Speaking at a press conference here during the Risk and Insurance Management Society's annual conference, Mr. James noted that the rest of the industry as a whole still posted combined ratios well above that of Lloyd's despite historically low catastrophe losses.

"We do need to keep in mind that to a certain extent, we and the entire insurance market were lucky in terms of disaster losses," he said. Noting that the U.S. primary insurance industry posted a combined ratio of 100.7 last year, while U.S. reinsurers came in at 101.2, he said that "our 90.7 ratio is where analysts say you must be to assure an adequate rate of return to investors, yet clearly the industry as a whole is not there yet despite the low catastrophe losses."

Mr. James said "the industry must maintain underwriting profitability. That is the only sustainable, winning business strategy."

Should any Lloyd's syndicates begin underpricing business to boost premium volume at the risk of underwriting profits, the Franchise Board oversight system, established last year, will step in to demand an explanation and seek corrective action, the Lloyd's officials noted.

"The franchise director offers a guiding hand to syndicates," explained Lord Peter Levene, chairman of Lloyd's. "The franchise director has the advantage of overseeing the entire market, so he can bring that insight about market conditions to individual syndicates."

Syndicates are monitored on an ongoing basis and formally reviewed each quarter to judge how well they are implementing their business plans. Those who deviate dramatically from their goals, and who won't or can't justify their shift in strategy, could be asked to exit the market.

However, Lloyd's is not trying to unreasonably cramp the style of its underwriters, its leadership emphasized.

"The franchise director is not there to micromanage the Lloyd's market, which has built its reputation on its entrepreneurial flair and expertise," added Mr. James. "He is not looking over the shoulder of every underwriter on every risk. What he does is define the risk parameters of the market and make sure that everyone is committed to a sensible business plan that is geared to producing an underwriting profit."

Lloyd's syndicates are "not going to increase their profits just by taking on more business that loses money," added Mr. Levene. "They just can't wave a magic wand and produce more profits simply by stamping their name on more risks, no matter what the price. They have to continue to write business rationally. This is how we hope to assure continued profitability even during down markets and to avoid massive losses in any given year."