GIBRALTAR-Insurance and captive managers in Gibraltar are predicting a rapid growth of business in the southern Iberian domicile following a decision by a Lloyd's of London syndicate to move part of its operations there.

Several Lloyd's syndicates already have announced that they are moving their automobile insurance operations out of Lloyd's to Gibraltar and other syndicates are considering similar moves, insurance managers in the British colony say.

A hardening market, lower capitalization and operational costs, and an approachable and responsive regulatory regime are among the reasons cited by insurers and managers in Gibraltar for the growing interest in the domicile.

Although a recent entrant among offshore insurance centers, Gibraltar claims that its European Union membership plus a regulatory and legal framework based on the United Kingdom is attracting companies wishing to establish operations outside of London.

Haywards Heath, England-based Zenith Group announced last month that it would move its Lloyd's auto underwriting operations to Gibraltar by February 2003. The insurer plans to continue writing its commercial and household insurance through Zenith Syndicate 2002 at Lloyd's.

"One of our objectives is to stand on our own two feet and be master of our own destiny, to have certainty of our future and certainty of how much capital we have each year," said Zenith's managing director John O'Shea.

Under Gibraltar's capital requirements, which are based on E.U. minimum solvency requirements, insurers' capital must be at least 18% of their annual premiums, whereas Lloyd's has a 35% of annual premiums capitalization requirements. Also, operational costs also are cheaper in Gibraltar, several observers say.

Insurance managers in Gibraltar estimate that up to 20 Lloyd's syndicates are considering setting up operations in Gibraltar. Most of these write retail accounts, primarily auto business, but some of the operations could involve commercial risks, according to Bruno Callaghan, managing director of Willis Management (Gibraltar) Ltd.

One of the benefits of any Lloyd's syndicate moving to Gibraltar is that they reduce their contributions to the Lloyd's Central Fund, which is based on premium revenues. Currently, auto syndicates pay 1% of premiums to the Central Fund and other syndicates pay 2%.

Gibraltar is particularly attractive to personal lines insurers, such as auto insurers, where underwriting is more formula-based than commercial property/casualty business, said Alan Kentish, managing and technical director of BDO Fidecs Insurance Management Ltd. in Gibraltar.

Mr. Kentish does not predict an exodus of property/casualty syndicates from Lloyd's, which place greater value on the Lloyd's franchise, overseas licenses, face-to-face broking, the subscription system and Lloyd's insurance ratings.

Auto insurance syndicates do write commercial risks but they also write large volumes of retail business, which does not always require access to Lloyd's brokers and a subscription market, they say.

Roger Jones, chairman of Lloyd's Motor Underwriters Assn., estimates that capacity in Lloyd's auto insurance market has declined from £1.5 billion in 2001 ($2.18 billion) to about £800 million ($1.26 billion) in 2002.

The reasons include syndicates moving to the London company market and offshore and Lloyd's capacity switching into other areas of insurance, such as property/casualty, where rates are increasing dramatically, he said.

The responsive regulatory market in Gibraltar is an attraction for many insurers in the current hard market, said Chris Johnson, general manager of Aon Insurance Managers (Gibraltar) Ltd.

The reduction in capacity is creating a need to establish underwriting facilities quickly, and Gibraltar's regulatory authorities are able to respond more quickly than larger regimes, while maintaining similar regulatory standards to the United Kingdom, said Mr. Johnson. Gibraltar's Financial Services Commission is appointed by the U.K. government and licenses and supervises financial institutions in accordance with E.U. directives.

Gibraltar's growth "is a response to the current market circumstances," agreed Paul Savignon, chairman of the Assn. of Gibraltar Insurers & Insurance Managers.