Lloyd's of London 'set to shrink'

THE Lloyd's of London insurance market will shrink next year for the first time since the 9/11 terrorist attacks on the US in 2001. Lloyd's chief executive Nick Prettejohn said today that the market's underwriting capacity - essentially the ability to write premiums - would come down by 9% to £13.7bn in 2005. The decrease confirms the City's feeling that the insurance cycle is beginning to soften.

But the fall is less than predicted before the devastating hurricane season in the US, which cost the industry almost $18bn (£9.3bn). One of Lloyd's biggest underwriters, Hiscox, was arguing for a 15% drop in August. Lloyd's has been desperate to avoid the mistakes of the late 1990s when companies continued to chase new business despite a downturn in the market. Premiums fell amid fierce price competition and underwriters who took on too much risk were pushed to the brink by a raft of claims.

Prettejohn said: 'Given current market conditions and the focus on delivering underwriting profit, it is a positive sign that there has been a decrease, not an increase, in capacity at this point in the insurance cycle.'Capacity is a function of planned activity. Just as important will be the amount businesses actually write during the year, taking account of market conditions as the year develops.'

Capacity hit a record £15bn last year.