ALEX BRUMMER: For London’s insurance market the Australian conflagration is a real and present danger
Mark Carney has been banging on about climate change since the autumn of 2015. Among sceptics, his speech was seen as the Governor of the Bank of England acting outside his inflation and financial stability remit.
The passage of time has shown Carney to be a sage, well before anyone had heard of the 2019 person of the year, Greta Thunberg.
Carney’s intervention has not just been about grand words. He sought practical follow-through at the global Financial Stability Board, which he chaired until 2019.
The Bank’s website shows UK initiatives, including a framework for big insurers to price in catastrophes ranging from the US hurricane season to California wildfires.
British insurers will be exposed to the devastating and deadly Australian forest fires
Clearly, the devastating and deadly Australian forest fires would be a case in point. The Bank has a direct role in policing big insurance through the Prudential Regulation Authority.
British general insurers will have some direct exposure to Australia as part of the Anglosphere. Some of the claims are likely to end up in the City through Lloyd’s of London.
Lloyd’s syndicates are also known for taking on long-term risk.
With some estimates of Aussie fire damage now running at £320million – they could rise much higher – this could become a significant bill in a period when the market will also have to deal with British flooding and California blazes.
Disasters in the advanced countries are usually the most costly to the insurance industry.
Underwriters who fix the terms and premiums of insurance, and the syndicates and reinsurers who take it on, will have started to build climate change into models. But could they be too late?
The experience of Lloyd’s is that older, long-tail policies, dating back many years, can come back to haunt. This was true of asbestos poisoning, tobacco and directors’ liability cases.
Climate change risk could be a time bomb which has yet to detonate. In an end-of-year interview with the BBC, Carney noted that the financial sector had begun to prioritise the risks of irreversible heating of the planet but was not acting fast enough.
Investment funds have become cautious about investment in fossil fuels. But while BP and Shell offer the best returns on the London stock market, it is hard to see them becoming pariahs any time soon.
It is true that big global players such as Blackrock have talked the talk of social, environmental and governance investing. How much practical effect that is having in getting measurable responses from corporations is unclear.
The current panic in Australia, as citizens flee the fires, offers real-life backing to everything that Carney has talked about. For London’s insurance market, one of Britain’s biggest invisible exporters, the conflagration is a real and present danger.
Imagination Technologies: One of Britain’s handful of high-tech champions
Cheap as chips
Remember Imagination Technologies? It is one of Britain’s handful of high-tech champions which has made it from university labs to the FTSE.
The achievement was built around chips which powered Apple’s screen technology. Three years ago, after Apple managed to replicate the Imagination chips, it was dumped by the ruthless Silicon Valley giant and its shares plummeted 70 per cent. This, in spite of the embedded value of its patents, engineering skills and proven ability to do the R&D and bring products to market.
At the first smell of cordite, the investment funds behind it sold out to a Chinese-backed private equity vehicle, Canyon Bridge, already ostracised by US authorities. Now it emerges that Imagination has repeated its original successes and developed a new generation of graphic processing units for use in mobile devices.
The chips are seen as the biggest breakthrough in mobile phone tech in 15 years. Apple has dashed back and signed a licensing agreement for their use and the value will accrue to Chinese investors rather than UK shareholders who were far too quick to abandon a firm they once championed.
It may not be long before we read of Cobham’s next-generation satellite and flight refuelling technology being bought by Boeing, Lockheed Martin or Northrop.
Force awakens
In another triumph for creative Britain, it is calculated that UK-based subsidiaries of Disney earned £1.5 billion over the past six years from the Star Wars franchise filmed at Pinewood Studios, west of London.
Who knew?