Dear Friend,

For a global (re)insurer, a presence in the Lloyd’s market is often seen as a useful investment in R&D. All the major players are there in one form or another, some simply playing a watching brief as rough ideas are rounded into new products and covers.

And for a journalist this simmering cauldron of (re)insurance activity is a great pointer to where future industry trends lie. Add to this the fact that most of the largest Lloyd’s managing agents are quoted on the London stock exchange and are therefore subject to substantial disclosure rules, and our job gets even easier.

This week has proved more illuminating than most. Now is the start of the planning season for the 2007 year and this week has seen three major players reveal what sort of capacity they envisage deploying into next year’s market.

At this early stage, Hiscox is sticking to £833m ($1,524m) for 2007, the same capacity as 2006. Meanwhile Beazley has announced that it expects to increase its level of capacity, albeit extremely marginally (by £30m) for 2007 to £860m ($1,573m). Given the overall state of the market, and the fact that Hiscox has already committed extra funds to the launch of its Bermuda operation, these stances are easy to understand.

But take a look at Kiln and the contrast is stark.

The guys a couple of boxes down the way are really going for it — they’re planning a whopping 25% increase to top their rivals and exceed a billion pounds ($1,830m) capacity for the first time.

What’s more, the lion’s share of the expansion is coming from a 118% increase in capacity for the firm’s catastrophe syndicate to £120m ($219m).

The rationale offered was “on the assumption that 2007 will be a year of moderate catastrophe activity, it will be one offering excellent underwriting opportunities.”

Quite! The great thing about the Lloyd’s market is that it is never one that allows a contrarian opportunity to pass it by. To parody Kiln’s remarks, the global market has talked itself into “the assumption that 2006 and every other year in the near future will be a year of appalling catastrophe activity”.

Well, someone begs to differ, and what’s more, they are willing to put their money where their mouth is. It is amazing to think that this time last year Kiln was planning to reduce overall capacity to £630.5m for 2006 – 12 months later and we’re talking a figure 58% higher than that for 2007.

How refreshing! And what a testament to the flexibility the Lloyd’s platform can still bring.

The sun is in the sky, the stars are in the heavens, and the spirit of Cuthbert Heath is alive and well at Lloyd’s!