The headline figure doesn't tell the whole story. Lloyd's has attracted enough capital to support a stamp capacity, or premium income limit, of £11,063m for the 2001 year of account. That makes the market about £1bn larger than it was in 2000. However, behind the increase is more than £1bn in capital withdrawals, and although they were amply offset by almost £2bn of new capacity, they show that not all investors have upped their stake at Lloyd's.

On the plus side, a number of large syndicates increased their capacity significantly, and three start-up operations introduced about £237m. As for the reductions, 21 syndicates with a combined 2000 capacity of £766.2m have thrown in the towel (including Marlborough syndicate 62, which ceased underwriting just three weeks into the new year), accounting for about three-quarters of the hidden fall in capacity. Syndicate mergers were a contributor, although the capacity of some merged syndicates was deployed into their merger partners, resulting in no net change.

Disappearing acts

More important is the impact of absolute withdrawals from the market. A handful of managing agents are behind the closures, three of which have been relegated to run-off management, or have disappeared altogether. AE Grant Underwriting, manager of the loss-making syndicate 991, was the most recent to go. Ironically, it was a victim of its owners' other Lloyd's interests. Standfirst Holdings owns 81% of the business and is itself co-owned by Limit, the managing agency acquired by Australian insurer QBE Group earlier this year, US insurer Markel Corporation, which owns the former Octavian syndicates, and the insurance investment vehicle Riverside Underwriters, which had owned and capitalised Sterling Underwriting until Lloyd's revoked its trading licence last year.

In what came as a great surprise to AE Grant's management and underwriters, the co-owners pulled the plug in late November. The loss-making non-marine syndicate, which derived 40% of its income from US sources, left Standfast Insurance Services looking for new sponsors, and saw Central and Eastern European Reinsurance Services (CERES), former leader of the CERES Consortium at Lloyd's, head out of the market to Tryg-Baltica. In total, the closure of AE Grant caused more than £57m of capacity to depart Lloyd's (or, in the case of QBE's cash, to be redeployed to Limit, now the market's largest player).

Brief encounter

Just before the AE Grant debacle, PXRe, the small US reinsurer which has “re-domesticated” to Bermuda to reduce its tax bill, fled Lloyd's following a short flirtation with Lime Street. Gerald Radke's reinsurer, perhaps unfairly, was effectively driven from the Lloyd's market under the weight of severe capital loadings imposed by the Corporation of Lloyd's, and an overbearing hostility brought by many of the market's great and good against some of its principals.

PXRe's brief encounter with Lloyd's included launching (then collapsing) syndicate 1224, which wrote a retrocession and accident and health account, the run-off of which for 2001 shrank market capacity by £35m.

It also ran the lone captive-at-Lloyd's on behalf of drugs giant Smithklinebeecham. And it acted as the outsource provider of managing agency services to UK motor insurance operations Zenith and Admiral. The pair had hired PXRe after successful 1999 management buyouts from XL Brockbank (then simply Brockbank), and have since formed their own managing agencies. Their syndicates, 2002 and 2004, have increased their aggregate capacity by £64.4m, in anticipation of better times in the UK motor market.

The third disappearing agency was RGB Underwriting, whose syndicate 1171 came to an unceremonious end when its US backer and agency owner, US reinsurer Capital Re, which was bought by Ace of Bermuda last year, withdrew its support of the £10m group life insurer. In December 1999, after touting the agency for sale for many months without success, Capital Re put the mixed-account syndicate 490 into run-off, after it saw huge claims under extended warranty policies.

Syndicate mer-gers were the Lloyd's cost-cutting logic of the late 1990s, and they continued in 2001 with the disappearance of the last syndicates named after John Julius Angerstein, the grand old man of Lloyd's who found the cash to move the market out of a coffee shop and into the Royal Exchange back in 1774. The syndicates have been merged by their new owner, LSE-quoted Amlin, into syndicate 2001, the umbrella syndicate comprising the former Murray Lawrence underwriting units. Syndicate 2001 is now the third-largest at Lloyd's, after the capital behind Angerstein syndicates 902, a traditional marine business, and 1141, a well-performing US non-marine property/casualty operation, was redeployed into it, and another £37m of capacity was added in a standard pre-emption.

Cotesworth & Company, the agency owned and backed by Australian liability insurer HIH Insurance, has continued its syndicate merger programme, combining its four syndicates into two. Marine syndicate 228 has been combined with syndicate 535, which for 2000 had swallowed excess of loss syndicate 536, to create a broad-based marine and energy business.

Also for 2001, syndicate 1069 was combined with newish corporate syndicate 1688, primarily a reinsurance syndicate including the former company-market business of HIH's European branches. Syndicate 1069 underwent major changes after the bulk of its underwriting team left in 1997-8 to form Octavian syndicate 1239 (which itself saw a £16m capacity increase for 2001 following a rationalisation of the former Octavian agency by its new owners, Markel International). However, for Cotesworth the recent mergers mark a shrinkage of its capacity: increases on syndicates 1688 and 535 did not match the capacity that had been lodged with the expiring syndicates.

Overdue rationalisations

Markel has delivered a long-overdue rationalisation of the sprawling Octavian business, which it acquired when it bought the agency's owner, Terra Nova (Bermuda) Holdings, in March 2000. Two syndicates, 329 and 1227, have ceased, and in aggregate Markel has reduced its total Lloyd's capacity, now deployed across four syndicates, by £69.5m to £270m. Crowe Syndicate Management, under the direction of Bermudian owners Stockton Re, has eliminated three of its six syndicates, with combined capacity in 2000 of about £82m. Aviation syndicates 53 and 808, the former backed 100% by Stockton, and marine reinsurer 1121, also Stockton-backed, have all ceased, marking a significant withdrawal from the traditional lines.

Remaining Syndicates 963, 982, and 1204, which cover motor, life, and US non-marine liability respectively, saw aggregate capacity fall by £39.2m, with only 1204, which saw a loss of about 85% of stamp in 1998, increasing its capacity. A new underwriter and deputy were appointed to the syndicate last year. All told, Stockton withdrew about £112m of capacity from the Crowe agency. In addition, Kingsmead Underwriting's aviation reinsurance syndicate 271 has ceased for 2001, further changing the balance of the aviation business in Lloyd's. Kingsmead is owned by the secretive Toronto-based Fairfax Group.

A major strength

SVB's £30m syndicate 1415, a facultative reinsurer, has been folded into marine syndicate 575 in ongoing rationalisation following SVB's merger with CLM. The survivor's stamp increased by about £8m more than the combined stamp of 2000, and SVB deployed another £36m across its other three syndicates, making it the seventh-largest agency in the market. QBE collapsed Torch motor syndicate 877, after an MBO of Ensign motor syndicate 980, its mooted merger partner, closed the opportunity.

St Paul managing agency shed two syndicates, 314 and 1191, merging the latter, a UK property business, into broad-based reinsurer syndicate 582. Syndicate 314, a US property/ casualty business, ceased after various underwriters departed. St Paul's remaining business, comprising the former Gravett & Tilling, Ashley Palmer, and Cassidy Davis agencies, includes six syndicates which look in need of further rationalisation. Net capacity increases for St Paul for 2001 total £64.8m.

Other changes include the disappearance of MMO syndicate 1265, a marine business that has been transformed into the new syndicate 2010, Elvin Patrick's new venture through Cathedral Underwriting, comprising many of the former Limit reinsurance syndicate 566 team. Despite their departure, QBE has raised 566's stamp by £11m for 2001. Marlborough Underwriting, formerly owned by CGNU and now in the hands of Berkshire Hathaway, has ditched three syndicates with combined 2000 capacity of £103.5m. DP Mann, however, has increased its capacity by £142.6m, with the intention of opening an aviation book, after its plans to launch a second syndicate fell flat. Some £25m was slashed from the stamp of marine Syndicate 1861, formed by CGNU to underwrite its marine business after the disappearance of the Institute of London Underwriters, and the other remaining Marlborough syndicate, 1047, looks like a likely candidate for a future merger or run-off.

Syndicate capacity changes and withdrawals have been always been facet of Lloyd's, and indeed are one of its major strengths. They allow investors and underwriters to redeploy capital to respond to changing markets. However, the mergers and withdrawals for 2001 show a market in continued transition. Many property and reinsurance-based syndicates have been launched or increased their stamp for 2001, but other sectors, particularly marine and aviation, have seen a flight of capital. Most of Lloyd's motor businesses have left composite agencies to form specialist underwriting units, reflecting the different underwriting and distribution needs of a commodity product. And many large agencies that were acquired by foreign insurance interests have reorganised and reduced their stamp in the process. Such rationalisations are likely to continue in the coming years, as Lloyd's continues to reshape itself.