Extra reinsurance sought to boost capacity

A capacity crisis at Lloyd's is driving business away from London to overseas markets.

Syndicates are now forced to take out extra reinsurance contracts with Bermudan companies in order to write risks.

The amount of premiums that can be written by Lloyd's has increased from £11bn last year to £12.2bn in 2002. But the capacity is being exhausted rapidly due to rate hikes of up to 1,000% on certain lines, like aviation.

Syndicates are now entering into quota share reinsurance treaties with Bermudan vehicles, where they automatically pass over a proportion of the risk.

This week, Amlin signed a £50m agreement with XL Re. Kiln has also reached an agreement with Arch Re.

Catex European managing director Tom Bailey said: "More business will haemorrhage to Bermuda and the US. London has written a lot less business than it has in the past."

Last month, managing agency Talbot Underwriting raised an extra £40m. Now Syndicate 1183 can write £180m of business in 2002.

But chief executive Michael Carpenter said: "Some agencies are going to find they do not have sufficient capacity."

Carpenter said a couple of privately owned agencies were still looking for more capacity, with one hoping to raise more than £100m.

In January, Wellington Syndicate 2020 upped the maximum amount of premiums it can write by 25% to £625m. However, it has so far failed to fulfil last year's hopes of creating a new underwriting vehicle.

Aon chairman and chief executive Dennis Mahoney said: "In certain areas already we have some capacity crises. Some syndicates will run out of capacity soon if their capital and surplus are depleted."

He added that a number of individuals had tried and failed to raise capital as "people are wary of the insurance industry since we have burnt through a lot of capital in the last ten years".