LLOYD’S MAY RESTRICT QUALIFYING QUOTA SHARE REINSURANCE

Lloyd’s is considering placing further restrictions on the use of qualifying quota share (QQS) reinsurance as part of a wider review of the market’s capital structure carried out jointly with Lloyd’s Market Association (LMA). QQS reinsurance has enabled Lloyd’s syndicates to make full use of the improved trading conditions in the international insurance and reinsurance market over the last 18 months, but there are fears that what amounts to easy access to capital could be a destabilising influence and precipitate the end of the hard market. As a stopgap measure, Lloyd’s notified managing agents in April that syndicates would still be able to increase their capacity by up 30% through QQSs for the rest of 2003 but from thereon Lloyd’s wants to vet any applications for QQS above 10% — half the previous threshold of 20%. The market is now working with the LMA on the whole question of Lloyd’s capital and QQS support will form part of those discussions. Simon Sperryn, chief executive of the LMA, described the review as a “root and branch” look at Lloyd’s capital. On QQSs, he said there was quite rightly a range of views within the market given that some were big users of them while others had none. Lloyd’s will not say how much QQS support it currently has but the total is clearly substantial, with Warren Buffett’s Berkshire Hathaway known to be one of the biggest providers. A year ago Julian James, director of worldwide markets, said that Lloyd’s had approved QQSs of £428m with more than £500m awaiting approval. Lloyd’s direct capacity increased by 17% for 2003, rising to £14.3bn from £12.3bn last year.