Lloyd's chairman stresses "interdependence" of U.S. and U.K. markets

Rough Notes, Apr 2003 by Zinkewicz, Phil

Lloyd's first chairman from outside the insurance industry describes the road to "transparency"

In January, as the year had just begun to unfold, Lord Peter Levene, newly appointed chairman of Lloyd's of London, chose to make his inaugural speech in the United States. The venue was a luncheon held in New York and sponsored by the Association of Professional Women in Insurance (APWI). Chairman Levene chose the occasion to focus on the "unique relationship between the U.S. and European insurance industries," arguing that "the European insurance sector plays a greater role in the United States than other comparable European financial services and manufacturing industries." But more of that later.

The appearance of Lloyd's Chairman Levene at this luncheon was significant from a number of standpoints. First, Lloyd's of London, still stinging from past problems regarding now-resolved lawsuits by Names, has embarked upon a road to "transparency," attempting to shed the market's 300-plus-year image of an "old boys club," where complex insurance and reinsurance arrangements were struck in smokefilled rooms far removed from the glaring eyes of regulators and the press. Second, it was clear from Chairman Levene's speech, and in a subsequent interview with this reporter, that Lloyd's syndicates, as major surplus lines underwriters in the United States, are prepared to take advantage of the current hard market, where even traditionally standard risks are moving into the specialty lines arena. And third, the Lloyd's chairman repeatedly drove home the "interdependence" of the U.S. and U.K. insurance markets.

The shedding of the old Lloyd's cloistered image is evident even on the surface with the appointment of Chairman Levene. This 61st Lloyd's chairman is the first in the marketplace's 314-year history to be selected from outside the London-based insurance market. Consider his extensive and impressive background. Following his education at the University of Manchester, considered a down-to-earth working class city, Chairman Levene joined United Scientific Holdings in 1963, rising to its chairman in 1981. In 1984, he joined the Civil Service becoming personal adviser to the Secretary of State for Defense, then chief of defense procurement at the Ministry of Defense. He was also the Prime Minister's adviser on efficiency and effectiveness.

His career in the private sector continued with a series of high-profile positions, including chairman of the Docklands Light Railway, Ltd., chairman and chief executive of Canary Wharf, Ltd., director of Haymarket Publications, Ltd., and chairman of Bankers Trust International from 1998 until it was purchased by Deutsche Bank in 1999, at which time he became vice chairman of Deutsche Bank London AG. He remains a director of

J. Sainsbury plc, chairman of General Dynamics UK, Ltd,. and chairman of IFSL. In addition, he held the office of Lord Mayor of the City of London from 1998 to 1999.

Chairman Levene's appointment has been timed nicely. Under Lloyd's restructuring, which began in the mid-1990s, the market allowed, for the first time ever, corporate capital to come into the marketplace. Today that corporate capital clearly dominates Lloyd's, and Chairman Levene is from the corporate world outside insurance. Second, in September of last year, Lloyd's members voted on a new "modernization" of the marketplace. Two things drove the move: one, Lloyd's members believe that the market's growth has been stunted by relatively new competition from insurance centers such as Bermuda; two, the huge losses both realized and anticipated from the World Trade Center terrorist attacks have hit some syndicates hard and the need for attracting new capital has become of paramount importance.

The new plan calls for the development of a range of investment schemes, including equity and bond investments, in "special purpose companies" to support Lloyd's. These companies would be allowed involvement in Lloyd's without their having to become members. In short, Lloyd's is moving towards a "franchise" structure in an attempt to create a more "disciplined" marketplace, allaying some of the fears on the part of corporate investors upon whom Lloyd's has grown to depend.

Therefore, Chairman Levene's extensive corporate background makes him a natural fit for the "corporate era" at Lloyd's. At the luncheon, Chairman Levene did not specifically address technical insurance issues or proposed legislation in the United States, nor was he expected to. Rather, he spoke of the "larger picture" in terms of U.S. and U.K. cooperation in the international insurance arena.

The message he intended to impart was clear. He confirmed that the United States continued to be Lloyd's largest single market, accounting for approximately 40% of Lloyd's business. He said that the volume of U.S. premium income underwritten by Lloyd's rose 15% in 2002 to a new high of $8.2 billion. Moreover, he said that Lloyd's is the leading underwriter of surplus lines business in the United States, which he described as a "tremendous achievement."