LONDON-A leading corporate backer of Lloyd's of London has warned the market that it must make big changes in order to remain competitive and ensure its survival. And some other London market executives are expressing concerns that London is losing out to Bermuda and other markets as new capital enters the industry.

In a speech to the Insurance Institute of London last week, Anthony Markel, president and chief operating officer of Markel Corp., blasted Lloyd's and warned underwriters that Lloyd's must make "structural, fundamental, gut-wrenching change" just to survive, "let alone realize its full potential in the new global economy."

Mr. Markel said that syndicates' underwriting results must improve if Lloyd's is to attract new capital. He slammed what he described as "a pervasive institutional arrogance" within the market that he said "belies logic and, frankly, is totally unsupported by results." Glen Allen, Va.-based Markel backs syndicate 3000 at Lloyd's, which has £200 million ($292.6 million) of capacity for 2002.

Mr. Markel added that the market had been tarnished by lawsuits and allegations of mismanagement, and that costs and client service were also areas of concern. "You got a clean slate in 1992 with the formation of Equitas (the runoff reinsurer for Lloyd's pre-1993 long-tail liabilities) and it took you less than a decade to totally screw it up again," he said, according to a transcript of his speech.

Mr. Markel suggested several steps that the market should take to reform itself and attract new capital. These included reducing costs, improving standards of service and undertaking radical regulatory changes.

Lloyd's declined to comment on Mr. Markel's observations.

Other market practitioners agree that Lloyd's and the broader London market face problems. In particular, they point out that most of the $25 billion in new capital that has entered the insurance and reinsurance marketplace since the Sept. 11, 2001, attacks has been raised in other markets. For example, Bermuda startups have raised about $6.56 billion in capital, and existing Bermuda-based companies have raised $3.4 billion, but U.K. companies and Lloyd's entities have raised just $1.97 billion in new capital, according to an analysis by Standard & Poor's Corp. in New York.

Indeed, despite Lloyd's record capacity of £12.3 billion ($17.63 billion) for 2002, some market practitioners fear that London is losing out to Bermuda and other markets with regard to new capital.

"With a more positive long-term backdrop, some of that (new capital) would have come to Lloyd's," Mr. Markel said in his speech to the IIL.

Callum Stewart, managing director of nonmarine reinsurance business at London-based broker Heath Lambert Group, expressed dismay that more capital is being pumped into Bermuda than into London. Some business that has traditionally been led in London is now being led in Bermuda because of the influx of new capital there, Mr. Stewart said.

"For example, on Canadian business, the Bermudian companies are picking up a lot of business, because they will write terrorism cover. Terrorism is not seen as a big risk in Canada," he said, adding that a lot of Canadian business has traditionally been underwritten in London.

Heavy regulation of insurers in the United Kingdom could be dissuading new capital from setting up shop there, he said.

"Since last year, there has been an exodus from the London company market," said Mr. Stewart, citing some of the big-name departures, including Liberty Mutual Insurance Co., The St. Paul Cos. Inc., CNA Financial Corp. and Copenhagen Reinsurance Co. Ltd. "The regulatory environment must be a reason for that. It is a serious situation," he said.

Mr. Stewart added that high-profile insurance company failures, such as the collapse of Independent Insurance Co. Ltd. last June, were unlikely to help the situation, as regulation would only to be tightened in the wake of such failures.

John Gilbert, president of New York-based reinsurance brokerage Holborn Corp., shares some of Mr. Stewart's concerns.

"The London market has always shown resilience and always seems to bounce back after difficult times, and I hope this'll be no exception. Except at the present moment, there is plenty of capital flowing elsewhere," he said.

Mr. Gilbert said that one of London's great advantages is that it is a subscription-based market with a variety of strong financial organizations in close proximity to one another.

But, "The other markets are not far behind....you can walk around Hamilton, Bermuda, in a very short space of time," he said.

Mr. Gilbert agreed that the regulatory environment in London needed to change for the market to attract a significant amount of new capital.

Others, though, see no current cause for concern about London's future.

"Obviously, they are competition, but (the new Bermuda companies) are not yet doing the larger, complex risks," said James Illingworth, managing director of Lloyd's managing agency Amlin Underwriting Ltd. Those risks, Mr. Illingworth noted, have traditionally come to London.

And Marie-Louise Rossi, chief executive officer of the London-based International Underwriting Assn., said she was optimistic about the position of the London market. "Ten years ago, a lot of capital went into Bermuda, and a lot of people said, `This is the death knell of the London market.' But what actually happened was that that capital traded in Bermuda for a couple of years and then came to London and set up offices here," she said. Ms. Rossi pointed out that large Bermuda players such as ACE Ltd. and XL Capital Ltd. have London offices and are active in the London market.

"I see no reason why that situation should not happen again," Ms. Rossi said.

In today's insurance market, there is no need for capital and expertise to physically be located in the same place, she said.

A spokesman for Lloyd's said that the market had attracted roughly the amount of capacity that would be expected. "If you look at the statistics in terms of new capital created worldwide, (Lloyd's) has got about 5% of it. We represent about 5% of the world's business," he said, noting that, therefore, the market had attracted its expected share.