The excerpted article was written by Barbara Shecter | The Financial Post
The Canadian government is interested in an “exploratory discussion” with the Lloyd’s of London about creating a public-private insurance partnership to help withstand systemic risks to the economy from “black swan” events such as the coronavirus pandemic, says John Neal, chief executive of the U.K.-based global insurer.
In an exclusive interview with the Financial Post, Neal said Lloyd’s, which counts Canada among its top three markets with about $4 billion in business, has been in touch with the Department of Finance Canada about the reinsurance model that aims to avoid a repeat of the billions of dollars in emergency aid governments were forced to commit on the fly to prop up their economies as businesses were forced to shut down to contain the fast-spreading coronavirus pandemic.
There’s “interest in an exploratory discussion in Canada,” Neal said, adding that a handful of other governments have also expressed interest in Lloyd’s pitch to find a shared way to deal with future systemic issues triggered by events such as a pandemic, a cyber attack, or a large-scale power grid or supply chain interruption.
“The Canadian government is one of them,” and others include Britain, the European Union, and Singapore, he said.
A Department of Finance spokesperson was unable to provide comment by deadline.
Under the scheme, which was detailed in a white paper this month, the government would provide a guarantee or backstop and would be “two layers away” from initial capital outlays, which would largely be taken care of by pooled insurance industry funds and private capital, said Neal.
“But it (the government) becomes the insurer of last resort, which of course it always is.”
To illustrate his point, he said governments around the world have committed an estimated $16 trillion in emergency pandemic aid — ranging from loans to wage and rent supports.
Neal said the partnership model Lloyd’s is pitching offers governments a more controlled method of managing events when claims outstrip available funds to cover them.
“The longer there isn’t a loss, the bigger the float is underneath” the government backstop, he said.