The move comes as the syndicate, which is managed by Mr Merrett's agency company, has incurred losses of more than pounds 60m in the 1990 underwriting account.
Accumulated losses on one of the worst trading accounts for the syndicate, for 1985, have topped pounds 150m. Hundreds of underwriting members are mounting legal action against Merrett Underwriting Agency Management, the group that manages the syndicate.
Explaining the background to Mr Merrett's decision to step down, the Merrett organisation said that he would in future concentrate on business development.
'The matter of Stephen Merrett's succession as underwriter of syndicate 418 and role within the group has been under consideration for some time,' the organisation said.
Mr Merrett will concentrate on how to develop new financing arrangements for the Lloyd's market using corporate capital. Barnabas Hurst-Bannister will take over as the professional underwriter for syndicate 418.
The underwriting agent RJ Kiln is to leave its accounts open on syndicate 123. The syndicate is facing losses of pounds 5.8m after a wave of pollution insurance claims.