Lloyd’s Chair Warns Against Regulatory Interference

Recent years has seen the Canadian property and casualty insurance industry become increasingly volatile with the availability and pricing of coverage having fluctuated to the extent that insurers have come under intense public scrutiny and criticism, observes Lord Levene, chairman of Lloyd’s of London. Lord Levene recently addressed members of the Empire Club in Toronto as part of a North American tour.

Lord Levene drew attention to the critical media response surrounding the release of Canadian insurers’ 2003 yearend results, which produced an industry average return on equity (ROE) of 11.3%. He questioned how such a return could attract such a negative public response, and whether in this respect “profitability” has come to be regarded in Canada as a “dirty word” when applied to insurance. “…with a ROE of just over 10% in 2003 (when arguably less risky banking and life insurance sectors are producing returns of around 15%) it seems somewhat ironic that insurers making money should prove to be such a controversial story.”

Lord Levene encouraged insurers not to break their underwriting resolve by under-pricing in order to pacify politicians and regulators who do not seem to be aware that a healthy insurance marketplace provides for stable pricing and coverage availability. “…regulators and politicians must remember that Canada is one of the most highly regulated insurance markets in the world, and any further attempt to stifle market forces will make it dangerously unattractive for businesses to operate in.”

Lord Levene also pressed insurers to break from the “cycle mentality”, noting that the more recent industry cycles suggest that “the cycle is getting deeper and the swings wider”. Pricing on coverage is currently at levels seen 10 years ago, he notes, and the reality of the marketplace is that the cost of insurance is not what it was 10 years ago. “So, is profitability a dirty word in insurance? I believe that it shouldn’t, and mustn’t be. But the incessant volatility that we currently suffer is, and it can only be corrected by a large dose of realism all round. Not by rolling back prices unrealistically, defying the economics of investment and the changing risk environment, in order to appease politicians and consumer groups.”