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Lloyd's 'better positioned' to weather soft market conditions

Lloyd’s is “better positioned” to weather the current insurance cycle thanks to recent initiatives to shore up capital and limit pressure on the central fund, according to rating agency Moody’s.

Senior analyst Robert Smith described Lloyd’s as an “attractive and effective trading platform” and said it would be able to endure pressures from the softening conditions in the market due to “increased central resources”.

Smith said the popularity of the market in 2008 had seen new entrants bring capacity of around £1bn – some 6 percent of the total capacity – with them while acquiring existing syndicates had increased capacity by around £2bn in 2008.

In its latest report on Lloyd’s, Smith praised the overall management of the market for introducing a number of initiatives to improve trading conditions.

He also highlighted the establishment of the Franchise Performance Directorate (FPD) – which monitors loss-making syndicates – and other measures including improved access to the market and tackling contingent liability from run-off vehicle Equitas.

Although Lloyd’s was in a stronger position than in previous cycles, according to Smith, the real test would come in the event of an insurance downturn.

 “However, with the downturn now developing, Lloyd’s is still awaiting the ultimate test of its new procedures and revised membership profile in an insurance downturn,” he said.

Smith said that Lloyd’s had also benefited from good trading conditions in recent years, benign loss experience and strengthened central resources.

The rating agency also said that its “global franchise, access to diversified business, the ability to trade using letters of credit and its reduced capital requirements” had helped develop the market.

However, Smith warned that the market could face competition from tax havens including Bermuda, Switzerland and Ireland.

“The main concern for Lloyd’s would be if the infrastructure and underwriting expertise were developed in Bermuda or perhaps more relevantly Dublin or Switzerland to rival that of the London market,” he said.

“Moody’s believes that it is the lack of qualified personnel available to work in these areas, relative to the high concentration of skilled insurance professionals in the London market, which is currently a significant drawback to further, significant migration of business.”

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