Dear Sir,

Recently I spoke to the annual meeting of the Property Casualty Insurers Association of America. My remarks that the insurance industry is still perched dangerously near a cliff edge seemed to resonate with an audience which is witnessing increasing vilification of the industry in the press as financial performance improves.

However, the comments I made are not restricted to the United States. Over the next 12 months, the European insurance industry equally needs to address some serious financial, reputational and behavioral challenges.

Although we are out of the financial intensive care ward for now, current fortune must be seen within the context of unsatisfactory long-term performance. We do not have a proud financial history—not yet anyway. In addition, we currently face growing pressure on rates. At this pivotal time, one wrong foot could therefore easily undo the progress of the last four years, sending insurers back onto life support.

So far, Europe has escaped the excesses seen in the United States' media and courts. But, as we report improving results, we too can expect an increasing backlash from policyholders and consumer groups. We must do more now to communicate our critical role in the European economy, to improve the transparency of our financials and to explain why profitability is not—and must not be—a dirty word if insurers are to remain strong for their policyholders.

Finally, despite the comparative openness of the European Union as a regulatory regime, our own thinking and behavior needs to change if we are to capitalize on the huge opportunities presented by the emerging markets. Increasingly, the European industry will need to look east if it is to remain competitive—and indeed survive—in the new, truly global, marketplace.

The performance of the European insurance industry has improved significantly over the past four years, but we put our future in grave danger if we stop there. The environment in which we operate is more challenging than ever, and we will fail if we do not keep changing and adapting.

Julian James, director of worldwide markets, Lloyd's of London