited from a weaker dollar and lower expenses, partly offset by a downward revaluation of its owned capacity value.

Further targeted distributions

Capital returned during 2025 of £14m comprised an ordinary DPS of 6p, a special dividend of 4p and share repurchases (including a tender offer) equivalent to 10p. HUW proposes a further return of 20p per share during 2026, including 10p of dividends. The level of distributions is driven by underwriting profits from HUW syndicates (paid to it as dividends when YOAs close out), but also reflects changes in Lloyd’s capital requirements, the purchase and sale of syndicate capacity, and the level of gearing. In May 2025, HUW received £24m (net of reinsurance) from the 2022 YOA, and in 2026 it received c £40m from the closed 2023 YOA.

Outlook: Robust returns should continue

At the core of HUW’s long-term outperformance of the Lloyd’s market is its portfolio diversification across syndicates and classes of business, spreading risk and providing capital advantages as part of its balance sheet management. With a long track record of successfully navigating the underwriting cycle, as rates begin to soften, HUW has reduced its risk exposure (2026 YOA capacity of £467m vs £491m for 2025 with an increased proportion ceded to third parties). Moving beyond FY27, reduced underwriting exposure and softer rates will act as a drag on earnings, but active capital management should support return on equity.

What is HUW?

HUW is an AIM-quoted investment company that invests in the Lloyd’s market, the largest reinsurance market in the world. It provides shareholders with simple efficient access to the Lloyd’s market and has generated consistent outperformance of the market for more than a decade, principally by being able to select and access the better performing syndicates. As an asset class, reinsurance underwriting is largely uncorrelated with other more traditional markets, and despite its cyclicality, HUW estimates a 9.5% average annual return for the market over the past 20 years. Data-driven syndicate selection is the driving force of HUW returns, with a portfolio of 37 different syndicate participations operating across 60 different risk classes, supported by a favourable Lloyd’s capital dispensation and active balance sheet management.

As a capital provider across multiple Lloyd’s syndicates, HUW seeks to maintain a diversified portfolio capable of delivering superior risk-adjusted returns while remaining broadly aligned with the overall market mix at Lloyd’s. It is effectively an active portfolio manager within the Lloyd’s market, targeting high-quality syndicates with strong underwriting track records, while continuously optimising the portfolio as market conditions evolve. Since 2013, this approach has enabled HUW to consistently outperform the Lloyd’s market. Syndicates are selected by an experienced, actuarially led team, with proprietary data and analytics capabilities. Together this provides differentiated insight into syndicate performance, portfolio construction and risk selection. As a long-standing market participant, HUW has strong relationships across the market that can provide preferential access to high-quality syndicates that may otherwise be closed to new capital.

More details on FY25

Under Lloyd’s three-year accounting standard, an underwriting YOA realises its profits after three years and closes any unexpired liabilities into the next open YOA. As one YOA closes, most recently 2023, another opens, most recently 2026. HUW developed a methodology for quarterly profit recognition over this three-year cycle and for FY25 recognised a cumulative 100.0% profits for the 2023 YOA, 90.0% of the 2024 YOA and 25.0% of the 2025 YOA. The largest contributor to FY25 underwriting profit was the 2024 YOA, reflecting both the positive development of ultimate syndicate underwriting estimates and the increased share of profit recognition. Pipeline profits that were not yet recognised in FY25 relate to the ultimate underwriting profits for the 2024 and 2025 YOA, with these profits to be recognised in FY26 (both YOAs) and FY27 (2025 YOA only).

At Q126, the midpoint forecasts for the return on insurance capacity (across HUW’s portfolio) for the 2024 and 2025 YOA were 9.8% and 10.9% respectively, and these can reasonably be expected to increase until they close out at the end of the three-year cycle.

It is standard practice for syndicates to set initial estimates using conservative assumptions and, as a result, they typically advance as the YOA matures and there is more certainty around the outcome. Our previous research has shown that for the past decade, syndicate midpoints have increased by an average of more than 50bp per quarter, with an average uplift of more than 200bp in the final year before close-out. The 2023 account closed out with a return of 17%, having started with an initial midpoint estimate of 12.1%. The first 2026 YOA midpoint will be available from Q127.

While underwriting profits are the main driver of earnings and NAV return, investment income (higher over recent years due to the interest rate cycle), reinsurer fees (driven by the amount of capacity ceded and the performance of the ceded portfolio), expenses (including group operating expenses and finance costs) and exchange rate effects all play a role. Additional drivers of NAV return are capacity revaluations (based on actual capacity held, valued with reference to observed Lloyd’s auction prices) as well as balance sheet management (including leverage and shareholder distributions).

While underwriting profits are the primary driver of cash flow and distributions, the timing does not correspond to earnings and there are other factors involved. In May 2025, HUW received £24m (net of reinsurance) from the 2022 YOA, and in May 2026 received c £40m from the closed 2023 YOA. The capital returns in FY25 and the proposed FY26 capital returns amount to c £28m in aggregate. In addition to distributions, strong cash inflows have enabled the company to strengthen its balance sheet, reduce gearing and meet additional regulatory capital requirements driven by the roll-forward of three-year average capacity. As a measure of gearing, retained capacity, after reinsurance, for the youngest YOA as a percentage of tangible NAV has reduced from 3.2x for the 2025 YOA to 1.9x for the 2026 YOA. The closure of the 2024 YOA should generate further strong cash flow in FY27. Helios carries $75m of debt on its balance sheet and has indicated that it will start repayments in FY28.

Rates have peaked but profitability remains strong

The pipeline profits will continue to support earnings and cash flow for the next two years, but beyond FY27, earnings will increasingly reflect the extent and duration of a softening premium rate cycle as well as HUW’s appetite for underwriting exposure. As mentioned in previous research, after significant rate increases from 2018 to 2023 (cumulatively more than 50%) premiums remain attractive and reserving is much stronger than during the late-2010s, when the Lloyd’s market suffered an extended period of underwriting losses and weak returns. In addition, the current higher interest rate environment is supportive of returns. The Lloyd’s market will remain cyclical, but we expect the coming cycle to be flatter than in the past, driven by the elevated current rates.

While average rates across the Lloyd’s market are down c 5% from the peak, we do not expect this to be fully reflected in HUW’s portfolio. From an underwriting perspective, the 2025 YOA has developed strongly. The impact from the Californian wildfires was mainly allocated to the 2024 YOA, and, aside from this, there were no above-average catastrophe losses or large impacts from the Middle East conflict. Unlike 2025, the 2026 YOA has started free of wildfire claims, with the hurricane season still to develop.

As rates began to soften, HUW reduced its insurance underwriting capacity, from a peak of £512m for the 2024 YOA to £467m for 2026. At the same time, the proportion of freehold capacity (long-term syndicate capacity, providing ongoing participation in syndicate activities and attracting a value within HUW’s NAV) has increased from 34% to 47%. Retained capacity, a better measure of its underwriting exposure, has reduced by more than total capacity as the company opted to cede an increasing proportion of risk to reinsurers and other third parties for the 2026 YOA. Retention has reduced to 46% of gross capacity for the 2026 YOA, from 68% for the 2025 YOA and 77% for the 2024 YOA. 2026 YOA retained capacity is therefore c £217m compared with £332 for the 2025 YOA and £404m for the 2024 YOA. Lower retained capacity for the 2026 YOA should release regulatory capital over time as the larger 2024 and 2025 underwriting exposures run off. However, the latest solvency exercise faced upward pressure as the lower-capacity 2023 YOA was replaced by the substantially larger 2024 YOA within the three open years used in assessing capital requirements.

Outlook: Robust returns should continue

While the main driver of HUW’s NAV return is the development of pipeline profits, bolstered by investment and other income and offset by expenses, capital efficiencies and a lean capital structure are also important factors. HUW’s stated strategy is to deliver sustainable NAV return through disciplined capital management and operational efficiency. We have seen clear evidence of moves towards improved capital efficiencies through the company’s rebalancing of its risk portfolio, increased exposure to freehold capacity and reduction in retained capacity. We have also seen clear evidence of the company’s willingness to drive a lean capital structure by distributing surplus capital to shareholders. Together with operational efficiencies, these strategies should stand the company in good stead in navigating a potential downturn in the Lloyd’s underwriting cycle and to deliver acceptable returns to investors.