The insurance man turns to banking

AFTER nine years at the helm of London’s insurance market Lloyd’s, its chairman Lord Levene is singularly unshockable even in the face of disasters on the unprecedented scale that struck Japan.

The earthquake and tsunami which hit the northeastern coast of Japan on 10 March will cost insurers $20bn-30bn (£12.5bn-18.8bn), but Levene doesn’t think the loss is big enough to stretch the capacity of the market.

“The Japan earthquake, as ghastly and horrible as it is, is a large event for us, but it’s not mega stupendous,” he says, comparing it to the destruction wreaked by hurricanes Rita, Katrina and Wilma in the US in 2005 or 2001’s World Trade Centre attacks.

In both of those years, the staggering losses borne by insurers saw premium rates shoot up, but Japan’s crisis hasn’t spooked the market in the same way, he says.

“It is not in that league,” he said calmly. “We will probably see rates creep up, they ought to, but we will have to wait and see.”

Indeed, Lloyd’s is now so financially strong that despite paying out £2.18bn in catastrophe claims in 2010 it turned a £2.2bn profit and holds £19bn in reserves. For Levene, it marks a remarkable turnaround from his arrival in November 2002.

Peter Levene was made Lord Levene of Portsoken in 1989 after a career building United Scientific Holdings into a top defence contractor and advising ministers from Michael Heseltine to John Major on areas such as defence, trade and efficiency.

He has been a City stalwart since, as deputy chairman of investment bank Wasserstein Perella, senior adviser at Morgan Stanley and vice chairman of Deutsche Bank in London. He served as the City’s Lord Mayor in 1998-99.

But he’s best known as a fixer: the man who delivered the Docklands Light Railway and Canary Wharf projects against the odds, and he’s worked the same turnaround magic at Lloyd’s.

Levene was parachuted in after five consecutive years of losses, and admits the market was disliked at the time. “When I got here…if you worked at Lloyd’s it was like more recently you worked at RBS – you didn’t want to say you worked there because it was a terrible place,” he said.

He has overseen nine years of growth and globalisation, gaining licences to operate in Brazil, the Netherlands, China and Russia among others. He has also restored order to its affairs by introducing the Franchise Board and the Franchise Performance Directorate.

Today Lloyd’s is “much more disciplined”, he says, returning to its profit figure: “Five or six years ago that would have been an all time record.”

Levene’s role at Lloyd’s has also put him in the front line of clashes with governments and he has become an outspoken critic of burdensome regulation.

The torturous birth of new capital requirements on the industry, Solvency II, is his most immediate concern.

Lloyd’s is still locked in negotiations with new European Union insurance super-regulator the European Insurance and Occupational Pensions Authority to ensure the capital demands levied against different risks are fair. But he’s amused and amazed by the farcical scale of the bureaucracy it creates.

“They have worked out the regulator here, the Financial Services Authority, is going to get something like 10,000 sheets of paper because of it – it has just become a huge paper mound,” he said. “Does it mean it ought to be simplified? Yes. Will it be simplified? I don’t know.”

It’s a problem being played out on a larger scale in the financial services sector as a whole, and insurers have had to battle to make regulators understand their work’s difference to more risky investment banking.

“Insurance is not banking; insurance had a good crisis; it didn’t get into a terrible mess, so don’t throw the baby out with the bathwater,” he said. “If you’ve got to tighten up bank regulation that’s as maybe but don’t reckon that insurance is a systemic risk because it isn’t.”

Levene is set to step down from Lloyd’s this December and will doubtless be studying bank regulation more closely next year as chair of high street bank NBNK, which launched last June.

NBNK has been spearheaded by Levene and other finance heavyweights as a customer-friendly and transparent bank.

It aims to buy branches sold by bailed-out lenders such as RBS as part of EU regulatory demands. Levene confirms a package of 600 for-sale Lloyds Banking Group branches is in NBNK’s sights.

“Lloyds Banking Group has appointed advisers to help them put the package together and help provide an interim funding package for them to make it balance, and then we will be a bidder for that package along with anyone else who chooses to bid,” he said.

Looking back, while he’s pleased to have achieved financial turnaround at Lloyd’s, he says it is the improvement to its reputation he hopes to be remembered by.

He says: “We’re now one of the best regarded businesses in the UK and our staff and the market are very proud to be associated with Lloyd’s. To the extent that I have been able to drive that, I consider that a big win.”