We learnt our lesson the hard way in the early 1990s, says franchise director
The Lloyd’s market is well placed to ride out future storms from the financial crisis, according to three senior industry figures.
Joe Plumeri, chief executive of Willis, Hank Greenberg, former chairman of AIG, and Rolf Tolle, franchise director at Lloyd’s, told a London conference last Wednesday that the market had learnt its lesson from the early 1990s.
Plumeri said the “LMX spiral” of that period – in which underwriters passed on risk through the market until it eventually came back to them – was a similar problem to the one bankers were suffering with the repackaging of debt.
Addressing the audience of about 400 industry personnel, he said: “I think you guys dealt with this stuff and, as a result, you learnt from it.”
He added that the creation of the Equitas run-off vehicle, which reinsured the non-life liabilities of Lloyd’s markets up to 1992, as well as a more transparent market, had put Lloyd’s in a strong position.
“This is the most stable industry in the world. There is no place elsewhere where you can get this money, this cheap,” he said.
Tolle told the conference, held in the Willis building, that the creation in 2003 of the Lloyd’s franchise board, which is responsible for prudent risk management, was another stabilising factor to emerge from the 1990s crisis.
Greenberg said the US property and casualty industry would go through a period of consolidation as insurers looked to pool capital in the downturn.
The world still faced two big risks, he added: protectionism and inflation caused by the printing of too much money.
Whatever happened, Lloyd’s was better placed than a decade ago to deal with problems, he said.
However, he warned underwriters not to start believing their own hype.“You have to earn the right to have that reputation.”
‘Everyone needs a risk group’
Every company should have a risk committee acting independently from its board of directors, Joe Plumeri, chief executive of Willis, told the conference last week.
He said the insurance industry should lead the way. “We can provide value rather than just price.
I think it is a great opportunity for this industry to step up to the plate.”
Hank Greenberg, the former AIG chairman, told the 400 delegates that such a structure could have alerted boards across the financial services industry to the present crisis.
Greenberg said the risk committee chairman should sit on the board of directors. He did not give details of how much power he or she should have.
He said mark-to-market accounting – marking down assets such as shares, according to their current price – had lulled many companies into a false sense of security.
Plumeri placed heavy blame for the financial crisis on the rating agencies, which failed to spot risky banking investment structures.