LONDON (Bloomberg) — Lloyd's of London, the 319-year-old insurance market, is encouraging insurers to reduce capacity as premiums across all lines of business fall, chief executive officer Richard Ward said."Our position is very clear," Ward said at the Association of Lloyd's Members annual conference in London yesterday. "We should be growing into a hardening market and contracting into a softening market. We are entering into a softening market."

Lloyd's insurers, buoyed by rising catastrophe rates last year following record storms in 2005, are now facing falling premiums. Hiscox Ltd., a Lloyd's insurer that relocated to Bermuda from London last year, earlier this week said US catastrophe contracts as well as premiums in other "big ticket" businesses including political and terrorism insurance are falling. It plans to cut the capacity of a Lloyd's unit by a fifth next year.

Lloyd's has increased control over insurers operating in the market and wants to maintain profits as premium rates come under pressure. It's also making its process more efficient to compete with markets such as Bermuda, which has no corporate tax. "Capital management is at the top of my agenda," Ward said. "We will focus on underwriting discipline and we will focus on underwriting for profit." Lloyd's will "take action accordingly" on those insurers who don't adhere to Lloyd's underwriting standards, he said.

Ward may also penalise companies that fail to comply with his reform targets by imposing higher transaction fees and requiring insurers to hold more capital. Ward's targets include making all claims transactions electronic by the end of the year.

"That is proving a challenge," Ward said. About 30 percent Of Lloyd's companies had so far complied, he said.