Lloyd's weathers the storm

Insurer's portfolio 'boring,' for now

(Bill Greene/Globe Staff)

Few industries have suffered as much through the economic crisis of the past six months as the insurance industry. But Lord Peter Levene, chairman of Lloyd's of London, the storied insurance market founded in 1688, feels his organization is in good shape to survive and prosper. He is less certain about how long the crisis will last or how individual investors should respond to the market crash. Levene, who has worked in the defense industry, overseen turnarounds in railroads and commercial real estate, and served the British government in various capacities, recently spoke with Globe reporter Jeffrey Krasner.

What action do you recommend to stem the economic crisis?
Nobody really knows the solution. They've tried everything. The $700 billion bailout - now that's a drop in the ocean. Everybody's floundering. I don't know what will work.

How has Lloyd's of London responded in its own investments?
Lloyd's of London has become extremely conservative. We have $90 billion in assets and only 5 percent is invested in equities. It's boring - and boring is good.

How is the recession affecting Lloyd's?
The property and casualty insurance industry has benefited compared to most because it is a nondiscretionary purchase.

Will we feel anything from the recession?
Yes, but it shouldn't be as bad as other industries.

What changes have you made to Lloyd's since you became chairman in 2002?
There's this thing called the insurance cycle, and every few years companies lose a tremendous amount of money. So I said, if you know these losses are coming, what can you do to mitigate the situation? One of the things we do is review every Lloyd's members' business plan every three months. It's almost a continuous review.

How will you know if it works?
We'll know it works if everybody is losing a fortune and if in that year we made a very small profit, or a very small loss. Some years, you have storms for which you have to pay out and other years you don't. The trick is then to manage it within a margin you don't lose your shirt on.

You became a life Peer, or lord, in 1997. What do you like most about it?
I like going to the House of Lords when I can find the time. The level of debate is quite high. It's completely different than in the House of Commons. On the few occasions that I speak, I make sure it's very short. If they disagree with you, they will cut you down to size quite effectively.

What was your compensation from Lloyd's in 2008?
About 600,000 pounds, or about $1 million.

What's your thought on executive bonuses in the United States?
We've had situations where executives have been rewarded even after their companies are in bankruptcy, or after receiving bailout money from the US government. First off, it's not just the US, it's everywhere. I believe if someone has presided over a complete disaster, they should leave immediately and say, "I've done a terrible thing and I apologize." To accept a bonus is just unacceptable. It's wrong for everyone - the shareholders, the employees, and the customers.

Do you fly business class or first class?
I fly 'round and 'round the world, so I try to get some sleep. I don't fly economy because I'd be a wreck when I arrive. But we don't have a corporate jet.

Are there any other ways Lloyd's has cut back or applied austerity measures?
We are happily right now in good shape. However, one thing we did is we used to provide bottled water for all our employees. We now have Lloyd's water. There's a machine in the basement that produces the stuff. You can have regular water or sparkling water. We've saved 40,000 pounds [or $54,903] a year and there's no waste from plastic bottles. But the most important thing isn't the money, it's that people think before they spend.

What should small investors do? Do you try to call the bottom of the market and catch a falling knife, or do you wait for some sort of signal?
Well, nobody should follow my investment strategy. They wouldn't have made much money.