The outlook for the Lloyd's market as 2006 draws to a close is positive in terms of capacity as well as competing with operations in Bermuda, according to a brokerage firm study.
Those findings came in London-based Benfield's latest "Lloyd's Update" report, which said Lloyd's focus has turned firmly towards active business following its deal to have Berkshire Hathaway take over its Equitas operation, which is running off asbestos and pre-1993 long-tail claims.
The research was done by Benfield's Industry Analysis and Research team
Lloyd's liabilities from 1992 and prior years were separated through the creation of Equitas. While the separation has been effective, according to Benfield, it was not total, and Lloyd's has not been immune from the risk of failure at Equitas.
"Berkshire Hathaway's proposed deal with Equitas will provide finality for the reinsured Names and remove any residual liability, so turning the focus firmly forward," Benfield said.
According to the firm's report, Lloyd's hopes that the transfer of Equitas' liabilities will serve as a catalyst for the reinstatement of the Standard and Poor's "A plus" rating, which was lost after 9/11. Lloyd's continues to work hard for this target, it said.
Phase 1 of the Equitas deal is expected to be complete in March 2007, and this is seen as a pivotal time for a potential upgrade, Benfield noted.
The Benfield analysis said rating drivers are a key consideration in the evolution of the Lloyd's "Optimal Platform" strategy, while the 2007 "Franchise Directorate" planning process has formally incorporated measurement of their impact.
During the past year, Lloyd's capacity increased by over ?1 billion ($1.95 billion in current exchange rates) to ?14.8 billion ($28.95 billion), Benfield noted.
The firm said capacity has also been enhanced with the formation of Thunderbird Re and Syncro Ltd.
While 2007 market capacity has yet to be announced, Benfield said indications from the Lloyd's listed vehicles, coupled with the new syndicates, suggest a figure close to ?16 billion ($31.3 billion).
Benfield said that in addition to new syndicates, stand-alone ventures and sub-syndicates have been formed.
After the transfer of business from Lloyd's to Bermuda with the establishment of Bermuda operations by Hiscox, Amlin and Omega in 2005, "the creation of new syndicates in 2007 does much to counter the picture of a one-way flight path to Bermuda," the report said.
"There has been much discussion about the merits of Bermuda relative to Lloyd's, but augmentation of capacity through new ventures and new vehicles suggests that the London market is in good health," observed Angela Coad, from Benfield's Industry Analysis and Research Team.
"Those who have re-domiciled are keen to stress that London is a key platform, and Lloyd's is intent on ensuring that this continues to be the case," she said.
The Benfield report noted that in the first half, Lloyd's had a combined ratio of 86, while gross written premiums rose by 19 percent.
A full copy of the report, entitled "Venturing Forward," can be viewed online at www.benfieldgroup.com/research.
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