Plan for syndicates to provide rolling loans to boost reserves to £2bn

Lloyd's is set to introduce a new syndicate loan system in an effort to boost the size of the central fund.
The decision to shore up the fund is to comply with the FSA's capital adequacy requirements.

Under the new system, syndicates will provide rolling loans to the central fund in order to increase the size of its reserve to £2bn. The fund totalled £711m in 2003.

Lloyd's has yet to finalise details, but one idea mooted by chief executives at Lloyd's is that the loans will amount to around 0.5% of each syndicate's capacity upon implementation of the scheme.

But this figure will rise to around 2%-3% of syndicates' capacities by 2008.

Lloyd's managing agents have welcomed the proposals which will see the levy each syndicate pays to the central fund decreasing, with the balance being made up by a returnable loan.

"Under FSA regulations, the central fund has to have sufficient capital to prevent financial ruin," said one managing agent chief executive.

"If this can be in the form of capital that can be loaned [from the syndicates] on a rolling basis, as long as we don't have any major disasters we will get the loan back".

A Lloyd's spokeswoman said: "We're still pulling the proposals together. They will be finalised in September."