Aug 11, 2009
Charlie Rose: Lloyd’s of London Chairman Peter Levene
Lloyd’s of London is fascinating for anyone with an interest in catastrophe risk insurance. Something most shareholders of Berkshire Hathaway are probably well acquainted with. Their syndicate writes policies on everything from terrorist attacks to Ugly Betty’s smile!
for the Interview transcript. The video appears to be down temporarily.
I liked the following quote, related to AIG on the benefits of being boring:
CHARLIE ROSE: OK, but then how do we have two different opinions? What made you sure it was not right and they thought it was right?
PETER LEVENE: Well, I cannot get inside what their thinking was. But I can tell you what our thinking has been. Our thinking has been that years gone by, Lloyds got itself into serious trouble.
CHARLIE ROSE: Right, exactly.
PETER LEVENE: Fortunately we got out of that mess and we are in a very strong position. And we said, we’re not getting into that position again. Therefore, any risky proposals that come along, no, thank you very much. For the last three or four years, we have had various finance houses come along and saying, you’re sitting on a lot of cash, we have got some great ideas for you as to how to use that cash, and they would be quite complex. And we would look at them and say, that’s very kind of you, but no, thank you very much. And they would say you know what, you are really boring. And I have to say.
CHARLIE ROSE: And you are missing your chance to make a lot of money.
PETER LEVENE: Yes. Well, I have to say today, being a little bit self-satisfied about it, we can say boring is beautiful.
Also, Here’s a great introduction to Lloyd’s, via Warren Buffett:
Our tale begins around 1688, when Edward Lloyd opened a small coffee house in London. Though no Starbucks, his shop was destined to achieve worldwide fame because of the commercialactivities of its clientele – shipowners, merchants and venturesome British capitalists. As these parties sipped Edward’s brew, they began to write contracts transferring the risk of a disaster at sea from theowners of ships and their cargo to the capitalists, who wagered that a given voyage would be completed without incident. These capitalists eventually became known as “underwriters at Lloyd’s.”
Though many people believe Lloyd’s to be an insurance company, that is not the case. It is instead a place where many member-insurers transact business, just as they did centuries ago. Over time, the underwriters solicited passive investors to join in syndicates. Additionally, the business broadened beyond marine risks into every imaginable form of insurance, including exoticcoverages that spread the fame of Lloyd’s far and wide. The underwriters left the coffee house, found grander quarters and formalized some rules of association. And those persons who passively backed the underwriters became known as “names”.
Eventually, the names came to include many thousands of people from around the world, who joined expecting to pick up some extra change without effort or serious risk. True, prospective names were always solemnly told that they would have unlimited and everlasting liability for the consequences of their syndicate’s underwriting – “down to the last cufflink,” as the quaint description went. But that warning came to be viewed as perfunctory. Three hundred years of retained cufflinks acted as a powerful sedative to the names poised to sign up.
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