Lloyd's Capacity Still On The Rise
Demand to put new capital into Lloyd's of London is triggering one of the most significant periods of mid-year growth for the London-based insurance market, one of its leading executives says.
With the insurance market at its most attractive for underwriters in a decade in terms of pricing, Lloyd's syndicates are heavily engaged in capital raising programs to take advantage of the conditions, according to Julian James, director of worldwide markets at Lloyd's.
Lloyd's market capacity has already risen from $19.1 billion at the start of 2002 to a new mid-year high of $19.6 billion, Mr. James noted in a recent speech to agents and insurers in Whistler, Canada at the Western States Surplus Lines conference.
In addition, $671 million of Qualifying Quota Share arrangements–a type of reinsurance contract–have been approved to further expand underwriting capacity, with over $784 million more awaiting approval, Lloyd's noted. Much of this QQS capacity has come from Bermudian reinsurers and major European firms, Lloyd's said.
Additional capital raising could boost Lloyd's basic capacity as high as $20.2 billion by year-end, without taking QQS arrangements into account, according to Mr. James.
He pointed out, however, that these requests to increase capacity are subject to approval by Lloyds, indicating that Lloyd's would not necessarily give the green light to unlimited capital increases because of concern that it could fuel a premature return to a soft market.
"As stock markets around the world continue to underperform, insurance premiums are rising and are expected to provide positive returns for several years to come," said Mr. James. "This demonstrates the contra-cyclical nature of insurance markets like Lloyds."
However, he added, "it is not our intention to allow Lloyds to be flooded with so much capital that a soft market is created. Indeed, we are very aware of this possibility."
He said that "these strong trading conditions combined with our program of radical but sensible modernization proposals are creating a modern, transparent and profitable business fit for the future."
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 12, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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