Ladies and gentlemen,
It is a great pleasure to be back in Rio de Janeiro. This is the second Lloyd’s seminar in Brazil. It is now two years since we were granted a licence as a reinsurer here and a year since we opened our offices in Rio.
Neither 2008 nor 2009 were an auspicious time to start such a major undertaking, as the world was in the grip of the most severe financial crisis for seventy years. But our venture here has been a huge success. When I ask people back in London what they think is our largest market amongst the BRIC countries, and also our fastest growing market, they are surprised when I tell them that is not China, but Brazil. Our business here has doubled over five years. This success has happened over all classes of business and with an estimated growth rate of 8% per annum, it is not surprising that over two thirds of our syndicates now write business in Brazil.
Today, I want to consider why Brazil has proved to be such a profitable market for Lloyd’s and why we can be so confident about the rate of growth of our business here.
In short, the answer is because Lloyds and Brazil – especially at this stage of its development – are a good match for each other. Lloyd’s is the market where the world brings its risks. Most of the big multinationals – regardless of where they are based – come to us when they need cover for their most ambitious projects – whether that is the new World Trade Center building in New York, a multimillion dollar oil rig, or a major suspension bridge. These companies come to us for a variety of reasons, but chief amongst them is the fact that we have hundreds of specialist underwriters operating in the market, who deal with most risks, no matter how unusual. We also have a very safe, very secure capital structure, with an A+ rating.
Over the past four years, 10 million Brazilians joined the middle classes. This makes Brazil a highly attractive market for all insurers, but today I want to concentrate on the opportunities offered to the non life sector, due to the massive investment in infrastructure, with a particular focus on sporting events. Brazil will host the 2014 World Cup and Rio de Janeiro will be the venue for the 2016 Olympics and I would like to make some remarks based on Lloyd’s experience of providing insurance cover for major sporting events.
When athletes compete in a major sporting event, a good deal of the audience’s excitement is because we know that the ten seconds of a sprint final or the ninety minutes of a soccer match represent the culmination of years of training, there is a tension about whether an athlete will perform at his or her best, or crumble under the pressure. Will he become a hero or spend the future haunted by thoughts of what might have been?
In many ways, the organisers of the Olympics and the World Cup are faced with exactly the same conundrum. The events last for a few weeks, but they are the culmination of years of preparations and, if well run, can have a lasting legacy, in terms of developing infrastructure, which will improve the lives of ordinary Brazilians for years to come.
The 2016 generation aren’t simply the Brazilian athletes who will stand on the podium. Many of the 2016 generation have not yet been born. But they are the Brazilians who will benefit from the huge investments which will be made in the cities’ stadia, but also its rail links and airports and urban regeneration programmes.
I was lucky enough to visit China during the Beijing Olympics and I saw first hand how the Games can act as a catalyst to transform not just the infrastructure, but also the image of a country. China sent a clear message: We have arrived as a global power.
And I expect Brazil to do the same. The world loves Brazil, which represents, more than any other country, a joie de vivre and Carnival spirit. But the games are an opportunity to showcase the Brazil which people like us, businessmen and women, know and value - a growing economy, an enormous source of raw mineral deposits and a well run economy which offers international business huge opportunities. Behind the beaches of the Copacabana, lie the offices where significant amounts of commodities and goods are traded.
I have been impressed by how your government has grasped the opportunities presented by the World Cup and the Olympics to develop the infrastructure of the country and to showcase its phenomenal economic achievements over the past few years. Governor Cabral, who will join us for lunch, came to London during the competition to win the Olympics and I was able to show him some of the work underway in London to prepare for the games. I was impressed by his vision for Rio, and was delighted when you won the bid.
But what does all this mean for insurers?
Well, it is estimated that the two events will attract around $60 billion of investment. Insurance will play a primary role in protecting this investment, across a number of different lines. Many of the insurance needs are clear, new buildings, new rail links, airport upgrades all need cover.
But some of the risks are less obvious. Lloyd’s has carved out a reputation for developing products around sporting events. Brazil last hosted the World Cup in 1950. This was the first World Cup after the Second World War and Brazil showed real foresight in its preparations. The Macarana stadium built for the 1950 World Cup has proved a durable investment. It will be used for both the 2014 World Cup and the Olympics. Indeed, it held the record for a World Cup audience until 1994. But like any major event, unexpected risks appeared. In the UK we prefer to forget this World Cup, the one where we started as a favourite and ended up beaten by the United States. At least in South Africa, we managed a draw against America.
In the 1950 World Cup, like in South Africa, it was a British referee who made more of an impact than the English team. A Mr George Reader refereed Brazil’s first game, indeed, the first match in the new Macarana stadium. His first challenge came when Brazil scored the opening goal and a crowd of journalists flooded onto the pitch to get an immediate interview with the goal scorer and the goal keeper. This, I am sure, was a risk which he had not expected. But I understand that he rose to the challenge and, the Brazilian press was soon requesting a British referee in every match - something which they were happy to provide.
There isn’t much that insurance could do in this case, nor, I expect, to ease the problems caused by a number of teams, including Scotland, who pulled out at the last moment, leaving the organisers with the problem of arranging a tournament with thirteen teams, one of which, the Italian team, had been decimated by a tragic aircrash a year before the World Cup.
However now there are a series of insurance products to cover the huge variety of risks involved in hosting a major sporting event, from an individual athlete’s injury to the safety of the spectators to the most unpredictable element – the weather. You may not be able to count on the sun shining but you can insure for the kind of heavy rain fall which caused a semi final in South Africa’s Rugby world cup to be postponed.
Lloyd’s also has a strong track record in working with local insurers on major infrastructure programmes, such as the growth acceleration programme launched by President Lula in 2007. This is worth over $360 billion and projects underway include the high speed rail link between Rio and Sao Paulo, a hydroelectric power station in Belo Monte and further investments in the oil and gas infrastructure.
Brazil is also working to develop offshore drilling following the discovery of oil reserves in the pre salt area. If the estimates are right, Brazil could possess the 6th largest oil reserves in the world. However, developing these deposits will need huge investment at a time when the energy market is riddled with uncertainties. Whilst China and other Asian economies will demand more and more energy, the slow progress by the International Community in establishing a framework to deal with Climate Change has created a lack of clarity on energy. And of course, there are considerable technical challenges in drilling in deep water as the oil spill in the Gulf of Mexico has shown.
Lloyd’s is very familiar with the huge range of challenges and risks in getting oil out of the seabed, just as we are experts in the renewable industry. Indeed, we insured Transocean’s rig against loss and paid the claim within a couple of weeks of the loss.
We are also very experienced reinsurers for major transport projects. Back home in London, we are involved in the Crossrail project, one of the most complex railway developments in Europe at the moment. It is not easy to dig a new metro line under a city the size of London and the expertise of the Lloyd’s market is supporting this project.
We want to work with the Brazilian insurance industry as you face up to some of the most significant projects which this country has undertaken. Every major development, every major innovation, has an insurer standing behind it, evaluating the risks. Lloyd’s has three centuries of experience in helping businesses and governments to manage the challenges, to make sure that a setback doesn’t end up being a fatal problem.
Ladies and gentlemen,
I know that I am speaking on behalf of the Lloyd’s market, when I say that it is a great privilege for us to work with the Brazilian insurance companies in helping the country to manage the huge investments which are being made in Brazil, and which will continue over the next decade. Brazil is a continent sized country. It will always have to deal with big risks, but we want to work with you to make sure than these are managed, and do not obscure the big opportunities also on offer in Brazil.
This is an exciting time for the whole country, as it transforms into one of the world’s most significant economies, one of its most influential powers, and I know that the Lloyd’s market stands ready to help.
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i For more information see: http://www.museumstuff.com/learn/topics/George_Reader::sub::1950_FIFA_World_Cup
ii For more information see: http://www.lloyds.com/News-and-Insight/News-and-Features/Market-news/Industry-News-2008/Crossrail_risk_on_track_for_Lloyds_11082008
