Ladies and gentlemen,
Tonight we have the cream of the insurance industry from Italy and from our market in London. A very smart audience indeed. Perhaps we should have invited the fashion press to witness what I can see is a fierce battle between Italian tailoring and our own Saville Row in London!
But I hope that this is the only rivalry we will find. Lloyd’s has a long tradition of working very harmoniously in Italy. You are one of our largest and most valued European markets. It is a pleasure for me to be back here in Milan.
This has been a difficult year for all of us, but some parts of the financial services industry can congratulate themselves on their survival. I read only a few weeks ago about a bank here in Northern Italy, which has beaten the credit crunch by supplying loans to local dairy farmers in return for their produce – big wheels of Parmesan cheese - which the bank takes as collateral and stores in their local bank vaults, until it has reached the level of perfection we all expect of our parmesan. There is currently £122 million of cheese stored in the vaults. When it is ripe, the farmer will take his product to market and repay the loan. This strikes me as a very typically Italian way of dealing with the recession: innovative, with roots in a local community but also very pragmatic.
Lloyd’s shares these traits. We are an old institution that prides ourselves on our innovation. A company which has long links with our home town of London, but which is highly international, working in over 200 countries. And we too are surviving in this crisis. More than surviving, last month, we published excellent results, recording a profit of €1.55 billion for the first half of this year- a 40% rise on the same period last year. And last year was the 3rd best ever for Lloyd’s from a results perspective. Also our central fund assets have risen to €2.3 billion and Standard and Poor recently re-affirmed our A+ rating.
Despite this, I don’t think that we should fool ourselves that 2010 will be an easy year. I will leave the economic projections to the bankers and economists among us, tonight I plan to examine some of the trends in insurance which I believe will be important to grasp in 2010 and beyond. In particular, the Cat market here in Europe, professional liability lines and insurance for events.
This time last year, when Richard Ward spoke at this event, he did not focus on natural catastrophes, but sadly, Italy has had a very difficult year, not simply because of the recession. Earlier this month, heavy rains lead to a fatal mudslide in Sicily and in June a terrible train explosion devastated the town of Viareggio. But it was the tragedy in L’Aquila which caused ripples of shock and sympathy across Europe. 300 people dead, thousands of properties destroyed and 18,000 forced to live in tents. L’Aquila reminds us all of the extent of devastation that comes after just a few seconds of a quake. Thousands of people facing the winter snows in Umbria are still in tents instead of their comfortable homes.
L’Aquila has, understandably, lead to a public and political debate on the management of a natural catastrophe, and particularly on the insurance aspects. I know that the Italian authorities are looking to find some new solutions – possibly some kind of pool arrangement. Lloyd’s wants to take part in this debate. We are one of the biggest catastrophe insurers in the world and we have considerable experience of quantifying and mitigating the risks for people who live and work in vulnerable areas. Pool arrangements exist all over the world for terrorism and, and more recently natural catastrophe, for example in the Caribbean, where a hurricane or earthquake can have a devastating effect on small economies, often dependent on tourism. The pool whose payouts are based on an appropriate risk index aims to restore liquidity to local economies quickly. The reinsurance and global financial markets provide risk transfer to the pool and demonstrate the power of partnerships.
The Caribbean pool has just started to offer scholarships to improve the understanding of risk and how to manage it. This is a very important step indeed because climate change will fundamentally alter our experience of natural catastrophe. The choice of L’Aquila for Italy’s G8 summit earlier this year, showed solidarity with the victims, but also reminded world leaders that we need to expect the unexpected, particularly as our climate warms up.
The G8, and the climate change summit later this year in Copenhagen, will undoubtedly focus on global deals to cut carbon emissions. But our industry must keep up the pressure for pragmatic policies which mitigate the effects of what many scientists now believe are irreversible climate trends. Lloyd’s has been promoting better risk management and, in particular, the need for vulnerable people and businesses to implement robust risk management and risk mitigation policies
The insurance industry also has an important role to play in quantifying the risk of new technologies in renewable energy. I read recently about an olive oil farm in Umbria which has led the way in becoming carbon neutral. And the prospect of a huge solar farm, just over the Mediterranean Sea, in North Africa, has captured not just the imagination of the European public, but also European businesses. The insurance industry will come under pressure to find innovative solutions to the problem of insuring what in many cases will be new risks. Lloyd’s are already rising to the challenge. We insure a third of the “waste to energy” farms, and around 25% of the world’s wind farms in this market.
Another emerging risk in Europe is the issue of professional liability. This line accounts for much of Lloyd’s business in Italy. For the last few years, we have been advising business that a compensation culture is spreading across the Atlantic. Last year, we commissioned a survey and held a seminar to look at this emerging risk. The results were unambiguous. A 50% rise in product recall in Europe with 13% of a board’s time spent discussing litigation. We found that fast growing businesses are most at risk which chimes with our experience here in Italy, where many growing small and medium size businesses are looking to us to offset their liability risks.
The recession has deepened this risk. One company in the Lloyd’s market, Hiscox, reported a three fold rise in claims on liability coverage over just one quarter of this year. Often it is a case of Small and Medium size enterprises being sued by former employers, made redundant by the recession. Whilst our poll showed that class actions were still rare -only 2% of respondents had experienced this – are they the next trend? Italy, I know has just completed a law allowing class actions.
These emerging risks demonstrate the complexity of the business we face today. And Milan is about to experience a highly challenging insurance project – the Expo which will be held here in 2015. Lloyd’s has a very long history of insuring major events. One of our biggest recent challenges was the Athens Olympics. What if, for any reason, the Games were cancelled? Or one of the new stadia collapsed? Or terrorists struck? Our tradition of bespoke underwriting and our ability to tap into a market with many different forms of expertise was invaluable.
Milan’s Expo will focus on two important issues: sustainable energy and food. I am sure that by this stage you are all – particularly those of you who like me have come from London – ready to experience Milan’s culinary delights.
The final point I want to mention today, which I know many of you are interested in, is our ongoing review of the services which we, as Lloyd’s, provide to our key stakeholders in the European markets. Even though the EU is a single insurance market, in some countries different local regulations may apply. We have initiated a broad consultation process with the objective of identifying other areas where we as Lloyd’s can provide additional services that would have unequivocal support and demand from our managing agents. This work is still in progress, and I don’t want to prejudice any outcomes. No decisions have yet been made as we await the results of the market consultation process. Our primary aim is to improve the level of services we as a market are able to provide in the EU and we have been talking to managing agents, brokers and coverholders about how we can do this. Our level of commitment to the Italian market will not change. We value you all - brokers, risk managers and cover holders who work with us across this fantastic country. You have brought us the most extraordinary business: the art contained in the galleries here in Milan, the liability lines of all Italian notaries, the Opera season at Verona and – perhaps my favourite, Michael Schumaker’s Ferrari steering wheel.
For these, and many more reasons, it is a privilege and a pleasure to do business in Italy!
