At one stage, there was talk of up to pounds 2bn in institutional money waiting to enter the insurance market. The prospect raised fears that Lloyd's would not have enough capacity to go round, forcing some vehicles to compromise on quality or dilute returns. But, as many have found to their embarrassment, it has been easier to raise fears than funds.
Two of the biggest investment trusts planning to enter the Lloyd's market closed last week, as another three started trading. CLM Insurance Funds will announce tomorrow how much it has raised, but it has already indicated that applications will be met in full. This suggests it has not reached its pounds 110m target, though it is 'up and running', says Michael Wade, head of CLM Advisers.
Between them, the five funds have raised pounds 500m. An additional pounds 233m has been secured by seven other vehicles that have not yet closed their doors to investors.
The total is slightly more than half the pounds 1.4bn that would be raised if both the vehicles and the funds yet to be launched met their official targets. But this looks increasingly unlikely. Lutine Capital Corporation and London Market Investors, the two US companies, talk of raising dollars 600m ( pounds 405m) between them, with various British vehicles contributing a further pounds 273m.
However, the fate of Nelson Lloyd's Trust, scrapped last week only days after the release of its prospectus, confirms that institutional hunger for Lloyd's is not nearly as strong as expected. Cazenove and Lazard Brothers - two of the most blue-chip names in the City - were forced to cancel their plans when it became clear they would not hit their pounds 60m target.
The demise of the Nelson trust has brought the total casualty count to four, but a number of other trusts have been forced to revise their ambitions sharply downwards. HCG Investment has scaled back from pounds 100m to pounds 65m and SG Warburg is believed to have modified plans to raise pounds 100-150m with New London Capital, which has yet to be launched. Among the bigger trusts, only Limit, the vehicle jointly backed by James Capel and Samuel Montagu, has fulfilled its original ambition to secure pounds 280m.
Several of the smaller trusts have fared rather better. Premium Underwriting has raised the size of its fund by pounds 3m to pounds 33m, in response to strong institutional interest, while Roberts & Hiscox, the Lloyd's agency behind Hiscox Select Insurance Fund, has announced plans to raise another pounds 25m for a second trust. The fact that shares in the first are now trading at a premium suggests it has good reason for such confidence.
However, the discrepancy in the performance of the funds is not just a factor of size. It is also a result of differences in speed, structure and strategy. Those vehicles that formulated their plans at the start of the year have been noticeably more successful than the Johnny-come-Latelys.
The prospectuses reveal more profound structural and tactical differences. Some funds have been set up as investment trusts in order to avoid capital gains tax. The rest have been set up as companies either because, like the US vehicles, they operate under a different tax regime, or because they do not want the restrictions imposed by investment trust status.
For example, investment trusts can only offer personal equity plans if more than 50 per cent of their capital is invested in equities. They are also obliged to pay 80 per cent of their profits in dividends. These limitations - and the desire to separate investments so that if one syndicate does badly, it will only have access to part of the capital - have spawned a number of complex two-tier structures, with subsidiary companies created to do the writing.
Together with differences of structure come those of strategy. Limit, for example, has been designed as a tracker fund. After conducting a due diligence process that has won it almost universal respect, the trust has spread its risk across 98 syndicates. Other funds have taken the opposite tack, choosing to focus on a few syndicates with a reputation for quality.
Differences in strategy have also dictated where the various vehicles seek their funds. Although most of the money has come from institutions, the investment trusts are legally obliged to offer a quarter of their shares to the public. A very few funds have been designed as bespoke companies for high net worth individuals. Corporate Membership, for example, has tapped rich investors in Hong Kong and some of the Arab states, who have not previously been attracted to Lloyd's.
But although the influx of new capital is unlikely to be nearly as much as first anticipated, there will still be pressure on capacity. 'In February, it looked as if natural names would provide about pounds 6bn to pounds 6.5bn in capacity,' says one sponsor. 'Then Lloyd's said they could carry forward their losses from the previous year. They are now expected to provide about pounds 8.8bn of capacity, and some names have even doubled their exposure.'
With an injection of corporate cash in addition to the resurgence of existing names, some underwriters fear there will be too much money in search of the estimated pounds 11bn capacity. 'If you have that much corporate capital sloshing around, it could kill premium rates,' says one, although there is no sign yet that this is happening.
Some syndicates also believe that they have been pushed into absorbing more capital than they really need. Under pressure from potential corporate members, they have pledged capacity they do not really possess, with a corresponding dilution of returns.