Ladies and Gentlemen,
It is a great pleasure to be back in the United States and to welcome you to Lloyd's New York City dinner. This is the last of these dinners which I shall host as Chairman of Lloyd's. Over the nine years that I have held this position, the world has changed in ways which none of us could have imagined.
The financial crisis of 2008 led to the most extraordinary events. We saw one of the United States' leading investment banks, Lehman Brothers, go under. In the United Kingdom, a number of banks were forced to go to the taxpayer to enable them to keeping going. Only in the last few weeks, we have seen European economies teeter at the brink, before being pulled back with vast injections of capital and, here in the US, you have a little local difficulty that we are all watching mesmerised to understand what is going to happen.
These events have led, unsurprisingly, to a great many questions being asked about the global economy. And in particular about the wisdom of letting trade barriers fall in the 1990s. Back then, we were all cheerleaders for globalisation. The Berlin wall had fallen. It was the triumph of the West. Free speech and free trade were no longer the preserve of a group of individuals lucky enough to live on the shores of the Atlantic. We saw people in Shanghai, Sao Paolo and even St Petersburg beginning to live the American Dream.
Was this just a dream? One from which we were brusquely awoken by the nightmare of the financial crisis?
I would say very firmly no. I believe that the advantages of globalisation, and specifically the global financial system, were, and are, tangible benefits for many people. There are many places we can look for evidence, but for me Exhibit A is the global insurance industry.
Last week I was in New Zealand and Australia. Lloyd's have received some substantial claims from these countries following a series of devastating earthquakes in New Zealand and floods in Australia. So I wanted to go and talk to the insurance industry there and see the rebuilding efforts. In particular, I was taken by the Minister responsible able to see the city centre of Christchurch, one of New Zealand's major cities.
Christchurch was called the Garden City, but what is left now is the detritus of people's lives and businesses lying in piles of rubble. I had seen plenty of pictures, but nothing really prepared me for the extent of destruction.
Whilst these scenes were sad, staggering and a shocking reminder of the power of nature, I remain optimistic about the future of Christchurch. And I am also optimistic about the future of Queensland, Australia and of Japan. I am hopeful because these economies were protected, both by their governments and by the international insurance industry.
Christchurch will rebuild and it will recover. A good deal of the cost of this will come from the global reinsurers - from Lloyd's, Munich Re, Swiss Re, Berkshire Hathaway and a few others.
This is the positive power of a global financial system. If sub prime showed us systemic risk, by demonstrating how defaulted loans can move from being a local problem to an international curse, reinsurance does the opposite. It takes a local problem and provides the umbrella of global finance. Businesses like Lloyd's act as a magnet for international capital, and we then redeploy it to the places which need it the most, when they are faced with a crisis.
This is nothing new. We saw it ten years ago, in this city, after the appalling attacks on the World Trade Centre. Back then, it felt like the end of the world. But New York has not just survived, it has flourished. Wall Street remains Main Street to the world's financiers. This is not, of course, due simply to insurance. The greatest credit must go to the city and the gritty determination of you who live here.
But reinsurers helped. They picked up just under 70% of the insurance bill after 9/11. I am told that when the then Secretary of the Treasury asked who the major reinsurers were, he was told that nearly all of them were foreign, and he found it difficult to believe. But what was true then remains the case - five out of the top six reinsurers are European. Did this matter to the people receiving the cheques?
We paid our 9/11 claims and stayed in business, based in European countries, paying European taxes. But what defines Lloyd's, is not that we are British or European businesses. We are a vehicle for international capital. Capital which wants the returns of a high risk business, but equally understands that, when significant disasters strike, there will be few profits for a year or two whilst claims are paid and cities rebuilt.
We have proved that we in this industry do not spread systemic risk. In fact we do the opposite. We absorb risk. 9/11 cost the industry around $30bn. There were record breaking losses across all classes. The largest workers compensation in history, the largest business interruption claims, the largest loss of fine art. Yet no insurer became insolvent. International finance did what was needed, it distributed large sums of money to a place which was suffering.
Of course we are a business, not a charity. People pay premiums with the expectation of making claims when disaster strikes, but the fact that we work for profit does not diminish the fact that we support communities struck by terrible events. That we help businesses to manage risk.
Ladies and gentlemen,
In the time that I have had the privilege to serve as Chairman of Lloyd's, it has been a real pleasure to see first hand the positive contribution which insurance makes to global stability. Whilst the industry was still learning the lessons of 9/11, along came Katrina Rita and Wilma setting new records for claims. Planes have fallen from the sky, trains have derailed, earthquakes and tsunamis have claimed hundreds of thousands of lives.
Insurers never know when these things will happen, but over the last decade, I think that we have demonstrated our ability to deal with unexpected and high impact events, no matter how grave they are.
For Lloyd's, at least, the future was not so certain 9 years ago. I remember well shortly after I was appointed as Chairman but before I actually took over, being told that I had been summoned to meet one Brian Duperreault and one Evan Greenberg, at that time Chairman and Chief Executive respectively of Ace. They came to see me and told me in no uncertain terms that Lloyd's needed to be seriously sorted out because, if not they were "out of there".
I responded with an answer that I don't think they expected, which was to say: "Well, if Lloyd's is so bad, you haven't just been waiting for me to turn up - why are you still there?" I think that they were slightly taken aback and so they replied: "Well because that is where the market is." So I said, "In that case, the best thing for us to do would be to work together on solving the problem rather than trading jibes." Happily we all agreed to do this and the rest is a happy piece of history.
With all the effort that was put in at the Corporation of Lloyd's, first by Nick Prettejohn and his team and then by Richard Ward and his team, with a lot of cooperation from the market, and from all of you. It is clear that Lloyd's is a very different animal. I know that Brian and Evan appreciated this and, put together, this means that we can look forward to the future now with much confidence.
So when I thought about who I would like speak at my final dinner here in New York, I didn't need to think twice. I wanted Brian Duperreault to tell us how he thinks Lloyd's has fared over this tumultuous decade. Brian understands all sides of the insurance world. He was an underwriter at Ace and a capital provider at Lloyd's, before he was pulled out of retirement to fix some pretty difficult problems at Marsh. It came as no surprise to me, having heard his forensic account of Lloyd's weaknesses, that he was undoubtedly the right man for the job. Lloyd's and Marsh and indeed our whole industry are now on the right track, so we have many reasons to give thanks for the clear sightedness and frank advice which characterises Brian Duperreault. I am sure, like me, you are looking forward to hearing him speak this evening. Brian, it is a great pleasure to welcome you here.
