Extra capital supplied to the insurance market through the Willis Global360 sidecar will be credit-negative for Lloyd’s participants because of its impact on rates, according to ratings agency Moody’s.

“The Willis scheme would be particularly detrimental to smaller Lloyd’s syndicates, which do not have lead capabilities or operations outside Lloyd’s, and those without the ability to be price leaders and [that therefore] are most negatively affected by general market price changes,” Credit Analyst Helena Pavicic said.

Willis is currently signing up insurers to the “passive” underwriting scheme, in which they agree to take a predetermined share of all risks that have active Lloyd’s participation. Under the usual system, insurers decide whether to participate and what share of risk to accept.

The extra capacity is likely to depress rates, and the sidecar could spur similar broker deals, which “would contribute to more difficult market conditions for all London market insurers”, Ms Pavicic says.

Aon has already launched a sidecar with Berkshire Hathaway, but Moody’s says the Willis scheme could be bigger because several leading insurers may be involved.

Although Berkshire must rely on Lloyd’s underwriting expertise to price risks, it benefits from a lower expense base by avoiding the costs of using its own underwriters, increasing its chances of achieving better returns than the Lloyd’s syndicates it follows.