LONDON -- Lloyd's of London capacity auctions this summer generated record prices as corporate investors paid dearly to increase their participation in the syndicates they manage.

Earlier this year, traditional names at Lloyd's voiced concern that the large corporate members would try to push names out of the market by buying up their capacity at deflated prices. But instead, it seems that names selling their capacity benefited from the corporate buyers' acquisitiveness.

This year saw the auction process augmented both by bilateral deals -- trades outside but related to the auctions -- and direct offers of cash or shares in an agency in exchange for syndicate capacity. Taken together, L1.7 billion ($2.9 billion) of capacity changed hands in one form or another over the summer.

The capacity auctions were responsible for the bulk of this, with trades reaching L1.2 billion ($2.0 billion) -- or more than 10% of Lloyd's 1998 capacity of L10.2 billion ($17.1 billion). Hiscox P.L.C.'s syndicate 33 proved the most popular capacity to change hands, with a total of L111.3 million ($187.0 million) traded over the six auctions, fetching an average of 15.9 pence (26.7 cents) for each pound of capacity traded.

This interest was possibly boosted by Hiscox's members agency advising its names to convert to limited liability status. An analysis by Sedgwick Oakwood Lloyd's Underwriting Agents Ltd. suggests that up to 85% of Hiscox names took this advice. This allowed Hiscox Dedicated Corporate Member Ltd. to buy L60.6 million ($101.8 million) of its own capacity over the whole auction period, though it was competing with other corporate members, such as NLC Name No. 1 Ltd. and members agents' pooling arrangements, which are vehicles allowing individuals to invest in a spread of syndicates.

LIMIT P.L.C., one of the first corporate spread vehicles at Lloyd's, followed the same route as Hiscox, picking up L120.3 million ($202.2 million) of capacity on syndicates belonging to Bankside Syndicates Ltd. and Janson Green Ltd., the two managing agencies that LIMIT bought recently and intends to merge next year. At the same time, LIMIT was heavily involved in selling capacity on non-aligned syndicates. Within the auction process, LIMIT was by far the largest seller of capacity of single syndicates:

* LIMIT (No. 1) Ltd. sold L17.6 million ($29.6 million) on syndicate 2001.

* LIMIT (No. 4) Ltd. sold L13 million ($21.8 million) on syndicate 861.

* LIMIT (No. 5) Ltd. sold L12.3 million ($20.7 million) on syndicate 376.

* LIMIT (No. 6) Ltd. sold L11 million ($18.5 million) on syndicate 37.

* LIMIT (No. 6) Ltd. sold L9.2 million ($15.5 million) on syndicate 1096.

In addition, it was involved in bilateral trades for a number of syndicates, and sold LIMIT (No. 9) to ACE U.K. Ltd.

ACE had announced before the capacity auction season started that it wanted to buy up to 75% of the capacity on each of the ACE syndicates and possibly more if the opportunity arose. At the start of the trading season in July, ACE controlled nine syndicates through Methuen Underwriting Ltd., ACE London Underwriting Ltd. and ACE London Aviation Ltd. It soon added two more syndicates with the acquisition of Tarquin Ltd., the holding company for Charman Underwriting Agencies Ltd. and Tarquin Underwriters Ltd.

In total, ACE Capital Ltd. bought L64.3 million ($108.1 million) of capacity through the auctions, though that was less than two other corporate investors: Hiscox bought L91 million ($152.9 million), and Camperdown U.K. Ltd. bought L85.7 million ($144.0 million).

Camperdown is owned by U.S. insurer The St. Paul Cos. Inc., and it owns three Lloyd's agencies -- Gravett & Tilling Syndicate Management Ltd., Ashley Palmer Ltd. and Cassidy Davies Syndicate Management Ltd.

Terra Nova Capital Ltd. also was a prominent player in the auction process, buying L63.9 million ($107.4 million) of syndicate capacity, some of it from LIMIT. The Lloyd's corporate member offshoot of Bermuda-based insurer Terra Nova (Bermuda) Holdings Ltd. bought into the eight syndicates managed by its agency subsidiary, Octavian Syndicate Management Ltd. This means Terra Nova now will own about 77% of the capacity on the Octavian syndicates for the 1999 year of account, up from about 60% this year.

Nigel Rogers, president and chief executive officer of Terra Nova, said the move "continues Terra Nova's strategy of acquiring capacity when warranted by market conditions and price." Because Terra Nova managed to acquire more than 90% of the capacity on syndicate 554 -- in fact, it picked up 97.24% after the auctions finished -- it has the automatic right to buy out the rest of the syndicate's capacity, which it intends to do next year.

Wellington Underwriting P.L.C. acquired L69 million ($116.0 million) of capacity through both the auctions and an offer to members. It now owns just over 40% of its syndicates' capacity, though it has disposed of its motor and high-net-worth personal lines businesses. Wellington Managing Director Julian Avery saw the capacity acquisition as "very real progress. . .in accelerating Wellington's transition to becoming a specialist insurance company underwriting for its own capital."

At the same time, several managing agencies that previously were unaligned decided the best course of action was to team up with corporate providers.

Hayward Brick Stuchbery Holdings Ltd., the holding company for Chaucer Syndicates Ltd., agreed to merge with Aberdeen Lloyd's Insurance Trust P.L.C., and SVB Associates Ltd. merged with Syndicate Capital Trust P.L.C., another spread vehicle that appears to be opting for the wholly owned capacity route. "We have increased our capacity under management and are well on our way to becoming an integrated Lloyd's vehicle, having acquired L82 million ($137.8 million) of capacity," said SCT CEO Rupert Villers.

Already, the renamed SCT Group has announced it will be setting up a new syndicate for the 1999 year of account, syndicate 1241 underwritten by George Carrington, to write property/casualty business with L50 million ($84.0 million) capacity. And it plans to dispose of capacity on other syndicates not managed by the group.

The most recent to follow this path is Australian insurer HIH Winterthur International Holdings Ltd., which last week announced it has been approved to take over the Cotesworth group of companies, except for the members agency Kiln Cotesworth Stewart Ltd.

Cotesworth Capital Ltd., the Cotesworth corporate capital vehicle, upped its involvement in syndicate 535 to 52.8% from 48.9% over the auction period, though it did not increase its participation in syndicate 1069, where it owns 45.7% of the capacity. Cotesworth Capital provides L49 million ($82.3 million) capacity to the Cotesworth syndicates for the 1998 year of account.

In a written statement, Norman Britten, managing director of Cotesworth, said, "We recognize we need the firm support of a substantial shareholder, and we are confident that in HIH we have identified an organization that shares our business philosophy, and this will enable our syndicates to continue to trade successfully at Lloyd's."

Like other corporate owners, HIH is aiming to take a majority share in the four Cotesworth syndicates and intends to extend Cotesworth's business, both geographically and in product line.

On a smaller level, one of the few remaining unaligned managing agencies, S.A. Meacock & Co. Ltd., decided that limited liability capacity would at last have a place on its syndicate. It announced its intention to set up a small corporate member capitalized through a private placement.

In addition to the change in capacity ownership, the auction period saw changes in syndicate ownership as corporate members restructured their portfolios.

Cox Insurance Holdings P.L.C. agreed with Chartwell Re Corp. to take over syndicate 866 and Archer Personal Lines Ltd. For a while, the Brockbank Group was looking for a suitor for Admiral Insurance Services Ltd., its direct auto arm, albeit unsuccessfully. Duncanson & Holt Syndicate Management Ltd. took over syndicate 1101 from Trafalgar Underwriting Agencies Ltd.

All this activity was reflected in the prices achieved for capacity this year.

Sedgwick Oakwood's analysis shows that the most expensive syndicates were those bought by parent organizations hungry to take over syndicate capacity. Cox syndicate 1176 reached the highest price, at 48.1 pence (80.9 cents) per pound of capacity. Cox also was the highest priced last year, though the capacity was cheaper at 39.5 pence (66.3 cents) per pound.

Bankside syndicate 386 took second-highest position both years, reaching 31.7 pence (53.2 cents) per pound this year, compared with 18.9 pence (31.7 cents) last year.

Other corporate owners showing a thirst for capacity included Hardy Underwriting P.L.C., GoshawK Insurance Holdings P.L.C. and Lomond Underwriting P.L.C., all three buying into their own syndicates.

"The average weighted price (of syndicate capacity) rose by 55% from 5.57 pence (9.36 cents) to 8.97 pence (15.07 cents), which was above our initial expectations earlier this year of a 30% to 50% uplift in values," commented Philip Maidens, director of syndicate research at Sedgwick Oakwood.

Now that the trading season is almost over, more than 50% of Lloyd's capacity is owned by dedicated vehicles, according to Nick Ferrier, Lloyd's analyst at Raphael Zorn Helmsley Ltd.

"This is a major sea change from two years ago, when names were the main capacity providers," he said.

Over that time, managing agencies have realized that merging with corporate backers is the best way of ensuring capacity into the future, he said, and the handful still remaining without corporate parents most likely will not stay that way for long, he said.

"We are very confident Lloyd's will be a wholly corporate market by 2003," he said, with unlimited liability names a thing of the past.