Interview: Lord Mayor of City of London sets out Monte Carlo mission
The Lord Mayor of the City of London, Nicholas Lyons, has set out the rationale for his maiden trade visit to Monte Carlo, where he aims to champion the London market's expertise on cyber and climate risk to CEOs, and convene talks on ideas for a consolidated systemic risk pool.
After publishing a report on an unprecedented, multiple-market strategy to secure the long-term prosperity of the City of London, the Lord Mayor is focussing efforts on the London market during the next week, highlighting the depth and breadth of its capabilities to the (re)insurance market but also to UK politicians.
Well connected in the London market, Lyons was Miller chair for eight years and remains on the board. He also has a seat on the board of Convex, chairing its audit committee, and previously worked with Lloyd's chair Bruce Carnegie-Brown at JP Morgan.
He is the first Lord Mayor with London market credentials to fly the flag for P&C and specialty insurance.
The Lord Mayor acknowledged however a limited sphere of influence of his conversations on whether global firms decide to place business in London. He also pointed out that he didn't want to cut across the lobbying activities of financial trade bodies such as the London Market Group and UK Finance, but rather complement them.
He said: "London has a richer mix of international firms than any other city. There are more international firms with a branch or subsidiary here than any other financial centre so, as a representative and an ambassador for London's global financial centre, these companies are my constituents.
"Whenever I'm abroad, I'm there as an ambassador for the UK's financial and professional services and for London as a global financial centre. I talk to finance ministers, to heads of central banks, to the chairman or CEOs of sovereign wealth funds, banks, insurance companies and asset managers. I'm there to highlight the depth of expertise we have here."
London's cost and complexity issue
It was put to the Lord Mayor that, as his conversations with (re)insurer and global broker CEOs unfold, the cost and complexity of placing business in London will likely come up – however persuasive he might be.
He responded: "The cost of intermediation [in London] has always been an issue, it's something the industry has been wrestling with for some time.
“There is a constant desire to try to use technology more effectively, to see whether or not that can reduce the cost of intermediation. The truth is that London is as successful as it is because of the depth of expertise here. People recognise that Lloyd's in particular brings together an incredible mix of talent.
The cost of intermediation (in London) has always been an issue, it's something the industry has been wrestling with for some time
"It's the access to that and the ability to underwrite specialty risks on a tailor-made basis that makes London a standout centre. At the end of the day, people will be prepared to pay a premium for an outstanding service and a tailored product."
Lyons added however that the London market should always be looking at expenses and ways to reduce the cost of intermediation.
"But I don't think it's an existential threat,” he added.
Systemic risk pool
While at Monte Carlo, Lyons is aiming to showcase the breadth of climate risk expertise across the London market, but he's also aiming to engender conversations about a systemic risk pool.
"When you think about climate, about cyber and pandemic risk, these are areas where we need as an industry to have a blueprint of how the private sector interacts with the public sector. We know that the scale of [systemic] claims in any of those areas could bankrupt the private insurance sector.”
In that context, Lyons said the UK needs structures in place for systemic risks with a government entity taking the first layer, the private sector taking the next three or four layers, and then at a next level, the government would come in again.
He added: "When you look at a Pool Re or Flood Re, those are funded largely by premiums and if you don't have a lot of claims, you get a significant escalation of capital building up in these vehicles.
"So is it sensible, is it economic, to have three or four separate pools? Or is there a logic in saying, well, let's have one catastrophe pool, which could be incredibly well capitalised, that serves a purpose for climate, cyber or terrorism risk, where you'd have a more effective use of capital."
Lyons added that, at the time of the pandemic, many conversations played out between insurance executives in Bermuda, the US and London on the concept of a pandemic risk pool, but it never got off the ground.
Another aspect of the Lord Mayor's visit to Monte Carlo is to reaffirm London's competitiveness in the wake of Brexit.
Treasury ministers have been eager to capitalise on shedding some EU rules to bolster the City's position, which has materialised in the various regulatory reforms and a new competitiveness objective for regulators.
While Brexit has forced some London market players to open branches, the Lord Mayor downplayed the level of its impact.
He said: "The London market is much more connected to the US and to Bermuda than Continental Europe. There's no doubt though that a lack of open access to Continental European markets, as a result of Brexit, meant that people have had to find other ways to write that business, by setting up a branch or subsidiary in Europe for example but from a P&C point of view, Brexit is a bit of a sideshow.”
Regardless of Brexit upheaval and the political turmoil in Westminster during the past 18 months, the Lord Mayor shared encouraging sentiments toward London from his meetings with the most powerful CEOs in the global financial sector.
On his first trip to New York in his role, he met Michael Bloomberg, BlackRock CEO and chairman Larry Fink, and Jamie Dimon, CEO and chair of JPMorgan Chase & Co.
"The question I put to them was, you've got huge investments of people and assets in London, but how do you see London, how important is it as a part of your global strategy? Every one of them said that London remains absolutely key for them.
"We're very bad at promoting ourselves… There are a hell of a lot of great things that we should be banging the drum about, because financial and professional services are a real jewel for this country.”