Lloyd's Amps Up Insurance and Reinsurance Capacity This Year

Up to 40% of the capacity increase at Lloyd's is the result of foreign currency exchange rates, Business Insurance reports, with the pound falling to $1.50 -- not the $1.99 rate through 2009. The rest is coming from new market entrants, organic growth and premium rate increases.

Since 2001, Lloyd's has doubled its capacity, and the market took advantage of fairly high financial strength ratings to rake in profits of nearly $23.5 billion from 2001 through the first half of last year.

Moody's Analytics, which is a unit of Moody's Investors Service (MCO), also expects a 27% increase in capacity at Lloyd's this year but allocates only 20 percentage points of the gain to currency exchange rates and only one percentage point ($263.3 million) to the four new syndicates that will begin underwriting this year. The rest, Moody's says, is from new business and rate increases in certain lines of business, such as marine and aviation.

The increases in capacity will enable Lloyd's underwriters to maintain the lines they offer for insurance and reinsurance business that is denominated in U.S. dollars, says James Vickers, chairman of Willis Re International (WSH). Without the currency adjustment, Lloyd's capacity isn't substantially higher in 2010.

Established Lloyd's underwriters have increased their capacity substantially. Kiln Ltd., for example, expects its Lloyd's capacity to increase by 28.9% this year, up $2.55 billion, with half the gain resulting from currency drivers. It has also accommodated a 16% increase in gross written premium based on the 2010 exchange rate. Beazly, which is looking to launch a new property treaty reinsurance syndicate this year, isn't planning for hefty growth.

The increase in capacity at Lloyd's comes on the heels of what is a benign reinsurance renewal for primary insurance writers. According to reinsurance intermediary Aon Benfield (AON), property-catastrophe reinsurance rates are off 5% to 15% from a year ago.