Lloyd's Chairman Stresses Abolition of Insurance Cycles

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NU Online News Service, Sept. 11, 1:55 p.m.EDT? Lloyd's Chairman Lord Levene, speaking this week inMonte Carlo, urged the insurance industry to avoid premium andcapacity cycles in favor of constant, responsible underwriting.

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In a talk Tuesday at the Monte Carlo Rendez-Vous for thereinsurance industry, he said it was "critical that we stopbehaving like slaves to the cycle."

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"If we act now, and act decisively, we can abolish the worsteffects of the insurance cycle within a generation, and secure amuch more stable environment for the future," Lord Levene said.

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The most important step to break the cycles, in Lord Levene'sview, is to "return to the basics and focus on underwriting forprofit." The insurance industry should not rely on investmentreturns to compensate for shoddy performance in its core skill ofunderwriting, he stressed.

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Lord Levene also noted that insurer and reinsurer failures, suchas HIH in Australia, are making insurance buyers nervous. "TheIndependent in the U.K., Reliance in the U.S. and Gerling inGermany are all major failures on any scale," he said. Hequestioned why an insurance buyer would want to transfer risk to acompany that, in some instances, is financially weaker than thebuyer.

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"In the post-Enron environment, no balance sheet is too big tofail," Lord Levene noted. "There has been a seismic shift inreinsurance credit ratings since 2001, with 10 of the world's top15 reinsurers downgraded, most by several notches."

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Stressing the importance of relationships among the parties toinsurance transactions, Lord Levene pointed out that "willingnessto pay can be just as important as ability to pay."

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"The benefits of a strong, long-term relationship are invaluableand cannot be accounted for in a company's rating," he said.

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