Lloyd's decision to slash capacity has led to a fall in price competition among insurers, a report by analysts Equity Development claims.
The report said the reduction in Lloyd's stamp capacity from £15.1bn in 2004 to £13.7bn in 2005 had reduced competition because insurers' effective capacity shrank "roughly in line with the decline in rates".
The reduction in insurers' capacity is because underwriters reduced their reliance on qualifying quota share agreements which increase their capacity, the report said.
The report also pointed to the departure of unprofitable Lloyd's insurers as a further cause of reduced capacity.
"Most of the worst underwriters have left the market either because they lost too much money or because the franchise board has cancelled their registration."
The report said that the biggest cost to insurers was not competitive undercutting but the level of commission paid to brokers.
"We consider the level of commission is still far too high, resulting in funds available to pay claims being only two thirds of gross premiums paid."
Commissions can be up to four times insurers' operating costs, the report said.