LONDON-Tough market conditions with little prospect of change have forced Lloyd's of London syndicate 1224 to stop writing facultative reinsurance.

Peter Butler, underwriter for syndicate 1224, said the L10 million ($15.7 million) capacity the syndicate was offering for facultative business was not enough to compete with large insurers for the best business. Up until the end of last year, the syndicate was offering capacity of L5 million ($8.3 million), but it boosted capacity at the beginning of the year in order to remain competitive.

Lloyd's agency Janson Green Ltd. recently has made a similar decision and has ceased writing non-proportional reinsurance business on syndicate 79.

At the beginning of 1997, syndicate 1224, managed by PXRE Managing Agency Ltd., started writing a diversified book of accident and health, excess of loss treaty, and direct and facultative business. Since the syndicate's inception, competing facultative capacity has increased substantially, and large outfits are offering up to $200 million, said Mr. Butler.

"We started off optimistically and believed we could write through the market with a decent book of quality business," he said. But market conditions have consistently toughened, while competitors have become stronger.

"I don't believe it is realistic for us to compete for business of the quality we would like to write" with the amount of capacity the syndicate has to offer, Mr. Butler said. "We think that, for people like us, the prospects are very poor."

The agency is retaining class underwriter for facultative business David Killelay for the next few months to organize the runoff of the business.

Mr. Butler said the syndicate would "much prefer to continue with (facultative business), but we just didn't feel we could justify the commitment going forward."

Facultative reinsurance represented less than 10% of the syndicate's book, he said, and "we couldn't see it building up to a meaningful proportion of business without (loosening) our underwriting standards."

Instead, the syndicate is diversifying. It has recently hired David Armes to write a U.K. professional indemnity book of business. Mr. Armes previously was the underwriter for syndicate 820, managed by Murray Law-rence & Partners Ltd., part of London-based Lloyd's insurance group Amlin P.L.C. He left Amlin in March.

More recently, Amlin Chief Executive Officer Richard Keeling quit the organization at the beginning of this month, just days before Amlin's annual general meeting. Finance Director Charles Philipps was immediately named as Mr. Keeling's successor.

This brings the number of Amlin board executives down to just three, including Deputy Group Chief Executive Officer John Stace, a former deputy chairman of Lloyd's, and Group Director of Risk Management David Harries. Mr. Harries-a longtime colleague of Mr. Keeling-was voted back onto the Amlin board at last week's annual general meeting.

Amlin is likely to make announcements about the management of the organization in a few weeks' time, said Mr. Philipps. "We don't want to rush. . . .We want time to get consensus about the key roles and developing them," as well as ensuring the right management structure is in place, he said.

The announcement of Mr. Keeling's departure coincided with the notification of Amlin subsidiary Amlin Underwriting Ltd. by Lloyd's that it must increase its capital backing of syndicate 2001 by 10% for the 2000 year of account. All underwriters recently filed their business plans for next year with the Lloyd's authorities.

Following a review by its underwriting agents department, Lloyd's regulators decided the risk-based capital ratio-the needed ratio of capital to premium volume based on the riskiness of the business-should be raised. Amlin Underwriting determined that this means its total risk-based capital ratio will be 46% for the 2000 year of account.

Because of the increased load requirement, Amlin has decided to defer its merger of syndicates 902 and 1141 into syndicate 2001, though Amlin hopes to have the loading removed before syndicate 2001 starts to write next year.