The Lloyd's franchise board is likely to refuse to authorise SunRise, the proposed professional indemnity (PI) insurer headed by former SVB chief executive Rupert Villers.
The insurer was scheduled to begin trading at Lloyd's in April, but market sources said the franchise board was "reluctant" to approve the insurer.
Villers declined to comment on the application for Lloyd's authorisation. But sources close to SunRise said the franchise board had been "discouraging" when discussing the insurer's application.
The source said that SunRise would "conclude its discussions with Lloyd's" before considering an application for direct authorisation by the FSA.
It is understood that SunRise is still in discussions with capital providers and is looking to amend its business plan.
Villers developed the business plan for SunRise together with former SVB finance director Philip Whittaker.
Villers was chairman of the SVB group when it suffered its well-documented reserving problems. SVB Holdings reported a loss after tax on ordinary activities of £88.3m in 2001.
In November 2003, Insurance Times revealed that Villers was in talks with capital providers with a view to raising between £100m and £150m, either from Bermuda or private equity finance.
Villers was aiming to launch SunRise in April and produce gross written income of £125m in the first year, increasing by 50% in the second year.
The Lloyd's franchise board has expressed concern about the large amounts of PI capacity flooding into the market.
Lloyd's fears a price war and has warned managing agents that it will stop them underwriting if there are any signs of undercutting on PI rates.
A number of insurers have entered the PI market in recent months.
Last year, Catlin Insurance Company Ltd (CICL), which focuses on specialty lines including PI, was launched with a capacity of around £150m.
Meanwhile, Abacus Syndicate 2526, which is targeting £40m of PI business in 2004, began trading last month.