Lloyd's is aiming to increase its financial strength and improve its position in the eyes of the FSA by boosting its central fund.
Sources close to Lloyd's said that the insurance market is aiming for a £2bn central fund by 2008. A Lloyd's representative refused to discuss the size of the central fund but said that it was looking at options for increasing strength. Lloyd's reserve is currently £711m.
Neil Coulson, partner of the financial services division at Littlejohn Frazer said: "Lloyd's doesn't want its current rating of A- to slip down any further. If anything, Lloyd's needs to go up a grade to be comfortable in the eyes of analysts and insurance market."
Lloyd's admitted that it does not yet have another reinsurance contract in place to back the central fund to follow its five-year reinsurance deal with Swiss Re.
Experts said Lloyd's will self insure. Coulson said: "It could reinsure with the likes of Swiss Re but this would not be at an attractive price. In all likelihood it will look at self insuring to increase the central fund."
Lloyd's could look at increasing the 1.24% premium it charges on its underwriting members. However, Coulson said: "In all likelihood, it would look at borrowing the money from its members. This would give Lloyd's the advantage of saying it has the resources while not charging its members more."