Lord Levene Addresses Italian Insurance Leaders

March 31, 2004

In a speech to Italian insurance leaders in Milan yesterday, Lloyd’s Chairman Lord Peter Levene addressed industry problems, and sounded a distinctively positive note on Lloyd’s prospects.

“Last year, the Lloyd’s market reported record profits of almost 1.3 billion euros [$1.58 billion], he told his audience. “In just over a week we will publish another set of results, this time for 2003. And these results are expected to exceed those of 2002. We are enjoying some of the best pricing conditions for years and happily have suffered little in the way of major catastrophe loss recently.”

Levene then turned to a discussion of some of his favorite themes, leading off with a his oft repeated warning of the need to continue exercising rigorous control over pricing in order to earn profits from underwriting. He cited statistics from the Insurance Information Institute, which estimate “that the US industry has collectively lost almost 500 billion US dollars on its underwriting since 1980.”

He said Lloyd’s is determined not to repeat past mistakes and has “taken some very decisive steps to improve the quality of underwriting. Just over a year ago, we began implementing a new Franchise structure – its key objective is to deliver consistent, strong financial performance, avoiding the staggering peaks and troughs which have plagued us in the past. Now, after our first year of operating under this new structure, we are confident that our market’s business plans for 2004 are realistic, and that they take full account of global market conditions.”

He then turned to another favorite topic – the need to improve processing and service standards. Levene has an odd advantage in this area, as he comes from a non-insurance background. He’s often remarked how astounded he was when, upon becoming Chairman of Lloyd’s he found “how inefficient it is in terms of its processing and service delivery.” He blamed this on the emphasis on financial concerns to the detriment of improving business processes. He indicated, however “it becomes clearer by the day that we cannot improve our industry’s performance in the long term without radical change to our processing. And now that market conditions are at last on the right track, I believe we will see an increased focus on this area. Indeed, our customers are demanding it.”

He certainly didn’t neglect his third major concern – the growth of what he calls the “compensation culture,” i.e. the out of control U.S. tort system. He reminded his audience that “earlier this year, speaking in New York, I described it as a cancer on our industry. Strong words I know. But I am far from alone in this view. In fact, Hank Greenberg chose it as his sole topic for a speech he gave at our Lloyd’s market dinner last December. Of course, we have always preferred to see litigation as an American problem. But there is now strong evidence that the compensation culture is starting to plunder the European economy too.”

Levene cited actuarial statistics, which indicate that in 2002 litigation cost U.K. companies over 14 billion euros ($17 billion) a year, and that it’s rising at 15 percent per annum. “There is concern now too that this blight is spreading to the rest of Europe, where until recently the idea of suing a company’s directors and officers was unheard of,” he continued. “But that has changed. Here in Italy, in the wake of financial scandals such as Parmalat, and with soaring medical malpractice claims, you are only too aware of that. It’s a problem we need to wake up to, and we need to wake up to it now. Ignoring it and hoping it will go away is not an option. If you need any proof, just look across the Atlantic.”

The second part of his address discussed the growing presence of Lloyd’s in Europe and the global insurance market. He cited remarks by Willis CEO Joe Plumeri in a recent speech at Lloyd’s that “Insurance is the DNA of capitalism.” Insurance plays “a critical role in supporting the European economy, and in helping its businesses, from small entrepreneurs to huge multi-nationals, to grow,” he continued. “Often people just see insurance as being there to pick up the pieces when things go wrong and catastrophe strikes. But it’s interesting to note that the English word ‘risk’ has evolved from the Italian word ‘rischiare’ – to dare. And insurance helps business to do just that – to dare – to take on new commercial challenges and to thrive.”

Levene sees Europe as a major part of the global economy, and believes that the insurance industry is increasingly a worldwide operation, no longer tied to particular countries. “Today’s economy is a global one. Today’s businesses are multi-nationals,” he stressed. “Slowly but steadily, we have found the risks we face and the businesses we manage becoming more international in outlook. And perhaps without us even realising, the insurance sector has become a more integrated, global force. September 11th is perhaps the strongest example of this. Of the ten carriers which suffered the largest losses, only two were American. It may surprise you to learn that six of the ten were actually European, with Lloyd’s at the top of the list.”

He concluded his remarks by observing that “Europe’s business environment is changing rapidly and we in the London market are serious about playing a leading role in its future. If 2003 was the year in which Lloyd’s recorded record profits, then I hope 2004 is the year in which we make record steps forward in Europe. I sincerely hope that each of you will join us in achieving that goal, and thank you for listening.”

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