The $7 billion reinsurance deal between Berkshire Hathaway andEquitas is the best news for the Lloyd's market in quite some time.For while Lloyd's has taken giant steps to restructure its capitalbase, upgrade its internal management structure and streamline itsoperations, there was always a black cloud looming over its head,with some concerned about whether the market's pre-1993 lossfacility would have enough pounds on hand to cover its mammothasbestos and environmental liabilities.

Thousands of individual Lloyd's investors, known as “Names,” canachieve a sense of closure at last, and new investors can pony uptheir money confident that the market's financial crisis is behindit once and for all.

The deal–detailed by Dan Hays in NU's Oct. 30 edition, with its implicationsexplored by Caroline McDonald in a sidebar–was described on our cover lastweek as a “rescue” of Lloyd's by Berkshire Hathaway CEO WarrenBuffet. The CEO of Equitas, Scott Moser, might have summed it upbest by stating that “Names wanted to sleep easy at night, and wethink we've just bought them the world's best mattress.”

Mr. Buffett's massive commitment tells me that Equitas was mostprobably in better shape than many people might have thought. Mr.Buffett is no fool–he obviously believes he can settle anyremaining claims facing Lloyd's from years (even decades) ago,while still turning a profit. His reinsurance empire is certainlybetter suited to handle this transition successfully. However, Igive the players at Lloyd's credit for coming up with Equitas inthe first place, and seeing that it was properly run, thusrestoring confidence in the world's most famous and most reliableinsurance market.

So, what happens now? Some say the reinsurance cushion willencourage more investment in Lloyd's, but Wendy Baker, president ofLloyd's America, doesn't expect any short-term impact.

At an elegant press dinner on Monday night attended by reportersfrom BusinessWeek, Forbes, The Wall Street Journal, Bloomberg,Reuters and yours truly, Ms. Baker noted that Lloyd's hasn'texactly had a hard time attracting capital lately–and that, infact, some capital had been turned away in the market's quest towrite coverage responsibly. If rates continue to slide the waythey've been falling this year, she said Lloyd's would certainlynot be opening any capital floodgates.

“We're on target for a very strong year,” she said–hastening toadd, however, that “the year is far from over.” Last year, sherecalled, Lloyd's at first expected to cut back on capacity, butafter Hurricane Katrina hit–driving up property rates–the marketended up increasing capacity by 9 percent. That's how a soundinsurance market should work.

The arrangement with Berkshire's National Indemnity is far froma done deal, with regulatory approval pending. However, one cansense that Lloyd's has already turned the corner, and is ready tofocus more vigorously on what Ms. Baker sees as the market'sbiggest challenge–giving up its paperwork-intensive culture andleveraging the cost savings technology could provide.

They certainly have the right person in place as CEO toaccomplish this, as Richard Ward–who came aboard in late April–hasan electronic background in the energy futures market. Mr. Ward–whoI referred to as “The Mystery Man” in a June 19 NU column because he hadn't made himself available for anypress interviews about his intentions for Lloyd's–finally made hispublic speaking debut last month at the Chartered InsuranceInstitute conference. (He has yet to agree to any one-on-ones withthe media.)

Mr. Ward, in his speech, noted that Lloyd's has plenty of room for improvement,given the fact that the market generates four tons of paper everyday, “enough to fill two jumbo jets every year.” But he doesn'texpect one huge change, instead promising “bite-size solutions thataddress specific problems and combine to have maximum impact…”

He also made it clear that he does not envision Lloyd's itselfbecoming an electronic market, preferring to preserve its classicface-to-face business model, stating that he sees Lloyd's retaininga real, rather than a virtual trading floor “for the foreseeablefuture,” while insisting that Lloyd's must “be supported byefficient business processes.”

Where do you see Lloyd's going? Have any suggestions on how themarket can improve its operations? Feel free to weigh in below.