One of the oldest names at Lloyd's has gone to the wall. After almost 150 years of trading in Lime Street, Cotesworth has stopped underwriting and gone into run-off. Although it had managed to trade through many cycles and tough times, it was the advent of corporate capital into Lloyd's which killed it off.

Australian insurer HIH received approval to buy the agency in 1998, but since then has seen its Lloyd's silk purse turn into a sow's ear. Then HIH became insolvent in March this year and Cotesworth failed to find another backer to provide it with capacity for the 2002 year of account.

If the agency's losses exceed the letter of credit provided by HIH, there will be a shortfall which will need to be met by the Lloyd's Central Fund. And with other Lloyd's insolvencies looming on the horizon, things are looking pretty grim.

This is not, however, all doom and gloom. The withdrawal of capacity represented by these failures also points to decreasing competition and rising rates. The market is long overdue for a substantial correction in pricing and the lack of investment income from poor capital market performance is exacerbating the situation. As economic conditions toughen, buyers will become more risk-averse, demanding more coverage and the flight to quality will be well and truly under way. Long live the cycle!