Thank you Chairman.
And thank you all ladies and gentlemen for your warm welcome.
Since the crash began in 2008, the effects of globalisation have been experienced very differently across the world. The future of the union in Europe is under serious threat. The United States is paying a heavy financial price to stimulate growth. While South American powerhouses like Argentina and Venezuela are facing negative growth for the first time in over a decade.
There are, of course, also winners.
China and India have long been held up as examples of the Brave New World that is emerging from the ruins of the old. There is no doubt that their direction of travel will shape the world’s future economic balance. But in the debates about how the aftermath of the financial crisis will play out, it seems to me that one continent is too often overlooked - at least by the West, Africa.
While the eurozone’s problems seem increasingly intractable, in a growing number of African states governments have been busy implementing structural reforms to help them weather the current storm and define their long-term future. These strategies focus on social progress, on growth, on jobs and on investment. They promote good governance and good housekeeping - driving down deficits, providing consistent regulation and creating a sustainable place to do business. And perhaps nowhere is this trend as apparent as in Southern Africa.
Today I want to look at how growth in Africa will impact on the global insurance industry and how Lloyd’s can support these opportunities.
Last month, the British Prime Minister launched Lloyd‘s long-term strategy – Vision 2025. For hundreds of years, Lloyd‘s has been the place where the world‘s leading businesses have brought their risks, particularly from the Anglo-Saxon world. That won’t change. But the nationalities of the businesses will.
We expect to see more Brazilian risks, more Russian, Indian, and Chinese risks and we also expect more from the fifth member of the BRICS, an S that is too often pronounced silently – South Africa.
The main qualification claimed for South Africa has been as “the gateway to Africa” and is still the most powerful and sophisticated country in the continent. But there are several other gateways such as Egypt, Kenya, Mauritius and Nigeria that are developing at a fast pace. The continent’s economy is now the second fastest growing in the world and its population is more than 1 billion strong. The continent has also become a lot more peaceful, democratic and stable.
In Mozambique - which last year saw the country’s first overseas export of coal, where growth is estimated at 7.5% this year and nearly 8% the next and where already high FDI levels continue to soar.
In Botswana – with anticipated growth of nearly 5% this year and almost 7% in 2013, a National Economic Diversification Strategy to improve domestic productivity and the goal of becoming a World Diamond Trading Centre within the next few years.
And in Tanzania - which I’ll be visiting tomorrow - where this year’s growth is predicted to be around 7% and where exports are expected to grow by nearly 10% by the end of 2012.
So, while the drive to growth is not just restricted to South Africa, I believe it will continue to be the engine room of regional growth for the years to come.
My Chairman has challenged Lloyd’s regional directors to grow, over the next dozen years, Lloyd‘s business in line with GDP growth in national economies. When I look at my areas of responsibility – Southern, Eastern Europe and Africa – there are three clear priorities – Central Eastern Europe, Turkey and the high growth economies of Africa.
Africa has always been seen as an opportunity. But too often in the last century, its potential was a target for speculation. The continent has a huge opportunity, right now, to change all of that.
With investment pouring in, there is a growing demand for power plants and renewable forms of energy, a huge telecommunications market and a significant share of the worlds’ natural mineral and metal resources - while the world’s biggest astronomy project is split between Africa and Australasia. This is a natural home for the specialist insurance and reinsurance at which the Lloyd’s market excels.
A developing market needs a strong insurance sector to succeed. In a growth environment individuals and businesses have assets they need to protect. In doing so they are freeing up more capital for growth, to invest in their businesses, in their ideas for success. And, as per capita wealth grows, as company assets grow, so too does the insurance market. We are seeing this in China, where insurance penetration is growing faster than GDP and we will – I am quite sure – see this in Africa.
I believe that there is a correlation between insurance and FDI. We have all read about the support of China, amongst other major foreign investors, for Special Economic Zones that will provide incentives for home-grown entrepreneurs and foreign investors alike. Now we all know that the delivery of Export Processing and Special Economic Zones has stalled in the past. I hope that those lessons have been learned, because Africa can derive a great deal of value from productive investment.
Value-added manufacturing, for example, offers huge investment opportunities to position the region as a bridge between the Middle East, Asia and the rest of the world. Those investors will need to protect their assets with insurance - and that is why the global industry needs to work closely with local insurers and brokers to understand the scope and nature of risks in this area.
This is why I am certain that insurance penetration will grow in Africa. With that certainty, Lloyd’s strategy for Africa hinges on a number of areas.
First, we need to understand the regulatory framework of the targeted countries – and how Lloyd’s can support the growth of these markets and economies.
Second, we need to work with insurers and brokers in London and in Africa to build solid bridges between local businesses here and the wealth of insurance expertise, and capital security, back in London.
I have spoken to many Lloyd’s underwriters and brokers in London and there is a great deal of enthusiasm for increasing Lloyd’s market involvement in sub-Saharan Africa markets - countries like Namibia, Botswana, Mozambique, Tanzania – and of course South Africa.
Many other companies in the market – both here and in London - have confirmed that the direction of travel signposted by Lloyd’s strategy offers the perfect fit with their own. For example, General Electric recently chose Nairobi as its sub-Saharan hub, copying firms such as Nestlè, Coca Cola and Heineken. And only last week the Scottish firm Aggreko announced its joint venture with the South African investors Shanduka Group in a deal worth US$250m to supply power plants to Mozambique and South Africa.
We are seeing significant interest in our industry from firms like Marsh, a long-term player in South Africa, whose acquisition of Alexander Forbes’ risk operations in South Africa, Namibia and Botswana is just the latest evidence of the commitment of international businesses to this region. And, perhaps most importantly of all, our presence here in South Africa allows local brokers to increase ‘the power of placement’ by facilitating local access to both insurance and reinsurance, using the strong business relationships and on-the-ground knowledge of Lloyd’s coverholders.
So in summary, as part of our strategy, we have chosen to focus on the Sub-Saharan region and make strategic use of our hub in South Africa to deliver it for a number of reasons.
First, geography. The proximity to other fast-developing countries in the region with many key shared economic characteristics and English as the primary business language.
Second, these countries‘ membership of SADC, EADC and ECOWAS helps Lloyd’s underwriters to access markets more easily.
And third, our existing market share and the appetite of key players in the Lloyd’s market to write more business here. Last year Lloyd’s wrote ZAR 2.5bn in gross premiums in South Africa, 68% through brokers and 32% through coverholders. Our business here has tripled since the mid-90’s.
Not bad. But we know we can do better.
We can however, be difficult to explain. We are not a unitary insurance company. We are a market of many different businesses.
The key to making Lloyd’s better understood in the region lies right here, in South Africa, where our office has been actively promoting our brand, our product diversity and our financial security for many years. As well as the support of cedants for the reinsurance needs here, I also welcome the support of our brokers and coverholders in South Africa and their active promotion of the Lloyd’s offer.
Lloyd‘s is well known in many places across the world. We have insured everything from the Titanic, to the World Trade Center to the legs of sports stars. We are a global brand. But in Africa, our visibility is not as great as in other parts of the world. We need the help of our local business partners to explain Lloyd‘s to clients.
We think we have a great story to tell. Like the fact that we paid over $20bn in claims last year and yet retained close to record levels of security with more than $91bn of assets. Like the fact that we have an unrivalled reputation for excellence and innovation in underwriting. The first cars, the first planes, the first commercial spaceflights were all insured in the Lloyd’s market. And the fact that we have a huge international network of licences – in over eighty jurisdictions, and have business relationships in around 200 countries.
Lloyd‘s has supported many countries - for example, Brazil, Mexico, Poland, South Korea - as they have built up strong and secure economies. Where Lloyd’s has a licence to operate in a country, it’s an indicator of credibility for that domestic economy.
Lloyd’s doesn’t have a sales force – our relationship with the insured is through the brokers and coverholders who bring business into the market. So we need to equip all of them with tools that add extra value to their clients, and give them a competitive edge.
More meaningful engagement with our customers is, of course, just the tip of the iceberg. The growth of Lloyd’s in the region will bring benefits to the wider industry too. As GDP increases and regulation and governance are strengthened, investors from a wide global pool will become increasingly attracted to the region.
But we need to be realistic. Significant barriers to investment remain. There is infrastructure to be built, transport links to be improved and utilities and services to be rolled out across vast areas. International insurers have several roles to play here, helping both foreign and domestic insurance products keep pace with this exponential growth.
The first is in the development of new products. Africa is a continent defined by diversity – of terrain, of culture and of economic development. The experience and expertise of international insurers of such diversity across the globe will drive domestic development of the specialist products to meet this range and combination of risks. There is also the barely tapped potential of ‘talent transfer’ of knowledge from global insurers working together with the local market, creating employment and strengthening professional networks across the rest of the world. And bringing in the best people from across the globe is something that Lloyd’s is particularly passionate about. Our Vision 2025 – stresses the importance of increasing the diversity of talent, as well as the capital, coming to Lloyd’s.
The Lloyd’s market is unique for many reasons, but its reputation as a centre of excellence and expertise rests firmly on the shoulders of its specialist Underwriters. At Lloyd’s we never take that expertise for granted. The Lloyd’s Market’s continued commitment to professional development makes it an opinion leader for training throughout the industry. And Lloyd’s isn’t just a market; it’s a community, which recognises that knowledge, learning and education are, and will remain, key to our future success.
Our Professional Standards Committee defines standards and creates benchmarks to ensure our reputation for excellence remains well founded. The Committee, which contains representation from all components of the Society, is proactive in working with the Chartered Insurance Institute and a range of other professional bodies to ensure that by working together they understand the current and evolving training needs of the Lloyd’s Market community – and meet them. At the centre of this community is the LMA - Lloyd’s Market Academy - which drives, develops and delivers a range of activities. One of the Academy’s most successful recent initiatives has been the pilot of its Apprenticeship scheme. This scheme breaks down silos before they even have a chance to be built – taking young entrants to the market, giving them a 360 degree perspective of how it works as well as an in-depth view of how the Lloyd’s syndicates work in practice.
But the need to equip practitioners with the skills they need to make businesses thrive in today’s changed and changing world is not solely restricted to London. Our own Lloyd’s Risk published last year showed the talent crunch was seen as the biggest risk to businesses across the globe and a particular problem for Africa. While FDI into the region holds the key to growth, it will also mop up talent. Some commentators have predicted that demand will shortly outstrip supply. As a result, Ernst & Young Africa have estimated there will be a 75% increase in the use of expatriate staff between now and 2015. For some states, successfully tackling the skills deficit will be the work of decades. Already, countries including Mozambique, Botswana and Namibia are taking steps to ensure that education better matches the needs of markets today and tomorrow. And, in terms of professional development for our industry, the melding of foreign and domestic expertise can only help domestic skills and increase knowledge.
As playing fields level, the development of universal professional standards will help develop expertise and raise market standards overall, improving the quality and sophistication of our offer to policyholders, particularly those starting new and untried businesses. And, importantly, we can help to support and develop distribution channels – increasing the spread and scope of access to protection to businesses and infrastructure and supporting economic development.
I know that, in the growing economies here in Southern Africa, we have many African Tigers - or should that be Lions - in the making. During a recent trip to Johannesburg, I had the pleasure of visiting the African Leadership Academy and see with my own eyes how these Lions are nurtured. I was very impressed with both the quality of the Academy’s structure and of the people I met there. Despite the impacts of the global economic storm, I see in South Africa, in Tanzania, in Mozambique and others the start of the newest world order. What it took Europe, China and India millennia to achieve, Africa has done in less than a century.
Lloyd’s will be proud to play its part in the unfolding economic journey of this amazing continent by being one of the foundations of the future of your economic and social success.