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Lloyd's review highlights need for diverse capital base


Following the completion of a review, Lloyd's of London has decided to continue accepting capital from individual investors, known as Lloyd's Names. Lloyd's instigated its review of how investor's capital is provided to Lloyd's insurers, through what is known as the annual venture, as part of Lloyd's "Strategic Plan: Building the Optimal Platform"—published in January this year.

The market group, which conducted the review—chaired by Lloyd's Chairman Lord Levene—concluded that there is a place for both private capital, supplied by individuals, and corporate trade capital in the London-based insurance market. However, the review also concluded that the current "one-size-fits-all" approach to the annual venture was no longer viable, and proposed two options to allow for greater flexibility and to further strengthen the Lloyd's market.

In a letter to the market, Lloyd's chairman said that "there is consensus in the market that Lloyd's benefits from a diverse capital base," and that the "annual venture structure supports this diversity". "We, therefore, have no plans to disturb the current terms on which private capital participates. However ... it is clear that the current basis on which private capital participates is not a sustainable model for the future," Lord Levene said.

In addition to the letter, Lloyd's issued a report in which it identified two alternative models through which private capital could participate--through a more flexible agency agreement and special purpose reinsurance syndicates.

"I would encourage managing agents and those representing private capital at Lloyd's to explore these and other possibilities," he said.