Lloyd’s Chairman, Lord Peter Levene, told Members attending its Annual General Meeting yesterday, that “Lloyd’s has been a beacon of light. We have defied the doomsayers. And we have done more than that: we have flourished. At a time when customers needed us most, we never ceased underwriting, assessing new risks and meeting new needs.”
Levene chaired the meeting, sharing the platform with CEO Nick Prettejohn and Andrew Moss, Director of Finance, Risk Management and Operations. He reviewed his own brief tenure at Lloyd’s, reminding members that for all of his wide-ranging experience, he had never worked directly in the insurance industry before becoming Chairman, and praised the efforts of his predecessor Sax Riley.
In a reference to the multi-billion dollar losses Lloyd’s sustained from the Sept. 11 attacks, Levene told the Members: “We showed we had the resilience, and the capacity, to meet the toughest test we have ever faced, and honour our word as we always do. As a result, we have been able to bolster our position as one of the world’s leading insurance markets. While our competitors have seen their financial strength rating downgraded, our ratings remained stable.” He added that “in 2002, the market is set to record its highest ever level of premium income. Our underwriters report that the prices in the international market have reached their highest level since 1993.”
Levene also stressed the need for change. “In future, we want businesses to deliver consistent underwriting profit,” he stressed. “We need to set underwriting standards, supervising the risks that independent businesses insure.” He went on to explain that “This is the rationale behind the new franchise system. We want to put behind us the days when we are dragged down by a few underperformers, for whom we all paid a heavy price. We want to manage performance, and address problems before they affect the whole market. That is why those who want to do business at Lloyd’s will now need a franchise. And with each franchise comes responsibilities.”
Levene emphasized the value of Lloyd’s global brand name, and what its customers have come to expect from the London market. “We have a brand that is recognised, powerful and respected,” he said. “What is it that marks us out? Our innovation, our creativity, our ability to adapt to meet new risks and, perhaps above all, our trustworthiness. Be it the San Francisco Earthquake of 1906 or the attacks of September 11th 2001, we keep our word.”
Addressing the growing importance of the U.S. market, Levene observed that “last year our US premium volume broke through the $8 billion barrier for the first time. Net premiums in North America as a whole have risen from $9.1billion in 2000 to almost $10 billion in 2002. In Canada, nine of the ten largest companies have a policy at Lloyd’s, and we are playing an increasing role in speciality niche areas, where domestic insurers appear to lack the strength and appetite for such needs. As the costs of litigation rise, liability is the largest growth area in the Canadian market, with signed premiums up 21 per cent in 2002.”
He also saw growth in the Asia Pacific region and noted that “our business in Europe is also growing. Lloyd’s European business – excluding the UK – has increased by almost 50 per cent over the last two years. Today, 75 per cent of the largest EU companies have insurance policies at Lloyd’s. Eight out of ten of the largest EU insurers reinsure at Lloyd’s.” In fact, as Levene went on to discuss, the European Community, and its contemplated expansion to include 25 countries, represents a great opportunity for Lloyd’s.
Discussing terrorism, Levene pointed out the global nature of the threat and the costs involved. As an example he noted that “the 10 insurers facing the highest losses from the attack on the World Trade Centre are not just British and American. Two are American, one is Bermudian, two Japanese, and the remaining five are European – Lloyd’s included of course. He also commented on the trend towrds market consolidation, pointing out that, “At the beginning of the 1990s, the five biggest players in reinsurance handled 21 per cent of the market; ten years later they accounted for 38 per cent of the total.”
In a sober observation Levene stated: “Terrorism makes the headlines. But we need to put the threat it poses in perspective, because the threat from natural disasters and catastrophes also appears to be rising. In the US, insurance losses from natural disasters have increased 15-fold since 1960. And things are going to get worse. By 2050, mega-catastrophes, which used to occur every 100 years, are predicted to happen once every 25. The UN predicts that losses will then be 900 per cent higher than they are today.”
In his conclusion Levene sounded a “cautionary note.” He reminded the Members that he was building on “two legacies,” the “strong foundations that Sax and others have put down,” and the fact that his tenure coincides with “an industry that is in a strong stage of its business cycle.” He then warned that no one should “forget that the good times will not last forever. We need to prepare for the rainy days now and, as they say, make hay while the sun shines.”
In order to do this he first called for pressing on “with the measures we have put in place to raise the standards of service we offer, and manage our marketplace more effectively. Second, we need to trumpet our achievements and promote the hallmarks that make Lloyd’s the success it is today. And third, we should re-double our efforts to increase the size of our business in Europe and Asia. If we do these three things, we should be able to look ahead with confidence. We will be building a marketplace of choice for policyholders, brokers, underwriters and capital. We will be creating an environment in which the long term return to capital providers is maximized. And we will be shaping a disciplined marketplace of well managed businesses.”
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