Speech by John Nelson, Chairman of Lloyd's on the insurance sector’s contribution to the UK economy, the challenges and opportunities of Brexit and the importance of restoring trust between big business and society
Ladies and gentlemen – on behalf of Inga Beale, myself and all of us here at Lloyd’s - a very, very warm welcome to all of you to our annual Lloyd’s City Dinner. It has, of course, become a fixture at a time of the year that starts off the autumn term for business – and this after a really wonderful summer in the UK, topped off by Team GB’s extraordinary performance in the Olympics – talk about punching above our weight!
So, tonight, I am absolutely delighted that we have with us as our guest of honour the Mayor of London, Sadiq Khan. This will be his first speech to a City audience since becoming Mayor and I am very pleased - you, Sadiq - have chosen to do this right here at Lloyd’s in the Room.
I am also delighted to see so many distinguished guests here – from business, the City, from the insurance market, from Westminster and from overseas.
Now, 2016 is in fact my 50th year in the City. A number of you will be extremely relieved to know that it’s also my last as I will be retiring from Lloyd’s in the first half of next year!
But over these 50 years I have, of course, seen this great city change immeasurably, growing now to become the world’s leading financial centre and, of course, in Lloyds terms, the global hub for specialist insurance and reinsurance.
Looking at where we are now, there has seldom been a time when the City, business and government have faced such a major degree of challenge.
In insurance terms – and we are sitting here at the very heart of the industry tonight – some of the most experienced voices in the market have said that these are the most difficult conditions they have known – with this extraordinary combination of excess capital, low interest rates and low investment returns, alongside, of course, perversely, relatively benign years for natural catastrophes – all of this forcing premiums down and cutting away at already tight margins. In short, these are tough times both for insurance and reinsurance. Clearly the substantial geopolitical instability, coupled with Brexit, is adding another layer of uncertainty to this mix.
What I would say though is that, as we have seen over the last 50 years, disruption in our financial services markets is not unusual. I myself went through the 1973/74 secondary banking crisis and the stock market crash that came with it; then the revival under Thatcherism and the 1980s privatisations. And then we had Big Bang, the first tech boom, then the bust, and then, of course, the global financial crisis of 2007/8 - and now Brexit.
Throughout that period, London’s financial services sector faced up to these challenges and, in the case of insurance, has thrived. There are few industries in which the UK is the world leader: insurance - specifically specialist insurance - is one of them and makes a substantial contribution to the UK economy.
The insurance industry as a whole employs around 330,000 people. We manage around £2 trillion in investments - about 25% of the UK’s total net worth. As I have said, we have world-leading expertise in specialist insurance.
In terms of the London insurance market – the extraordinary ecosystem that surrounds Lloyd’s - it is made up of about 350 firms, employing around 50,000 people – all within a radius of about 600 yards from where we are sitting. It contributes over 20% of the City’s GDP.
Lloyd’s is at the heart of this market and its success, and is the most global UK-based organisation, writing business in more than 200 territories. We are known for our pioneering spirit and helping others to overcome adversity. To put it in slightly poetic terms: underwriting, which is what we do every day of the week, is in fact enabling human progress.
And let us never forget that the biggest contributor to Lloyd’s success and longevity, and indeed the biggest assets we have, are the underwriters and brokers who trade in this room in this area every day – many of whom are here with us this evening.
In many ways the challenging situation UK plc and the City of London find themselves in today reminds me a bit of what Lloyd’s faced as recently as 2012. We recognised the world was changing around us and that we needed to change to make sure Lloyd’s remained relevant and competitive in the future.
We defined the attributes that the Lloyd’s market would need to stay attractive in an increasingly competitive global market - in the face of new start-ups, technology-driven distribution and products, changing buying patterns, alternative capital, rising protectionism and, of course, the growth of emerging markets.
To attain these attributes we created our long-term strategy Vision 2025, which set out eight strategic aims that embrace, in essence, technology and innovation; nurturing and attracting talent; and ensuring access to the growth markets of the future – all critical if we are to reinforce our position as the world’s centre for specialist insurance.
And I am pleased to say that, four years on, we are making excellent progress.
We now have momentum on modernising the market; in attracting and nurturing top talent; and the market is reinvigorating its efforts on innovation.
And in terms of global market access, we have now succeeded in opening up most of the world’s growth economies to Lloyd’s, including China where we now have half our syndicates physically present on our platform and where our business is growing significantly; and then India, where Indian legislators have passed legislation allowing Lloyd’s to operate as a market. And in our largest market of all - the United States - we have reinforced our position as the number one provider of excess and surplus lines in the world’s largest economy. Lloyd’s – as I have said - is the most global British organisation. We are not simply Lloyd’s of London; we are Lloyd’s – we are local to the territories and cities we now operate in.
All of this growth and success has been achieved in these tough and difficult conditions – a time in which we have retained excellent financial strength that continues to be acknowledged by the rating agencies.
I am most certainly not saying the job is finished – Lloyd’s still facing significant challenges – Brexit included.
Brexit Challenges for the City and Insurance Sector
The winding road that took us to Brexit and the implications for the City and insurance have been examined and questioned at considerable length – perhaps too much!
But to use a well-worn phrase: “We are where we are” – so the only question we should be focusing our attention on now is: What do we want the post-Brexit landscape to look like and how can we help to achieve that?
There are great debates going on about the merits of passporting rights, and the regulatory, financial and political consequences of these rights. At Lloyd’s we are very much of the view that retaining access to the EU single market is fundamental, not just for Lloyd’s but for the City in general. As well as the many UK financial services organisations based here in the City of London, there are many global financial services businesses - not least major EU companies – and they have substantial investments in London. And their interests, as we are beginning to hear, are very much aligned with our own.
If we are not able to access the single market, either through passporting rights or other means, the inevitable consequences for Lloyds - and indeed other insurance organisations - will be that we will transact the business onshore in the EU – and that obviously will have an impact on London.
Let me be quite clear though, Lloyd’s will always be centred in London.
We are therefore engaging with the Government at every level in order to make the case for what we believe are in the best interests of our industry. But, as is sensible, we are continuing to examine all our options. We are fortunate at Lloyd’s to have one of the most experienced teams in the world focused on acquiring and defending licences worldwide, and I believe the work we are doing will ensure that Lloyd’s will continue to thrive – and also by working in collaboration with the rest of the financial services industry – which we are - the City as a whole, properly explained to the Government, should be able to flourish.
The Brexit negotiations will require joined-up government – and decisive government. I need hardly say that excessive delay or mixed messaging will render our position more difficult than it already is.
Brexit should, though, present us with opportunities. Ensuring that the UK financial sector remains competitive must be top of our and the Government’s post-Brexit plans. Access to the single market is part of that but not all of it.
There is an opportunity for us to look at our regulatory framework objectively and ask ourselves: is it giving us every chance to succeed?
A strong, prudential regulatory regime – not light-touch – is an encouragement for firms and people seeking to invest. It brings confidence and reassurance.
So - the need for a tough and prudential regime is, in my view, fundamental but I do think there is scope to ask ourselves whether some of the rest of the regulatory framework is overly burdensome – the short answer is: it is.
Lessons from Brexit
Now what the Brexit vote did reveal is that there are fault lines within this great country: the south east versus the rest; older versus younger; and business, and particularly big business, versus society.
There is, sadly, an underlying public cynicism directed at business. Executive remuneration in big business is perhaps the most sobering example. Looking through the lens of members of the public, there is, I have to say, utter incomprehension as to the size of senior remuneration packages – and this with no capital at risk.
The Prime Minister herself has talked about the need to, in her words, “reform capitalism” and “tackle corporate irresponsibility”. In my view, at the end of my career, this is an extremely important topic, and last year at this dinner I talked about the “trust deficit” in business – the need for business to return to its true purpose – putting the customer first, looking after employees, acting with integrity – all with a view to generating trust.
The referendum has shown that it is not enough to talk about the opportunities of globalisation, capital investment and wealth creation. Too many people feel alienated from what happens here, shut out from the opportunities we are creating.
What we need is action to bridge the gap between those opportunities and the hard-working citizens of the UK.
As we recalibrate our relationship with Europe, so must business take the opportunity to do so with the rest of the UK.
The City must show leadership here. By tempering its excesses, by growing its valuable contribution to the UK’s economy and by demonstrating to young people that the Square Mile is a place that their talent and potential is very much needed and valued, it can and mustrebuild the trust that has slipped away over the last decade or more.
So to conclude - these challenges I think are matters of the greatest possible importance. London and the UK’s future depend on its leaders and their leadership.
Regardless of the circumstance, history has proven time and time again that London can evolve and keep pace with the ever-changing economic, social and geopolitical landscape - and I know that Lloyd’s will play a full part in this.
Whilst many of us did not vote to leave the EU, it does represent a new opportunity and it will be exciting to see how London responds.
So, ladies and gentleman, it is clear that we have a lot to do, with many questions to answer and decisions to make that will have a real and lasting impact not only on the future of the City, but for London, the UK and our place in the world.
London has always been a city open for business – now it must be more so than ever. This means, as I have said, putting customers first, making the City accessible to new talent and attracting new business from around the world.
We must keep this definition of “open for business” as the cornerstone of our message.
So, as I sign off with this my last address at a Lloyd’s City Dinner, I would like to leave you with one final thought. In the words of Winston Churchill: “Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen” – and that is exactly what I am about to do!
Thank you very much.
So it is now my very great pleasure to introduce to you the Mayor of London, Sadiq Khan.
Sadiq is a true Londoner. He has lived here all his life. Famously, his father was a London bus driver.
Before entering politics, Sadiq had a career as a solicitor specialising in human rights, and was a councillor in Wandsworth between the mid-Nineties and 2006.
In 2005, he was elected indeed as my own local MP for Tooting. He was appointed Minister of State for Communities in 2008 and later became Minister of State for Transport. He was also Crossrail Minister. In opposition he became Shadow Minister for London and, of course, he’s now been elected as our mayor.
The Office of Mayor has become more and more important. The Mayor now represents this great City and its businesses both in Westminster and in the global marketplace. And it is an important responsibility and one that we at Lloyd’s wholeheartedly support.
I can assure you that Sadiq is a man who vigorously supports business and who appreciates the crucial role the Mayor can play in ensuring London remains open for business.
So ladies and gentlemen, it is my great pleasure to introduce to you, Sadiq Khan.
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