Capacity growth appears to have stalled at Lloyd's as the economic downturn in Europe and changes in investors' risk appetite put the brakes on continued growth, according to a report from Guy Carpenter.
The reinsurance broker, a subsidiary of Marsh & McLennan Companies, which also owns insurance broker Marsh, released a report today detailing the capacity history of Lloyd's of London from 2007 to 2011.
The report says that at the beginning of this year Lloyd's capacity stood at £24 billion ($39 billion at the current exchange rate). That capacity volume reflects 1 percent growth on a year-over-year basis, says Guy Carpenter.
This stands in stark contrast to the years 2007 to 2011. During that period, Guy Carpenter says Lloyd's capacity jumped 48 percent from close to £16 billion ($26 billion) to slightly more than £23 billion ($37 billion).
From 2009 to 2010, capacity jumped 35 percent before recession fears in the United Kingdom and Europe "created a risk adverse attitude towards investments and limited the availability of capital."
That trend turned around slightly in 2012, the report indicates, as capacity rose about 6 percent.
Guy Carpenter says economic uncertainty and new monetary regulations governing capitalization under Solvency II "may limit growth of new start-up syndicates."
Responding to questions sent by e-mail, Matthew Day, senior vice president and EMEA Business Intelligence Practice Leader for Guy Carpenter says the broker does not believe capacity will build much for the rest of the year.
"We don't expect that many syndicates will be increasing their capacity mid-year during 2012, as it is unlikely that the business needs exist, and growth opportunities have not increased since the start of the year," he says.
The report also highlights that the primary contributor of capacity to Lloyd's continues to be the U.K. insurance industry, followed by worldwide insurance industry and then the United States.
In 2011, 39 percent of Lloyd's capacity came from the United Kingdom, while 22 percent came from worldwide insurers. The United States made up 17 percent of that capacity.
From 2007 to 2011, though, capacity from the U.K. insurance industry dropped 10 percent.
Bermuda insurers have increased their capacity investment over the years, going from 5 percent in 2007 to 10 percent in 2011.
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