NEWS
London Lord Mayor visits RVS, touts UK reforms on innovation
The Lord Mayor had some groundbreaking thoughts on how the sector can drive growth in the wider UK economy.
In a first for the Monte Carlo Rendez-Vous, the Lord Mayor of London attended this year, with the aim of promoting the city to the global risk transfer markets.
Nicholas Lyons, also a board member of Convex and Miller (when not on sabbatical as mayor) had some groundbreaking thoughts on how the sector can drive growth in the wider UK economy.
Part of Lyons’ role is to act as an international ambassador for the UK’s financial and professional services sector. But, he admitted to Monte Carlo Today, the property casualty sector has sometimes been forgotten in this role.
“The sector might have sometimes felt like the bridesmaid and never the bride,” he said. “But it represents 25 percent of London’s gross domestic product—it is a fantastic sector.”
The trip has come about partly because the insurance sector is more engaged with the City of London Corporation than it has been in the past—due to the involvement of several senior insurance figures. Lyons says he wants to promote a vision for the “rebirth” of the City of London, which he believes has the potential to drive growth in the wider UK economy.
There are couple of ways this will happen, he said. The first is through what he calls “changing the dial” in the way UK regulators think about risk. He argues that they became too risk-averse, which has stymied development in many parts of financial services, but insurance especially. A regulator’s objectives should include potential growth and innovation and an understanding of the global competitive landscape, he argues.
“If a regulator’s function is only to squeeze risk out, you cauterise the financial services industry and strangle the economy,” he said. “The very role of financial serves is to identify, measure and manage risk. That is changing and we want to leverage that.”
“We have lit a fire under the pensions system.”
Nicholas Lyons, Lord Mayor of London
He points to the Edinburgh Reforms and the Financial Services and Markets Act 2023 as driving this change in emphasis for the regulator.
Complementing the role of a regulator taking a more holistic approach, he wants to leverage the financial might of the UK pensions market, to drive innovation in sectors including insurance. He points out that the defined contributions pensions market in the UK is now estimated to be worth some £550 billion ($688 billion), estimated to reach £1 trillion by 2030.
In July, two-thirds of this market agreed to invest 5 percent of their funds to unlisted equities by 2030.
One beneficiary of this scheme could be the insurance sector, in particular via instruments such as insurance-linked securities (ILS).
“We have lit a fire under the pensions system that we believe could stimulate the whole UK economy. One beneficiary could be the insurance sector, especially some of the innovations possible in this space,” Lyons said.
Pensions: meet ILS
This idea was echoed by another industry veteran in Monte Carlo this week—although not for the first time. Michael Wade agrees that the London Market should be more ambitious in its desire to embrace ILS. It should encourage pension funds to invest in the re/insurance sector, creating a robust and sizeable “following” market able to back innovation and good ideas, whether in the realm of ILS or something else.
When it comes to conceiving structural innovations in risk transfer—and making them a reality—Wade should know what he is talking about. As the Crown Representative for Insurance in the UK government cabinet office in 2013, he was instrumental in the formation of Pool Re and Flood Re. He also advised former Chancellor of the Exchequers on the ILS markets, helping deliver the new UK ILS regime and the formation of London Bridge Risk PCC.
“ILS in London is yet to get there. London Bridge is a fantastic innovation, but it needs greater ambition,” Wade said. “It is a big idea, it was four years of my life making it a reality, but it is not delivering. Lloyd’s has now created London Bridge 2, and that will make it easier for investors to enter the market.
“London should have the ability to create a permanence of following capital, able to support such things. It has always had leading capital, it has always generated ideas and innovated. But it should be well-placed also to create a following market.
“It gets things done but it always feels ad hoc. London has the ability to do better than that.”
One solution, he suggests, is to educate UK pension funds on the attraction of investing in insurance-related structures. They could act as a significant source of capital, he suggests, in the same way that some North American pension funds were early pioneers and advocates of ILS.
Wade has direct experience in this field—and how pension funds think. In 2000, he formed Rostrum Group—a specialist investment manager focused on Lloyd’s listed vehicles on behalf of a series of major UK pension funds.
“Why is it that pension funds are not engaged with the London Market?” he asked. “It is complex and can be difficult to access, but London Bridge 2 solved a lot of that. For me, that is a fantastic opportunity.”
“Cyber is the obvious candidate for the next pool.”
Michael Wade
Cyber next on the list
That opportunity could extend to other things. Just as Pool Re and Flood Re were created to manage risks the private sector could not handle on its own, Wade believes the risk transfer sector should now be working with governments to solve other problems—and top of that list is cyber risk.
“Cyber is the obvious candidate for the next pool,” he said. “The re/insurance markets cannot handle these risks on their own; the size of the exposure is enormous, the numbers extraordinary. If you consider which risks have emerged in the last five years, cyber must top that list.
“It is the obvious next pool, and it is for all parties—government, brokers and carriers—to consider the solution there.”
There are other opportunities. The use of reinsurance products to deliver post-disaster aid is an interesting one, he says. He cites the volcano catastrophe bond Howden constructed in collaboration with the Danish Red Cross, which would fund disaster relief in the event of an event.
The broker has previously suggested that innovative financing models such as that could help plug a c.$20 billion disaster relief funding gap.
Wade suggests the industry should also consider the challenges and risks associated with a new global pandemic—another risk the industry would be unable to handle alone. “We need to ask, as an industry, what are our responsibilities if there is another pandemic?” he said.
Wade is in Monte Carlo in a personal capacity, but wears three main hats: a non-executive chairman of Howden Tiger Capital Markets & Advisory (since 2017); chairman of Helios underwriting: and senior adviser to Mitsui Sumitomo Insurance (both since 2023).
Images, from top: Shutterstock / Cedric Weber, Image Source Trading Ltd