A lesson for the banks

 
The destroyed CTV building in Christchurch The New Zealand earthquake in February 2011 of proved costlier to Lloyd's

The claims estimates put out by the Lloyd's insurance market for three recent natural disasters aren't trivial sums: £1.2bn for the Japanese earthquake and tsunami, £750m for New Zealand's quake and £406m for Australia's floods.

But it is striking that although the human and financial cost of the Japanese calamity was significantly greater than New Zealand's, the insurance claims faced by Lloyd's don't seem to capture that. The main reason is that Lloyd's had a lower exposure to Japan than to New Zealand - and it is Japan's own insurers that are taking the biggest hit.

In fact for Lloyd's the Japanese tragedy ranks as only the fourth costliest it has faced in its history: the claims following Hurricane Katrina, 9/11 and Hurricane Ike were all greater.

That means the financial damage to Lloyd's from this coincidence of horrific disasters is limited, with no material impact on the capital it holds to absorb losses.

Which for anyone who has followed Lloyd's, even in a cursory way, over the past 30 years, is quite remarkable - given that it wasn't all that long ago that this market was crippled by its own greed and recklessness.

On the brink of extinction, Lloyds recapitalised, learned the lesson of prudence, and completely changed the way it does business. It is now once again a strong and profitable pillar of the City of London.

So is the lesson of Lloyd's that there is hope for our biggest banks - in what they still feel as pretty dark times - that reputations and finances can be rebuilt in a sustainable way, such that the sins of the past can be forgiven and forgotten?

Possibly.

But it is notable that Lloyd's underwent far greater structural and behavioural reform than those under contemplation - by either global regulators or the banks themselves - for the banking industry.

 
Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this
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    Comment number 49.

    The events mentioned in the article are just a part of Lloyd’s ups and downs as an insurance firm. The story began in the late XVIIth century, when Mr Edward Lloyd’s coffee became the meeting place for parties wishing to insure cargoes and ships and it seems to be a never-ending story: http://www.financialcrisisblog.org/forum/Insurance/Who-started-the-concept-of-INSURANCE-503393.htm.

  • rate this
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    Comment number 48.

    Interesting post!
    Although I have to say that Lloyd might just have gotten "lucky" this time. As the risk spreading in the Insurance business usually limits the impact any single catastrophe can have for an insurance company. This risk aversion is made by very advanced systems that calculate maximal exposure to different risk categories, which with some luck might have predicted these events.

  • rate this
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    Comment number 47.

    We should trust in our institutions and universities to educate students to a new way of thinking. We could hope it creates a sensitivity

  • rate this
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    Comment number 46.

    We should trust in our institutions and universities to educate the fillowing generation of bankers. We could hope it creates a sensitivity and we could evolve in a better world.

  • rate this
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    Comment number 45.

    > So is the lesson of Lloyd's that there is hope for our biggest
    > banks - in what they still feel as pretty dark times - that
    > reputations and finances can be rebuilt in a sustainable
    > way, such that the sins of the past can be forgiven and forgotten?

    No - not while the same greedy bankers who caused the credit crunch remain in their jobs.

  • rate this
    +2

    Comment number 44.

    Hello Robert. Are these frustratingly short pieces also part of the BBC's cost-cutting exercise?

  • rate this
    0

    Comment number 43.

    I don't think the insurance industry need be too worried about the natural disasters. Lloyds' reserves will be more than adequate for that. The biggest threat to the insurance industry is Solvency II. Long overdue it may be, but when it comes into force, how many insurance entities will be able to meet the more stringent financial obligations. I see a lot of Market consolidation ahead.

  • rate this
    0

    Comment number 42.

    @prudeboy
    History will be rememberd only by the few. Expect the worst and prepare for it. There is nothing that tells me that anyone is interested in removing the elite, the crooks, the sociopaths that run this corruption and murder. I'm wondering if the shock of financial collapse will send reasonable people insane? Survival will be the new paradigm. or should i say we will return to survival.

  • rate this
    +3

    Comment number 41.

    I am wondering why I am bothering to comment.
    Who apart from me was aware that it was the same person that sorted out Lloyds of London that sorted out Northern Rock. And does it actually matter?
    Who benefited from the sorts out?
    Ron Sandler no doubt made a tidy sum from both.
    But does it matter?
    Ron Sandler has already been whitewashed out of the Lloyds bailout.
    Did it ever happen?What?

  • Comment number 40.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +3

    Comment number 39.

    This new format has driven me away. Never read the articles, its mainstream tripe, the comments were fun, well thought out (in most part) and very informative. I thank the posters for showing me the way to research and think for myself. There is a lie a big lie and its called Capitalism. To quote "The LOVE of Money is the ROOT of all Evil"
    Good Luck

  • rate this
    +2

    Comment number 38.

    Lesson for the banks.
    Looks like the only way to get comments posted is through the judicious use of ROT13.
    I rather suspect the whole point of the new format is to cut the moderator staff to zero. Thus saving money. And the ultimate closure of all message boards. They are after all non core. xvaaryy

  • Comment number 37.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 36.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    0

    Comment number 35.

    #25 The whole point of the finance is to allocate capital to its most productive uses to maximise profit. The problem is recorded profit is the return on all capital, so increases in asset prices increases recorded profit. And asset prices can increase simply through money being thrown into the system - fictitious capital, i.e. unproductive capital. Monetary values exceed underlying values - crash

  • rate this
    0

    Comment number 34.


    THe important thing is fairness and impatiality and not to prejudge the Banksters


  • rate this
    0

    Comment number 33.

    I have more chance of winning the Euro lottery than the banks accepting their guilt or learning honesty, proberty or transparency in all their dealings with their customers. I see from news not reported by the BBC, that some US senior bank officials are being prosecuted in their role in the meltdown. Not one word from our spineless government, Oh I forgot you don't prosecute your friends!!

  • rate this
    0

    Comment number 32.

    cont 30
    Then there are no losses that cannot be covered by ,fresh QE rabbits at 0 interest pulled from bottomless tophats by the traders of the lostark and the pair they brought aboard.

  • rate this
    0

    Comment number 31.

    The results of the SirLloinsaaalot inkAAAblot test are in and as expected

    He who AAA dares wins the hot seat in the IMF POKER TOURAMENT AND THE RIGHT TO RENAME IT THE WEMF after giving it a goodousing and purrforming THE RITE to R I P WALLETS from themasses to playqueeeate the sunkod

  • rate this
    +1

    Comment number 30.

    As long as the banksters have learnt the lesson of how to say "To infinity and beyond" with a straight face[six showings of toystory to MA grads should do i t ]

    Then there are no losses that ,fresh QE rabbits at 0 interest pulled from


 

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