The Lloyd's of London insurance market unveiled plans to change its structure that would alter the way in which individual investors have put money into the market for over 300 years.
A report to market participants sent out on Monday along with a letter from Lloyd's Chairman Peter Levene laid out recommendations for changing the way in which individual investors, known as Names, invest in the market.
Lloyd's said that while it still backed the centuries old custom of Names investing in the market, opportunities for them were becoming increasingly limited as the terms under which they currently invest are seen as being outmoded and unattractive by many of the market's insurers.
Levene said: The current basis on which private capital participates is not a sustainable model for the future.
The report, produced by a committee comprising the heads of two of Lloyd's biggest insurers as well as the chiefs of two of the biggest investment firms advising Names, suggests two new ways in which Names could invest in Lloyd's businesses in future.
The first is by agreeing to a new, more flexible contract in which they invest directly in a syndicate a contract which may not give them as many rights or which terminates at the end of a fixed period.
The other suggestion is that Names should be allowed to set up syndicates of their own that reinsure other syndicates at Lloyd's, thereby allowing them to invest in the market but in limited circumstances and time periods.
The terms under which Names have already invested in the market will not be changed, Lloyd's said.
Names were the backbone of the market's capital base until the early 1990s, when institutional investors and other insurance firms were allowed to put capital into the market.
Since then the number of Names and the amount of capital they have invested in Lloyd's has dwindled.
Today they provide only 19 percent of the market's capacity, and that figure could fall further as Lloyd's businesses look elsewhere for capital as they have increasingly come to dislike the terms on which Names can invest in their businesses.
Common criticisms of Names include their right to remain backers of a syndicate in perpetuity, which requires a Lloyd's business to buy them out if it wishes to change its capital providers.
Another grumble levelled by Lloyd's insurers against Names is that they prevent the firms from pursuing the most effective business strategies such as moving risks from one part of their business to another, for example from London to a new start up in Bermuda where tax rates are more favourable.
Now Names are finding their choice of Lloyd's businesses, known as syndicates, in which they can invest becoming limited.
They only have access to less than half the syndicates in the market, said Lloyd's General Counsel Sean McGovern. So they need to find ways to make themselves more attractive, and they need to increase the level of opportunity they have.
The report was drawn up by Hiscox Chief Executive Bronek Masojada, Wellington CEO Preben Prebensen and the heads of two businesses representing Names, Nigel Hanbury of Hampden and Andrew Annandale of Argenta.