Lloyd's optimistic about its capacity

THE Lloyd's insurance market yesterday defied gloomy predictions that it will shrink rapidly next year because of defections by members, with a comparatively bullish forecast of underwriting capacity. It expects only a marginal fall from this year's level.

The Lloyd's Market Board said that managing agents, who manage the business of insurance syndicates, were seeking pounds 11.5bn of insurance capacity. On the supply side of the market, members' agents and licensed Lloyd's advisers, who raise and allocate capital to syndicates, expect to provide a maximum of pounds 10.3bn capacity. This year they provided pounds 10.9bn.

The forecast is part of a new Lloyd's plan to give advance notice of capacity trends to ensure that there is no serious oversupply of insurance that could further weaken rates and encourage tough competition for unprofitable business - the cause of some past disasters at Lloyd's.

There are already indications that rates are about to soften across the market. Only 75 per cent of this year's capacity of pounds 10.9bn has been used, compared with 90 per cent in the previous year.

If there appears to be too much capacity when the forecasts are reviewed again in November, the market authorities could cut back the amounts in areas where there appears to be oversupply. But they believe there is no necessity for action at the moment because capacity next year is likely to match market needs.

With critics claiming that capacity next year could be slashed by billions of pounds as angry names leave the market, Lloyd's admitted that the strain of funding their losses could reduce the contribution of individual members, the traditional names. But it said new corporate capital was likely to compensate in part for the reduction in individual capacity.

Lloyd's confirmed it was looking at whether it could change the market's laws to allow new schemes such as one being developed by Citibank that would allow ordinary names to operate with limited liability, through individually arranged corporate capital vehicles. The main block at present is that there is a minimum of pounds 1.5m for corporate capital, larger than most names' involvement.