Lloyd's mulls reducing QQS use

Lloyd's is looking to restrict insurers' use of qualifying quota share (QQS) arrangements next year.

The move could trigger a rush to raise capital by underwriters keen to continue cashing in on high prices.

Lloyd's chairman Lord Levene last week confirmed that the market's bosses were considering changes.

He said: "It's something we are looking at."

The contracts stretch an insurer's ability to write business by giving away a share of the risk and its premium.

Underwriters are currently allowed to use QQS deals to leverage their capital by up to 30%.

But Lloyd's last week lowered the threshold at which insurers need its approval from 20% to 10%.

Market estimates suggest there are currently QQS arrangements totalling about £1.5bn.

If forced to give up their quota share deals, many insurers will turn instead to the capital markets to maintain their capacity.

One company that recently renewed QQS deals is Heritage Managing Agency.

Managing director Richard Pexton confirmed Heritage would take advantage of quota shares of between 20% and 30% for each of its three syndicates for 2003.

Beyond that, it planned to raise its own capital.

Pexton said: "Next year, if the market is as good as it is today we would raise more capital and reduce quota share.

"We are going to look at all options of raising capital."

But he ruled out a flotation on the grounds that small plcs were often at the mercy of the insurance industry cycle.