Lloyd's has been urged to monitor the performance of under-achieving syndicates if it is to achieve predicted profits for 2006.

Moody's Investors Service has predicted profitable results for Lloyd's during 2006 based on current underwriting margins, with its current forecast at 10% of capacity, assuming "normal" loss incidence.

But, in a report published by the rating agency -

Lloyd's of London: Standing up to the Hurricanes - it said that although the franchise performance directorate had brought improvements to the market, further risk management work was still required.

Moody's said that systems introduced, combined with a recognition of the need to act early against potentially under-performing syndicates, had enabled Lloyd's management to reduce the extent of losses seen in previous insurance downturns.

Following the directorate's first major test - the 2005 hurricanes Robert Smith, Moody's vice-president and senior analyst, and author of the report, said: "The positive outcomes were that no syndicates were placed into run off as a result of the hurricanes and there were only a limited number of syndicates that exceeded their modelled catastrophe losses by a significant margin."

But with some syndicates having to rely on external capital support after the hurricane season there was still further significant work that the FPD had to do prior to the next downturn, according to Moody's.

Smith warned: "Lloyd's cannot afford to allow similar instances of being reliant on external capital to pay cash calls in order to protect its Central Fund."

Lloyd's welcomed the report. A spokesperson said: "We are pleased that Moody's has recognised the progress being made at Lloyd's, particularly the systems put in place in recent years by the franchise performance team."