Swiss Re says half Lloyd's of London syndicates face threat of closure

Nearly half of the businesses in the Lloyd's of London insurance market are set to close down because they have been fatally weakened by the tough conditions of the past few years, according to reinsurance giant Swiss Re.

The number of syndicates at Lloyd's is likely to fall from 86 today to about 50, Swiss Re said in a report on the state of the London insurance market.

Thomas Hess, the chief economist of Swiss Re, predicted the worst performing syndicates would have to merge or wind up after being hit by extraordinary liabilities from the 11 September attacks. These have come on top of already very substantial losses incurred in the difficult insurance market of the past few years.

Mr Hess said: "In the 1990-1994 period there was a lot of consolidation, which followed a period of bad underwriting results. We are now in a very similar situation."

Taking 11 September out of the equation, which has hit almost all Lloyd's companies, Swiss Re showed that other losses have been unevenly distributed between syndicates, with some fairing much better than others in recent years.

Swiss Re's report, called Challenges for London, also points out that the last period of difficulty for Lloyd's in the early 1990s led to a shrinking in its share of the global insurance and reinsurance markets.

As it battled with massive losses from asbestosis and disasters such as Hurricane Andrew and Piper Alpha, Lloyd's lost business to rivals such as the Bermuda market and individual insurance companies such as AIG of America.

Mr Hess said the likelihood that Lloyd's will once more lose market share in its time of difficulty depends on whether it can permanently stamp out poorly performing underwriting at syndicates.

Lloyd's is trying to raise standards within its market and will try to push through changes later this year which would make it easier for its governing Council to oust underwriters who consistently perform badly.

Mr Hess said: "If the reforms really succeed in getting underwriting fixed then Lloyd's will keep its position as a major player. Its proposals for reform are a step in the right direction but in the end they have to deliver."

The Swiss Re study also concluded that Lloyd's remains a crucial market for marine and aviation insurance, and is a place where individuals with extensive knowledge of different types of risk are concentrated.