Lloyd's capacity is expected to increase by 7% next year, reaching nearly £15bn, according to market sources.

It is understood that the increase has been fuelled by syndicates looking to take advantage of rising rates in North American property, marine and energy markets fuelled by this year's record hurricane losses.

In January this year, Lloyd's announced capacity for the year was £13.7bn, a fall of 9% on the 2004 figure of £15.1bn.

Lloyd's would not confirm the capacity for next year.

But, last week, Lloyd's chairman Lord Levene said he expected Lloyd's capacity to increase in 2005 on the back of rising rates.

Giving his annual Chairman's View lecture to the Insurance Institute of London, Levene also outlined his views on the progress made by Lloyd's this year and the challenges ahead.

He said that Lloyd's had made "considerable progress" over the last 12 months on franchise performance, process improvement and the development of Lloyd's international trading, although "progress has been stronger in some areas than others".

He said: "Despite this year's record hurricane losses, Lloyd's has proved to be very sound. The storm losses were far greater than 9/11, but it is business as usual. If that doesn't prove that the market is getting it right nothing will."

He said Lloyd's new China licence would not "give us £100m profit overnight", but that it was an investment in the future. He urged brokers and insurers to "consider the opportunities".

Looking ahead, Levene said the market had to show continued underwriting discipline. "There must be no let up on the current focus on financial performance. Pricing must reflect risk and exposure."