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Lloyd’s shrinks in response to falling rates

Lloyd’s revealed last week that its 2005 global capacity is likely to shrink a higher than expected 9 percent to £13.7bn in response to falling rates.

Although the figure is subject to last minute changes, it is based on the approved business plan of each syndicate.

Lloyd’s chief executive Nick Prettejohn remarked: “Given current market conditions and the focus on delivering underwriting profit, it is a positive sign that there has been a decrease, not an increase in capacity at this point in the insurance cycle”.

Lloyd’s capacity had swelled to a record £15.1bn in 2004 as syndicates continued to take advantage of the healthy underwriting conditions. However, this year has seen growing warnings of price falls even in areas such as property catastrophe reinsurance which were badly hit by the US and Japanese storms.

Notable de-emptions from Lloyd’s franchisees include a 15 percent reduction from Amlin – the manager of Lloyd’s largest syndicate – together with contractions from Hiscox, ACE, Limit (QBE), St Paul and Berkshire Hathaway’s Marlborough Underwriting.

There are, however, a small number of Lloyd’s insurers bucking the trend, including AIG backed Ascot Underwriting, while start-ups come in the form of Quanta Syndicate 4000 and Argenta Syndicate 1965.

There are no qualifying quota shares – a form of short-term capital used heavily by Lloyd’s syndicates in 2002 and 2003 when rates leapt northwards.

In 2005, Lloyd’s will be accounting under UK GAAP, which means global capacity figures will be higher because they are calculated before deducting brokerage and commissions.

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