Levene Defends Need for ‘Strong Balance Sheets’

May 20, 2004

Lloyd’s Chairman, Lord Peter Levene, told Canadian business leaders in a speech at the Empire Club in Toronto, that, although customers often complained when they saw insurers making a profit, the industry needs strong balance sheets.

He stressed that, against a backdrop of systemic under pricing and years of poor returns, insurers should not have to apologize for making a profit.

Levene called for an end to the volatility that has dogged the insurance industry and cited three measures insurers should take to implement them, as follows:
— the insurance industry to take a more realistic approach to underwriting and communicating its actions to its customers;
— governments and consumer groups to develop more realistic expectations of the insurance industry and its pricing levels; and
— insurance companies to take a more realistic approach to the new risk environment.
These are essential “to ensure a more stable and successful environment for all,” he stressed.

“The impact of volatility on the insurance industry’s customers and its investors alike is totally unacceptable, Levene continued. “The customers themselves feel gouged. The investors cheated. In that context, I think it is fair and even necessary to ask: is profitability really such a dirty word in insurance?

“I believe that it shouldn’t and mustn’t be. The incessant volatility that we currently suffer can only be corrected by a large dose of realism. Not by rolling back prices unrealistically, defying the economics of investment and the changing risk environment. A sudden change in pricing policy will not result in improved relationships between customers and their insurers; or between consumers and their governments. It can only ultimately lead to another hard market cycle with double-digit rate increases further down the line.

“Pricing must remain firm. But if sense and economics are allowed to prevail, then we can avoid in the future the unpopular and unacceptable increases in premiums, and fluctuations in capacity, that we have witnessed recently.”

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