New York

The insurance industry is quite capable of reforming itself, and it was “a mistake” for government authorities to help drive the former head of American International Group, Maurice Greenberg, from his post, according to Lord Peter Levene, chair of Lloyd's of London.

Lord Levene offered his views on financial services regulatory reform and defended Mr. Greenberg last month when he was honored by the St. John's University School of Risk Management as the “2009 Insurance Leader of the Year” at the university's 15th annual award dinner.

The award was presented in recognition of Lord Levene's global perspective and willingness to speak openly about industry challenges, as well as to recognize the reemergence of Lloyd's to a position of strength after difficult times grappling with long-tail pollution and asbestos claims.

“I have spent much of the past year reminding regulators and the media that insurance did not create this [financial] crisis, and that a one-size-fits-all approach to financial services regulation is neither relevant, nor fair,” said Lord Levene.

The industry “must demonstrate to regulators that we are capable of the highest levels of risk management,” he added, noting that “the story of Lloyd's should reassure governments and regulators that root-and-branch reform can come from within.”

Lord Levene also defended Maurice “Hank” Greenberg, former chair and chief executive officer of AIG, whom he called his friend. He said Mr. Greenberg “built the largest and most successful insurance business in the world. He was then forced out of that business.”

He added that “it is not for me to dwell on that this evening, other than to say that my personal view is that it was a huge mistake. Throughout that very sorry saga, Hank has maintained enormous dignity and has now been totally vindicated.”

Lord Levene said that when he was informed of “this wonderful award and was asked whom from the insurance industry I would like to present it to me, I said to St. John's University that I would like Hank to present it. Was that all right?”

He added that “I was delighted, but not surprised, to receive the response: 'There is no one we would rather see as co-chairman of this event than Hank Greenberg.”

Mr. Greenberg left AIG in 2005 after the conglomerate came under scrutiny for accounting fraud and other market activity by the office of New York's attorney general at the time, Eliot Spitzer. The company settled civil charges over its accounting problems with the Securities and Exchange Commission for $800 million.

The SEC last August agreed to a $15 million settlement with Mr. Greenberg, who was alleged to have been liable as control person for AIG's accounting fraud and other violations of securities law. Mr. Greenberg admitted no guilt in settling.

Last month, Mr. Greenberg–now chair and CEO of C.V. Starr–agreed to settle with AIG all remaining lawsuits between them over who was responsible for the accounting problem. Civil fraud charges against Mr. Greenberg brought by Mr. Spitzer's office are still pending.

In his speech, Lord Levene also thanked Insurance Information Institute President Robert P. Hartwig and Joe Plumeri, chair and CEO of Willis Group, who both welcomed him into the insurance world, he noted. And he made a point of recognizing St. John's University.

“If there is one lesson which we must learn from the recent economic turmoil, it is the critical importance of educating tomorrow's leaders in risk management,” he said. “The funds raised tonight may well lead to a future company president or CEO taking the right steps to avert a crisis in 20 or 30 years time.”

Lord Levene became chair of the Council of Lloyd's in 2002. He is the first chair of the Lloyd's Franchise Board, as well as the first Lloyd's chair from outside the world's oldest insurance market.

At a press conference the next day, Lord Levene said that regarding reinsurance regulation, “I've been lobbying for such a long time” but found in a recent trip to Washington a “generally favorable” move toward having a federal insurance “spokes-body.”

“They're talking about an Office of Insurance Information,” he said. “Although it's in the first stage, it will at least be able to represent U.S. interests and deal with international regulators.” He added that with Solvency II–the European Union's new regulatory regime for insurers–on the horizon, creation of a federal U.S. insurance office is even more important.

Regarding the long debate over easing collateral mandates for Lloyd's to operate in U.S. states, he noted that the National Association of Insurance Commissioners has proposed reductions of collateral from 100 percent to as low as 10 percent.

While he would welcome a reduction, he said that even at 10 percent collateral, “the principle is wrong, because if insurers are buying reinsurance and they go to a reinsurer, they should look to their financial strength and their credit rating.”

Insurers also should consider the regulators involved, he said, pointing out that European regulators are considered to be responsible by the U.S. regulatory community.

“After all,” he said, “four of the five largest reinsurers in the world are located in Europe, have a huge amount of business in the United States and have a very good reputation.” He noted that progress in this area is “creeping forward. On a scale of zero to 100, it's probably moved from two to six.”

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