Secretary General, Your Excellencies, Minister(s), My Lords, Ladies and Gentlemen:
I am delighted to welcome you all tonight to our fifth City Dinner. When we instituted this event, its key purpose was to demonstrate Lloyd’s renewed strength and status. Happily, we have rigorously followed this course ever since, and the Lloyd’s market has done a great job in building its strength and confidence further.
We have seen continued improvement in our financial performance, and were able this March to report a record profit for 2006 of more than £3.5 billion, on the back of a much more benign catastrophe year. Of course, there is no room whatsoever for complacency in the insurance business. It is much too early to tell how 2007 will turn out, and Hurricane Dean recently reminded us that powerful storms can emerge from nowhere and move in any direction. But we are now much more confident than ever in the ability of the market to take on risk and to respond to disaster.
We have also been able to close a chapter of our past history. Through a landmark deal, the Berkshire Hathaway group has reinsured the liabilities of Equitas, taking over the management of those liabilities. Although we knew that Equitas was being extremely well run, it was also seen by some as a cloud which hung over us. Once this transaction is complete it will end any residual legal liabilities of Lloyd’s and bring finality to Names reinsured by Equitas, allowing Lloyd’s to move on with confidence.
In May we reached another important milestone in the history of Lloyd’s when we opened a new business in Shanghai – Lloyd’s China Reinsurance Company Limited. I believe that this is a very important step for our market, establishing ourselves in what will shortly become the second largest economy in the world. We received tremendous assistance from the Chinese authorities and I am in no doubt at all that in due course China will become a very important component of the Lloyd’s market’s business.
We have begun to make real progress in modernising our infrastructure, a big challenge not only for a 300 year old institution like Lloyd’s but for the wider commercial insurance industry. We are focused on turning this into real improvements in service for policyholders and reducing the inordinate volume of paper used in our business.
All this is very much the result of a collective effort by the businesses operating at Lloyd’s and made possible with the support of brokers, who together make up the unique Lloyd’s marketplace. Many of the leaders of this community are here this evening, and we are very grateful for their continued support of Lloyd’s and their energy over the past year. Moreover, this progress has not gone unnoticed outside our market, and in April Lloyd’s was upgraded by two rating agencies within a month.
The strength of the guest list here tonight highlights the continuing growth and importance of the wider UK financial services sector to our economy, which now represents 9.4% of total UK GDP, up from 5.5% in 20011. Of course, the insurance industry is a major component of that and Lloyd’s itself represents over half of London market business2.
A recent article published in the US predicted that if Paris was the capital of the 19th century and New York of the 20th, London is shaping up to be the capital of this one3. In the financial arena, ‘New York versus London’ has certainly become a hot debate. But although it’s great news that the City is booming, to me the question of who is ‘number one’ is something of a red herring. In this increasingly interconnected economy, a strong New York can only be good for London and vice versa. The financial markets are learning this again right now as the impact of sub-prime lending crisis in the US unfolds.
Today, insurance is a truly international industry, and here at Lloyd’s our business is truly global with three-quarters coming from overseas4. What happens around the world is therefore of great importance to us and our customers. Not least because research which we undertook with global business leaders earlier this year shows that the world’s most forward looking companies are ever more concerned about security risk.
Well over half of business leaders today believe that political violence risk will increase worldwide over the next five years, and there are three emerging areas of terrorism risk which the world’s more forward looking companies are beginning to address5.
Concern about energy security has brought to the fore the issue of supply chain risk. Around a quarter of large companies think an attack on their energy supply is now a significant risk for their business. In this increasingly world interconnected economy, it is clearly no longer enough to manage the risks your own organisation faces – you must understand the risk of those you do business with too.
Technology provides another area of emerging risk. Dire predictions of widespread chaos are nothing new. I'm sure we all remember what was billed as the Millennium Bug? But while the media might have reported what happened in Estonia in the language of a James Bond movie, the fact remains that banks were still immobilised three weeks after the attacks started. Our research tells us that four out of ten companies are increasing their IT spending specifically because of these types of risk.
The rise of home-grown terrorism is another emerging threat which seems to have taken society by surprise. The consensus at our recent Lloyd’s conference was that this is probably the greatest security threat the UK currently faces. Yet the majority of global business leaders admitted that they do not really understand the impact for business, and they are unsure what they might do in response.
But this is a world where more than half of business leaders say their companies are as much a target for a terrorist attack as government. So investing in risk management, in the widest sense of the term, can make a vital contribution to contribute towards a more stable global operating environment.
Security and terrorism are words which you will frequently hear around the Lloyd’s market. They are also issues of paramount importance for another critical section of our society – that of our national defence. As I spent a much longer part of my career in that domain than in insurance, I relate very strongly to that connection and interestingly the link was reinforced by an article last week in the Financial Times6. It commented on a meeting addressed by another of our guests this evening Lord Drayson, when he was speaking to venture capitalists here in the City about investment opportunities in national security. As well as referring to the threat of terrorism and globalised criminal networks, he spoke of the need for governments to review their capacity to cope with large natural disaster such as hurricane Katrina – a name indelibly etched on the memory of a large part of this audience.
After considering, therefore, whom I might invite to address us this evening, I was delighted that the Secretary General was prepared to take the time out of his relentless commitments and travel from Brussels to be with us tonight. Sir: we share a common task in learning how to respond to these major issues.
Ladies and gentlemen: NATO Secretary General Jaap de Hoop Scheffer was born in Amsterdam and, after graduating in law, performed his military service in the Royal Netherlands Air Force.
He subsequently served in the Netherlands Foreign Service and began his connection with NATO working at the Permanent Delegation to NATO in Brussels until 1980, where he was responsible for issues relating to defence planning. He then ran the private office of four successive Ministers of Foreign Affairs until 1986, when he was elected to the Dutch Parliament where he became the Christian Democratic spokesperson on foreign policy.
He was leader of the Netherlands Christian Democratic Alliance from 1997 to 2001 and was Minister of Foreign Affairs from 2002 to 2003.
He became the 11th NATO Secretary General in January 2004, succeeding Lord Robertson, who has commented that his successor has "carved a reputation for professionalism and straight talking". As Secretary General, he has urged NATO members to contribute more to NATO operations and has earned a well-deserved reputation for being able to steer his way through a crisis, particularly valuable for NATO members in the aftermath of the war in Iraq.
Secretary General: thank you so much for coming and we greatly look forward to your address.
