With consolidation on the cards at Lloyd's, the smart money is behind Buffett

The news that US investment guru Warren Buffett is planning a fresh assault on consolidating Lloyd's certainly set tongues wagging at the Lloyd's summer party last week. But the overriding view was that while the idea seemed nice in theory, it may prove more difficult in practice. Pundits cite the egos and personalities involved at several of the syndicates, as well as the sense in merging some Lloyd's businesses, which are rather niche in nature, as potential stumbling blocks. On the upside, however, was the view that consolidating the listed Lloyd's players using a listed investment vehicle should prove relatively straightforward, based in large part on the depth of

Buffett's pockets. As one of the richest businessmen in the world, money shouldn't be a problem, but perhaps the issue of commitment may be. In December last year, news emerged that Buffett would reduce his investment in Lloyd's through his company Berkshire Hathaway during 2004. Is it possible that Buffett has since changed his mind? Or was this the signal that the notoriously savvy Buffett had found a better way to drive value out of his investment at Lloyd's than by providing capacity direct to individual syndicates?Aside from prompting a radical reform at Lloyd's, one of the biggest potential impacts of Buffett's ambitious plan is that it could sound a death knell for the softening market and grind rate decreases abruptly to a halt. The theory goes that if Lloyd's syndicates consolidate, fewer players will again drive rates up, something which could flow through to other parts of the UK insurance market. The backing of Buffett is significant. Shortly following the revelations, Lloyd's expressed its delight at the affirmation of it's A (strong) financial strength rating and stable outlook by Standard & Poor's, sentiment with which Buffett must no doubt agree. And as he is notorious for his nous and good timing, the smart money will be following him into Lloyd's.