View from City Road: Scaling down at Lloyd's

It seems that big will not always be beautiful for those groups raising corporate capital for the Lloyd's insurance market. This week we have seen Finsbury Underwriting, the trust working with Wren, one of the cannier members' agencies, trim the size of its planned fund by pounds 5m because of concerns about a shortage of good quality underwriting capacity.

These fears are clearly shared by Stace Barr and Murray Lawrence, the advisers to the Lloyd's vehicles planned by NatWest Markets and Hambros Bank. Far from suffering a shortage of underwriting capacity, Lloyd's may well be awash with corporate capital next year. Where are the mega-funds planned by Sedgwick/Barclays de Zoete Wedd and Samuel Montagu/James Capel going to find homes for all their money?

If the City puts up pounds 2bn of corporate capital, it is hard to see how prudent selection of syndicates is going to be maintained. Those groups that have sought insurance expertise from outside Lloyd's may have particular problems.

These firms may be able to make an intelligent analysis of syndicate results, but that is worthless unless they can secure enough exposure to their preferred syndicates. In this area, traditional members' agencies may have the upper hand.

Corporate capital forced on to the less respected syndicates is unlikely to produce the handsome returns that everyone is currently projecting.

Some of the merchant banks that have found this new area so enticing may have to be less ambitious about the size of their funds.