Lloyd’s Carnegie-Brown: world ‘must shrug off complacency’ to beat systemic risks

As the world faces “extraordinary” systemic risks “we must shrug off the complacency engendered by the decades of peace and economic growth”, warned Bruce Carnegie-Brown (pictured), chairman at  Lloyd’s, as he talked about the global impacts of Russia’s invasion of Ukraine, the pandemic and “the biggest systemic risk the world faces—climate change”.

Carnegie-Brown said that lessons about systemic risks and building resilience to withstand them had still not been learned by all in the global economy, as he spoke at the Business of Resilience Conference 2022 at the Guildhall in London yesterday (March 21, 2022).

“Resilience is important because it’s how we respond to uncertain and unpredictable events. As we’ve moved through a two-year pandemic into a war on mainland Europe for the first time in nearly 80 years, none of us needs telling that the world is facing extraordinary risks and that we must shrug off the complacency engendered by the decades of peace and economic growth we’ve enjoyed in Europe and North America,” he said.

Businesses and wider society have become increasingly comfortable with business models which have embraced just-in-time delivery, extended supply chains and high levels of financial gearing, he added.

“We’ve celebrated and rewarded businesses which have pushed aggressively for top and bottom-line growth, and we’ve asked too few questions about the abilities of these enterprises to withstand shocks and setbacks.”

Carnegie-Brown said that the banking industry learned this painful lesson in the financial crisis of 2008/2009, adding: “But the lesson has not been learned by all participants in the global economy.”

Events that have disrupted the world in recent years have been “unexpected but not unforeseen”, he said, adding that health research had shown that a pandemic of some kind was likely.

“We knew from political analysis that the surge in cyber attacks, misinformation, and anti-west rhetoric from Russia pointed to its growing territorial ambitions, yet few of us thought they would invade a peaceful country in 2022,” he said.

“When it comes to climate change, the writing is on the wall with a well-established body of research that shows its present and potential impacts.

“The question is whether we will heed the call—will we work to build resilience now or wait for the real damage to kick in?” he asked.

Pandemic lessons

In the wake of the COVID-19 pandemic  Lloyd’s worked with governments around the world to  launch Black Swan Re, which enables cover for unexpected events such as the pandemic, but which is not limited to pandemics.

“Combining public and private finance, Black Swan Re offers a model for how to build resilience against systemic risk, paid for by those protected, guaranteed by government and enabled by private capital. It’s important we carry this innovative and collaborative approach forward to build resilience against future crises,” Carnegie-Brown explained.

But, he said, no sooner had the world begun to emerge from the pandemic than it had been confronted by Russia’s invasion of Ukraine.

“It has again shown how systemic risks unfold—how a regional conflict can trigger global second-order economic, political and humanitarian impacts.”

These impacts have been seen most clearly in economic sanctions, dislocation of energy and agriculture prices and huge cross-border refugee migration, and they are yet another reminder of how connected the world is and how quickly risks move from one region to another, he said.

This is why the solutions put in place to fight climate must be just as expansive as the systemic risk itself.

At COP 26 in Glasgow in November 2021,  Lloyd’s signed up to the UN-convened Net Zero Insurance Alliance and Glasgow’s Financial Alliance for Net Zero to build resilience in its own operations. As a member of  those alliances Lloyd’s has committed to achieving a net zero investment position for its £3 billion Central Fund, which backstops members’ liabilities, by 2050, as well as reducing the emissions of the  Lloyd’s Lime Street building to net zero by 2025.

“We’re committed to helping insurers in Lloyd’s develop the plans needed for a net zero underwriting position by 2050. We’re already guiding the market to no longer underwrite thermal coal mine and thermal coal power projects, with no new Arctic drilling projects or oil sands projects,” Carnegie-Brown said.

“As part of  Lloyd’s annual capital planning process all Lloyd’s syndicates are required to submit their plans to manage the transition of their underwriting and investment portfolios to net zero by 2050.”

He said that  Lloyd’s focus is on ensuring orderly but urgent transition as customers move away from carbon-intensive energy sources. “We also need to make increasingly tough decisions to cut support to those businesses unable to make the transition,” he added.

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