Official decision due in September

Lloyd's is set to cut the premium levy it charges on most business written in the market, delivering a significant boost to many underwriters.

The premium levy currently stands at 2%, or 1% for UK motor and life, and is charged on business written by syndicates at Lloyd's. The levy was increased to 2% from 1.1% at the end of 2001 to help rebuild the central fund, the market's safety net for policyholders.

It generated £246.8m last year for the central fund, which totalled £476m against £280m a year before.

The levy was increased by 0.9% following the 11 September terrorism losses.

The premium levy is paid monthly by all syndicates and is distinct from the new central fund contribution, a 1% charge on allocated premium limits.

The official decision to cut the levy is likely to be taken in September by the Council of Lloyd's. Industry sources suggested that, barring a catastrophic loss, it would no longer be needed.

A reduction in the cost of doing business could also help stem the drift of businesses away from the market.

High profile Lloyd's operations have set up outside the market, like Wellington, which bases its Aspen Re reinsurance arm in Bermuda, where costs have been estimated at 4% lower than within Lloyd's.

Lloyd's-based operation Kiln this week confirmed it would take a 20% stake in a planned FSA-regulated professional indemnity insurer backed by US giant WR Berkley.

The risk of Lloyd's losing businesses to lower-cost environments was acknowledged this week by franchise performance director Rolf Tolle. He said: "Our best businesses have generated world-class performance. Our worst have produced substantial losses that have cancelled out the good performance.

"The cost of the mutual element of our financial structure, which is increased by the poor performance of the few, must be kept to a level that is competitive for the many."