It was widely expected that this level would increase next year, but now observers believe the London market could shrink instead.Further signs of the challenge facing Lloyd’s underwriters continued to appear yesterday. Brit Insurance, which estimated claims would cost it £69.7m, or 29p a share, shelved plans to pay a dividend as it reported interim results and said it was proceeding with “caution given the economic outlook”.SVB, another Lloyd’s underwriter, has said it will be adversely affected by the claims because one of its syndicates specialises in the combination of aviation, war and property insurance. SVB has moved £89m of assets invested in equities into short-term bonds in an attempt to reduce its investment risk amid the current market turmoil.It is expected that many insurers will do the same over the next few weeks to increase the liquidity of their portfolios, in readiness for paying out on claims that are expected to be the largest ever hit to the insurance industry. However, wide-scale selling is likely to compound their problem because it should drive equity prices down further.Concerns were also raised over Hannover Re, one of the largest reinsurers to the Lloyd’s market. Merrill Lynch downgraded the company from “accumulate” to “neutral” on fears about the strength of its capital position. Hannover Re has estimated that losses from America will cost it about 400m euros, which is 20 per cent of its embedded value..

The oil price suffered its biggest fall yesterday since the Gulf War a decade ago on mounting fears of a prolonged global recession. The oil price suffered its biggest fall yesterday since the Gulf War a decade ago on mounting fears of a prolonged global recession.
The price of a barrel of Brent crude fell as much as $3.14, or 12 per cent, to $22.30 a barrel on London’s International Petroleum Exchange, the biggest one-day drop since January 1991. The last time crude prices fell that fast, the drop was triggered by the US-led assault on Iraqi forces that led to the liberation of oil-rich Kuwait. Brent has now fallen 25 per cent over the last six days from a peak of more than $31 a barrel in the immediate aftermath of the suicide plane attacks on the US.Lawrence Eagles, an oil analyst at brokers GNI, said the markets had realised America was not embarking on a major land war. “As long as it is restricted to Afghanistan and the rest of the Muslim world does not get too upset, you have to ask what the link would be to oil supplies,” he said.The slump in price came ahead of tomorrow’s scheduled meeting of ministers from the 10 members of the Opec. The oil cartel has cut output three times this year to support the price but analysts said it would struggle to push prices up in the face of a global economic slowdown.Ali Rodriguez, the Opec secretary general, said: “It’s a very delicate time at the moment but we’re all working to maintain price stability. The signs for the global economy are not at all encouraging.”Mr Eagles said, in public at least, Opec would voice concern over falling prices.

“But because of the delicate nature of the current situation, there will be no talk of further output cuts,” he said.There is little hope among industry observers of a fall in the price of crude translating into lower petrol costs for Britain’s motorists on garage forecourts. The Petrol Retailers’ Association, which represents petrol outlets, said falls in the crude price tended to be absorbed into the oil giants’ profit margins. “Unless the Government feels motivated to push the price down, it would be highly unlikely to occur,” said a spokesman. “A voluntary reduction would be surprising.”Meanwhile, the UK oil and gas producer BG slashed its forecasts for output growth from 2003 onwards. The group said it was still on target to achieve growth averaging 16 per cent a year up to 2003. But from then on it forecasts a slowdown with average annual growth rates of 11 per cent for 2000-2006. BG said it expected capital expenditure to total £3bn in the 2004-2006 period compared with £5bn between 1999 and 2003.