A Lloyd's executive has challenged the widely-held view that the re/insurance market cycle is in a hard market.

A hard market is defined as when re/insurance is in short supply and high demand.

But last week Julian James, director of Worldwide Market for Lloyd's challenged that view, pointing out that more capital has exited the market than has come in.

He added that returns on the invested capital that had been put into the market, had also not been where they should have been in a hard market.

Mr. James, who was taking part in a reinsurance panel discussion, said the Lloyd's market was currently welcoming a "return to profitability" and added that it was their view that they had "outperformed our peers in 2002".

But he insisted results were still not good enough and needed to improve.

"We have not made a decent return for those who have trusted their capital with us," he said. Going through a slide of the Lloyd's market capacity over the last decade, Mr. James demonstrated that the pot had grown from ?8.9 billion in 1993 to ? 14.4 billion in 2003.

Breaking capital down by its source, he demonstrated the diversity of investors putting their money into the venerated London market.

"It is clear to see that we have a diverse capacity base," he said, adding that although the UK listed and other corporations accounted for 35 percent of the market, Bermuda was a strong source with its contribution making up 15 percent (and a thank you called out by Mr. James to ACE vice-chairman Don Kramer (pictured), perhaps indicating the importance of that company's Lloyd's Syndicates, collectively referred to as ACE Global Markets).

When asked why investors continued to put capital behind both new and existing ventures, Mr. James said: "I am predicting capital markets are not going to continue investing. There is no investor queue saying lose us more money. And there is a reluctance to continue to put money in the market."

Although Mr. James said it was clear that money had "flowed" into both the Lloyd's and Bermuda after the market shifted following September 11, he wasn't convinced that would continue: "The investment community do not trust us to give them an adequate return. This is a serious issue," he told the audience of his peers.

And contrary to widely-held public opinion, Mr. James said he didn't think that re/insurance was in a so-called `hard market'.

"I would contend quite strongly that we are not in a hard market, we have not delivered the returns we need to cover the cost of capital," and pointed out that the market was under-capitalised. Mr. James questioned how anyone could say the industry was, and had been, in a hard market: "Claims are all going up. How can we sit here, we are completely in the wrong mind set," he said.

Mr. James said reinsurers should not bank on the investment community hanging around.

He added that it was clear why, saying that for too long re/insurers had ignored that underwriting, not investments, was the backbone of their business.

They have been "seduced by returns in the equities market and forgotten why they are here," he said.

Mr. James added that other issues at play wouldn't help, including signs that other parts of the world are moving towards a compensation system. So far massive lawsuits for virtually any type of injury had been unique to the US legal system, but that was now spreading to the UK, Europe and now to other parts of the globe.

"There are signs that the compensation culture has started to hit Asia and New South Wales," adding that the number of `laying blame' lawsuits had already seen a steep rise in the UK and Europe, and that it amounted to a "huge drain" on the industry.

He said writing re/insurance now was "riskier" given modelling showing greater risk of catastrophes as well as an increase in compensation lawsuits around the globe.