LONDON (Bloomberg) — Peter Levene, chairman of Lloyd's of London, said the world's biggest insurance market will be shielded from the worst effects of the credit crisis by its conservative investment strategy

"Our investment policy now is unbelievably conservative," Lord Levene said yesterday in an interview. "Almost all our capital is either in cash, or AAA rated government bonds. The credit crunch itself has had no significant effect except in the longer term and the wider sense that it may affect the economy generally."

First-half profit declined for the first time in two years on lower rates and investment returns, Lloyd's said in September. Lord Levene yesterday said the insurance market's capital base was "unchanged" because of the financial crisis.

Investors are concerned about Britain's insurance industry after American International Group ran short of cash in September following losses tied to US home loans and submitted to a government takeover to avoid bankruptcy.

The problems at AIG may allow Lloyd's to increase its business in the US, which currently accounts for about 40 percent of its non-UK activities, the chairman said.

"To the extent that people are less sure about getting coverage from AIG, they can send them to us," he said. "I don't think it's going to be a dramatic thing. What I do know is that I can say that nothing disastrous is going to happen."

Levene is on a four-day trip to the Gulf as part of a business delegation accompanying Prime Minister Gordon Brown.

Separately, Levene also said pay in financial services has become "totally detached" from the achievements it is supposed to reward.

Levene, who sits as an independent lawmaker in the UK House of Lords, made the comments in a statement released before a debate yesterday in the upper chamber on the financial crisis.

Reward, Levene said, "needs to be based on proven achievement over a period of some years, and not by select spots on a short-term map".

The debate is part of Parliament's attempt to pin blame for the credit crunch and propose solutions. Prime Minister Brown, who ran the Treasury for a decade until 2007, argues the problems were created in the US and have spread from there.

Levene said pay levels in London in recent years, "doubtless egged on by similar rewards in the US and elsewhere, became totally detached, not only from the rest of the economy but from the real achievement of the businesses concerned. This must be corrected."