Lloyd's Capacity Down 9% For 2005
NU Online News Service, Dec. 16, 11:58 a.m. EST?The Lloyd's market announced today it expects to have the capacity to underwrite ?13.7 billion ($26.6 billion at current exchange rates) in business next year.[@@]
According to Lloyd's, this represents a reduction of approximately 9 percent from 2004′s capacity?a development which Lloyd's said reflected the market's "disciplined approach to current market conditions."
Lloyd's said its announcement follows detailed discussions with each business in the market about their plans for 2005, and approval of those plans under Lloyd's franchise arrangements.
Announcing the provisional figure for 2005 capacity, Lloyd's Chief Executive Officer Nick Prettejohn said under the new franchise arrangements, syndicates at Lloyd's "have to take a hard look at how much business they plan to write in the coming year."
Mr. Prettejohn said that given current market conditions and the focus on delivering underwriting profits, "it is a positive sign that there has been a decrease, not an increase in capacity at this point in the insurance cycle."
In his view, "capacity is a function of planned activity. Just as important will be the amount businesses actually write during the year, taking account of market conditions as the year develops. We will be monitoring this closely."
According to Mr. Prettejohn, "the fundamental financial strength and attractiveness of this market have both been underlined this year. Striking examples of this were the market's ability to ride the worst U.S. hurricane season for a century, and the success of our recent debt issue."
Lloyd's said the ?13.7 billion capacity figure is provisional, subject to final data checks, and will be made final in the first quarter of 2005.
The market's January 2004 capacity stood at ?15 billion ($29.2 billion) and by year-end, capacity increased to ?15.1 billion ($29.3 billion), Lloyd's said, noting that those numbers are exclusive of qualifying quota-share reinsurance.
Lloyd's reported there have been no applications for qualifying quota-share (a form of short-term capital) for 2005.
It was also mentioned that from 2005, Lloyd's will be accounting under U.K. generally accepted accounting procedures, instead of the market's traditional three-year accounting basis. Consistent with this, from 2006, capacity is expected to be expressed on a GAAP basis.
Lloyd's explained that capacity is currently stated after deducting brokerage and commissions. On a GAAP basis it will be stated before deducting brokerage and commissions, and this will make a substantial difference in the way the figures are reported.
By example, the final 2003 capacity of ?14.9 billion ($29 billion), expressed on a traditional basis, equates to a capacity of approximately ?18.3 billion ($35.6 billion) on a GAAP basis.
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