Chancellor, Secretary of State, Your Excellencies, My Lords, Ladies and Gentlemen.
Firstly a very warm welcome to all of you this evening – a record attendance for this our 9th Lloyd’s City dinner. I hope and believe that such a large attendance is not simply because the Chancellor agreed to come and address us tonight. I hope it is also a sign that the Financial Services Industry may again become a source of pride, rather than shame, for commentators and politicians on all sides.
As I have said before, we happen in this country to be world leaders in the finance sector, so let us now get it right, return it to respectability, and stop bashing ourselves on the head.
Ladies and Gentlemen,
2011 has been a turbulent year. In the physical realm, floods, earthquakes, tsunami and storms destroyed lives and livelihoods, and of course have made a significant impact on the Lloyd’s market. In the financial sector, we witnessed a startling sight – an unprecedented downgrade of the United States’ AAA credit rating and the stability of the euro seriously questioned.
The British Economy needs to be on a quest for growth and that search should begin here, in this square mile of banks, insurers, accountants and all the manifold businesses, which together make up the financial services industry.
Every question facing British society, politics and economics comes down to achieving competitive and sustainable growth. Making money which will cut deficits, create jobs and fund public services, not least the growing pensions bill.
I would like to see politicians concentrate on where we will find growth. The answer in my mind is clear. In financial and professional services. Not just here in London, but in Manchester, and Leeds and Edinburgh. Indeed in every major city in the United Kingdom.
You may well ask me, how I can be so certain? Well, when the Office of National Statistics published their figures on growth last month . I didn’t simply look at the headline numbers or ponder how much the Royal Wedding cost us. I looked at the areas which bucked the trend, the sectors showing strong growth - in short, opportunity.
And what were these areas?
Business services and finance. The figures showed that the output of accountants, banks, lawyers and management consultants was up by nearly £20 bn since 2006 – and that during a time of almost unprecedented global contraction.
The road from recession to recovery runs right through the City. We must use Financial Services as a springboard for growth.
There has been a great deal written and spoken recently about the likely leaking - if not haemorrhaging - of business out of London to other centres. But we always console ourselves by saying that it is not really going to happen. But don’t be too sure.
Just 6 weeks ago, on a visit to New Zealand and Australia to see the terrible results of the earthquakes and floods, I stopped en route in Singapore to discuss the rapidly expanding Lloyd’s operation there. When I first joined Lloyd’s in 2002 we had just two syndicates in Singapore and a premium income of around $2m. Now we have more than 250 people there and this year are expecting an annual premium income of $500m. This consists of South East Asian and Australasian business – from the same time zone – as we had originally planned.
But how long will it be before that dramatically expanding business casts its eyes in another direction? We run a free market and if London is not allowed to march forward as it should, it won’t be Lloyd’s that suffers, but it will be London. This self imposed flagellation just has to stop.
Over the turbulence of the last few years, and more recently, during this eventful summer, there has been, in the Chancellor’s words, a “flight to safety”. UK government bonds have benefited from this, and so has Lloyd’s, with a highly secure capital structure and a business model which is entirely different from that of some of the organisations whose practices have caused so much uncertainty.
But the problem is this: the European economy is suffering from risk aversion. As we lurch from laissez faire economics to the nanny state, we need to think about what will encourage banks to start lending and entrepreneurs to thrive.
I’m not just looking towards Westminster for satisfaction. My gaze travels over the Channel to Brussels. The Lloyd’s Market is going to have to spend at least £250m on implementing a new piece of EU legislation called Solvency II. This has its merits, but I simply do not see why it is going to cost us quite so much money. I don’t see that happening in Singapore, or in Hong Kong or in Shanghai.
It is not easy to find the right balance between risk and safety. But it can be done as Lloyd’s has shown.
Here particularly none of us will have failed to remember that this week marks ten years since the appalling attack on the World Trade center. Our thoughts and prayers are with the victims and their families and friends during what will undoubtedly be a difficult weekend.
Lloyd’s was a major reinsurer of practically every class of insurance business impacted by the attack – from the lost buildings and planes, to claims for interruption of businesses, loss of art and compensation payments. That list was very long indeed.
9/11 cost the Lloyd’s market a huge amount of money, and when I arrived, the future did not look rosy. That has changed. Lloyd’s is now, once again a respected and secure part of the global financial community. The fact that we have been able to achieve this was not just a stroke of luck, but rather the result of consistent effort and very hard work by all those involved. By the Lloyd’s Market and its members - both corporate and private capital - who drove us to do it; by the staff of the Corporation, by the regulators who helped (yes helped!) us to achieve it; by the politicians who trusted us – and here I would like to make special mention of the Shadow Chancellor who is with us this evening, and without whose personal involvement when he sat in The Treasury, we would never have been able to achieve the essential changes to the Lloyd’s Act – something previously considered a mission impossible.
Overall, from 2002 until 2010, the Lloyd’s market made £19bn in pre-tax profits. I say this with a certain amount of trepidation, in case people ask whether this is simply a case of more cream for the fat cats.
I reject this assertion. Lloyd’s prime role is to pay claims when businesses are hit by disaster.
So whilst the market made £19bn since 2002, we have also paid out over £91bn in claims in the same period .
£91bn is a lot of money and more than the UK’s annual education budget.
The market’s story is simple: it has managed to pay large cheques to both policyholders and to investors.
None of this means that we have broken the insurance cycle, sadly. The peaks of high profits, followed by loss when disaster strikes, will always be the reality of the Lloyd's market. This kind of insurance will never be an investment opportunity for widows and orphans. It involves far too much risk.
The first half of this year has been the toughest since I became Chairman. We have incurred billions of pounds of claims in New Zealand, Australia and Japan, not to mention further claims recently in the US.
Given these events, it is not surprising that many Lloyd's businesses have reported a loss in the first half of this year. But this does not detract from our success in sorting ourselves out.
There is an important difference between the losses incurred by the market today and those in the nineties and again after 9/11. Fear. In the nineties, the media wrote inches of columns about crises and Lloyd's. Everyone was speculating about whether we would go under or indeed when we would go under. In short, there was doubt over whether we could do what every insurer must. Pay its claims and trade on. No-one now doubts our ability to do precisely that. We have found a balance between safety and risk.
It is now time to turn to our guest of honour this evening.
Mr Osborne is a political prodigy. At 30, he was the youngest Conservative MP in the House. Before the age of 40, he became the youngest Chancellor for over a century. Chancellor, we are all holding our breath to see what more you can achieve before you celebrate a half century. As the holder of the number two spot in the Guardian newspapers list of “Top 10 Tories”, you were described as “sociable, bookish, family oriented”. They also pointed out that you are an “over-confident metropolitan risk-taker”. A description which may win you more admirers tonight than perhaps the Guardian originally intended.
Earlier this year, a poll recorded that Mr Osborne had received the highest satisfaction levels ever of any Conservative Chancellor. That was, I should add, before he announced his historic budget. This was described by Jonathan Guthrie in his Financial Times Column as providing a “fiscal thrashing” to the “body politic”. Other commentators were a little more prosaic, confining themselves to an analysis on the Chancellor’s “Bet on Growth”. No doubt the many bankers in the audience will be listening with more than usual interest to his comments on their sector tonight.
Chancellor, you are very welcome.
Next month, I will hand over the torch to John Nelson who is with us this evening, and no stranger to this dinner. I am delighted at the choice, wish him every success, and will depart knowing that Lloyd’s will be in good hands.
I have over the last few months often been asked what I consider to be the legacy of a nine year Chairmanship. For me the answer is easy. When I arrived the reputation of Lloyd’s was on the floor (think RBS of a couple of years ago), but today Lloyd’s is once again rated internationally as the gold standard in insurance – no one could ask for more.
I have talked of the market’s success. That is clear for everyone to see. But I would also like to draw attention to what has been achieved by the Corporation. When I joined it, the Corporation of Lloyd’s bore a close resemblance to a Government Department. I have nothing against Government Departments, but it struck me that the heart of the City of London was not really the right place to find a bureaucracy.
That has all changed. The Corporation continues to provide first rate support to the market, and we also do more. Where we once waited for business to come to us, now we go out and look for it. In particular we have sought new links with new economies – Brazil, China, Mexico, Russia and Singapore to name just a few. This will pave the way for the market to thrive throughout this 21st century.
And of course, the Corporation has created a franchise model to oversee the activities of each syndicate and to ensure risks and capital are well managed. I am indebted to the work of Rolf Tolle, in putting this on track and to Tom Bolt for continuing his good work. Rolf was once voted the fourth most powerful man in reinsurance. You might think this isn’t such a big deal, but he was pipped to the post by Warren Buffett, Barack Obama and Mother Nature.
I also would like to express my gratitude to my colleagues on the Council and the Franchise Board of Lloyd’s, together with the very hard working staff of the Corporation, its directors and most of all to the two Chief Executives who have worked so tirelessly for our success – Nick Prettejohn and of course Richard Ward.
Ladies and Gentlemen, it has been a privilege to have had the opportunity to have served as your Chairman, thank you all for listening so patiently.
[1] Office of National Statistics: Second Estimate of GDP Q2 2011 – published 26 August 2011
[1] Corporation of Lloyd’s, Market Finance statistics
