MONTE CARLO--With a softening market cycle well underway andunderwriting discipline being the mantra of ratings agencies,Lloyd's is calling for the same in its markets, its chief executivesaid.

"We see a softening cycle, for 2008," Richard Ward told NationalUnderwriter here. "For us the important thing is that we maintainunderwriting discipline--write the right business at the rightprice and that we don't chase market share."

Mr. Ward also commented on the strength of Lloyd's, reflected instrong ratings and propelled by the March reinsurance transactionbetween Equitas, Lloyd's runoff entity for asbestos andenvironmental claims, and Berkshire Hathaway subsidiary NationalIndemnity Corp. National Indemnity now reinsures all of Equitas'liabilities and provides a further $5.7 billion of reinsurancecover to Equitas.

"We had very strong financial results in 2006," said Mr. Ward,adding that Lloyd's continues to build its brand and expanddistribution in countries such as China and Singapore.

"So, while it's a strong position to be in, we need to becautious on the softening side," he said, noting that Lloyd's is"hearing encouraging noises" from its market that "they're going tocut back activity for '08." He added, "I wouldn't be surprised ifwe see a reduction in premium income."

Mr. Ward explained that this wouldn't necessarily be reflectedin capacity numbers because "capacity is future expectation of whatwe might write; it's not what we actually do write. Most people settheir capacity numbers high."

Since utilization capacity is always less than overall capacity,he said, "I would expect premium income to be down for 2008 as wemaintain discipline and don't chase unprofitable business."

Mr. Ward added that he will be curious to see how marketconditions are responded to.

"The insurance business is an interesting business," he said. "Icome from an exchange world, where it's all about growth, growth,growth and volumes, and one year has to be up on the previousyear."

Before joining Lloyd's, Mr. Ward served as CEO for London-basedInternational Petroleum Exchange. "Generally we delivered 50percent growth year-on-year in volumes, and therefore in revenues,"he said.

The insurance industry, however, must respond to marketconditions, he noted. "We shouldn't expect to grow into a softeningmarket," he advised. "Grow into a hardening market; shrink into asoftening market."

Reacting to talk here about the strength and capacity of theBermuda markets, Mr. Ward said he welcomes the competition.

"Competition is good for business," he said. "It encourages youto do your business more efficiently and effectively." He addedthat the rise of Bermuda "has encouraged the London market to lookmore closely at how it processes its business."

Mr. Ward said part of the momentum behind Lloyd's initiative totransform the market with technology has been "driven by theperceived threat of competition." He said he sees the Bermudamarket as another market, "along with the U.S., Dublin, Dubai andthe Far East."

He also acknowledged that Bermuda is a very important market forLloyd's, "because we both compete with Bermuda and complementBermuda. A lot of our investors come out of Bermuda." In fact, henoted, Validus and Ariel, to name two, have recently bought intothe Lloyd's market place.

Mr. Ward observed that Bermuda is well positioned to service theU.S. market, while Lloyd's is positioned to service the globalmarkets as well as the U.S. "We offer a very diverse book ofbusiness--a specialist book of business," he said. "That's where wehave our strengths, which will insure that we continue to get theright business flowing into the Lloyd's marketplace."

China, another growth area for Lloyd's, is "extraordinary, andLloyd's needs a presence there," he said.

The China office was opened in April of this year, a culminationof six or seven years of development work.

With a license to operate in China and an office there, Lloyd'spresence is being established, Mr. Ward said. Four managing agentsare now operating out of China: Caitlin, CV Star, Travelers and AceTempest Re.

Mr. Ward said that results from the China operation may be along time coming. "This is a new business venture for us. So itwill take a while to build a presence in the local market, to getacceptance from the local insurers, and to develop those businessrelationships that we need for that business to ultimately flowthrough that entity."

He added, "It's a long-term investment, so we're optimisticabout the China venture--but not in the short term."