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The $7 billion reinsurance deal between Berkshire HathawaysNational Indemnity Company and Equitas was the best news for theLloyd's market in quite some time. For while Lloyd's has takengiant steps to restructure its capital base, upgrade its internalmanagement structure and streamline its operations, theres alwaysbeen a black cloud looming on the horizon.

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The question was whether Equitas--Lloyds pre-1993 runoff lossfacility--would have enough money to cover the markets lingeringasbestos and environmental liabilities. Such concerns were largelylaid to rest once and for all with this agreement.

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Meanwhile, thousands of individual Lloyd's Name investors canfinally achieve a sense of closure, and new investors can pony uptheir money confident the market is free from old losses atlast.

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The deal was described on our Oct. 30 cover as a "rescue" ofLloyd's by Berkshire Hathaway Chief Executive Officer WarrenBuffett. Equitas CEO Scott Moser summed it up best by observing:"Names wanted to sleep easy at night, and we think we've justbought them the world's best mattress."

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Some say the added reinsurance cushion will encourage moreinvestment in Lloyd's, but Wendy Baker, president of Lloyd'sAmerica, doesn't expect any short-term impact. At a press dinnershortly after the deal was announced, Ms. Baker noted that Lloyd'shasn't exactly had a hard time attracting capital lately--and that,in fact, some capital had been turned away in the quest to writecoverage responsibly.

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The arrangement with National Indemnity is not a done deal, withregulatory approval pending. However, one can sense that Lloyd'shas already turned a corner, and is ready to focus more vigorouslyon the market's biggest challengesmodernizing its paper-intensiveculture, while leveraging the cost savings technology couldprovide.

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They certainly have the right person in place as CEO toaccomplish this, as Richard Ward--who came aboard in lateApril--has an electronic background in the energy futures market.(For Mr. Wards vision for Lloyds, see NU's Dec. 11 coverstory.)

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Meanwhile, in a series of speeches across the country, topLloyd's officials have been warning the industry of the dangers ofallowing the softening market to get out of control. Despite ourcurrent good fortune, Im going to make a strong case today that weare still standing near the edge of the cliff, said Julian James,Lloyds director of worldwide markets, at last month's annualmeeting of the Property Casualty Insurers Association ofAmerica.

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He said that if insurers do not focus on underwritingperformance rather than write for market share, make terms andconditions as important as price, and stick with lines they knowand can price properly, the industry will drift back into thefinancial intensive care ward.

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I think Mr. James, as usual, makes a lot of sense, but I wonderhow clearly the rest of the industry will hear him in the stampedeto chase marketshare as prices keeps dropping. It's always easierto walk the walk of underwriting discipline in a hard market.

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How do you think the market will play out next year?

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