View from City Road: Third division for Lloyd's

As if Lloyd's of London does not have enough problems of its own as an insurance market, enter the London Underwriting Centre. From 4 October this year the biggest concentration of underwriting capacity that has been seen in London for years will start operating, posing a real competitive threat to Lloyd's when that market is embarked on an ambitious programme of recapitalisation.

On the face of it, nothing looks exceptional. Twenty-two arms of insurance companies are to begin underwriting under the same roof in spanking new headquarters in neo-Gothic Minster Court, based in the City's Mincing Lane, a mere five-minute leisurely stroll from Lloyd's of London.

These companies have already been in business a long time. But their decision five years ago to develop a market format is a radical development that places Lloyd's traditional marketplace under attack. Insurance groups such as Eagle Star, Commercial Union, General Accident, GRE, Royal, Norwich Union, Sun Alliance, Swiss Re, and Zurich Re, which are all participants at the new centre, have realised the benefits of participating in a market-style environment.

Business volumes can be maximised by centralised activity. After all, centralised information can allow keener prices to be established, which in turn allows business to be gained rather than lost if corporate entities were operating in an environment at some remove from their competitors.

Although there are only 22 participants in the new market-style operation, the scale is, on paper, breathtaking. The indicated combined capital and surplus of the shareholders totals almost pounds 6bn, compared with Lloyd's pounds 8.8bn. And this is just for a market concentrating in largely general or non-marine insurance business.

When this capacity is added together with a similar and more established market just up the road from Lloyd's, the Institute of London Underwriters, formed of marine and aviation underwriters, Lloyd's is placed firmly in the third division.

For customers using the London market, the two rival centres to Lloyd's must have considerable appeal. The wearying rows and internal disputes within Lloyd's have created enormous doubt about whether insurance claims will be paid. Even if the rival markets prove to be more quietly disputatious about claims, at least policyholders will be assured that there is real money backing the operations.