Hampden Agencies, a firm that advises wealthy individuals investing in insurance syndicates, says clients have enjoyed robust returns in 2009, based on latest data.

The business of investing in insurance through Lloyd’s, the network of syndicates, is not a mainstream part of wealth management but this area can generate significant long-term returns, the firm says.

During 2009, HAL members enjoyed an average profit off 26.3 per cent on capacity, the standard measure of this sector. This represents an average return on funds at Lloyd’s of 65.8 per cent. (HAL reports on a three-year basis, after which returns can be distributed to members.)

HAL says 2007 is expected to be a strong year, with returns forecast to rise from 31 per cent to 34.8 per cent on funds at Lloyd’s. It also expects strong profit potential for 2010.

Typically, an investor puts up a sum equal to about 40 per cent of premium income – say £400,000 on £1 million of income underwritten by syndicates. There are 87 syndicates in Lloyd’s, focusing on different insurance risk areas, ranging from cargo ships to industrial buildings. In 2008, premium income across the whole of the Lloyd's market amounted to about £14 billion.

The profit paid out to investors is the unused premium income, minus claims and other costs. In a year when premiums have risen but payouts are low, such as due to mild weather, then the profit an investor earns can be high.

The money an investor puts up does not have to be given straight away to the syndicate; the investor can keep the money in a trust within Lloyd’s and earn a return on that, so he gets two opportunities to earn money.