Michael Wade's attempts to merge Lloyd's businesses have stirred investor interest, says Anthony Hilton

The small quoted insurance companies that make up the constituency of independent Lloyd's vehicles (ILVs) in the London market must hang together. So says Michael Wade, a long-time player in the market and chairman of Capital Insurance Holdings.

Wade's core case is simple. He says the companies are too small to attract the attention of London's professional investors. Because these investors have such huge sums to place, they have time for only relatively large companies - the likes of Aviva and Royal & SunAlliance.

All the Lloyd's companies together would not be as big as Aviva. Being small they can have little impact on the institutional fund's performance even if they do well.

Wade says that if half a dozen of the smaller ILVs merged, then it would create a £2bn company, which would have the necessary resilience. It would also become a 'must hold' for anyone seeking a stake in the insurance business, because it would, uniquely, be a pure play on the London market.

But Wade's latest attempt to live the dream has once again been thwarted. His recent attempt to raise a war chest for acquisitions failed to get enough financial backing.

If he gets the wherewithal to make a bid, the institutional investors still might back him, but not with cash, only paper. He might have seen this coming, though, because the Catlin and Admiral flotations clearly showed that they didn't want to put money into small companies.

So what happens now? The companies will not merge of their own volition because the managements all want to be their own bosses and continue to enjoy the senior executive perks that comes with the job. They say too that their flexibility and success results from their being small and nimble, so merging would kill their spirit.

Wade denies this. He says they could retain their flair under a suitably designed corporate umbrella. He also says that if they think they can stay small indefinitely they are being naive. Sooner or later they will be mopped up by the big American or European insurers. That, says Wade, really would be bad for Lloyd's and kill its spirit.

Two things are happening now. One is that the brighter of the ILVs is going for growth outside the Lloyd's market, something which its names never used to allow, but which shareholders seem relaxed about. The more they do this however, the more they dilute the Lloyd's connection, which is the thing that makes them special.

What is more intriguing is that people are beginning to see Wade's capital-raising failure as Lloyd's loss as much as Wade's. They are beginning to talk seriously about the risks of doing nothing, as well as the difficulties of achieving consolidation.

It is a bit early to describe this as a new mood sweeping the market, but don't write the consolidators off just yet. They might yet return and surprise us all.