With its viability intact despite incurring $5.25 billion in losses from U.S. hurricanes, top Lloyd's executives are setting their sights on making the market more efficient, while growing impatient for relief from U.S. collateral requirements, according to the chairman of Lloyd's.
"If Lloyd's would have had to pay out $5.25 billion five or six years ago, that would have been the end of the world," said Lord Peter Levene, speaking with NU during last week's World Insurance Forum.
"Now, we had a cost of $5.25 billion" and people just "got on with things," he said, noting that little attention has been paid to the figure. "That is actually fantastic," he said, adding the fact that Lloyd's can absorb that big a cost without losing money is a testament to the market's reform process over the last few years.
While the market won't make any money for 2005, "the fact that we could do that and get it right, and people haven't commented on it [is] sort of a backhanded compliment," he said. It proves that market participants are behaving responsibly now, he added, referring to a key goal of the market reform process that shaped Lord Levene's first term as chairman, which began in 2002.
Now in his second term, Lord Levene said a three-year plan set out for Lloyd's seeks to make it the market of choice, which means market participants have to work smarter and more efficiently. "This place is smart. This place works quickly," he said, referring to Bermuda.
While Lord Levene noted the efficiency and faster pace of the less complex Bermuda market several times during the interview, he dismissed talk of a competition between Lloyd's and Bermuda. The two markets "actually complement each other quite well," he said, noting that Bermuda is the third-largest investor in Lloyd's, while Lloyd's vehicles have been investing in Bermuda as well.
At Lloyd's, he said, the push toward greater efficiency will be the job of the next CEO. Nick Prettejohn, the prior CEO, left at the end of last year, and Lloyd's has set out on a search for his successor–a process that is nearly complete, according to Lord Levene. "We should be making an announcement fairly soon," he said, noting that the person appointed will have to be tough enough to make changes "happen in a market, which is not the same as doing it all in one company."
"You've got to take people with you–to persuade them," he said, and the place the new CEO will need to take them is into "the 21st century." Lloyd's needs to get out of "this culture of paper, and more paper, and more paper," and must operate with "the modern tools that the rest of the financial services industry uses," he added.
Meanwhile, Lord Levene expressed frustration over attempts to make U.S. regulators resolve debate on the reduction of collateral requirements for foreign reinsurers. "You can't have a task force which takes five years to do nothing. It's just unacceptable," he said.
U.S. regulators have been saying the issue is high on their agenda for five years, he reported. "They can't keep playing games," he said. "It is protectionist. It is wrong. It is unjustified."
Rather than having foreign reinsurers post collateral equal to 100 percent of their liabilities, Lord Levene advocates a system in which such requirements are eliminated if reinsurers are supervised by regulators in accepted domiciles.
"Every other country in the world does that," he said, referring to regulatory reciprocity. "No other country in the world has 50 regulators," he added, noting that he doesn't have any particular issue with the fragmented U.S. regulatory system as long as insurance commissioners "act in a manner that is compatible with what is a global industry. They're not doing that."
"I think the way it's being handled is quite wrong, and the speed with which they're doing it is glacial," he said.
Lord Levene sees the elimination of one modern tool–the recent disconnection of Lloyd's Kinnect system–as a move toward efficiency. The system allowed brokers and underwriters to talk to one another electronically, but they no longer need Lloyd's to spend money on the system, he explained, noting that brokers and underwriters have said they can buy such systems off the shelf.
"We're not in the software business," Lord Levene said, adding that Lloyd's was funding Kinnect previously only because such systems were not available.
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