A lesson for the banks

The destroyed CTV building in Christchurch Image copyright AP
Image caption 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?


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.

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