Ladies and Gentlemen,
Thank you all very much indeed. This is a very special award because of its association with Roberto Hertogs. I have a great deal of respect and fond memories of Roberto. I remember visiting Barcelona in 2007, and Roberto arrived for a meeting on time, full of positive contributions, despite the fact that he had recently lost his father. That was a measure of the man. The broking community in Spain – indeed the whole of Europe - lost a great ambassador, and Lloyd’s lost one of their strongest advocates when Roberto died in 2008.
Roberto was instrumental in developing Lloyd’s business in Spain. We had always written Spanish risks, indeed we insured the entire Real Madrid team in 1965 for a sum of $5m – a sum which probably wouldn’t cover Cristiano Ronaldo’s legs today. And, for those of you who enjoy Chorizo or Jambon de Iberico, you will be grateful for our 24 million dollar payout to Spanish pig farmers following a bout of African Swine fever in 1979.
Ladies and Gentlemen,
This has not been an easy year for the insurance community. Floods devastated Australia. Earthquakes struck in New Zealand, Japan and, of course, only a few days ago, in the town of Lorca, which I believe is the hometown of Signor Vela.
What these events bring home to me, is why insurance is necessary. The reputation of the financial services industry has, over the past few years, taken a battering. But when we see events like the terrible Tsunami in Japan, it is a stark reminder that insurance is an industry which helps people to survive dreadful calamities.
When I joined Lloyd’s in 2002, I was a newcomer to the insurance industry. In fact, I was the first Chairman ever, over a 300 year period, to come from outside the industry. But what I had then, and I still have, is the viewpoint of the client, so I have always tried to develop links with broking communities across the world.
You are the Lloyd’s sales force, you represent our link with the client. So please do keep in touch with us, tell us about the products your clients want, and their experience of Lloyd’s.
I retire as Chairman of Lloyd’s later this year. The past eight years have been a uniquely rewarding experience. I have been privileged to be a part of the insurance community and most of all, to serve during a period of Lloyd’s renaissance.
When I first joined the organisation in 2002, the market was starting a period of deep reflection following the terrible attack on the World Trade Center and its impact on the insurance community. The impact on Lloyd’s, of this one single event, was huge.
And what Lloyd’s did next, impressed me then and impressed me still. It changed.
There is a phrase in English: “business as usual”. This refers to companies who experience a deeply traumatic event, but then, fairly rapidly return to their old practices. “Business as usual” can signify resilience, but it can also mean resistance to change.
When I joined Lloyd’s in 2002, there was no sign of “business as usual”. We fundamentally changed our business model.
This was not an easy task. The insurance cycle is notoriously difficult. It doesn’t run in gentle curves, it is a rollercoaster ride of big profits and enormous losses.
Insurers have strong nerves, but what we wanted to do was to manage the cycle, to make it slightly less of a hair raising ride for you all. We did this by raising standards, building in more checks, and essentially, diversity, into our business model.
The cycle can never completely be tamed, but it can partly be domesticated. Over the past decade, Lloyd’s mantra has been clear: underwrite for profit, not for market share. In fact, I saw an old speech I made, in 2003, to European brokers when I said “We can no longer rely on investment income to compensate for shoddy performance at underwriting”. I challenged the market to pursue “a reasonable expectation of an underwriting profit every year”.
The acid test came in 2005, when Hurricane Katrina ripped up New Orleans. Katrina, with her companions, Rita and Wilma, meant we failed to make an underwriting profit that year. But despite record profits under my tenure, for me, somewhat ironically, the best result for us was in 2005, when despite paying out $16bn in claims, our overall loss was just $160m
If, in 2002, my first aim as Lloyd’s Chairman was to survive, the second aim was – and is - to thrive. I saw a very clear path: develop our overseas business.
Lloyd’s has always been international. But our predominant markets are Anglo Saxon – the US, Canada, Australia and New Zealand. They remain critically important markets for us. But when I took this job I was very conscious of two huge economic forces. One was the emergence of the new economies, then called the BRICs: Brazil, Russia, India and China. The other was the European Single market.
Lloyd’s has always had a relationship with Europe, but, I felt that it could do more. In that speech to European brokers in 2003, I said that my chief concern was that we were not doing enough business in Europe. This seemed at odds with the opportunities of an enlarging Single Market. So, over the last few years, we have opened offices in places like Spain, to see if we could build closer relationships with organisations like the E2000 and look for new opportunities.
Only a few months ago, I opened an office in Rotterdam. Lloyd’s can still do more business in Europe. I think that it will happen. The cornerstone of European industry is small and medium sized industries. These have not traditionally been Lloyd’s clients. But over the last decade or so, Europe’s small businesses have become international. They source and sell to overseas markets, and this exposes them to a new risk landscape. It also means that the highly secure, bespoke products which we offer at Lloyd’s are more attractive to them.
The reason why I focused on developing Lloyd’s business in overseas markets can be summed up in one word: globalisation.
Ten years ago, 9/11 demonstrated just how global the insurance market had become. Just two of the ten insurers who paid out the highest number of claims were American. Five were European.
This trend is hugely positive. Risks such as 9/11 or Hurricanes Katrina Rita and Wilma are, quite simply, more than one market can bear, even one as established and strong as the US market.
9/11 also suggested another global trend. It showed that large sums of capital could travel swiftly across borders, to pay claims, and to re-capitalise the industry. But we saw a less benign expression of the unhindered journey of capital in 2008, with the sub prime crisis.
The legacy of 2008 – in the form of restrictive legislation –is still very real to European Insurers. One sentence really stands out from that old speech in 2003:
“Some people ask whether our increasingly interdependent nature could pose a serious systemic risk to our future?”
The answer in 2011 is the same as that in 2003. Insurers absorb systemic risk, they do not spread it. Subsequent events – right up to the catastrophes in the first quarter of this year – confirm it. The globalisation of the insurance industry presents regulators with a challenge, but they cannot seriously hope to establish a supervisory structure on a worldwide level. Good regulation will hinge on high quality, local regulators who thoroughly understand their local insurers.
To the great credit of this industry, it, by and large, stayed strong and secure throughout the financial crisis. Some insurers flirted with credit risks in the early part of the decade, and the relationship most definitely turned sour.
Lloyd’s was not one of those insurers. It is customary, when you are leaving a job, to focus on changes. But I also take great satisfaction in that fact that the cornerstone of Lloyd’s recovery was a back to basics approach. We concentrated on our core strength - underwriting.
The market still writes risks which others pass over, that is a key part of our reputation, and with it, we provide a central service to industry. And throughout a decade of intense self scrutiny, a period of recovery, we never lost our voracious risk appetite. But it is a healthy appetite, based on a diet of what we know is good for us, so, in 2008, we passed on the complex financial risks.
Ladies and gentlemen, no-one in Spain believed more in Lloyd’s than Roberto Hertogs. He would have loved to have seen us receive this award. I recently read an interview with Pedro Vela, in which he listed the qualities which Roberto brought to the E2000. Signor Vela named gravity, professionalism, confidence, solvency and modernity.
And these, I think, are also the hallmarks of Lloyd’s in 2011.
Once again, thank you for this honour.