Lloyd's to reduce underwriting capacity by £150m

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The Independent Online

Lloyd's of London, the UK insurance market, is to cut back its underwriting capacity by £150m this year, to take account of a gradual reduction in rates that has been creeping over the industry since the second half of last year.

Overall capacity across Lloyd's 75 syndicates is set to be £15.95bn for 2008, down from record highs of £16.1bn in 2007. It is only the second time in the past 10 years that Lloyd's has reduced its capacity year-on-year – the last time being in 2005.

Premiums have been falling in recent months, due to a particularly benign period of natural disaster claims. Rates soared in 2006 and 2007 following a spate of heavy storm claims in 2005 – including Hurricane Katrina, the world's most expensive hurricane to date, which devastated New Orleans in August 2005.

A number of Lloyd's insurers, including Amlin, Hiscox and Kiln, have returned capital to shareholders and several others have said they plan to cut their underwriting capacity in the market to maintain underwriting discipline as risk prices come down.

In a statement released yesterday morning, Lloyd's said 2008 would be the last year it issued details of its underwriting capacity ahead of the start of a new year. Instead, it will now simply provide retrospective data showing how much business has been written.

Lloyd's has been expanding at a rapid rate in recent years, extending its reach into new foreign markets, as well as attracting new private investors. Last year, the business launched a new branch in Shanghai, securing a licence to underwrite in the local currency – which represents some 90 per cent of the country's insurance industry. This year, the market is expected to expand into Latin America, starting in Brazil.

In the UK, an increasing number of wealthy private investors have begun investing in the market again. Thousands of private investors – or "Names" – lost their investments at the start of the 1990s when Lloyd's came close to bankruptcy.