Lord Levene of Portsoken is not afraid of hurricanes. You would think he might
be, given the recent storms that have cut a swath through the Caribbean and
then pummelled the US Gulf Coast, but no, the chairman of Lloyd's of London
is calmness personified.
No matter that, at its height at the beginning of the month, Hurricane Gustav
was forecast to cause up to $10 billion of insured losses as it swept across
Louisiana, a healthy chunk of which would have been underwritten by
specialist Lloyd's syndicates.
No matter that over the weekend Hurricane Ike hit the Gulf Coast of Texas amid
predictions that it could leave insurance losses of up to $25 billion in its
wake, wreaking a different kind of havoc in the world's oldest insurance
market.
In a previous era, such damage would have sent shockwaves through the Lloyd's
market. Forecasts of up to 20 more storms during this year's hurricane
season would have had insurers quaking in their boots. Surely the chairman
of an exposed insurance operation should be at least a little concerned?
“The thing about the hurricane is, if it moves one degree to the left or to
the right, it means the difference between it being harmless and causing
billions of pounds or dollars of damage,” Lord Levene told The Times. “In
the old days, in a bad year, one of the syndicates would lose their shirt
and that would bring the whole market down. Many of them are now much more
savvy in looking at what business they will take on and what they want.”
This is in no small part due to his efforts. The erudite former Lord Mayor of
London had already generated a troubleshooter's reputation on his arrival at
Lloyd's in November 2002, having restored the Docklands Light Railway to
health, revitalitised the Canary Wharf property development and even
commercialised the procurement practices of the Ministry of Defence.
What he saw was a market that had been crippled by asbestos claims and reeling
from a war with its Names — the wealthy members who personally took part in
insurance risk underwriting across the globe. It had also been badly damaged
by the terror attacks of September 11, 2001, in the United States, which had
brought the airline industry that relied on the market for cover virtually
to its knees. Loss-hit syndicates were pulling out of unprofitable insurance
lines in droves. Things badly needed to change.
“When I got here I was immediately given a presentation by syndicates of
underwriters. They said: ‘We are doing alright at the moment, but of course
in three or so years' time we'll lose a fortune,” he recalled, referring to
the cyclical nature of big disasters and, therefore, claims payouts.
“I said: ‘Why? If you can see it coming, why can't you do something about it?'
If there is one thing that is still wrong with this industry, it is the
inability to continue to run the business on the basis of making money every
year.”
Lord Levene, 66, who spent 20 years in the defence industry building
Scientific Holdings into an international force, had also joined a
member-owned organisation that was impossibly steeped in its own history, a
history that stretched back to bargains struck between shipowners and
bankers in London coffee houses in 1688.
The claims-handling process consisted entirely of paper and leather case
folders being shuffled about by hand and trolley across Lloyd's cavernous
buildings, while the rest of the world was busy trading electronically and
working on settling deals in seconds. Frock coats and austere silences were
de rigeur, despite the move in the late 1980s to Richard Rogers's elegantly
modern offices in Lime Street, in the City of London.
As the first elected chairman to have come from outside the organisation, the
former prime ministerial adviser was forced to spend a six-month stint
working for Benfield, the reinsurance broker, in order to “qualify” for the
job.
“Lloyd's was one of the great institutions in the City but it had fallen on
hard times. It had lost its way, lost its reputation. I was attracted by the
idea of restoring it,” he said. “It was no longer viable as a gentleman's
club, with wealthy gentlemen putting their money in with unlimited
liability. That was no longer viable.”
So he set about changing the institution. He pushed through the Lloyd's
Franchise Performance Directive, which means that each of its 51 managing
agents has to have its annual business plans approved by Lloyd's. At its
introduction in 2003, two firms were evicted from the market after their
proposals failed to make the grade, proof positive that underwriting
practices needed to improve and diversify.
Lord Levene also oversaw the opening of a string of international offices,
including bureaux in China, Brazil and India. Now Lloyd's, a $35 billion
market by gross annual written premiums, generates 75 per cent of its
business from outside Britain, including 40 per cent from the United States.
And, with the help of Richard Ward, his chief executive, he pushed the
modernisation of Lloyd's antiquated claims routine to the top of the agenda.
“What I have had to do is — and there's nothing particularly clever about it
— is push the idea that the object is to optimise your bottom line, not to
maximise your top line. It's a market. It looks like a market and operates
like a market.”
The result of these efforts meant that, despite hurricanes Rita and Wilma
contributing to the biggest year on record for natural disasters in 2005,
Lloyd's limited claims amounted to £3.3 billion and its losses to £103
million. Last year profits topped £3.4 billion.
Moreover, despite the best efforts of the latest generation of Atlantic
storms, barring an extraordinary set of circumstances Lloyd's will still
make “perfectly respectable profits this year”, according to its chairman.
If there is a thread that runs through the career of Lord Levene, the son of a
North London antiques dealer, it is that of a fixer. He introduced a
private-sector ethic into the MoD, when called in by Michael Heseltine, then
the Defence Secretary. The ministry was so arcane, he said, it should have
had its own book explaining its acronyms. As chairman and chief executive of
Canary Wharf, which had been hit by the double whammy of bad transport links
and the 1990s downturn, he rebuilt its reputation and ability to lure big
corporate tenants. This after turning the DLR into a modern railway network
envied across Europe.
He likens his present job to turning round the Wharf. “Canary Wharf was built
with huge imagination by Paul Reichmann [the former chairman]. We spent two
years rebuilding its image. Lloyd's was in a not dissimilar position.”That
is not to suggest that the career of Lord Levene, former vice-chairman of
Deutsche Bank and senior adviser to Morgan Stanley, has not had its downs,
as well as ups. In 2004 he resigned from the board at J Sainsbury, the
supermarket chain where he was senior independent director, over a
controversial £3.6 million severance pay deal for Sir Peter Davis, the
former chairman. The payment was cleared by the board despite his objections
and he resigned on principle.
The following year he resigned again, this time from the board of Deutsche
Börse, the German stock exchange, after Werner Seifert, the chief executive,
refused to cede to demands from hedge funds and quit.
Three years later Lord Levene is unrepentent. On Sainsbury's he said: “I felt
that I didn't agree with the terms being offered. Today I would still have
done the same thing.”
On the issue of Mr Seifert, who was ousted eventually, along with Rolf Breuer,
the chairman, he said: “There is a disconnect between German corporate
governance and the governance we understand. I didn't agree with what they
[the board] were planning to do.”
Given the furious winds that have buffeted shores from Gonaïves to Galveston
of late, such controversies now seem more like storms in a teacup.
