Insuring War: Sovereignty, Security And Risk [1st Edition] 0415617723, 9780415617727, 0415739209, 9780415739207, 0203122070, 9780203122075, 1136330941, 9781136330940, 1283547570, 9781283547574, 1136330895, 9781136330896, 113633095X, 9781136330957

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series editors JEnnY EDKIns anD nICK VaugHan-WILLIaMs

Michael Shapiro, Professor of Political Science, University of Hawai’i at Mãnoa, USA Insuring War does much more than show how important practices of insurance were to the development of modern warfare and security. Historically rich and theoretically sophisticated, the book demonstrates the central importance of the Probabilistic Revolution and secular risk calculation to the very possibility of sovereignty and modern statehood. Highly recommended to students of International Relations and International Political Economy alike.

InsurIng War

Lobo-Guerrero’s Insuring War is, first and foremost an important contribution to political thinking. Eschewing the traditional framing of violent conflict that foregrounds executive decision-making, arms races, and geopolitical alliances, Insuring War makes evident that what is central to the politics of deadly engagements is “the concerted art of managing uncertainty.”

Marieke de Goede, Professor of Politics, University of Amsterdam

Vivienne Jabri, Professor of International Politics, King’s College London Luis Lobo-Guerrero is Senior Lecturer in International Relations at Keele University and has been Visiting Research Fellow at the Department of War Studies, King’s College London. He is the author of Insuring Security: Biopolitics, Security and Risk.

Luis Lobo-guerrero

Luis Lobo-Guerrero is what I consider to be one of the foremost scholars in International Relations and specifically Critical Security Studies. Inspired by Michel Foucault’s analytics and methods and forming part of a triptych devoted to insurance and security, Lobo-Guerrero provides in this volume a fascinating and original investigation into insurance and its uses in time of war.

LuIs Lobo-guErrEro

InsurIng War sovereignty, security and risk

PoLItICS / PoLItICAL tHeoRy / InteRnAtIonAL ReLAtIonS tHeoRy Cover image: © Carlos Gomez Moreno/Mantis Design

interventions www.routledge.com

Insuring War

Insurance is a central, if until now ignored, instrument of war. Ever since the eighteenth century, interaction between governments and insurers in Western countries has materialised in the form of war risk schemes that have contributed to the waging of war and the preservation of peace. The operation of those schemes has given rise to a curious, if not innocent, association between practices of statehood and practices of risk, which are theorised here under the label of ‘insurantial sovereignty’. The book draws on the British experience of using maritime insurance as an instrument of war during the Napoleonic Wars, the two World Wars and the early twenty-first century. It asks what happens, when, under conditions of war, the sovereign adopts insurantial imaginaries and practices into its rationalities of government? The book advances the thesis that politics is the collective management of uncertainties. In doing so, it makes a novel contribution to the understanding of liberal security and liberal governance, which is central to the theory of Political Science and International Relations, the understanding of International Political Sociology and International Political Economy. The book follows Insuring Security: Biopolitics, Security and Risk, as the second of a trilogy that analyses how concepts and practices of power, risk and security materialise in the form of insurance as a central instrument of governance in the liberal world. Luis Lobo-Guerrero is Senior Lecturer in International Relations at Keele University and has been Visiting Research Fellow at the Department of War Studies, King’s College London. He is the author of Insuring Security: Biopolitics, Security and Risk.

Interventions Edited by Jenny Edkins, Aberystwyth University and Nick Vaughan-Williams, University of Warwick

“As Michel Foucault has famously stated, ‘knowledge is not made for understanding; it is made for cutting.’ In this spirit The Edkins – VaughanWilliams Interventions series solicits cutting edge, critical works that challenge mainstream understandings in international relations. It is the best place to contribute post disciplinary works that think rather than merely recognize and affirm the world recycled in IR’s traditional geopolitical imaginary.” Michael J. Shapiro, University of Hawai’i at Mãnoa, USA

The series aims to advance understanding of the key areas in which scholars working within broad critical post-structural and post-colonial traditions have chosen to make their interventions, and to present innovative analyses of important topics. Titles in the series engage with critical thinkers in philosophy, sociology, politics and other disciplines and provide situated historical, empirical and textual studies in international politics. Critical Theorists and International Relations Edited by Jenny Edkins and Nick Vaughan-Williams Ethics as Foreign Policy Britain, the EU and the other Dan Bulley Universality, Ethics and International Relations A grammatical reading Véronique Pin-Fat

The Time of the City Politics, philosophy, and genre Michael J. Shapiro Governing Sustainable Development Partnership, protest and power at the world summit Carl Death Insuring Security Biopolitics, security and risk Luis Lobo-Guerrero

Foucault and International Relations New critical engagements Edited by Nicholas J. Kiersey and Doug Stokes International Relations and Non-Western Thought Imperialism, colonialism and investigations of global modernity Edited by Robbie Shilliam Autobiographical International Relations I, IR Edited by Naeem Inayatullah War and Rape Law, memory and justice Nicola Henry Madness in International Relations Psychology, security and the global governance of mental health Alison Howell Spatiality, Sovereignty and Carl Schmitt Geographies of the nomos Edited by Stephen Legg Politics of Urbanism Seeing like a city Warren Magnusson Beyond Biopolitics Theory, violence and horror in world politics François Debrix and Alexander D. Barder

The Politics of Speed Capitalism, the state and war in an accelerating world Simon Glezos Politics and the Art of Commemoration Memorials to struggle in Latin America and Spain Katherine Hite Indian Foreign Policy The politics of postcolonial identity Priya Chacko Politics of the Event Time, movement, becoming Tom Lundborg Theorising Post-Conflict Reconciliation Agonism, restitution and repair Edited by Alexander Keller Hirsch Europe’s Encounter with Islam The secular and the postsecular Luca Mavelli Re-Thinking International Relations Theory via Deconstruction Badredine Arfi The New Violent Cartography Geo-analysis after the aesthetic turn Edited by Sam Okoth Opondo and Michael J. Shapiro Insuring War Sovereignty, security and risk Luis Lobo-Guerrero International Relations, Meaning and Mimesis Necati Polat

Insuring War Sovereignty, security and risk

Luis Lobo-Guerrero

First published 2012 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business c 2012 Luis Lobo-Guerrero � The right of Luis Lobo-Guerrero to be identified as author of this work has been asserted by him in accordance with the Copyright, Designs and Patent Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Lobo-Guerrero, Luis. Insurance and war: sovereignty, security & risk/Luis Lobo-Guerrero. p. cm. – (Interventions) Includes bibliographical references and index. 1. Risk (Insurance) 2. Risk management. 3. Marine insurance. 4. Sovereignty. I. Title. HG8054.5.L63 2012 368–dc23 2011041893 ISBN 13: 978-0-415-61772-7 (hbk) ISBN ISBN 13: 13: 978-1-136-33095-7 978-0-203-12207-5 (ebk) (ebk) Typeset in Times New Roman by Sunrise Setting Ltd, Torquay, UK

To Max

Contents

Foreword Preface Acknowledgements 1 Introduction: Insurantial sovereignty

x xiii xviii 1

2 Maritime insurance, the security of credit and the British state at war during the Napoleonic period

21

3 King’s enemy risks, maritime insurance and strategy in the First World War

57

4 The war risks insurance regime of World War Two and the constitution of the ‘national interest’

81

5 Insurantial sovereignty beyond the state: Lloyd’s and maritime insurance at the start of the twenty-first century

101

6 ‘Insurantial sovereignty’ and the re-constitution of ‘the international’

125

Notes Bibliography Index

135 137 148

Foreword

As I contemplated the contributions of Luis Lobo-Guerrero’s Insuring War, Paul Brickman’s 1983 film Risky Business came to mind. It’s a film in which a teenager, Joel (Tom Cruise) comes of age, as, under the pedagogy of a business-canny prostitute, Lana (Rebecca De Mornay), and her pimp, Guido (Joe Pantoliano), he learns to turn what is threatening in his life world – managing his sex life and achieving a college admission that lives up to his parent’s expectations – into opportunities. Benefiting from the pedagogy of both Lana and Guido, whose worldly knowledge far exceeds that introduced in his high school course for “future enterprisers,” he takes advantage of his parents’ vacation absence and turns his home into a moneymaking bordello. His management of that “risky business” so impresses Princeton University’s recruitment officer, who drops in for the interview while the business is in full swing, that he gains an admission to Princeton that his high school record alone would not have permitted. War is also a risky business. Although, fraught with danger, as it deploys risks to both combatants and non-combatants, it also provides opportunities for those willing to endure substantial risk. For example, in its present incarnation, the U.S. war machine includes independent contractors who outnumber military personnel in the war zone. There is a virtual mercenary revolution underway, as increasingly, private contractors take over both combat and support roles formerly allocated to the state’s military agencies. Thus war businesses abound, and in addition to those taking advantage of the opportunities that flow from the increasing privatization of war, are those who profit from insuring war, a primary focus of Lobo-Guerrero’s Insuring War. Lobo-Guerrero’s investigation of the insurance-war relationship is the second in a planned trilogy devoted to the politics of insuring security. This volume addresses an insurance practice that has been an “ignored instrument of war in the modern period.” Doubtless, the very original perspective that Lobo-Guerrero brings to his scholarship is owed in large measure to his pre-graduate student career. After graduating with a political science degree in Bogota, he was hired as a security consultant for a Canadian oil company to help develop non-military and non-police security strategies aimed at enhancing the security of the company’s operations in the southern jungles of Colombia at a time when “Plan Colombia,” a US-funded military strategy to defeat the FARC and control illicit drugs production was underway. The company had exploration fields just outside

Foreword xi a demilitarized zone where the FARC was expected to concentrate, and LoboGuerrero’s task was to deal with local authorities and communities located around the exploration fields in order to transform them into stakeholders of the energy projects. The region where the fields were located had a relatively recent history of in-migration by internally-displaced people who had been violently dislodged from their homes in other parts of the country and had resorted, in some cases voluntarily and in others by force, to exploring their luck by clearing the jungles to plant coca. In addition, Lobo-Guerrero’s job involved dealing with insurance products to protect the company’s assets and personnel, an experience that instructed him about how important and central insurance was for corporate security strategies, particularly for the management of operational risk in zones of war. More generally, while designing some of those strategies, he also became aware of the very close connection between insurance, states and corporations in making economic activities viable, a process that involved empowering the state to exercise sovereign power. The company’s premise was that if there was no sovereign power (including rule of law), there would be no security on the ground, no insurance cover would be obtainable, therefore no corporate activities would be viable and no royalties (taxes) would be paid. Moreover, he came to realize something that was ultimately to be articulated in his security analyses. Security is best understood not in terms of defense, policing and diplomacy, but in terms of the concerted art of managing uncertainties. That recognition is clearly expressed as the political framing of Lobo-Guerrero’s approaches to security and war. As he puts it concisely at the beginning of Chapter 6 in this volume, he understands “politics as the concerted art of managing uncertainty.” In short, Lobo-Guerrero’s pre-academic vocation has shaped the conceptual bases of his approach to politics in general and security studies more specifically, an approach that (in his words) focuses on “the modulation of danger that thinking politics as the converted art of managing uncertainty allows.” Before treating how that approach is articulated in Insuring War, I want first to turn to some observations I made while reviewing Lobo-Guerrero’s first volume, Insuring Security, because in that investigation, as in this one (in which he remarks that “managing uncertainty. . . involves a shift in the problematization of fear from a friend/enemy distinction [famously employed in the influential writings of Carl Schmitt], to a politics of relative openness towards unforeseen and unknown events”), fear is a central organizing concept.1 In his Insuring Security, Lobo-Guerrero develops and implements the concepts that structure Insuring War – biopolitics, security and risk. For example, in Insuring Security’s chapter on “Kidnap and Ransom Insurance,” he treats kidnap and ransom as a “security problematic. . . that operates under a complex ensemble of technologies aimed at rendering kidnapping in as calculable a form as possible.” Mapping the kidnap/ransom “dispositif,” he treats “the micropractices through which it proceeds.” And as his analysis proceeds, he evinces there, as in other chapters, the primary conceptual contributions he makes to a critical politics of security, inter-articulating risk, forms of life, biopolitics and

xii Foreword both state-initiated and entrepreneurial security practices. However, like Insuring War, Lobo-Guerrero’s Insuring Security is not exclusively focused on the present. His investigation begins with thought models that have been attached to moral economies, running from the thirteenth century onward to the sixteenth, a historical period in which strictures about reducing uncertainty yielded complex strategies for circumventing inhibitions to enhancing and protecting commercial enterprise. Inasmuch as God represented certainty, the “quest for making uncertainty fungible as security objects” required detaching “mercantile uncertainty” from “the certainty of God.” Ultimately, the innovative contribution to security theory that Lobo-Guerrero’s Insuring Security makes turns on the creative intersection of economic and statistical idioms his writing effects – captured for example is his oft-used expression, “the commodification of contingency.” His investigation, which is perhaps best identified as a political economy of security, focuses on the historical encounter between the governance of life, as both public and private ventures have developed new life-related epistemic objects, and the technologies through which risks-to-life have been calculated. Two of the most innovative dimensions of Lobo-Guerrero’s approach to insuring security have migrated in a more elaborated way into his treatment of insuring war. One is the concept of moral economy and the other a well-articulated approach to political arithmetic. Mapping the contemporary security dispositif that organizes the insuring of war, he points out that the “moral economy” of war that it represents assembles “epistemic communities,” which include “communities of actuaries, underwriters, brokers, shipowners and security consultants.” Throughout Insuring War, the reader is treated to a wealth of details about the functioning of the various players that constitute insuring war dispositif – for example one of the major ones, Lloyds of London, a player that Lobo-Guerrero’s investigation extracts from the shadows within which it prefers to operate. However, while Insuring War delivers important and hitherto neglected information about those involved in the (more actuarial aspects of the) conduct of what Lewis Frye Richardson famously called “deadly quarrels,” its theoretical contributions are what make the information significant. Lobo-Guerrero’s Insuring War is, first and foremost an important contribution to political thinking. Eschewing the traditional framing of violent conflict that foregrounds executive decision-making, arms races and geopolitical alliances, Insuring War makes evident that what is central to the politics of deadly engagements is “the concerted art of managing uncertainty.” Once the “problematization of fear” is allowed to displace the Schmittian friend/enemy distinction, political analysis must be deployed on “unforeseen and unknown events” rather than on (for example) the art of diplomacy. In effect, inasmuch as Lobo-Guerrero’s Insuring War emphasizes the art of managing uncertainty, it stands as an exemplary contribution to what Jacques Rancière has made famous, “the politics of aesthetics,” because Insuring War repartitions the ways in which war can be made sensible. Michael J. Shapiro

Preface

This book is the second of a trilogy devoted to the analysis of the relationship between insurance and security in the modern period. The wider project explores how concepts and practices of power, risk and security materialise in the form of insurance as a technology through which liberal ways of being in the world are promoted and protected. The first book of the series, Insuring Security: Biopolitics, Security and Risk, set the historical and analytical context to understand the production of a form of security central to contemporary liberal governance. It theorised insurance as a biopolitical effect that results from the interaction between entrepreneurial power and sovereign power, an interaction which remains central to the understanding of the making of liberal governance. The collaboration between ‘the entrepreneurial’ and ‘the sovereign’ that gives rise to ‘the insurantial’ was analysed as the result of a continuous negotiation on the meanings of uncertainty upon which liberal orders of governance are supported. The development of instruments of risk such as insurance, which transform uncertainty into tradable securities, was presented as a foundation of a system of rules that relies on its capacity to exacerbate the entrepreneurial spirit of merchant populations as drivers for economic growth – while consolidating sovereign forms of power in the form of modern states. This second book analyses the relationship between the sovereign and the insurantial from a different perspective. It asks, what happens when, under conditions of war, the sovereign adopts insurantial imaginaries and practices into its rationalities of government? Such phenomena began to become evident in eighteenth century Europe when states, such as Great Britain, started an interaction with underwriters as a way to support their war efforts. In doing so, and as analysed in detail in the chapters that follow, insurance practices became instruments of strategy for the waging of war. That situation gave rise to a curious, if not innocent, association between practices of statehood and risk that is important for the understanding of the emergence and development of liberal political economies and the strategies through which they are secured. Nowhere has this relationship been more evident than in the development of Britain as a commercial and military empire since the beginning of the Napoleonic Wars. The form of insurance that has taken central stage in this relationship has

xiv Preface been that of maritime insurance, and its evolution between 1600 and 2011 reveals a tight interaction between the entrepreneurial form of power analysed in the first book, and the state – understood here as a political and commercial community. Maritime insurance is analysed in this project beyond insurance policies and extends to the insurantial practices and power relations through which uncertainty is transformed into insurance products. These constitute moral economies, a concept which is central to the analysis offered here and which is defined and elaborated on in Chapter 1 and throughout the book. The effects of using maritime insurance as an instrument of war in the last three decades of the British political experience constitute the empirical space to interrogate the relationship between the sovereign and the insurantial. As the cases analysed in the chapters illustrate (the Napoleonic Wars, World War I, World War II and the case of maritime piracy in the Indian Ocean basin in the twenty-first century), the insurance of war risks entails the collective provision of security under conditions of radical uncertainty. The understanding of such provision of security exceeds the explanatory capacity of the model of rational choice and the maximisation of individual and collective interest developed as the paradigm of Western liberal government since the 1940s (e.g. Von Neumann and Morgenstern 1944). The interlinkages between insurance and sovereignty reveal how understandings of ‘rational choice’ and the ‘interested individual’ should not be taken as the ontological categories of a system of governance, but as the epistemological products of a rationality of thought defined in terms of its engagement with uncertainty. For that reason it has been necessary to approach the relationship between maritime insurance and war beyond official narratives and focus on the epistemological level to identify the rationalities that underlie the governmental schemes under which ‘war risks’ were insured in one way or another by the British government. As the chapters show, this engagement is not abstract and involves pressing issues such as the protection of domestic and international credit as well as strategies to sustain the peace of populations with their governments preventing riots and social unrest. In this respect, when deployed as an instrument of war, the analysis of insurance cannot be dissociated from the political economies of security under which it developed. For example, insurance in Britain unfolded as a result of the demands for security by populations that emerged as a result of the economic transformations of the country (the merchant and industrial middle classes of the eighteenth and nineteenth centuries). In this respect, modern insurance in Britain was not the result of state initiatives – although Parliament did define legal boundaries as a way of instituting moral economies, as will be shown in Chapter 1 – but a form of security, private in nature, designed to cater for the requirements of groups of individuals with livelihoods and lifestyles to promote and protect. Such requirements differed from those of the landed aristocracy and peasantry and related to an understanding of capital beyond the accumulation of bullion, a mercantilist characteristic. As populations object and subject of protection, insured individuals acted collectively to help shape the environment under which they were insured. In the case of this book, shipowners and merchants came together

Preface xv to constitute marketplaces such as Lloyd’s of London, and later on to constitute shipowners’ associations. These were ways to guarantee adequate insurance for their ventures, but also to exercise pressure on the government to ensure stability for their trade. As a result, the economy of the realm could not be understood away from the collective interests of those populations and their international trade links and alliances. Perhaps the most salient way of describing the outcome of this relationship is a phrase used by underwriters at Lloyd’s in correspondence with the Board of Admiralty at the turn of the eighteenth century. They referred to Britain as ‘this Commercial Kingdom’, more on which will be said in Chapters 1 and 2. The influence of insurers and the use of insurantial strategies to govern the state in time of war were to have an effect on the forms of sovereignty that resulted from the war risks insurance schemes in which the government participated. These forms of sovereignty differ from the understanding this concept has had within the discipline of Political Science and International Relations. It has been necessary, therefore, to provide a theorisation of the phenomena, which, in want of better terms, is here analysed under the label of ‘insurantial sovereignty’. Studying events from the Napoleonic Wars, the two World Wars and the post-Cold War period, the book documents and analyses the emergence and development of various regimes of insurantial sovereignty which detail what today could be characterised as different regimes of risk management. These regimes are the result of a continuous negotiation between the entrepreneurial power of insurers and the sovereign power of the state. They constitute forms of sovereignty that are not the simple average of traditional state practices such as defence and diplomacy with the actuarial science and expertise of the insurantial. When analysed at the epistemological level, it becomes evident that they entail a rationality of thought which can be defined in terms of its engagement with uncertainty, an engagement which shifts over time and adapts to the circumstances of moral economies. From the inception of the project it became clear that the idea of insurantial sovereignty has a special resonance with Foucault’s endorsement of the reversal of the Clausewitzian dictum into the thesis that politics is the continuation of war by other means. In the lecture series Society Must Be Defended, Foucault provocatively argued that ‘power relations, as they function in a society like ours, are essentially anchored in a certain relationship of force that was established in and through war at a given historical moment that can be historically specified’ (Foucault 2003: 15). He then added, ‘[a]ccording to this hypothesis, the role of political power is perpetually to use a sort of silent war to reinscribe that relationship of force, and to reinscribe it in institutions, economic inequalities, language and even the bodies of individuals’ (Foucault 2003: 15–16). Foucault was concerned with understanding if beyond power relationships lie relationships of confrontation, ‘a struggle of the death, or a war’ (2003: 15). ‘If we look beneath peace, order, wealth and authority, beneath the calm order of subordinations, beneath the State and State apparatuses, beneath the laws and so on, will we hear and discover a sort of primitive and permanent war?’ (Foucault 2003: 15). Foucault’s work was concerned with a particular kind of intellectual exploration, which, in his words,

xvi Preface is interested in rediscovering the blood that has dried in the codes, and not, therefore, the absolute right that lies beneath the transcience of history; it is interested not in referring the relativity of history to the absolute of the law, but in discovering, beneath the stability of the law or the truth, the indefiniteness of history. It is interested in the battle cries that can be heard beneath the formulas of right, in the dissymmetry of forces that lies beneath the equilibrium of justice. (Foucault 2003: 56) Inspired by Foucault’s efforts to understand discourses of power as sites from which to question the constitution of political rationalities, this study was set to ‘wonder’ if the rationalities of contemporary forms of risk management, so prominent in engineering and neoliberal policy-making, had an anchor in the modern relationship between insurance and war. By focusing on the various forms of British war risks insurantial schemes developed during the past three centuries, it became evident that the rationalities of power implicit in them had a direct resonance with post Second World War risk management strategies. In the wider risk literature, Mary Douglas, Ian Hacking and Michael Power have traced the emergence of risk management as a science applied to a profession to the 1960s (Douglas 1985: 30; Hacking 2003; Power 2003). Douglas referred in particular to the publication of Chauncey Starr’s Social Benefit versus Technological Risks in the journal Science (1969) as the basis of a subdiscipline that led to the creation of journals and research institutes. In the process of writing the book it became clear that the forms of insurantial sovereignty analysed here demonstrate that the tenets for a rationality of risk management were already developing in insurance/war relationships such as the partnership in risk between Lloyd’s and the Board of Admiralty at the end of the eighteenth century. The particularities of the risk management schemes of the two world wars refined some of the principles and practicalities of a sovereign way of managing uncertainty, in the form of risk, which became an overwhelming rationality of governance, beyond the state, in the second half of the twentieth century. This is not to claim the historical origins of risk management in the war risks insurantial schemes analysed in the book. It is instead to highlight the idea that the operation of rationalities of power employed in bringing together the insurantial with the sovereign into a form of politics that allowed the concentration of efforts and resources towards the waging of war, reveal a novel way of understanding ‘the political’ which has important implications for the study of Political Science and International Relations. This form of politics operates a different logic than that presented by Schmitt as the friend/enemy distinction and relates to the concerted art of managing uncertainty. The particularities of this new understanding of the political are introduced in Chapter 1 and developed in Chapter 6. Researching political epistemologies and the rationalities of power that underlie them is a creative analytical endeavour that helps make explicit the premises of orders of governance. In the style employed in this book it assumes the form of a

Preface xvii historical epistemology, based on Foucault’s oeuvre and encouraged by the work of two historians of science, Lorraine Daston and Francisco Vidal. In the introduction to an edited volume on the contested constitution of the moral authority of nature, they observed that ‘[t]he best kind of authority works invisibly. If it must brandish weapons and admonish its subjects, it only advertises its weakness; the stablest order is unfelt and unquestioned’ (2004b: 21). Their observation has deep implications for the ways order and security are analysed within Political Science and International Relations. When authority is successful, the mechanisms that make it possible remain invisible to the observer’s eye; when the observer interrogates the effects of the authority (for example, the very existence of war risks insurantial schemes), it becomes possible to research the rationalities that give rise to those strategies. Luis Lobo-Guerrero Chesham, Buckinghamshire

Acknowledgements

As any academic work, this book was possible through interaction with colleagues and friends who were generous in ideas and time. In particular, I would like to thank Pat O’Malley, Michael Dillon, Javier Lezaun, Benjamin Muller, Marieke de Goede, Mark Salter, Louise Amoore, Martin Coward, Peter Burgess, Paul Langley, Vivienne Jabri, Joscha Wullweber, Florian Kuhn, Jana Hoenke, Jonas Hagmann, Rachel Kunz, Miriam Dunn, Btihaj Ajana, Jenny Edkins, Nick Vaughan-Williams and Joyce Goggin for their help. In many cases, and without them knowing it, our discussions and emails helped me develop some of the ideas that led to this book. I am especially thankful to Nadine Voelkner who patiently endured the day-today evolution of the project and was quick to highlight its many inconsistencies over time. Without her help, intellectual engagement and encouragement this book would still be a project. I also want to acknowledge the resourcefulness of staff at Keele University Library and of The Maughan Library of King’s College London, who helped me locate some difficult material. Staff at The National Archives at Kew Gardens, The British Library, The Guildhall Library in London, and the Merseyside Maritime Museum in Liverpool made the archival research required for this project much easier. Robin Pearson, Oliver Westall, Tom Baker, Pat O’Malley and Aaron Doyle were kind enough to highlight some relevant material or made me aware of some historical issues worth considering. They are of course not to blame for any historical inaccuracies in the book. Colleagues at the Emerging Securities Research Unit at Keele University, Peter Adey, Barry Ryan, Helen Parr, John Vogler and Tim Doyle; as well as my PhD students, Christopher Zebrowski, Corey Walker-Mortimer and Philip Slann; and other Keele colleagues and friends such as Barry Godfrey, Ronnie Lippens, Roland Munro, Bulent Gokay, Dave Gadd and John Horton, were all very helpful in supporting the project and fertilising some of the book’s ideas. I also want to thank my friend Carlos Gomez Moreno, from Mantis Design, who created the cover image as a contribution to the project. Versions of some of the chapters were presented at King’s College London, Oxford University, Sciences Po, Paris, Keele University, the Centre for Security Studies at – ETH Zurich, the University of Helsinki, the University of Ottawa, the

Acknowledgementsz xix International Studies Association annual convention in Montreal, and the Standing Group of International Relations conference in Stockholm in 2010. I am grateful to participants of those events for useful conversations and discussion. Generous funding for this book was provided by the Research Institute for Social Science at Keele University which allowed me to concentrate on research and writing between May 2010 and August 2011. Between May 2010 and throughout 2011, and thanks to the support of Vivienne Jabri and Mervyn Frost, I was Visiting Research Fellow at the Department of War Studies at King’s College London, which facilitated access to the London archives and libraries as well as interaction with colleagues in the south of the country. Parts of Chapter 6 were published as ‘Lloyd’s and the moral economy of insuring against piracy: towards a politicisation of marine war risks insurance’ in the Journal of Cultural Economy, 5:1. The book is dedicated, with great love, to our son Maximilian who was born during the last stages of writing and made its completion a much more challenging but rewarding prospect.

1 Introduction Insurantial sovereignty

De futuris contingentibus non es determinate veritas.1

The last three centuries of Western political historical experience have witnessed the emergence and development of a form of sovereignty that until now had remained unexplored. It is a kind of sovereignty that creatively combines traditional technologies of security such as defence and diplomacy with forms of actuarial thinking and practice. In doing so, it portrays a rationality of government which relies on the interpretation of uncertainty in terms of risk and seeks to manage it in productive ways. As a form of sovereignty, it relates to the promotion and protection of political community and the portrayal of economic expressions of life in the way of political economies. Such sovereignty, which is central to the understanding of contemporary liberal governance, is here analysed under the name of ‘insurantial sovereignty’. Insurantial sovereignty is an expression of what has been analysed in the wider governmentality and risk society literatures as the political management of risk (e.g. Beck 1992; Daston 1988b; Hacking 1990; Knight 1921; Luhmann 1993; Moss 2002; O’Malley 2004; Dean 1999; Dillon and Lobo-Guerrero 2008a; Rose 1999; De Goede 2008b; Ericson and Haggerty 1997; Baker and Simon 2002; Dillon 2008). It constitutes a vast phenomenon with multiple manifestations in different historico-political experiences. The most prominent have so far been the forms of welfarism that emerged in late nineteenth century Europe. This form of insurantial sovereignty refers to the need to sustain social and political peace in an age of revolution. The biopolitics of the welfare state, evident for example in the Bismarckian project, were related to a rationality of government concerned with the governance of populations experiencing dramatic economic and social change as a result of industrialising processes. As suggested by Wagner for the case of late nineteenth century Austria, interventions at the biological–medical level contributed to counter the political-historical dimension of dialectical accounts of revolution based on class struggle (Wagner 2009: 21). Defert, writing on the development of accident insurance schemes in the same period in France, commented that these schemes aimed at ‘providing bourgeois solutions to proletarian problems’ (1991: 212). Ewald noted for the same case that actuarial strategies

2 Introduction for socialising risk lied at the core of the idea of government (Ewald 1986). The formulation and development of those schemes, which are quite particular to the specific development of western societies, evidence the productive interaction between the political and the insurantial through a rationality of government of risk management of which not much is yet known. A second manifestation of insurantial sovereignty, although widely related to the first, is that of the insurability of lives. In the last three centuries of the Western political experience life insurance has been a central vehicle for the transformation of the vital economic and productive potential of individuals and populations into investment capital. Life as investment capital has been required to advance many of the individual and collective ventures that have characterised capitalist systems (e.g. mortgages to acquire property, shipping ventures, construction projects and state funding in the form of annuities). This is so, as will be analysed in detail in the third volume of this trilogy, because as a form of security life insurance enables the credit required for capitalist economic growth. Capitalism is here understood not as a single economic or political system but as noted by Nigel Thrift, as ‘a set of networks which, though they may link in many ways, form not a total system but rather a project that is permanently under construction’ (2005: 3). By investing in lives, a practice that has been subject to the regulation and moral control of states in varied ways, life insurance became a site of sovereign intervention and regulation of vital capacity which was to become a definitive feature of western liberal economies. A third site for the production of insurantial sovereignty, the subject matter of this book, is that of insurance and war. It constitutes a space from which to study the ways in which forms of insurance, and moreover, imaginaries of insurance (Ewald 1991), have been complicit in making possible expressions of sovereignty such as the waging of war. Although relationships between insurance and war have attracted relatively little academic attention (with the exception of Clark 2004a, b; Kingsley 1911; Royce 1914), evidence of them abound. For example, insurance has been used in modern warfare as an intelligence instrument and also as a source for the funding of war efforts. A prominent case in point is that of Germany during the Nazi period. Gerald Feldman’s historical study of the collaboration of the insurance company Allianz with the Third Reich between 1933 and 1945 demonstrated how life insurance records were used to expropriate the capital invested in the lives the regime had decided to destroy (2003: e.g. 236–277). Feldman narrates how actuarial records were use to locate and expropriate assets of ‘the enemies of the people and the State’ such as Jews and communists at home and in the conquered territories (2001: 391–395). The history of Allianz during that period closely illustrates the ways in which the insurance industry was employed as a means to further the interests of the regime. The relationship between insurance and war for the Third Reich was even more complex and has the potential to contribute to a different political understanding of the war effort, as recently declassified documents in the United States National Archives seem to indicate (US National Archives 2011). According to

Introduction 3 Fritz, German companies at the beginning of the war controlled close to forty five per cent of the worldwide reinsurance industry, an element which provided the regime with a valuable source of information on the lives, property and assets of many enemy, as well as friendly countries (2001b). Although a private business, the influence of the Nazi regime transformed the informational resources of the industry into intelligence material with which to dominate the economic spheres of the conquered territories. Insurance practices also proved useful in the Allies’ counter-intelligence efforts. For example, the American X2, part of the Office of Strategic Services (OSS) created to coordinate espionage activities behind enemy lines, established in 1943 a small Insurance Intelligence Section which proved its value in acquiring the blueprints of several industrial facilities, some even within concentration camps, for which reinsurance was being sought in the market (Fritz 2001b). Based on neutral countries, intelligence agents with an insurance background sought to underwrite enemy assets as a way of identifying targets of strategic relevance to the enemy (see Naftali 1993; Fritz 2001a: A1, Section National/Foreign). The use of insurance for intelligence purposes was not restricted to Germany and to the Allies. Through declassified documents in the United States it is now known, for example, that in 1941 ‘the San Francisco office of a British insurer resold coverage of the Panama Canal. . . to two Japanese firms’. A report of the OSS mentions that ‘[i]n connection with this insurance, there was forwarded to Tokyo a detailed description of the locks, all machinery in connection therewith, exact location, etc.’ (as cited by Fritz 2001a: A1, Section National/Foreign). These experiences in employing insurance as an instrument of war are but an example of an intimate relationship that has developed between practices of statehood and the use of actuarial resources as instruments for government. Those relationships, as will be shown later, have their origins in late seventeenth and early eighteenth century efforts to encompass developments derived from the Probabilistic Revolution into strategies aimed at balancing moral economic orders with the political economies of states. In the process, the primordial governmental concern of achieving security within and outside the state gave rise to the wider phenomena detailed here as insurantial sovereignty. Rather than seeking to analyse this form of sovereignty in the abstract and the general, this book concentrates on exploring insurance and war relations in the specificities of the British experience of employing maritime insurance as an instrument of war beginning with the Napoleonic Wars and ending with the twenty-first century. As detailed in Chapter 2, maritime insurance and its use in time of war in Britain goes back to the long eighteenth century and is part of a wider interaction between financial actors at the City of London and political actors represented at Westminster. Through such interaction an alliance of power developed which materialised in the creation of a commercial empire lasting until the first half of the twentieth century (see, e.g. O’Brien 1998, 2000). Central to the political economy of empire that emerged out of these power relations was the relationship between the resources and strategies needed for the projection of naval and military power and those required for international trade. Such interaction is evident

4 Introduction in a notable feature of the late mercantile era which has attracted the attention of numerous economic and political historians. It is the fact that while Britain sustained protracted war efforts abroad at a high cost to the public purse, a system of domestic liberties and parliamentary control of the state developed (Stone 1994: 6–7). Presented in the literature as the ‘Brewer Paradox’, the balance between public and private power that characterised the system was mediated to an important extent, by insurance imaginaries, practices and products – an issue which remains vastly under-researched. While insurers, as merchants, acquired significant amounts of government debt, mainly in the form of Navy bonds, they became increasingly active in affecting the security strategies, tactics and environments of an international sphere on which international trade depended. By interacting with government entities and officials they slowly developed an active partnership with the state, which under today’s terms could be understood as a partnership in risk management. Its effects were felt at strategic, tactical and operational levels through which the Committee of Lloyd’s of London and its members portrayed their commercial interests. Their activity involved issues as diverse as intelligence gathering and sharing, investment in government debt, the provision of a basic form of social welfare and the recognition of acts of gallantry by naval and merchant officers. The details of this partnership which materialised a form of insurantial sovereignty in the late eighteenth century, are made explicit through the interaction between Lloyd’s of London and the Board of Admiralty during the Napoleonic Wars, detailed at the end of the chapter and evidenced through correspondence sustained between these two bodies. However, in order to understand the significance of that partnership in the politics of empire, it is important to begin by analysing the significance of insurance practices and relationships as a moral economic issue. To do so the chapter starts by offering a genealogy of the moral economy of insurance starting in the early seventeenth century. Chapter 3 moves on to consider a different form of insurantial sovereignty that resulted, this time, from the use of maritime insurance as an instrument with which to endure a war effort, both domestically and internationally. It is the case of the War Risks Insurance Scheme of World War One, a result of years of public debate on the role the government should play in ensuring the continuity of shipping during a European war. Through the scheme, the British government agreed to reinsure 80 per cent of British hulls and to offer insurance on all their cargo in an attempt to keep the merchant fleet sailing under the threat of enemy action. Analysis offered in the chapter demonstrates, however, that the problem exceeded naval and military considerations and extended to one of security of credit and food supply in time of war. This in turn made evident the government’s anxieties with regards to internal riots as a result of elevated food prices. Although the scheme was only used for the first two years of the war, in bringing together a domestic and an international security agenda in an attempt to wage war under liberal principles, the use of maritime insurance as an instrument of war reveals a form of insurantial sovereignty understood as risk management. The rationality underlying the scheme, analysed in the chapter through the details of the debates that led to its adoption, was to become a precursor of liberal governance in what

Introduction 5 is widely presented in the late twentieth and early twenty-first centuries as the risk society. In Chapter 4 the form of insurantial sovereignty as risk management noted above is examined in the interwar period and in light of preparations made for the following world war. The liberal principles that supported the scheme are put to the test in an international environment characterised by growing protectionism, changes in property relations as an effect of the Soviet Revolution in Russia, the economic crisis that derived from the crash of 1929, and the general difficulties in insuring against political risks made evident in, for example, the losses incurred by insurers in the Spanish Civil War. The resulting scheme, adopted at the outbreak of the war, created first an insurantial state of exception, which, as the confrontation evolved, became permanent legislation in an attempt to protect what is presented in the debates that led to scheme as the insurable national interest. As legislation, part of which still stands in 2011 as a central component of national security, the scheme shrouded a complex rationality of government which needs to be made explicit. The events and debates analysed in the chapter illustrate how the national interest is not an ontological category but the result of intense and complex negotiations of what will be described below as radical relationality, between the parties of what became a sovereign risk management scheme. What is presented under the general idea of national interest is in fact a relationship of power, that, although adopting legal forms, shapes security environments and produces a form of insurantial sovereignty that has now been ‘norm-alised’ under national security arrangements. The chapter concludes by reflecting on the effects of the form of insurantial sovereignty that resulted from the war on two concepts which are central to the theory of International Relations: economic power and the national interest. Taking a distance from the normalisation of insurantial sovereignty and the strictures of national security of the last half of the twentieth century, the book moves on to analyse the role of contemporary maritime insurance as a security instrument to protect against phenomena such as maritime piracy in the Indian Ocean basin. The case explored blurs the territorial understanding of sovereignty typical of disciplined studies of Politics and International Relations, and as noted in the chapter, poses novel political economical questions. Based on insurance industry documents and interviews, the latest changes in the maritime insurance environment are analysed in detail. These include, for example, the complexities of defining piracy risk and of removing piracy from standard shipping policies and including it into ‘war risks’ at a time in which the understanding of international war is changing dramatically. The changes, and, more importantly, the discourses and practices with which piracy risk is being approached, denote a change in the rationality through which the uncertainty surrounding global maritime circulation is tackled. For example, insurers are moving beyond the traditional state-spheric approach to security in their understanding of wider risks and are resorting to alliances with wider actors that, although encompassing traditional state structures, provide a wider world-view more in tune with insurers’ global interests. A case in point is a growing interaction between Lloyd’s of London as

6 Introduction a marketplace with NATO as a military alliance on issues as wide as piracy, climate change and cyber-security. The shift in rationality is also evident in the role of the insurance broker, which is now expected to transcend its commercial role and operate as an expert liaison between the security requirements of clients with the increasingly technical demands on risk management required by insurers. The emerging regime is giving rise to new understandings of international security that are premised more on a political risk market than on national security grounds. Under these circumstances state actors are to be understood in their relationship with brokers and insurers and the wider financial sector which are currently experiencing unknown crises. The form of insurantial sovereignty arising from this regime is yet unknown and its theorisation will require knowledge resources that transcend grand conceptualisations of power. To that end, Chapter 6, in concluding the book, takes stock of material introduced in previous chapters to develop a theorisation on insurantial sovereignty challenging the idea of ‘the international’. The theorisation is based on the ideas introduced below as a way to understand the effects of insurantial sovereignty in the analysis of historical and contemporary global politics. Readers who are more interested in the cases noted above are advised to move on to the relevant chapters.

The Probabilistic Revolution and the security of risk The premise upon which this book is written is that insurantial sovereignty is a political effect of the Probabilistic Revolution. Much has been written within International Relations about the Peace of Westphalia as the founding myth of European sovereignty upon which a structural condition of anarchy in the international system derived (e.g. Teschke 2003). Much has been written as well about how the Jus Publicum Europeum became a foundation of war amongst equals within a ‘comprehensive spatial order’ which fell into crisis with the advent of the First World War (e.g. Schmitt 2003: 140–210, 227–237; Hooker 2009; Odysseos and Petito 2006; Odysseos and Petito 2007; Rash 2005). From then onwards attempts to theorise the new ‘nomos of the earth’, in the form of the disciplined study of International Relations, evolved, from the efforts of the inter-war period into the analysis of bipolarity of the Cold War heavily influenced by realist, neorealist and liberal perspectives, into the 1980s. Towards the end of that period and beyond the trauma the Cold War meant, for International Relations (e.g. Gaddis 1993), the discipline began to move beyond its state-centrism incorporating many so-called post-structuralist aspects of power, a trend that consolidated way beyond 9/11. Within these writings, however, compendiums of which can be found in most comprehensive textbooks on International Relations theory, the political effects of the Probabilistic Revolution, a central constitutive aspect of the modern period, has been surprisingly absent. The probabilistic revolution was part of a wider intellectual transformation in late seventeenth and early eighteenth century Europe which involved, in the words of the Bielefeld collective,2 ‘a new pragmatic rationality that abandoned traditional ideals of certainty; and a sustained and remarkably fruitful attempt to apply

Introduction 7 mathematics to new domains of experience’ (Gigerenzer et al. 1989: 1). These transformations materialised in the unfolding of a form of mathematics with which the probability of occurrence of future events could be measured (see, e.g.: Krüger et al. 1987a, b; Gigerenzer et al. 1989; Daston 1988a; Hald 2003; Hacking 2006). The very possibility of devising a metric with which to calculate the occurrence of something in a future is quite a remarkable epistemological shift which denotes a way of thinking that differed from a Christian teleology premised on God’s will. This did not mean the end of religious-driven thought but a change which emphasised ‘action as the basis of belief’ (Gigerenzer et al. 1989: 5). The need to know the likelihood of something occurring in a future also revealed a form of reasoning for which expectation was a central element. Expectation, however, was not that of the eternal return upon which a Christian onto-political theology relied (for a critique see Agamben 2005; Nancy 2008). Instead, it depended on what began to be called in the seventeenth century a ‘reasonable calculus’ understood ‘as a mathematical codification of the intuitive principles underlying the belief and practice of reasonable men’ (Gigerenzer et al. 1989: 6). Reasonable calculus, in turn, operated a temporality that differed from that of the time of the Church (see Le Goff 1982) and relied more and more on a physical and cosmological understanding of the concept which was to inform the thought of Descartes, Locke, Newton and Leibniz (see: Daniel 1981). The time of ‘reasonable men’ focused on rendering a present actionable, not as a materialisation of divine determination but as the capacity of governing uncertain futures. This idea of a present, understood as contingent (see, e.g. Dillon 2007), relied on the reasonable capacity to formulate future events and prepare for them. Evental thinking, as the rationality that informed an actionable present, became the mode for governing a future that ceased to be eschatological in design and became the opportunity for a new order of governance focused on the generation of profit and wealth. Such an order required the development of measures of ‘reasonable certainty’, an effort evidenced in the literature of the time, as the following passage illustrates. The proponents of reasonableness spoke not of certainty but of certainties, ranging from the highest grade of ‘mathematical’ certainty attained by demonstration, through the ‘physical’ certainty of sensory evidence, down to the ‘moral’ certainty based on testimony and conjecture. The precise descriptions of these levels varied slightly from author to author, but the notion of such an ordered scale, and the emphasis that most things admit only of moral certainty, remained a staple of the literature from Hugo Grotius’ De veritate religionis christianae (1624) to John Locke’s Essay Concerning Human Understanding (1690) and thereafter. When Bishop Joseph Butler claimed in 1736 that ‘probabilities are the very guide of life’ (Butler 1736: iii), he was by then repeating a cliché. (Gigerenzer et al. 1989: 7) Evental thinking and the contingent life it supported was not a phenomenon restricted to what we know today as scientific knowledge. It encompassed a

8 Introduction modern imaginary evident in everyday life activities such as gambling and insurance, to more technical ones such as jurisprudence, data analysis and inductive inference (Gigerenzer et al. 1989: xiii). Emerging in the seventeenth century, it then expanded to the disciplines of sociology, physics, biology and psychology in the nineteenth century, ‘and on to agronomy, polling, medical testing, baseball, and innumerable other practical (and not so practical) matters in the twentieth’ (Gigerenzer et al. 1989: xiii). It also had, as key historians on this topic have noted, an effect on matters of government from its early inception. For example, after the efforts of the second Anglo-Dutch war of 1665–1667 which diminished the economic and naval capacities of the Dutch state to defend itself, Holland faced the threat of a French invasion for which it was necessary to build an army. The then Grand Pensioner of Holland, prime minister Johan de Witt, proposed to raise funds by selling life annuities and demonstrated how to do so in a report to the States General in 1671 (Hald 2003: 123; Geddes and De Witt 1879). De Witt was the author of a series of letters originally written to the Estates-General of the United Provinces of Holland and West Friesland in 1671 which are recognised as one of the earliest attempts to incorporate the new mathematics of probabilities to aleatory contracts, such as annuities (Daston 1988a: 27). Although de Witt resigned in 1672 and was murdered by a mob when France invaded the Republic later that year, his attempt to raise funds for war by pricing the value of the lives of citizens through life annuities was an early indication of how government and insurance, particularly in the realm of defence, were to be related in subsequent centuries. De Witt, as a seventeenth century mathematician and statesman, exemplified a tradition of rule that was to be felt in various parts of Europe after the mid seventeenth century under the rubric of ‘political arithmetic’. This logic, known originally by the contributions made by William Petty to the problem of governing Ireland, then under English rule (Petty 1690), employed statistics and statistical thinking as a means to identify populations objects of government and control (Buck 1977: 102–111; Buck 1982; Hoppit 1996; Petty 1690; Hacking 2006). The very fact, however, that political arithmetic emerged denotes another epistemological feature of the order of government developing in seventeenth century Europe which has not deserved enough attention in the study of Political Science and International Relations. Political arithmetic is the application, in the modern period, of evental thinking as a pragmatic rationality that abandons traditional ideas of certainty and engages instead with employing ways of knowing, such as statistics (see, e.g. Desrosieres 1993), to achieve ‘reasonable certainty’. The practices involved in such endeavour imply a voracious appetite on behalf of the state to ‘fore-know’ what is likely to happen, or to employ reasonable calculus to anticipate the likelihood and implications of an event ‘taking place’. This shift in rationality relates to what Reinhart Koselleck analysed in the form of ‘rational prognosis’ as characterising the temporality of the state that emerged in the late seventeenth and early eighteenth centuries. Rational prognosis, he argued, emerged in contrast to the time of the Church which was characterised by the role of ‘prophesy’. As noted by him, the

Introduction 9 difference between prognosis and prophesy is that the former ‘produces the time within which and out of which it weaves, whereas apocalyptic prophesy destroys time through its fixation on the End’ (Koselleck 2004: 19). Rational prognosis assigns itself to intrinsic possibilities, but through this produces an excess of potential controls on the world. Time is always reflected in a surprising fashion in the prognosis; the constant similitude of eschatological expectation is dissolved by the continued novelty of time running away with itself and prognostic attempts to contain it. In terms of temporal structure, then, prognosis can be seen to be the integrating factor of the state that transgresses the limited future of the world to which it has been entrusted’. (Koselleck 2004: 19) The effects of rational prognosis for a liberal rationality of government are well known to any student of Political Science (e.g. De Goede and Randalls 2009; De Goede 2008a; Massumi 2007; Aradau and Van Munster 2007; Ewald 2002; Cooper 2006; Anderson 2010; Amoore 2009b, a; Amoore and De Goede 2008b; Dillon 2007; Dillon and Lobo-Guerrero 2008b; Dillon and Reid 2001). They come in the form of events or scenarios against which strategies to achieve their materialisation, or prevent it, are devised (see, e.g. Blanchot 1986; Collier 2008; Collier and Lakoff 2008; Anderson and Adey forthcoming 2012; Lindgren and Bandhold 2009; Aradau and Van Munster 2011). As evident in Koselleck’s passage quoted above, prognosis operates on intrinsic possibilities and potential controls on the world and does not determine specific outcomes. In this regards, prognosis liberates governance. At the same time, and paradoxically, prognosis implies that events and scenarios construed as possible and potential are to be acted upon. The basis for modern Western governance is the capacity to formulate issues in terms of possible and potential events in a structured way such that it constitutes a political agenda. When the traditional ideas of certainty of the Christian onto-political imaginary are abandoned, uncertainty must be embraced by employing reasonable calculation to decide on what is to happen and how can those likelihoods be enhanced or diminished as a way of promoting and protecting the values upon which specific livelihoods and lifestyles rely. Something else is required in the process of including those possible and potential issues into an agenda of government and rule. It is something that takes place at the intersection between the feral uncertainty of unthought events and scenarios, and the assessment of their likelihood and effects. It is a uniquely Western modern moment, and although evidence of its originating ideas date back to the medieval Renaissance (see Lobo-Guerrero 2011, Chapter 1), it unfolds with and during the Probabilistic Revolution. It is what we know, after the second half of the seventeenth century as risk. The following reflection by Ian Hacking expresses the uniquely Western modern dimension of this idea. Why did the European travellers find no sense of risk among the ‘savages’? Because risk is the calculating concept that modulates the relations between

10 Introduction fear and harm. The primitive did not calculate. Calculation began to dominate instinct, tradition and collective wisdom, in a measured way, only in seventeenth-century Europe’. (Hacking 2003: 26–27) The transformation of feral – or untamed – uncertainty into something that can be acted upon in the form of events or scenarios constitutes what I like to refer to as ‘the magical moment of risk’. Its magic relies on the obscureness of the process since the use of probabilities as a reasonable calculus of the uncertain takes place once uncertainty has been domesticated in the form of ‘desirable’ and ‘undesirable’ events. Such desirability is a function of defining what life is in terms of projecting into events and scenarios, what is considered by a political community as the values worthy of promotion and protection – the biopolitical security question (for an elaboration of this argument, see Dillon and Lobo-Guerrero 2008b, c.f.; Rose 2006). Note the resonance of this idea with Foucault’s understanding of biopower as the power to ‘make live’ and ‘let die’ as opposed to sovereign power as that which kills and takes life (Foucault 2007). The resonance is not coincidence but is part of the same logic in as much decisions on what is considered desirable refers to lifestyles and livelihoods which are already core biopolitical expressions (Lobo-Guerrero 2011: 2–4). While formulating events and scenarios a contingent present is instantiated and acquires the recognisable form of practices intended to promote and protect particular ways of being in the world. These security practices, which of course overflow the realm of the military and traditional security sites such as the police and civil defence, determine political agendas and are used to mobilise the fear of uncertainty around which populations are governed (see, e.g. Massumi 2007; Amoore and De Goede 2008a; Closs-Stephens and Vaughan-Williams 2008). This idea goes to the core of the problem of political community, not in terms of the Hobbesian state of nature explained by Wolin as the condition of political nothingness (2004: 218), but as a matter of regulating, and specifically of authorising, the formulation of events and scenarios around which a present is to be governed. The replacement of the monopoly of prophecy by one of rational prognosis analysed by Koselleck, becomes evident in the ways in which uncertainty is rendered manageable in the form of risk. The remarkable feature of rational prognosis in the Western modern art of government is therefore, not only the formulation, imagination (De Goede 2008a), and authorisation of the events and scenarios upon which it proceeds, but the very possibility of rendering an uncertain into something that can be traded under the name of risk. This is where the metaphor of the magical moment becomes the site of the technological rationality of risk. The magical refers to the alchemic function of transforming uncertainty into something fungible; that is, amenable to trade and exchange as risk. The alchemic transformation of uncertainty into risk, which relates to the emergence and operation of the late seventeenth century rationality of government mentioned before, acquired a central role in British governance and security.

Introduction 11 Traces of this can be found as early as the Napoleonic Wars but quite concretely in the insurance and war schemes of the two world wars of the twentieth century. It is a rationality that employs knowledge and imaginaries of actuarial science and practice as an instrument with which to create sites of government characteristic of a liberal political economy. The origins of this rationality remain vastly under-researched, although there is plenty of evidence that demonstrates that its emergence was premised on the concept of interest and the political economy that developed around its articulation. Interest, it has been argued, became a principle of behaviour with which to govern individuals as ‘interested subjects’. Albert Hirschman, for example, traced the processes in which the repressing and harnessing of passions, used as a way for governing the conduct of individuals, was replaced in the seventeenth and eighteenth centuries by the governing of interests. He analysed the evolution of this rationality in the writings of Montesquieu, James Steuart, John Millar, the physiocrats and Adam Smith (Hirschman 1977; Hirschman 1992). Foucault explored a similar path when trying to make sense of the idea of the market as a valedictory instrument of political economy. He referred to interest as a principle that encompassed the simultaneous dimensions of exchange and utility – understood by him differently than Marx (as in Marx 1995: 13–14) – upon which governmental reason in its modern market form operated (Foucault 2008: 44). In his analysis, exchange and utility, as constitutive elements of markets, merged into an emerging liberal political economy in which interest became part of the rationality of the state. As he explained, this is no longer the interest of an entirely self-referring state which only seeks its own growth, wealth, population, and power, as was the state of raison d’État. In the principle to which governmental reason must conform, interest is now interests, a complex interplay between individual and collective interests, between social utility and economic profit, between the equilibrium of the market and the regime of public authorities, between basic rights and the independence of the governed. (Foucault 2008: 44) This idea of interests becoming the intersection of the private and the public and constituting a polity finds resonance with the depiction of insurantial sovereignty resulting from maritime insurance and war relations analysed in this book. The understanding of the intersection, however, requires an engagement with the technologies that support an ‘interests-based rationality of risk’. This is not a claim for a technological ontology of instruments such as insurance. It is instead a way to investigate how a rationality of risk developed as a result of complex interactions, evidenced in the form of relationships (as will be explained below), through which technologies like insurance have operated throughout the modern period. The analysis matters greatly to the understanding of liberal governance since the outcome of those relations comes in the form of security effects. For example, and as detailed in this book, the insurantial form of sovereignty has contributed to

12 Introduction the shaping of an international sphere characterised not by anarchy, as traditional International Relations theory has understood it, but by an active engagement with an ‘order-ing’ of the world in terms of risk and the management of uncertainty in which the state has been an effect of power rather than simply an actor. The study of insurantial sovereignty offered here is the result of a genealogical enquiry that contributes elements for a historical epistemology of insurance/war relations. Genealogy is here understood and practiced following the tradition of Nietzsche and Foucault which moves beyond traditional historiography. As noted by Foucault, ‘[g]enealogy does not oppose itself to history as the lofty and profound gaze of the philosopher might compare to the molelike perspective of the scholar; on the contrary, it rejects the metahistorical deployment of ideal significations and indefinite teleologies. It opposes itself to the search for “origins” ’ (Foucault 1991: 77). Through a genealogical enquiry on the use of maritime insurance as an instrument of war, the book develops elements to make explicit the conditions of possibility for particular strategies of insurantial sovereignty. To that end, the study is based on the identification and analysis of singularities in the experience of employing maritime insurance as an instrument of war in the modern British experience. Singularities are here understood, following Foucault’s work, as details that give away the principles of historical formations (see, e.g. Foucault 1991; Foucault 1994b; Visker 1995; Prado Mahon 1992; Veyne 2008). Particular words, turns of phrase, gestures, dead passages in documents, that are part of narratives and discourses that rather than being innocent, signal the operation of a specific rationality (Veyne 2008: 30). Singularities become markers of the operation of intellectual frameworks and constitute the basis from which to make explicit the discourses constructed around them. They are entry-points for the interrogation of rationalities, windows from which to observe the conditions of possibility of assemblages of power. The purpose of identifying the singular as an epistemic object is to disrupt what appears to be the normality of events, such as the idea of the national interest in the second half of the twentieth century. Analysed as disruptions to official historical narratives – for example those of Lloyd’s of London (Martin 1876; Wright and Fayle 1928; Gibb 1957) – singularities are approached in this book as surprises that invite questions on their very possibility. Surprises are in turn understood here following the lead of Jean-Luc Nancy. The surprise is the leap into the space-time of nothing, which does not come ‘before’ or from ‘elsewhere’; as such, it is the leap into the space-time of space-time ‘itself’. It is the taking place of place. Of the there that is not a place ‘for’ Being, but Being as place, being-the-there. It is not present Being, but the present of being insofar as it happens, and therefore insofar as it is not. (Nancy 2000:173, emphasis in original) The surprise that results from interrogating the singular is the space from which it becomes possible to demystify the grand narratives of history and open up

Introduction 13 to scrutiny the tenets of periodization and paradigmatic thinking (c.f. Nietzsche 2007). The surprise signals ‘the contingent’ as the time of a continuous present upon which power relations take place. To undertake this intellectual endeavour, the book locates the analysis of maritime insurance and war relations at the epistemological level. It aims to understand the sets of principles and beliefs, the discourses and practices through which insurance/war relations were stated, and the security effects that resulted from their ‘taking place’ in relation to contextually circumscribed ways of knowing uncertainty. Locating the epistemological analysis on the technology itself (insurance) allows for the enquiry to adopt an empirically grounded approach towards the understanding of the sets of principles and beliefs upon which a rationality of risk has been possible in the period at stake. It must be noted at this stage that the realm of ‘the empirical’ is not here taken as a given or as ‘out there’. The book is inspired by Foucault’s way of understanding the problem of the real as ‘the coupling of a set of practices and a regime of truth [to] form an apparatus (dispositif ) of knowledge-power that effectively marks out in reality that which does not exist and legitimately submits it to the division between true and false’ (Foucault 2003: 19). In doing so, the understanding of the empirical employed here takes a distance from traditional positivist approaches to empiricism and joins Deleuze, in his reading of Hume, in arguing that empiricism is not simply a matter of representation. In effect, it constitutes ‘a sharp critique’ of this idea since ‘representations cannot present relations’ (Deleuze 1991: 30, see also: 120). Representations of ideas are dissociated from the experience that makes them possible and cannot replace a reality that is presented as pre-formed. As noted by him, [b]y making representation into a criterion and by placing ideas within reason, rationalism expects ideas to stand for something which cannot be constituted within experience or be given in an idea without contradiction: the generality of the idea, the existence of the object, and the content of the terms ‘always’, ‘universal’, ‘necessary’, and ‘true’. (Deleuze 1991: 30) This approach dispels any universals or general theories developed around phenomena. It calls instead for an analysis of ‘reality’ as contingently produced and as intensely political – as an effect of power relations – an endeavour that demands moving away from the actors or the institutions as the focus of research. It centres instead on the relationships that develop in the process of employing a rationality of risk both as a principle of government but also as a profitable principle of formation. The materialisation of those relationships is observable, and therefore researchable, through its effects. In maritime insurance and war relations these are traceable, for example, through mail correspondence, parliamentary debates, pamphlets, publications of various sorts, audio and visual statements, and any material record that provides evidence of interaction between the parties and from which the relationship can be singled-out. Those elements are analysed, not as actants (Latour 1987, 1993), but as evidence, a site from which to learn about

14 Introduction the specificities of the ways in which ideas, beliefs, attitudes and strategies combined to produce power effects. These effects, in turn, are analysed in the book as constituting ‘moral economies’. The idea of moral economies is particularly useful as a configuration of power from which to research the effects of insurantial sovereignty. They are understood following the work of Lorraine Daston and in particular her article ‘The Moral Economy of Science’ (1995). For Daston, the concept of moral economy differed significantly from that of E.P. Thompson’s analysis of the corn markets and price settings (Thompson 1971). In that work Thompson strove to identify the material assumptions of the moral considerations that led to the regulation of the price of grain in eighteenth-century Britain. His objective was to profile the grounds on which ‘the English crowd’ was governed. Instead of concentrating on the analysis of the empirical conditions that constituted a moral economy, Daston focused on interrogating the very conditions of possibility for particular forms of empiricism involved in making possible an economy. Rather than seeking to know the material conditions on which a system of rule relied, Daston suggested that analysing a moral economy was about understanding the rationalities upon which categories of thought such as ‘fact’, ‘evidence’ and metrics and calculations which rendered an economy operable, were made possible. Those rationalities exceeded the realm of the material and involved, in her words, ‘a web of affect-saturated values that stand and function in well-defined relationship to one another’ (1995: 4). Daston’s understanding of economy, as she noted, has a deliberately old-fashioned ring: it refers not to money, markets, labour, production, and distribution of material resources, but rather to an organised system that displays certain regularities, regularities that are explicable but not always predictable in their details. (1995: 4) Although it is a contingent, malleable thing of no necessity, a moral economy has a certain logic to its composition and operations. Not all conceivable combinations of affects and values are in fact possible. Much of the stability and integrity of a moral economy derives from its ties to activities, such as precision measurement or collaborative empiricism, which anchor and entrench but do not determine it. (Daston 1995: 4) Moral economies, a la Daston – as interpreted here – relate to the interrogation of how a moral order resulting from particular regimes of rule comes about. They are the expression of communal discourses and practices of power which, not being natural in any way, express a very particular way of being in the world. Their unnaturalness is proved by the fact that the knowledge-base on which they rely, as a web of affect-saturated value(s), is acquired in part through training and education. As noted by her, ‘[a]pprenticeship into a science schools the neophyte into ways of feeling as well as into ways of seeing, manipulating, and understanding’ (1995: 4–5). Whereas Daston developed her understanding of moral economies in relation to collectives of scientists, moral economies are in this book analysed in

Introduction 15 relation to collectives of maritime underwriters and shipowners wishing to insure their ships under an emerging legal framework (already a depiction of a moral economy). Ever since its early development as an organised set of practices and customs in Elizabethan Britain (as detailed in Chapter 2), maritime insurance has been the expression of a need to promote and protect a form of life that depended on its capacity to foster trade. The chapters of this book detail those webs of affectsaturated value(s) constituting moral economies and relate them to specific forms of insurantial sovereignty. Since the book takes as its empirical site of interrogation maritime insurance relationships, it is important at this stage to clarify what is here understood by a ‘relationship’. Taking them as referents of research is a rather unusual approach within the study of Political Science and International Relations. The starting point for this approach is that parties to a relation are mutually implicated and presuppose one another. Revealing the details of the implication is part of the genealogical enquiry. In that spirit, neither parties nor relations are understood as representations of pre-formed ideas. They are, following Deleuze’s reading of Hume, ‘the means of an activity’ (1991: 120, emphasis in original). Activity, practice and performance are the evidence of relationality. Relations become a means for the exercise of power; exercise which, paraphrasing Deleuze, does not define a knowing object of government, but ‘sets the possible means for a practical subject’ (Deleuze 1991: 121). The effects of relationality, or the products of beingin-relation, are therefore instruments for order-ing a real, which as noted before, is not innocent but results from apparatuses of power/knowledge. The realm of the empirical, in this respect, is tightly linked to the productive relationality that makes it possible, and, as such, relations are taken as the sites from which to conduct a historical epistemological enquiry of insurantial sovereignty. Relating to this general problem, it is suggested in the book that the moral economies that result from understanding sovereignty as the political moment of managing uncertainty are already a relational product. Understanding the event as a site of political action or as its disrupter assumes the site of the political not as an ontological moment but as the effect of relationality. This is of course not a new observation since many post-structuralist scholars, when analysing international relations as a problem, have dealt with it. For example, and only to name a few, Coward noted that for Nancy ‘it is the relation itself that is the existentially prior moment not the entities that are related. This is because the sense of there being an entity only arises from the relation’ (Coward 2009: 256). Campbell analysed sovereignty as a relationship through which that which is to be part of the strategy of protection and that which is not, is performed (Campbell 1998). Shapiro observed, also through Nancy, that ‘the singularities of subjects who find themselves in common cannot be confined within aggregated social identities’ (Shapiro 1999: 126). The insurantial relationships co-constitutive of British sovereignty in time of war analysed here give relevance to those observations. If the argument is to be extrapolated to collective expressions of power, it is possible to argue that sovereignty is in effect the result of complex relationality. Relationality is never static, although it might appear to be so when analysed through the intervening

16 Introduction institutions of insurantial/sovereign relations. It is always in formation and needs to be so if the form of security that results from it, as a way of securing credit or uninterrupted maritime flows, for example, is to be possible. In this respect, the relationality that allows sovereignty to be performed in the form of moral economies embodies Nancy’s observation that ‘[b]eing cannot be anything but being-with-one-another, circulating in the with and as the with of this singularly plural coexistence’ (Nancy 2000: 3). The performative role of relationality, because of its importance for this approach, also deserves a comment. Thinking with Nancy, relationality refers directly to practices of affirmation, and it is worth noting here that for him ‘repetition is the condition of affirmation’ (Nancy 2000: 6). The origin is affirmation; repetition is the condition of affirmation. I say ‘that is, that it is’. It is not a ‘fact’ and has nothing to do with any sort of evaluation. It is a singularity taking refuge in its affirmation of Being, a touch of meaning. It is not an other Being; it is the singular of Being by which the being is, or it is of Being, which is being in a transitive sense of the verb (an unheard of, inaudible sense – the very meaning of Being). (Nancy 2000: 6) Through repetition, the being of relations becomes actionable and the evidence of their action can be depicted as relation-ships. The suffix in relationship operates as the vessel, understood not in its connotation of container but of vehicle. In this sense, a relation-ship mobilises expressions of power. For example, insurantial sovereignty as theorised in this book constitutes a relationship of power. For its enactment, however, it requires technologies. To use a mechanical metaphor, the engines of insurantial sovereignty are the relations through which the repetition of affirmation proceeds. Technology is understood here as an expression of politics, not as a presupposed ensemble of knowledge, resources and skills within specific contexts, but as the systematic practice of repetitive affirmation. It is the affirmation, ultimately, what produces political effects and the ensembles through which repetition is made possible constitute a technology. In this sense, and resorting to another metaphor, the technological enactment of relationships is not vectorial (i.e. possessing both magnitude and direction). The value of a relationship emerges as the complexity of power relations evolve. Coming back to the material evidence of relationships, affirmation is depicted in, for example, the very existence of templates and pro-forma, the use and recognition of seals, the employment of headed paper, the use of standardised sizes and metrics, the wording of contracts and agreements, formalities such as the ways in which correspondence is addressed, in official/authorised/socially and politically accepted greetings, and in the order of meetings, services and ceremonies. What the genealogical enquiry reveals is that beyond their very existence lie complex assemblages of affect-saturated values, to use Daston’s expression, which reveal the operation of moral economies. Although such an understanding of political technology resembles to some extent elements of Actor Network

Introduction 17 Theory, mapping relationships as transient and emergent networks contributes to making them explicit but it does not contribute to understanding the epistemologies from which they derive. The analysis of this book concentrates on the effects of repetition that result from political technologies as the condition of affirmation of a political being. In other words, it is the reading and interpretation of power effects which matters for the historical epistemology of insurance/war relations as the intellectual endeavour of this project. In taking relationships as the referent for the study of the politically-active interactions between maritime insurance and war in modern Britain, and elevating the operation of such interaction to the category of technology, it must be made explicit that the outcomes of such relationships, although setting ‘the possible means for a practical subject’, do not presuppose a fixed outcome. Insurantial sovereignty, as the effect of maritime insurance and war relations is a performative act.3 When the sovereign meets the insurantial as here analysed, the future is liberated from the strictures of prognosis and prophesy and enables the production of uncertain futures. This, in turn, constitutes the moment of governance of free individuals and of their enterprising ventures through the harvesting of risk.

Insurantial sovereignty beyond liberal security? In light of the considerations mentioned above, insurantial sovereignty and the moral economies from which it results cannot be summed up into a general theory of power. What can be identified are specific forms of insurantial sovereignty that relate to what Foucault referred to as the microphysics of power. As read by Deleuze, these refer not to the ‘miniaturisation of visible and articulable forms; instead, it signifies another domain, a new type of relations, a dimension of thought that is irreducible to knowledge’ (Deleuze 2006: 62). The forms of insurantial sovereignty analysed in each chapter of this book are specific phenomena themselves, they are not part of a wider whole that can be theorised in the abstract. Instead, they provide novel empirical sites from which to understand the contingencies of the modern political experience in the West. Analysed in their details they offer the possibility to challenge traditional understandings of security, the political, and sovereignty within the realm of Political Science and International Relations, which are based on gross assumptions of what it is to be political, the conditions of possibility for political community, and the premises upon which subjects can be governed, the interests of subjects for example. In particular, they help demystify the security of the so-called nation-state and shift the analysis into the study of relationality. For a start, forms of insurantial sovereignty challenge the distinction between threat and risk-based approaches to security (see, e.g. Rasmussen 2001; Aradau et al. 2008; Lobo-Guerrero 2010). Traditional threat-based approaches to security have focused on the ways danger is produced, managed, controlled and destroyed in relation to specific referent objects, mainly states (e.g. Buzan 1991; Wheeler and Booth 2007; for a critique, see: Debrix and Lacy 2009). They rely primarily on intelligence as a source of knowledge to inform defence and security policies.

18 Introduction Risk-based approaches to security, in contrast, have emphasised entities or populations at risk (e.g. Ewald 1986, 1991; O’Malley 2004; Ericson et al. 2004; Aradau and Van Munster 2007; Amoore and De Goede 2008a). They are based on stochastic models and forms of speculation to construct, interpret and manage contingency which is usually expressed in the form of probabilities of potential loss and/or gain and its likely impact (e.g. Müller 2009; Lobo-Guerrero 2011; Amoore and De Goede 2008a). The study of the ways in which insurance has been employed, in one form or another as an instrument of government, collapses those distinctions and moves forward the research agenda of security studies into an area which involves problems traditionally studied by political economy and political theory. Approaching insurance/war relationships as security phenomena does not deny the existence, operation and value of the state system. It does not deny either the importance of territoriality and authority when analysing security problems. What it does is that it reclaims these traditional categories into the realm of the political, and rather than approaching them as ontological objects of protection it observes them as effects of a productive relationality. In doing so, and by means of focusing the debate at the level of rationalities, it is possible to observe that the role of non-traditional security actors such as insurers is as political as that of the military and diplomats, and the effects of their interaction with state actors gives rise to forms of sovereignty which would otherwise remain invisible to the eye of the political analyst. Transcending the threat/risk divide relates also to moving beyond the now traditional Schmittian understanding of politics as based on the friend/enemy distinction (Schmitt 2007). Underlying the cases of insurantial sovereignty analysed in this book is a parallel understanding of the political, theorised in Chapter 6 as ‘the concerted art of managing uncertainty’. Such an understanding does not require thinking security in terms of existential threats to an object of protection, as for example the ‘Copenhagen School’ has argued (e.g. Buzan and Wæver 2003; Buzan et al. 1998; Balzacq 2011). It does not require either to phrase the security problem in terms of emancipation and oppression (e.g. Booth 1991). Instead, security becomes a matter of the relationship obtained between the order of governance that results from transforming uncertainty into an instrument of government in the form of risk, and the lifestyles and livelihoods referent of protection. Risk management, as the practice of security, becomes then a continuous problematisation of the order of being in the world, a problematisation that makes the political a contingent matter. In contrast with a Schmittian perspective to the political it does not produce a confrontational problematisation. Risk management is not the result of a zero-sum game. Neither is it the result of Hegelian dialectics since it is continuously exposed to the singularity of the surprise. If artfully performed it will result in profit and gain for the parties involved. There is of course a utopian aspect to such an understanding of security, and utopias of this kind have been articulated in projects for a peaceful ‘international’. In 1911, for example, Darwin Kingsley, president of the New York Life Insurance Company, published a collection of addresses promoting the idea that life insurance, if marketed aggressively around the world, would promote peace and

Introduction 19 reduce the likelihood of wars amongst states. Comparing life insurance with the role of the mendicant orders of the medieval renaissance as opposed to the monastic order of St Benedict, Kingsley argued that the benefits insurance had to be promoted around the world in a militant way. Those benefits, he argued, were so that it would reduce the capacity of states to wage war by denying them tax money. A life insurance premium is a better thing than a tax; that a hard-earned dollar is better used when it goes into a great fund for the benefit of the next generation than it is when taken from a man to pay the interest on money spent on war. (Kingsley 1911: 26) A second utopia on the use of insurance and insurantial logic to promote international peace was the address by Josiah Royce, a professor at Harvard University, to the Philosophical Union of the University of California at Berkeley in 1914 (Royce 1914). Royce proposed the application of the principle of insurance to international affairs to ‘quiet fears and encourage faithfulness’ among an organisation of member states for the mutual insurance against risks (Royce 1914: x). The risks he had in mind were those of war, but also, earthquakes, volcanic eruptions, pestilence, hurricanes, recurrent famine and maritime disasters. Many of them have already been explored in the international arena, albeit, under a different economic rationality – financial securitisation supported by financial derivatives in the form of catastrophic bonds – as analysed in Chapter 4 of Insuring Security. In the case of international security, states party to an insurance scheme would not be interested in attacking another member since a share of the damages inflicted on the enemy would be paid for at home (note the parallel with the case of insuring enemy property in time of war analysed in Chapter 2 of this book). What these utopian formulations failed to observe, however, is that the so-called principle of insurance cannot be taken for granted and should not be accepted as a universal norm. The principle of insurance as a formula, which assumes a way of understanding and managing ‘un-certainties’ in the world and in life, is not innocent in any way. If taken as a principle, insurance translates an order of the real into an imaginary in which uncertainties can be managed as risk and can employ actuarial technologies and knowledge to that end. If the so-called principle of insurance is assumed instead as a site from which to interrogate the complex power relations that make it possible, it becomes then a window from which observe its political dimension and to realise that insurantial utopias such as those of Kingsley and Royce are but the logical conclusion of their faith in a technology of insurance. This is to say that the possibility of understanding an international community as an outcome of an insurance principle is very different from the kind of analysis offered in this book. What the forms of insurantial sovereignty studied in subsequent chapters reveal are rationalities of government and it is those rationalities, when observed in their details, that challenge the threat/risk divide in the study of security within International Relations. Insurantial sovereignty, as partnerships in risk, make a contribution to the understanding of sovereignty as produced in social and political interaction

20 Introduction (e.g. Edkins et al. 2004; Bartelson 1995; Weber 1995; Edkins 1999). As suggested in the Sovereign Lives volume, it moves the debate beyond an understanding of sovereignty as synonymous with ‘sovereign statehood’ (Edkins et al. 2004: 3), and provides an alternative grammar to understand how sovereignty is continuously constituted in liberal environments in which the state is but an expression of power. As noted by Edkins et al. and by the contributors to that volume, ‘power is not something that is centralised and possessed, but rather something that is present in and formative of social relations, and does not exist in advance of the entities to which it gives rise’ (Edkins et al. 2004: 2). What matters ultimately in the tradition of political analysis exposed in this book is the intimate relationality out of which moral economies of security result. Insurantial sovereignty, as analysed here, also contributes to transcend the problem identified by Bartelson as the difficulty of imagining political order beyond the state (Bartelson 2001). By re-problematising sovereignty in light of the Probabilistic Revolution which rendered the uncertain a political matter, it is possible to re-imagine an international beyond the norms, legitimacy and authority of the state-system. The orders underlying forms of insurantial sovereignty relate, not to state-based political community, but to the surprise of the event as the ground on which the contingent dimension of the political takes place. Relationality, as the site of the political, shows that it is possible to move beyond the rational prognosis of evental thinking and scenario planning into a way of thinking politically by challenging the sacro-sanctity of the ‘interest’ as the absolute principle for governing entities, individuals and collectives. Doing so moves beyond the cutting off the king’s head as the condition of possibility for formulating a new political theory, as suggested by Foucault (Foucault 1980: 121, for a discussion, see: Hindess 1995: 96–136; Neal 2004). It transcends the analysis of power focused on disciplinary practices and reclaims the possibility of exploring the production of the political – beyond the Leviathan, the juridical and the statist – as the concerted art of managing uncertainty. Not quite Deleuze’s suggestion that the modern is moving towards societies of control through the management of risks (Deleuze 1997).

2 Maritime insurance, the security of credit and the British state at war during the Napoleonic period

The war that made England great also ended in the greatness of Lloyd’s. (Martin 1876: 162)

Maritime insurance as an instrument for war played a central role in the development of Britain as a global actor between the mid seventeenth to the early nineteenth centuries. As a security instrument, it constituted an important problem of political economy that was as much moral as it was strategic and articulated the transition between a mercantilist political economy and an early form of liberalism. Let the following four cases introduce the complexity of the situation. The first case was recorded in Samuel Pepys’s diary, then a clerk at the Navy Board of Admiralty, following an event he heard on the 30th of November 1663 at a London coffee house. I heard the best story of a cheate intended by a Master of a ship, who had borrowed twice his money upon the bottomary,1 and as much more insured upon his ship and goods as they were worth, and then would have cast her away upon the coast of France, and there left her, refusing any pilott which was offered him; and so the Governor of the place took her and sent her over hither to find an owner, and so the ship is come safe, and goods and all; they all worth 500l., and he had one way or other taken 3000l. (Pepys [1663] 2010) The second case was presented by Mr Nugent, a member of the British Parliament who led a debate in 1747 on a bill to prohibit the insurance on French ships. At the time of the debate, December 18th, France was an enemy of Britain within the context of the Austrian War of Succession and insurance on enemy property was an accepted and profitable, if morally debated, practice. Opening the debate Mr Nugent stated, Sir; when we take a view of the behaviour and actions of mankind, not only in this, but all other countries, we cannot help being surprised at finding, how much their understandings are blinded and their judgments biased by self-interest. This general reflection I have been led into, by considering a

22 Maritime insurance, the security of credit most enormous grievance which this nation has laboured under, ever since the beginning of a French war; and a grievance which, if not redressed, may render the war perpetual. The grievance I mean, Sir, is the liberty many of our people take to correspond with the king’s enemies, and to procure or grant Insurances upon their ships. (Cobbett 1813: 108) The third case took place sometime between 1793 and 1802 in the context of the Napoleonic Wars at the Subscription Room of Lloyd’s Coffee House. Wright and Fayle, authors of a history of Lloyd’s of London, related the following incident as ‘vouched for by unimpeachable authority’ (1928: 187). Baring Brothers [a London merchant house] had a shipment of gold of £250,000 to Russia to be insured, and their broker, intending to spread it over the market, offered the risk first to Richard Thornton [an underwriter at Lloyd’s with the reputation of an adventurer and speculator]. The old man took the slip, very slowly put down the figures 25, and added nought after nought till he had completed the whole sum of £250,000. Looking up and seeing an expression of consternation on the broker’s face he observed, ‘Young man, you can show this slip to Mr. Thomas Baring and if he thinks I have taken too much you can tell him that I will deposit Exchequer Bills to that amount till the risk is run off’. (Wright and Fayle 1928: 197) The fourth case was a memorial and request sent on the 5th of May 1804 by a group of 42 merchants and underwriters at Lloyd’s of London to the Board of Admiralty. The memorial was formulated as a complaint about the recent success of pirates in the Adriatic and stated that ‘it would be of essential advantage to the Trade if one of H.M. Ships of adequate force could be directed to cruize the Adriatic, constantly’ (ADM1/3992, 1805). The following notes were found at the back of the document, as dictated to a clerk for the formulation of a reply.2 Send Copy to Lord Nelson and to the Senior Officers at Malta and direct them to pay the most particular attention to the protection of the Trade in their Quarters. Send to Lloyd’s an extract of that part of Lord Nelson’s disposition that mentions six Vessels appropriated to their service. . . Let them know that their Lordships have given the most particular directions to the Commander in Chief in the Mediterranean to pay attention to the protection of Trade in that Quarter. (ADM1/3992, 1805) Throughout the eighteenth century maritime insurance became a central aspect of the political economy of Britain. Although traces of the political importance and acceptance of maritime insurance are found in the sixteenth and seventeenth

Maritime insurance, the security of credit 23 century, it was only until the eighteenth that it assumed a central role in the mercantilist policy of empire. The moral standing of insurance in general, and of maritime insurance as explored here, was, however, dubious for society at large. The process that led to its general acceptance was not simple. It evolved from a situation in which its practices were considered a scourge for society and were seen as a way for fostering gambling and generating profit for a few at the expense of the security of the many, to one in which its role was acknowledged as part of the moral order of the commercial and political nation. Under that context, and as will become evident later, Lloyd’s Coffee House, as a society of underwriters, became towards the end of the century a central partner to the State in the waging of war against France and its allies. This chapter is concerned with analysing a form of insurantial sovereignty that developed as a result of employing maritime insurance as an instrument for war towards the period of the Napoleonic Wars. This form of sovereignty, characterised by a partnership in risk between the Board of Admiralty and the Committee of Lloyd’s of London, is analysed through the development of a moral economy that articulated issues of trust, credit and strategy in relation to the constitution of political community in Britain. It proceeds in five parts. First, it offers a contextualisation of the role of insurance in relation to the problem of public credit. Drawing on the Brewer Paradox and the thesis that Britain became a fiscal-military state at the end of the seventeenth century, it argues that maritime insurers, while becoming stakeholders of government debt, became active citizens of a political community driven by the security of credit. The second part explores the role of insurance in the constitution of a moral order of credit and trust from the early seventeenth century until the late eighteenth. Through a genealogical examination of the principles upon which insurance was to be accepted as a moral practice, it is possible to observe the intimate interaction between insurance practice, public trust and the security of credit on which the country depended to promote what is known, if controversially, as a mercantilist political economy. Thirdly, the contentious case of insuring enemy property in time of war is examined as a way to make explicit the stakes at play in the use of maritime insurance in supporting war efforts. The chapter concludes with a verbatim depiction of the particularities of the partnership that developed between the Committee of Lloyd’s and the Board of Admiralty in the context of the Napoleonic Wars. Correspondence between Lloyd’s and the Admiralty is used to support the argument that their partnership constituted a relationship of risk management that characterises the form of insurantial sovereignty detailed in this chapter.

Maritime insurance and the problem of public credit The analysis of the role of maritime insurance as an instrument for war in early modern Britain relates to what in Economic History has been referred to as the ‘Brewer Paradox’. The Paradox refers to the fact that while waging war abroad Britain developed a system of domestic liberties and the parliamentary control of power within the realm. Stone described the situation as one in which Britain

24 Maritime insurance, the security of credit employed its naval and military empire in blocking a rival hegemonic power from developing a maritime trading supremacy, while preserving its parliamentary control of finances, its decentralized government, as well as its domestic liberties and the rights of private property within the country (1994: 6–7). Although it was originally assumed that while Britain remained lightly taxed and governed, France, Spain and Prussia were heavily taxed and tightly controlled, authors such as Dickson (1967), O’Brien (e.g. 2002), Mathias (1979, 2000), and Brewer (1989) corrected that assumption and demonstrated that the political economy of empire was in fact possible through the development of institutional and bureaucratic systems. John Brewer went as far as suggesting the idea that Britain in the long eighteenth century constituted a fiscal-military state, which was possible through the development of an efficient and professional bureaucracy for taxation. This allowed the government to cover around 60 to 70 per cent of the costs of war, the remainder of which was financed through public debt (1994: 57, see also 1989: 17, Harling and Mandler 1993; Storrs 2009). It appears clear by now that in Brewer’s fiscal-military state taxation grew in relation to the financial obligations of the debt in sustaining the war effort and previous war debts to a point in which, as noted by O’Brien, the share of total tax receipts allocated to service debt after the Revolutionary and Napoleonic Wars mounted to some 60 per cent (2002: 253). Such contribution moved the debate beyond P. G. M. Dickson’s suggestion that it was funded debt through the new financial instruments which allowed the state to sustain the level of expenditure required by the war (Dickson 1967). Although debate around the Brewer Paradox has generated useful historical and analytical elements from which to understand the political economy of empire during the late British mercantilist age, the relationships that gave place to the efficient bureaucratic arrangements of the fiscal-military state are yet to be explored. An emphasis on researching relationships moves beyond the fact-finding ventures seeking to document the specific history of institutions characteristic of Economic History (e.g. Carruthers 2000) and moves the debate into the realm of moral economies, as introduced in Chapter 1. It is suggested here that the moral economies of credit and trust around which maritime insurantial relationships developed as part of a British political community of trade is a place to start. To that end it is useful to begin with a contextual background. The relationship between credit, merchant/underwriters and the British state was not a new phenomenon. As noted by Brewer as well as by Pocock (Brewer 1994: 57, 1989; Pocock 2003), the Glorious Revolution of 1688 had had two unforeseen consequences for Britain which were to affect the development of its political economy in the forthcoming centuries. The first was that its military and money, since William of Orange acceded to the throne of England, were committed to a series of major continental wars (Pocock 2003: 424). The second, that national prosperity became directly associated with ‘the stability of the regime, the expanding activities of government and – most significant of these – the prosecution of war’ (Pocock 2003: 425). The financial revolution, as widely described by Dickson (1967), brought along the institutions of the seventeenth century new finance such as the Bank of England and the National Debt which encouraged

Maritime insurance, the security of credit 25 large and small investors ‘to lend capital to the state, investing in its future political stability while deriving a guaranteed income from the return of the sum invested’ (Pocock 2003: 425). As the London insurance trade developed from the mid seventeenth century onwards, and as merchants and insurers invested the product of their premiums and fees into National Debt, they slowly became important stakeholders of the state. By the mid-eighteenth century England had not only become a predominantly trading nation but had begun to align the commercial interests of a merchant class with the strategic imperatives of a major European power making of itself a commercial military state (Baugh 1994). As referred to by merchant/underwriters at Lloyd’s in their correspondence with the Board of Admiralty towards the end of the century quoted at the end of the chapter, this constituted a ‘commercial kingdom’. In that context, corruption in the employment of insurance, and of the understanding of insurance itself, as well as insolvency in the real financial capacity of underwriters to respond to claims, constituted a grave concern to the morality of the state and its political economy. This situation has direct echoes to what Pocock referred to as the ‘Machiavellian Moment’. When merchant/underwriters interacted with the government in producing the credit required to operate the fiscal-military state, their merchant role acquired a dimension of active citizenship. Such a role was fostered by what in hindsight has been described as a mercantilist policy broadly characterised by the combination of economic protectionism, a powerful navy, a strong state and the financial resources to engage in war (Morgan 2002: 165). In this respect, the merchant/underwriter’s consciousness as stakeholder in the security and economic success of the state becomes the space from which to interrogate the community of values that characterises the moral economy of credit of the period. As Pocock noted when analysing the Augustan political economy, ‘[t]he fundholder and the stockjobber, the bull and the bear, had come upon the stage; and the figure around which they were grouped, the concept which they introduced into the language of English politics was not Trade but Credit’ (2003: 426). The civic virtues of insurers as active citizens, as will be evident in the correspondence between Lloyd’s and the Admiralty presented later, become features of a political economy in which Lloyd’s, as a community of underwriters becomes a partner of the state. Pocock’s ‘mobile universe of contingent values’ (2003: 459) gets represented in the contingent morality of credit which rests upon the entrepreneurial practice of trust, or Fidentia, as the motto adopted by Lloyd’s read. Contextual history has the advantage of offering a general enframing from which to understand the wider discourses and practices that constitute text. The study of relationships constitutive of moral economies, however, demands a more detailed exploration to identify the singularities upon which the specific discourses of protection around which insurance markets are created. For that purpose it is necessary to resort to genealogical research, as done in the following section, to trace the evolution of the moral economy of maritime insurance here explored.

26 Maritime insurance, the security of credit

Morality and maritime insurance in England Commerce is undubitably the grand Source, from whence is derived all that enriches, strengthens, and adorns a State. – Without an extensive and flourishing Commerce, this Nation could never have arisen to that superlative Degree of Grandeur in Arts, Arms, and Wealth, which have made her the Envy, and till lately, the Veneration of all other maritime States; and without Insurance, that Commerce could neither have been promoted, nor carried on; – nor can it ever proceed, unsupported by Insurance; and, consequently, the national, as well as the private Advantage of well-regulated Insurance is obvious and indisputable. (Weskett 1781: vi, emphasis in original) Maritime insurance in the early modern period concentrated in Mediterranean cities (see, e.g. Kirk 2005). In the late sixteenth and seventeenth centuries competition developed in Antwerp, Amsterdam and Hamburg (Spooner 1983), and it was only until the eighteenth century that London emerged as an important force in the maritime insurance market (Poitras 2000: 451; Martin 1876: 35). For this to happen, a long process towards the acceptance of maritime insurance as a moral practice had to take place. This process took roughly two and a half centuries and can be traced through legislation that on the one hand recognised the existence and importance of maritime insurance practices, but on the other sought to regulate them as a way of fostering a moral order. The history of legislation on maritime insurance in Britain can be traced back to 1576 when a Chamber of Assurances was established within the Royal Exchange of London created six years earlier. The Chamber was intended as a response to concerns with a corrupt use of insurance at the time. As noted by Clayton, for some time the Privy Council, who took an interest in mercantile affairs, had been aware of ‘certain malpractices . . . prevalent to the obvious detriment of the insurance market generally’ (1971: 31). The practice of ‘double-insurance’ or ‘over-insurance’ was the main case in point. The preamble to the patent through which the Chamber was created stated the problem in the following way. . . . the trade of merchandise have been and yet be often times greatly abused by evil disposed people who for their private gain and advantage have assured one thing in sundry places, and so often times have done to the great loss and hindrance of divers such honest merchants as did assure the same. (quoted by Clayton 1971: 32) It was assumed that the creation of the office at the Chamber of Assurances, in which all policies would have to be registered, would eradicate these malpractices (Clayton 1971: 32). The Chamber was also intended to have a group of commissioners, appointed under the nomination of the Lord Mayor of London, to settle fees and disputes (Clayton 1971: 32). As a result, the burden on the Admiralty Court, which until then ruled on maritime cases, was reduced. The most evident

Maritime insurance, the security of credit 27 result of the Chamber was the standardisation of policies as a result of having to draw them all in one single office (1971: 32). In 1601 a new move towards the regulation of maritime insurance took place, this time through a bill introduced by Francis Bacon which became the Assurances Act (43 Eliz. c. 12, 2000 [1601]). The Act established a Court of Assurance as a specialised chamber to settle disputes over insurance matters. Through the passing of the Act, Parliament recognised the specialised nature of insurance and in doing so, as the following extracts denote, its importance in what later was to be called a political economy. The Act, in its preliminaries recognised the need to augment commerce ‘because Trade and Traffique is not at this psente soe open as at other tymes it hathe bene’ (43 Eliz. c. 12, 2000 [1601]: 3). This was accompanied by a recognition of the role of the merchant as evident in the following statement: Whereas it ever hathe bene the Policie of this Realme by all good meanes to comforte and encourage the Merchante, thereby to advance and increase the generall wealthe of the Realme. . .’. (43 Eliz. c. 12, 2000 [1601]: 3) Thereafter, the Act described the old practice of maritime insurance which entailed the advancement of monies by merchants to protect their ‘Goodes Merchandizes Ships and Things adventured’ at agreed rates ‘which course of dealinge is commonly termed a Policie of Assurance’. In great level of detail the Act described the effects of risk distribution that derived from the use of insurance policies to protect merchants and trade. . . . by meanes of whiche Policies of Assurance it comethe to passe, upon the losse or perishinge of any Shippe there followethe not the undoinge of any Man, but the losse lightethed rather easily upon many, then heavily upon fewe, and rather upon them that adventure not then those that doe adventure, whereby all merchants, spiallie the yonger sorte, are allured to venture more willinglie and more freelie. . . (43 Eliz. c. 12, 2000 [1601]: 3) An interesting element in the debates leading to the Act was a belief that insurance practice constituted an empirical science that could contribute to the advancement of the wealth of the Realm. In the following quote Bacon – himself an advocate of the scientific method – justified the need for the Chamber in very pragmatic terms. [Be]cause a Suit in Chancery is too long a course, and the Merchant cannot endure delays; Secondly, because our Courts have not the knowledge of their Terms, neither can they tell what to say upon their Causes which be secrete in their Science, proceeding out of their experience. (Bacon 2000 [1601])

28 Maritime insurance, the security of credit The early connection between the Realm’s wealth, the elevation of insurance practice to the level of science, and the legitimation of those practices through the establishment of a court, reveals an understanding of political economy where insurance relations operate as the pivot between the Realm and the merchant. As Bacon noted at the end of his Speech on the Assurance Bill, ‘I refer the Bill both old and new to your considerations, wishing good success therein both for the comfort of the Merchants and performance of our duties’ (Bacon 2000 [1601]: 6, emphasis added). The establishment of the Chamber of Assurance in effect created a two tier maritime insurance system in England which Charles Molloy described in 1676 in his De Jure Maritimo. The distinction is evidence of the problem of how to certify the trust required in insurance transactions, a problem that mattered greatly due to the centrality of insurance within the political economic imaginary. Assurances are either Publick or Private. Publick when they are made and entred in a certain Office or Court, commonly called the Office of Assurance on the Royal Exchange in London; and the same are called Publick, for that it is free for any Man to resort and see what another hath assured upon his Adventure. (Molloy 1676: 282) Private is, when an Assurance is made, but the Ensured keeps the same secret, no deeming it fit that any should see or know their Cargo or Adventure, or what Premio they have given, or Assurance they have made; and the same never entred in the Office is known by the name of Private Assurance. (Molloy 1676: 282) The difference had important implications. Only those assurances registered in the Office (Chamber) of Assurance could ‘be sued or determined there’ (Molloy 1676: 282). It was believed that public assurance would therefore be preferred over the private form as it afforded greater security when challenged in court. However, as noted by Martin, the system, in particular the Court, ‘found no favour whatsoever with the mercantile community and those for whose benefit it was established’ (1876: 34). In spite of the apparent advantages of the public form of insurance in ensuring a degree of order and trust in transactions, by the end of the seventeenth century the practices of maritime insurance had degenerated into questionable moral and economic practices. Samuel Pepys, as noted in the introduction to this chapter, recorded the story he heard at the coffee house. The day after, in his entry for the 1st of December 1663 he described the trial of the case at the Guildhall which is worth quoting in full as an illustration on how people holding maritime policies abused the system. After dinner I to Guild Hall to hear a tryall at King’s Bench, before Lord Chief Justice Hide, about the insurance of a ship, the same I mention in my yesterday’s journall, where everything was proved how money was so taken

Maritime insurance, the security of credit 29 up upon bottomary and insurance, and the ship left by the master and seamen upon rocks, where, when the sea fell at the ebb, she must perish. The master was offered helpe, and he did give the pilotts 20 sols to drink to bid them go about their business, saying that the rocks were old, but his ship was new, and that she was repaired for 6l. and less all the damage that she received, and is now brought by one, sent for on purpose by the insurers, into the Thames, with her cargo, vessels of tallow daubed over with butter, instead of all butter, the whole not worth above 500l., ship and all, and they had took up, as appeared, above 2,400. He had given his men money to content them; and yet, for all this, he did bring some of them to swear that it was very stormy weather, and [they] did all they could to save her, and that she was seven feete deep water in hold, and were fain to cut her main and foremast, that the master was the last man that went out, and they were fain to force [him] out when she was ready to sink; and her rudder broke off, and she was drawn into the harbour after they were gone, as wrecke all broken, and goods lost: that she could not be carried out again without new building, and many other things so contrary as is not imaginable more. There was all the great counsel in the kingdom in the cause; but after one witnesse or two for the plaintiff, it was cried down as a most notorious cheate; and so the jury, without going out, found it for the plaintiff. But it was pleasant to see what mad sort of testimonys the seamen did give, and could not be got to speak in order: and then their terms such as the judge could not understand; and to hear how sillily the Counsel and judge would speak as to the terms necessary in the matter, would make one laugh: and above all, a Frenchman that was forced to speak in French, and took an English oathe he did not understand, and had an interpreter sworn to tell us what he said, which was the best testimony of all. (Pepys [1663] 2010) In an earlier entry of the 23rd of November 1663, Pepys recorded another incident, a personal one this time, which illustrates the possibilities at hand for making a profit out of abusing insurance. It must be remembered at this point that Pepys served as clerk to the Navy Board of Admiralty and to note that one of his tasks was to arrange insurance for government ships. [I] called at the Coffeehouse, and there by great accident hear that a letter is come that our ship is safe come to Newcastle. With this news I went like an asse presently to Alderman Backewell and, told him of it, and he and I went to the African House in Broad Street to have spoke with Sir W. Rider to tell him of it, but missed him. Now what an opportunity had I to have concealed this and seemed to have made an insurance and got 100l. with the least trouble and danger in the whole world. This troubles me to think I should be so oversoon. (Pepys [1663] 2010) Although there seems to be great debate as to the interpretation of this last entry, it shows how easy it was for people who possessed inside information to make a

30 Maritime insurance, the security of credit profit by pretending to make insurance on ships they knew were safe (and thereby obtaining the money of the premium), or to buy insurance on ships they knew were in trouble. At a time when information was patchy at best abuses of insurance led to a generalised discontent on the morality of these practices. This posed an important political problem. On the one hand maritime insurance practices were deemed necessary to encourage shipping and sustain the trade on which the economy depended, as recognised in the 1601 Assurances Act. On the other, fraud and corruption, together with some cases of insolvency on the side of insurers made insurance expensive and in some cases an ineffective means through which to distribute the various risks commercial shipping demanded. As a political economic problem, maritime insurance practices constituted a moral dilemma: how to preserve and promote the role of insurance while reducing the risk of fraud on both assured and insurer. The problem led to a public debate on the need to develop some form of regulation of insurance practices without curtailing the merchant’s initiative and entrepreneurial spirit. For example, in an anonymous pamphlet printed around 1700 it was suggested that the fraud of insurance practices led to loss of ships, lives and estates. The author argued that the insured should be obliged to take a share of the loss in such a way that ‘all Merchants and others, should run the 10 per Cent. of their Adventure, the Sum not exceeding 1000 l. and 5 per Cent. on greater Sums; These Frauds would entirely be prevented, the Shipping well set to Sea, and Trading Encouraged’ (2000 [c. 1700]). By 1717 concrete schemes were being formulated to cope with the issue. A case was made that year by a group of merchants to institute a scheme to create the Mercers’ Hall company for the purpose of Insuring Ships and Merchandize, by a COMPANY or CORPORATION. Who may have a LARGE and VISIBLE STOCK, that cannot be parted with; But shall be constantly kept up, to make good the Losses of such Merchants and Owners as shall be Insured by them; Tho’ not to exclude private Insurers from Insuring as they have always done. (Mercers Hall Marine Company [1717] 2000, emphasis in original) The scheme was based on the idea that by establishing a corporation with a solid capital base the problem of insolvency and the limitations it brought to insuring great ventures would be reduced. However, the proposed scheme was seriously opposed by merchants/underwriters at Lloyd’s, the coffee house. In light of this opposition and taking into account that at the time ‘uncharted joint-stock companies were not permitted to engage in commerce’ (Jenkins and Yoneyama 2000: 101), advocates of the corporate idea found a solution. They bought an old charter of Elizabethan origin entitled ‘Mines Royal, Mineral and Battery Works’ and added the words ‘and for Assuring Ships and Merchandize’ to its title. The legal manoeuvre created outrage and led to a war of charters which Supple described in great detail in his work (1970: 18–25). The conflict ended in a Parliamentary enquiry and the creation of two new charters in 1720. One instituted the Royal Exchange Assurance – which merged with the Mines Royal

Maritime insurance, the security of credit 31 (see Supple 1970: 22–34). The second created The London Assurance (Street 1920). Ironically, and as noted by Supple, the incorporation of the two companies was made within the Bubble Act which was designed ‘quite precisely to inhibit the development of corporations’ after the catastrophe of the South Sea Bubble (1970: 32). After the signature of the two Royal Charters on the 22nd of June 1720 all other companies or partnerships were legally excluded from underwriting maritime risks. In return, each company paid £300,000 into the Exchequer (Supple 1970: 32). One of the consequences of the arrangement was that it allowed private insurers such as those at Lloyd’s to flourish without further corporate competition. The scheme resulted in the creation of a two-tier maritime insurance system in which the chartered companies assumed a rather conservative attitude to risks and enterprise, and the merchants/underwriters at Lloyd’s engaged in underwriting large and at times highly speculative risks. This was particularly evident, for example, on the insurance of so-called ‘cross risks’, those involving risks from ports in foreign countries to other foreign countries as opposed to ‘regular risks’ which were from a port in Britain to one abroad and vice-versa (House of Commons 1810: 61). Chartered companies excluded those risks and concentrated on the insurance of regular risks. Evidence provided by John Julius Angerstein, who was then chairman of Lloyd’s (Twist 2006), to a Parliamentary Select Committee on Maritime Insurance in 1810 provides the elements to understand why. Is it possible for the acting director or secretary of a chartered company to have the same opportunities of judging of the nature and value of those crossrisks, changing, as they do, with every change of political circumstances, as the large body of underwriters who constantly communicate with each other upon those points at Lloyds? – I think not; for if I have a cross-risk to make, if it is from America, I go to a box [booths at the subscribers room at Lloyd’s] where there are Americans to give me information; if I have a cross risk from Turkey, I go to another box where I can get information; and so it is from the Baltic, or any other part. I generally go to the box or the people whom I think best conversant, for they are the people who can begin the policy for me better than others, and I by that means get it done; for it is of no use applying to a Baltic merchant on an American risk, he knows nothing about it. I always go to those who know most about it, and there I can always get information about it; for there as so many people frequent the coffee-house, if an underwriter does not himself understand it he soon gets information, and makes the master of the subject at the same time. – If a managing director is so clever as to know all parts of the world, that is not what I have met with yet. (House of Commons 1810: 61) This form of operation at Lloyd’s was based on a rich and diverse ensemble of expertise and intelligence that allowed members to tap into the capital of wealthy merchants within the City of London at short notice and offer insurance on a wide variety of risks. The process of underwriting, in which merchant/underwriters

32 Maritime insurance, the security of credit would literally sign their name on a paper slip on which the risk would be written at the top, entailed a network of trust, which, in many cases, required no more securities than the name of a well-recognised underwriter at the top of the list. If securities were required, papers to that matter could be provided, as noted in the case involving Richard Thornton quoted in the introduction to this chapter. Ultimately, it was trust, by means of an insurance policy that would repair the damages on capital or loss of income derived from a peril. The production of that trust took years of responsible underwriting practice, extensive and continuous networking experience, access to relevant and expert information, and an environment with some rules such as the one at Lloyd’s Coffee House (noted later in this chapter). Even if by today’s standards the operations of the then Lloyd’s Coffee House could be understood as a cartel (Westall 1994), the unwritten rules of behaviour expected by subscribers at the house, both in the ways risks were underwritten and in the ways claims were responded to, constituted a moral economy. It was that which ultimately furnished the credit required for the operation of a national economy. In 1745 a new change took place. It transformed the existing moral order into a new insurance regime still in use at our time. It was triggered by the passing of the 1745 Maritime Insurance Act, what is known as the first statutory intervention in substantive maritime insurance law. The 1745 Act evidenced a deep shift in the rationality for governing the behaviour of individuals and populations in the Western tradition. The shift consisted on assuming ‘interests’ as the fundamental principle guiding the conduct of persons and groups as opposed to a previous emphasis on ‘passions’. Individuals were understood to be, if rational, interested beings. It followed that if behaviour was to be rational an interest must be evident or made explicit. Hirschman documented and analysed the emergence of that transformation (1977) the results of which are clearly present in the preamble of the 1745 Act as the solution to the moral problem of corruption in the use of insurance. The Act also evidenced concern with the protection of the wealth of the Realm. Theorised centuries later as mercantilism (Lipson 1934: 1), the political economic doctrine supporting the Act related to the pursue of economic power under the national accumulation of wealth.

Whereas it hath been found by Experience, that the making of Assurances, Interest or no Interest, or without further Proof of Interest than the Policy, hatch been productive of many pernicious Practices, whereby great Numbers of Ships, with their Cargoes, have either been fraudulently lost and destroyed, or taken by the Enemy in Time of War; and such Assurance have encouraged the exportation of Wool, and the carrying of many other prohibited and clandestine Trades, which by Means of such Assurances have been concealed, and the Parties concerned secured from Loss, as well to the Diminution of the publick Revenue, as to the great Pretence or assuring the Risque on Shipping, and fair Trade, the Institution and laudable Design of making Assurances hath been perverted; and that which was intended for the Encouragement of Trade

Maritime insurance, the security of credit 33 and Navigation, has, in many Instances, become hurtful of, and destructive to the same. . . As a remedy, and expecting maritime insurance to become a guarantor of the wealth of the Realm, the Act demanded . . . that from and after the first Day of August one thousand seven hundred and forty-six, no Assurance or Assurances shall be made by any Person or Persons, Bodies Corporate or Politick, on any Ship or Ships belonging to His Majesty, or any of his Subjects, or on any Goods, Merchandizes, or Effects laden or to be laden on board of any such Ship, or Ships, Interest or no Interest, or without further Proof or Interest than the Policy, or by Way of Gaming or Wagering, or without Benefit of Salvage to the Assurer; and that every such Assurance shall be null and void to all Interests and Purposes. (19 Geo. 2 c. 37, 1746) The significance of this Act for the governance of insurance was to transcend the mercantilist spirit under which it was passed. With the sole exclusion of ‘Private Men of War’ (privateers), whose operations were central in the zero-sum logic of a mercantilist economy and for whom the speculative nature of the business made it impossible to make the interest of assurance explicit, the requirement sought to withdraw the protection provided through maritime policies to illegal exports of raw materials. The Act was premised on the belief that exportation of raw materials would only benefit the importers who would transform them into added value products increasing the wealth of their states. This was an understanding that derived, as collected by Steuart (1767) and Smith (1976) – out of a long European – mainly Austrian – economic tradition. If maritime insurance was denied to fraudulent exports it was believed that cargo would remain in the country, ships would be employed legally and therefore properly protected, and most importantly, the ‘Institution and laudable design of making Assurance’ would be brought into moral order and employed for the encouragement of licit trade and navigation. In effect, the moralising agency of the Act related to the old medieval discussion on the liceity of insurance when transforming uncertainty into a risk amenable to trade and exchange. I have referred to this process in Insuring Security as rendering uncertainty fungible. The problem was that for contracts on bottomry to be considered a moral practice within a Christian ethic, merchants had to demonstrate that insurance was in fact a product that could be sold and not a loan on interest, since the latter would constitute usury. The constitution of that product, which in the late thirteenth century took the form of a contract, took a different form between the seventeenth and eighteenth centuries. Then, in the context of the Probabilistic Revolution, as explained in Chapter 1, rigorous evidence became the base from which to assess the likelihood of the materialisation of the event insured against. The effect of the moralising agency of the 1745 Act was to centre the ‘eventalness’ of the insurance policy on an individual whose responsible

34 Maritime insurance, the security of credit expression was that of an interested-self. The event to be insured against would therefore only be so in relation to the promotion and protection of the manifest interest of the assured subject. The Act aligned the morality of the assured with the morality of the insurance practice constituting a moral economy of maritime insurance on which the trade and commerce of the realm depended. The effects of this moral alignment transcended of course the domestic boundaries of Great Britain at a time when London was becoming the global centre for maritime insurance. In 1774, the rationality supporting the 1745 Act was adopted in the Life Assurance Act, also known as the Gambling Act. The new law determined that life policies could only be purchased by those who could demonstrate a legitimate interest on the life being assured and insurance on that life should be proportional to the interest (14 Geo. 3, 1811 [1774]: 685). In the context of the moral debates of the period, the two Acts sought to instil discipline into the practices of insurance towards the second half of the eighteenth century. In doing so they gave rise to what Foucault referred to as a governmentality, as that resulting from an order of governance in which the conduct of individuals and that of agents of insurance became aligned with the morality of a legal system (Foucault 1994a). Originally intended as a way of securing a mercantile economy, this governmentality of insurance set the basis for the governance of uncertainty through insurance well into the twenty-first century, as will be noted in subsequent chapters. In what follows, and by exploring the controversy on the moral acceptability of insuring enemy property in time of war, it will become evident how the moral economy of maritime insurance was to become a centrepiece in the creation and protection of credit during the period of the Revolutionary and Napoleonic Wars and thereof.

‘The harvesting of risk’ and the insurance of enemy property In the context of the Brewer Paradox credit is the element that requires the most careful analysis if we are to understand the role of maritime insurers in fostering the security of the British ‘commercial kingdom’. Let the following quotes by Charles D’Avenant introduce the idea of credit in relation to the possibility of social and economic cohesion in the eighteenth century. Of all beings that have existence only in the minds of men, nothing is more fantastical and nice than Credit; it is never to be forced; it hangs upon opinion; it depends upon our passions of hope and fear; it comes many times unsought for, and often goes away without reason; and when once lost, is hardly to be quite recovered. (D’Avenant 1771: 151) We give over trusting the public, or private persons, then only, when we perceive fraud or evil faith in their proceedings, or when we judge their affairs to be desperate: but when the interruption in common payments is occasioned only by some accidents in the state; when both the government, and particular persons, take the utmost care to disengage themselves; and when it can be

Maritime insurance, the security of credit 35 made appear, there is a fund sufficient to satisfy all pretensions, men’s minds will become quiet and appeased; mutual convenience will lead them into a desire of helping one another. They will find, that no trading nation did subsist, and carry on its business by real stock; that trust and confidence in each other, are as necessary to link and hold a people together, as obedience, love, friendship, or the intercourse of speech. And when experience has taught each man how weak he is, depending only upon himself, he will be willing to help others, and call upon the assistance of his neighbours, which of course, by degrees, must set credit again afloat. (D’Avenant 1771: 151–2) Mercantilism, as the ex post facto economic theory of this period, to a great extent could be argued to have been articulated around the debate on how to measure the national progress, on how to establish a standard through which the riches or poverty of a country be assessed. The need for such a standard resulted from the well-known economic transition of the Augustan period in the context of the agricultural, financial and early industrial revolutions. It was the period in which a transformation on the nature of property took place, from the predominance of land to an increasingly mobile form of property produced and owned by populations of landless gentlemen. Within Economic History Brewer referred to this people as ‘the middling sort’ (Brewer 1976, 1982), which together with a new class of industrial labourers carried the political weight to warrant a transformation in government and statecraft. Notwithstanding developments within the political arithmetic movement of the seventeenth century (see: D’Avenant 1771; Buck 1982; Hoppit 1996; Petty 1690), it was not clear if it should be the scarcity or plenty of money, the balance of trade, the rise or fall of customs, or the rise or fall of rents what should determine such standard. Towards the end of the period, acute observers such as D’Avenant began to assert that what really mattered for the problem of political economy was the availability of credit which depended on the trust and confidence of societies, as evidenced in the previous quotes. Far from constituting a general liberal theory of political economy, since most of his ideas in fact supported an economic nationalist system, D’Avenant’s statement alerted of the importance of having a moral order that operated as a framework for trust and confidence if credit was to flourish. While comparison with other countries was a fundamental benchmark for prosperity in the mercantile age (Spain in the sixteenth century, Holland in the seventeenth and France in the eighteenth), the interaction between private and public credit became a pivotal aspect for Britain’s economic success during the second half of the eighteenth century and well into the Napoleonic Wars. The development of the industries of risk – of which maritime, life and fire were the engines – together with the investment of ‘net risk capital’3 into government debt, gave rise to a partnership in which insurers became stakeholders of the prosperity and security of the state. The ‘harvesting of risk’, to coin a term that characterises the consolidation of the insurance industries of Britain and their involvement in government debt in the late mercantilist period, constitutes a space from which to explore a fundamental

36 Maritime insurance, the security of credit element for the articulation of an emerging liberal political economy. The partnership in risk, which, as evidenced in the passing of the 1745 and 1774 Acts, relied on the principle of insurable interest, became a cornerstone for private and public credit in the coming centuries. The case of life insurance alone, as explained elsewhere (Lobo-Guerrero 2011: 34–52), is a case in point. During the Augustan period the lives of ‘the middling sort’ became a matter of investment. Based on the projected capacity of landless gentlemen lives to generate revenue through their professional labour, monies could be advanced in the form of credit. The lives of these middle-class gentlemen became the collateral upon which mortgages and other forms of credit could be extended and the basis for securities to protect the lifestyle of widows and debtors in case of early death. The lives of these landless gentlemen and the debt they supported, became the point of articulation of private and public economies. They depended for their livelihood and lifestyles on the growth and development of overseas trade upon which fortunes were made (e.g. slavery, sugar, tea insurance). International trade was possible through the work of merchants, lawyers, insurers, clerks, military and navy officers, among others, which provided the labour, capital and entrepreneurial spirit necessary for sustained growth. By the time of the Napoleonic Wars their role not only constituted the backbone to economic prosperity but also to the very idea of a commonwealth premised on commercial success. While the geographical and ‘natural’ advantages of England were fundamental in mercantilist talks of the seventeenth century (Lipson 1934: 7), towards the end of the eighteenth it was already clear that credit, its security and availability, had become the main concern for political economy. Within this context the protection of credit and its denial to the enemy in time of war became a strategic priority. This is where the pivotal importance of maritime insurance became most evident. Debate in Parliament and at the London financial circles centred on the question of the usefulness of making the insurance on enemy ships an illegal practice. The debate was articulated around the advantages or disadvantages of denying the enemy the credit enabled through maritime insurance and the advantages or disadvantages of increasing the cost of that credit to a point in which the enemy’s commerce was no longer viable. The problem resulted in a moral debate pitched in terms of a struggle between the ‘self-interest’, characterised by the entrepreneurial spirit of the merchant, and the ‘national interest’, which should prevail in maximising the wealth of the nation. The struggle was evident in Mr. Nugent’s statement quoted at the introduction to this chapter. Commercial interaction with the enemy was presented as the expression of blind self-interest on the part of merchant/underwriters, which could lead to the prolongation of hostilities. Balancing the two interests was in essence a moral issue at the core of the mercantilist thought of the time (Clark 2004a: 251). Clark described this observation with the following example. At the inception of [the Jenkins’ Ear] war in 1739 trade with the Spanish was prohibited, but remarkably the underwriting of Spanish ships by British

Maritime insurance, the security of credit 37 insurers continued unabated. Parliament’s reluctance to forbid the insurance of enemy vessels may be assigned to the prodigious growth, in the years since the War of the Spanish Succession, of British maritime underwriting, whose low premium rates and high reliability had made the London insurance market a favourite of merchants throughout northern and western Europe, including the Spanish and the French. The value of the insurance trade was considered by many to be too valuable to forfeit voluntarily, even if that business created a deliciously paradoxical situation in which British insurers compensated enemy merchants for shipping losses suffered at the hands of British privateers and squadrons of the Royal Navy. (Clark 2004a: 251) This paradox had a clear economic consequence, as noted by A. H. John in his analysis of the London Assurance Company. [I]n 1746 alone the London Assurance paid £18,000 to Spanish and French merchants for losses largely occasioned by British ships. In this, the company followed the general practice of the market, which freely undertook this business, especially during the War of the Austrian Succession when a collapse of French underwriters took place in 1744. (1958: 136) Tensions between private and public interest arising from these practices were creating a moral problem at the core of defining the political economic priorities of the period. The problem can be characterised through the following extract by Wright and Fayle. It was not [. . .] only the fate of British ships in which the frequenters of Lloyd’s were interested, and many an earnest student of Lloyd’s List when he read in the issue for May 19th, 1747, of the captures from de la Jonquiere’s Convoy, may have grieved as an underwriter while he rejoiced as an Englishman. The business of insuring enemy ships and cargoes was well established and brought no disrepute on those who practised it. The low public spirit of the eighteenth century, and the Mercantilist theories which looked to an influx of bullion and specie as the true end of commercial policy, were both against any drastic restriction of trading with the enemy. (Wright and Fayle 1928–80) The problem was brought to Parliament in 1741 when a bill was introduced in the House of Commons by Samuel Southwell to ‘restrain all Assurances on any Ships or Effects of the Subjects of any Prince or State not in Amity with the crown of Great Britain’ (Sedgwick 1970: 431–32; as cited by Clark 2004: 251). The Bill was blocked. As related by Wright and Fayle, the London Assurance Corporation ‘petitioned against it, and it was finally dropped for lack of the necessary quorum of forty Members on the question that the House do go into Committee’ (Wright

38 Maritime insurance, the security of credit and Fayle 1928: 80). The Bill included clauses forbidding insurance ‘interest or no interest’ (brought up again in the 1745 Maritime Insurance Act) as well as insurance on foreign ships and cargoes to or from the East Indies. The cases were very controversial and bounded together in a single Bill was the cause for opposition (Wright and Fayle 1928: 80). Seven years later, during the war of the Austrian Succession, and with the 1745 Maritime Insurance Act in force, a new debate took place at the House of Commons. This time an act was passed making it illegal to insure against French vessels or goods for the duration of the war. The debate leading to the Act was used to express concern on the benefits of denying credit to the enemy. On the 18th of December 1747, Mr. Nugent presented the case to Parliament in a way described by Holliday ‘as to leave no doubt on the minds of his hearers on his great zeal to promote the bill; yet neither his ingenuity in placing the prevalent practices of those insurances to the account of self-interest in the one hand, nor his high tones in classing them under the head of high-treason in law sufficed to prevent others from defending the practice’ (1797: 90). The defence was organised by Solicitor-General William Murray who later became Lord Mansfield – famous for being the man who merged the old Law Merchant with common law principles. In his capacity of Solicitor-General, Murray was in charge of defending the policies of the Government in the House of Commons (see Heward 1979: 29–44). His defence began with the argument that making it illegal to insure enemy trade would lead to the business moving to Paris. What are we then to do by this regulation? Why, Sir, we are to strip ourselves of a most profitable branch of trade, and transfer it to the French who could never have got hold of it, if it had not been for this our wise regulation. And this will be the effect, not only as to insurances upon French ships, but, in a very little time, as to the insurances upon all the ships of Spain and Portugal; for, as the correspondence between them and Paris is quicker, and more certain, than the correspondence between them and London, they will apply to the offices of insurance at Paris, as soon as these offices have come into a little credit; and, if a public office be let up there, with a large capital, their capital will procure them credit, as soon as the office is opened. (Holliday 1797: 95) He then proceeded to argue that the success of the Royal Navy would inevitably raise the cost of insurance on enemy ships to a point where it would cease to be profitable. Having mentioned the war, Sir, I must observe, that our success at sea this last summer makes it more unnecessary for us to think of such a regulation now, than it has been at any time since the war began ; and, if Providence should favor us with the same success next summer, we shall have no occasion to prohibit insurances upon French ships; for it will raise the price of insurance so high, that no man, either in France or any where else, will think of sending

Maritime insurance, the security of credit 39 goods by any such ship. Before a merchant sends out a cargo, he always first sits down and computes what profit he may probably make by the adventure out and home; and, if the insurance be so high that no profit he can expect will answer it, and something more for his own trouble, and the use of his money, he will certainly resolve to send out no cargo at all. Therefore, if, by the success of our squadrons and cruisers, we should be able to raise the price of insurance upon French ships to such a height that no trade could bear it, we shall much more effectually, and more safely, put an end to the French commerce, at least in their own ships, than we can do by this regulation; and, if they should fall upon any way to carry on their commerce in neutral bottoms, this regulation can no way affect it. This we should attempt; this, I am very sure, our ministers will do all that lies in their power to effectuate; and therefore, I think, we should suspend agreeing to any such dangerous regulation, till we have tried a little farther what can be done in this way. (Holliday 1797: 96) He concluded his defence by dispelling the argument that in insuring enemy property British insurers would pass intelligence to their clients. Before I sit down, Sir, I must take notice of a suspicion, not a supposition, thrown out by the honorable gentleman, that some of our insurers have given intelligence to the French of the stations of our men of war and privateers, in order to prevent the French ships on which they had insured coming in their way. For my own part, I never heard that any such thing was suspected; but, on the contrary, I have heard that some of the richest prizes taken in this war fell into our hands by intelligence communicated by those employed to get insurances upon them. To this I must add, that it is, in my opinion, impossible for our insurers to give intelligence of the stations either of our cruisers or privateers, because our cruisers never know their stations till they open their instructions at sea, being, as I have heard, directed first to sail to such a station, and there to open their new orders; and as to our privateers, their station is always left to the direction of the captain, who may change it as often as he will, and seldom goes out with any fixed Resign; or, if he does, he will, for his own sake, as well as for the sake of his owners, let no one into the secret. (Holliday 1797: 96–97) Notwithstanding Murray’s opposition, the Act was passed. However, at the end of the war it lapsed and no further legislation was approved until 1793 when the revolutionary wars started (John 1958: 136). In the interregnum, the arguments expressed by Murray were to continue to inform the debate that led to the prohibition of the practice in 1793, as evidenced in the following summary provided by John Weskett in 1781. The argument that maritime insurance on enemy property produced a certain profit, that it left a ‘large balance in ready money here in England, from the great profits made by the insurer, the profits made by the broker or office-keeper,

40 Maritime insurance, the security of credit the profits made by the factor, and the profits made by our dealers in exchange’ (Weskett 1781), was opposed by the idea that if commerce is the source of maritime power, and if it is the first principle of war to weaken and destroy that power in your enemies, undoubtedly you are guilty of the greatest possible folly and madness, if you render the commerce of your enemy secure, and give her new sources of maritime power. (Weskett 1781: 198) The argument that maritime insurance was ‘the only branch of trade we enjoy almost unrivalled and may very probably transfer it to our enemies if we are not allowed to insure them’ (Weskett 1781: 197), and that the ‘French merchants will find an easy and secure access to insurance at home, the very moment we exclude them from it in England’ (Weskett 1781: 197), was opposed by the assumption that ‘[t]hey cannot depend on any insurances but those they meet with in England’ (Weskett 1781: 198), and that because British insurers insure at cheaper rates and pay punctually, ‘we shall by the same means recover the possession of this business whenever we please’ (Weskett 1781: 198). Finally, the argument that by ‘the success of our squadrons and cruisers, we should be able to raise the price of insurance upon French ships to such a height, that no trade can bear it, we shall much more effectually and more safely put an end to the French commerce’ (Weskett 1781: 197), was opposed by the idea that if the naval power of the insurers is superior to that of the insured, it is most likely that the insurers would lose by this illicit commerce with the enemy; and thus what the superior naval strength of our country gained on the one side, would be thrown away by the merchant-insurers on the other. (Weskett 1781: 199) What was at stake in these debates were contending forms of protectionism and it would be a mistake to adventure the idea that arguments against the prohibition of insurance on enemy ships were portraying a liberal ideology. What is remarkable, however, is the commercial flexibility of the insurance sector in adapting to the commercial constraints of a protected system, and as will be seen later, the capacity of the sector to adapt to the strategic imperatives of the time by effecting a partnership with the state. These can be seen as specific characteristics of a British mercantilism (c.f. Morgan 2002: 167). By 1793, at the start of the First Coalition in the Napoleonic Wars, the Traitorous Correspondence Act, 33 Geo. 3, c. 27, finally forbade the insurance on any ship or voyage belonging to people living in French dominions and the insurance of ‘arms, ordnance, masts, timber, sailcloth, and other naval stores, coals, saltpetre, provisions, and certain other articles, on a voyage to any port in French territory’ (quoted by Wright and Fayle 1928: 178). ‘It extended only to the insurance of French property, and of commodities that could be used by France in the actual conduct of the war’ (Wright and Fayle 1928: 179). Slowly the position

Maritime insurance, the security of credit 41 hardened to one of total war where maritime insurance was clearly seen as an object of economic pressure. Credit made available through the agency of maritime insurance was to be totally denied to the enemy. This position was to remain in force, with subtle variations, during the two world wars of the twentieth century. By 1802, when Lord Avanley delivered his judgment in Furtado v. Rogers, a case that re-opened the debate, the illegality of the practice was confirmed (Park 1817: 368). However, this was not to be at the expense or detriment of underwriters. By 1794, as will be evidenced through the correspondence between Lloyd’s Coffee House and the Board of Admiralty during the Napoleonic Wars that follows, insurers at Lloyd’s became partners of the state in promoting their commercial interests and the security of the realm.

On Lloyd’s and its partnership in the ‘Commercial Kingdom’ By 1774 a close relationship had developed between the Board of Admiralty and the Committee managing the affairs of Lloyd’s Coffee House. The Board of Admiralty was the office of the Lord High Admiral responsible for the command of the Royal Navy. It was operated by the Lords Commissioners of the Admiralty, a mixture of admirals and politicians with a permanent secretary answering to the First Sea Lord who sat in the cabinet. It met daily at Whitehall and was responsible for planning and implementing strategy as well as deploying the Navy’s fleets and squadrons (Freemont-Barnes 2007: 44). Lloyd’s had by this time ceased to be the coffee house established at Tower Street by Edward Lloyd in 1688 which had fallen in disrepute through allegations of irresponsible gambling. As a way to dissociate themselves from these practices, discussions began by 1769 among a group of merchant/underwriters frequenting the house to create a New Lloyd’s Coffee House that would concentrate solely on the business of maritime assurance. By the end of 1771, 79 subscribers agreed to contribute 100 pounds each towards the instalment of Lloyd’s at the Royal Exchange (Martin 1876: 146–47). By March 1774 the business of New Lloyd’s, organised as a society of underwriters with regulated membership and an elected Committee of nine members, formally opened business at the North West corner of that building. Its organisational structures and procedures evolved and by 1796 Lloyd’s was holding two general meetings per year where annual accounts and reports were presented. However, Lloyd’s remained an association of insurers and not a legal entity on its own right. Incorporation by Act of Parliament would only come in 1871. Lloyd’s influence, in comparison with the many coffee houses operating in London at the time, depended on its capacity to concentrate shipping intelligence and disseminate it to its members. Lloyd’s List, its newspaper, was established in 1734, and became the lead journal for maritime intelligence whose history is described in great detail by Martin (1876: 104–120) and Wright and Fayle (1928: 64–87). It is useful to point out that the very possibility of the newspaper relied on an agreement with the Post Master General, an agreement that speaks clearly

42 Maritime insurance, the security of credit about the strategic importance of concentrating shipping intelligence for the development of London as a global underwriting powerhouse. Due to the extensive geographical distribution of the commercial networks of merchants/underwriters at Lloyd’s finding correspondents and getting them to relay information to the Coffee House was not a problem. The difficulty lied on the high costs of postage and the delays in relaying information. To overcome the problem an arrangement was made with Post Office officials. The history of these arrangements seems patchy from the sources available. What is known, however, is that by 1788, Lloyd’s Coffee House had correspondents at the principal British and Irish ports, who sent in regularly list of arrivals, sailings and casualties, addressed to the Post Master General with the word ‘Lloyd’s’ in the corner. These lists, being addressed to the Post Master General, were entirely free of postage, and immediately on the arrival of the mails, the lists were opened and handed to a messenger sent by the Master of the Coffee House, who thus received them several hours before the ordinary delivery of the letters. In return for this free transmission and early delivery, the Master paid the sum of £200 a year, which was evenly divided between the Secretary of the Post Office and the Comptroller General of the Inland Department. (Wright and Fayle 1928: 74) The privilege, which in effect constituted a monopoly of shipping information, as Wright and Fayle noted, ‘appears to have been given on the understanding that the information contained in the shipping lists should be available to the public at large’ (1928: 75). Lloyd’s List was sold to whoever wished to make a subscription and was available across the country. Members of Lloyd’s, however, had the advantage of being able to make underwriting decisions based on the early dissemination of intelligence and the wealth of expertise accumulated in the house, as evident in Angerstein’s testimony to the 1810 Parliamentary enquiry quoted before. By the end of the 1770s, in the context of the American wars of independence, the importance of Lloyd’s in providing maritime insurance to sustain trade in time of war was more than evident. As noted by Martin, [a]s soon as it was known that Benjamin Franklin’s mission to Paris had been successful, and that the French Government was resolved to give its powerful assistance to the settlers of the North American colonies in their struggle for independence, with a high probability that Spain would follow the example of France, shippers and merchants rushed to have their maritime property insured to the last penny, ready to pay the highest premiums rather than face the possibility of total losses through capture by the enemy. (1876: 165) Premiums that had never before been paid ‘were willingly given in return for good security for risks’(Martin 1876: 165). This increase in business was related

Maritime insurance, the security of credit 43 to the growth of overseas commerce in the period. The total amount of imports and exports in 1775 were of the mark of £31,763,480 and by 1787 had reached £36,000,000.4 Although it is not possible to ascertain what percentage of this trade was insured at Lloyd’s, through evidence registered in the minutes of the 1810 Parliamentary enquiry in relation to the insurance of the Diana, a man-of-war on the journey from Vera Cruz homewards, it is possible to get an idea of the importance of Lloyd’s in the overall maritime insurance business. The ship was insured for £656,000 of which 96 per cent was done at Lloyd’s and the remainder four per cent at the two chartered companies (House of Commons 1810: 59, cited in Martin 1876: 165). Such figures indicate the level of concern merchant/underwriters at Lloyd’s would have shown towards all aspects of international trade, and in time of war especially, towards the securing of sea lanes, the protection of convoys, and the optimum deployment of the Royal Navy. These concerns developed into a close interaction with the Board of Admiralty on matters concerning naval convoys, the sharing of intelligence, rewards of actions of valour and gallantry by officers and crews, as well as a basic form of welfare support for the families of men fallen or injured in naval action, the last two through the establishment of the Patriotic Fund. The relationship that developed between the Committee of Lloyd’s and the Board of Admiralty was described by Martin as ‘a kind of official superintendence acknowledged by the Government’ (1876: 167). When describing the relationship Wright and Fayle went as far as referring to the role of Lloyd’s as ‘a power in the state’. The increasing wealth and more efficient organisation of Lloyd’s, the prestige derived from its unrivalled system of shipping intelligence, and the merit acquired by its promotion of the Patriotic Fund, are all reflected in the increasing influence of the society on naval and commercial affairs. Lloyd’s was now a power in the State, and its influence on naval dispositions was by no means confined to co-operation with the Admiralty in the enforcement of the Convoy Acts. (Wright and Fayle 1928: 231) The relationship, however, was more dynamic than Martin, and Wright and Fayle have traditionally depicted it and constituted a profitable partnership for all parties concerned. Its details illustrate the complexities of the interaction and provide the elements from which to infer the logic of a system of interrelated behaviours. The practices, experience and knowledge employed by members of Lloyd’s in underwriting ships and cargo, the needs of merchants in developing markets across the world, the strategic necessity to keep sea lanes open to British and allied trade, and the finance of the protracted war effort, interacted in constituting a moral economy of maritime insurance and war. Not only was the behaviour of merchant/underwriters, masters of ships and naval officers kept in check through the relationship, the interests of the various parties were also combined into a national strategic imperative to preserve what

44 Maritime insurance, the security of credit has been described as the Brewer Paradox. The relationship between Lloyd’s and the Admiralty contributes some elements towards an understanding of how Britain managed to block a rival hegemonic power from developing a maritime trading power while preserving its domestic liberties and security of property within the Kingdom. This was not achieved through a policy initiative. It emerged from the interacting sovereign and entrepreneurial powers of the British Government and the merchant/underwriters at Lloyd’s. In what follows, the partnership that developed between the Committee of Lloyd’s and the Board of Admiralty is documented through the analysis of correspondence sent to the latter by the former. The original letters are kept at The National Archives at Kew Gardens, London, and are quoted using their catalogue number and date. The selection of correspondence was based on the peculiarity of the issues involved. They are not meant to offer a linear account of the relationship but are used to highlight some of the singularities of the interaction from which it is possible to reconstruct the moral economy of maritime insurance in time of war. The letters are transcribed in their entirety since they provide a first-hand illustration of the different aspects of the partnership. Doing so also provides a way to preserve their content since most of the material related to this relationship has been lost in various fires throughout history. In the following letter, members at Lloyd’s expressed to the Board of Admiralty their concern with the safety of trade from the East and West Indies and connected the security of their trade with the national economy and the protection of human resource. The language employed is important since it connects the security of capital with the welfare of the nation. The letter also reveals an expectation of reciprocal protection between insurance and naval escort. 19 July 1794 The Committee for the Management of the Concerns of the Insurers of Lloyds request the Favor of Mr Stephens to lay before the Lords Commissioners of the Admiralty the Inclosed Memorial. Lloyds 19 July 1794 [note from Clerk on the back of the letter] Read same day My Lords We the underwritten, the Committee appointed for the management of the Concerns of the Body of Insurers at Lloyds, take leave to state our fears for the safety of the Cargo and valuable Fleets hourly expected from the East and West Indies; whose loss, would be of the most serious import to the Nation generally, and would bring on inevitable ruin on that useful body of men. They conceive those fears are not without foundation, since, they are not, with all the means of information they are in possession of, able to see any adequate protection at Sea from this Kingdom. But it will give them the greatest comfort to be assured, from Your Lordships, that means are taken for the covering the arrival of the expected Fleets, as well as the General Commerce.

Maritime insurance, the security of credit 45 We are respectfully, My Lords, Your Lordships most obedient Servants Geo Curling William Bell Alex Champion Jun. J Bourdieu P. (Lloyd’s ADM1/3992)

In the next letter merchant/underwriters dealing with the Adriatic trade express their concern to the Board of Admiralty with the increase of privateer action in the region. They refer to problems in the naval convoy arrangements and go as far as making operational suggestions on how to cope with the situation. As seen in the notes from the clerk of the Admiralty quoted in the introduction to this chapter, he was asked to forward the memorial to Lord Nelson with some other details. The interesting aspect of this correspondence is not only the seriousness with which the Admiralty takes Lloyd’s suggestions but also the care of the Admiralty in letting Lloyd’s know about arrangements ordered for the protection of trade. This represents an element of reciprocity and responsibility in the common venture of trade in time of war.

Lloyds Coffee House 5 May 1804 We, the undersigned Merchants, and underwriters, interested in the Trade to the Adriatic, beg that you will be pleased to lay before the Right Hoble the Lords Commissioners of the Admiralty that we have lately heard of the Capture of several very valuable English Ships in the Adriatic, and which have been carried into Ancona. That these Captures are by well armed Small Privateers, mostly from Ancona, which luke, concealed, among the Islands in that Sea, ’till they see a favorable opportunity or ’till signals are made to them from the Shore for attracting the Vessels left without the protection of Convoy. That no English Merchantman can be deemed safe from this mode of depredation unless Convoys absolutely to the Port of destination. That we are informed from Trieste, under date of the 30th March, that the Bessey Capt Thurlby, sugar-laden, and workth upwards of £20,000, bound from London to Fiune, was captured off the Island Cherson by a French Privateer, owing to her having been very incautiously left at the entrance of the Gulph by the Ship to whise convoy she was committed. That from the communication so easily made in the Adriatic for the information of the Enemy’s cruizers, it is become now absolutely necessary for the continuance of this Trade, (of very considerable importance to the Revenue of this Country) that Trieste should be the general Rendezvous for convoyed Ships for Venice, Fiune, Tebe, and that the Vessels should thence proceed under Convoy to their destinations: and That it would be of essential advantage to the Trade if one of H. M. Ships of adequate force could be directed to Cruize in the Adriatic, constantly, in order to clear that sea of Row boats, and small, but strongly armed Privateers.

46 Maritime insurance, the security of credit With every confidenced that this important representation will meet due attention from their Lordships we are very respectfully, Sir, Your obedient Servants. [at least 42 signatures] (Lloyd’s, ADM1/3992)

In the following letter the Committee of Lloyd’s requests from the Board of Admiralty clarification on a rumour concerning the position of the combined fleets which were expected to have sailed to Cadiz. In claiming the relevance of this information for putting the insured and the insurer of the West Indies trade in fair equality reveals the importance of the value of symmetric information in the underwriting practices at Lloyd’s. Underwriting under asymmetric information could potentially invalidate policies since the insurable interest might not be evident. If the evidence of the insurable interest failed, the insurance relationship would be void and hence the credit enabled through the maritime policy would disappear creating a financial vacuum. In short, in the absence of symmetrical information maritime policies would operate a credit bubble. Lloyds, 22nd May 1805 Sir, I am directed by the Committee for managing the concerns of this House, to request that you will be pleased to state to the Lords Commissioners of the Admiralty for their consideration, that great Insurances have been made under the impression of the return of the Combined Fleets to Cadiz, and particularly on West India Risks, and that the Arrivals of the Packets from Jamaica and the Islands are likely to bring considerable Orders for Insurance. And reports being spread that by advance of subsequent date, that there was no Fleet at Cadiz, thence it became in this moment highly essential for the Interests of this House and for Trade in general, that such information as is known relative to the situation of those Fleets, should if possible be ascertained, in order that the Insurer, and the Assured may be placed upon a fair equality. I am with great Respect, Sir, Your most obedient servant. John Bennett [to] William Marsden, Esq. (Lloyd’s ADM1/3992)

The next letter and the notes from the Admiralty’s clerk that follow reveal a general concern at Lloyd’s on ships licensed by the Admiralty to sail without convoy. It was suspected that intelligence on such licences would be leaked to the enemy, a situation that would increase the likelihood of captures. This suspicion highlights the importance of maritime insurance in time of war where the details of journeys of ships become strategic intelligence for the disruption of the enemy’s trade and economy. The use of such intelligence was to play a central role in the two world wars of the twentieth century as explored in following chapters. The letter also makes a traditional mercantilist connection between commerce and the prosperity of the nation and links it to the assumption that foreign crews in British ships

Maritime insurance, the security of credit 47 would not stand for a fight. The Admiralty’s readiness to follow the suggestions of Lloyd’s supports the underwriters’ analysis of the situation. Lloyds, 1 August 1804 The Right Honourable, The Lords Commissioners of the Admiralty Having been informed that your Lordhips have appointed a Convoy to sail from Portsmouth on the 15th Instant, for the West Indies and Jamaica, as Well-Wisher to Commerce and the Prosperity of the Nation, I beg Leave to call your attention to the numerous Vessells which are now fitting out in the River, for the West Indies and Jamaica, for which, the Owners have obtained your Lodrships License, to sail without Convoy. Upon Inquiry, your Lordships will find few or more of those Ships are calculated for Fighting; Their Crews in general consist of Foreigners, who have not an equal Interest with his Majesty’s Subjects in defending their Ships; The Cargoes of several of them are estimated at £50,000 or £60,000; Consequently the Capture of one of those Vessesls would be a National Loss; And as the Convoy is to depart at so early a Period, I submit to your Lordships, the Propriety of Withdrawing the Licences, and directing the Ships to join it. I am, Honourable Sirs, Your Most Obedient Servant. M. Williams Lloyd’s Coffee House 1st August 1804 2nd August [notes from the clerk] Send with a List of the Licenses that have been granted in the Course of last month for ships to sail without Convoy to the West Indies. Direct the owners of the Ships marked [check mark] to return their Licenses, a Ship being appointed to Sail from Cork with Convoy on August recommending those from Liverpool and Greenock to join the Convoy and there from London to Spithead (Lloyd’s ADM1/3992).

In 1803 members at Lloyd’s established by subscription a Patriotic Fund through which they would reward acts of gallantry and valour in protecting British maritime trade with a commemorative sword or a vase. After complaints received by a naval officer, the following letter petitions the Board of Admiralty to allow officers in receipt of the swords to wear them with their naval uniform. The very idea supporting the letter, that officers distinguished in battle and decorated with the Lloyd’s sword should be allowed to wear it with their uniform, would raise the Lloyd’s sword to the level of an official insignia. The idea is not without value since it represented Lloyd’s self-consciousness as a partner in the security of the ‘national union’, as stated in the slip describing the sword copied after the letter. This is particularly important since it also makes evident Lloyd’s understanding of the state as a commercial enterprise as will be evident in the letter that follows after this one.

48 Maritime insurance, the security of credit Lloyds, Dec 17th 1805 Sir I am directed by the Committee of the Patriotic Fund to request that you will lay the accompanying Letter received from Captain Bayntun before my Lords Commissioners of the Admiralty and that you will be pleased to favor the Committee with their Lordships sentiments upon the subject on which I have now the honor to address you. By the Original Resolution of the Subscribers entered into on the 20th July 1803 one of the Objects of the Patriotic Fund is declared to be “for making pecuniary rewards or honorable badges of distinction for successful exertions of valour or merit”. The Committee towards executing this part of their Duty procured designs for a vase, a sword and a Medal – The latter they immediately laid aside in consideration of the Badges of that nature distributed by his Majesty and when Occasions have presented themselves of Gallant and successful achievement the Committee have presented the Officer in Command with a Sword or a vase according to their rank and situation, making at the same time the offer to pay the amount if preferred in money – the Swords (except in a very few Instances where the Money was taken) have been accepted with the greatest Enthusiasm and it was not till very lately that the committee were aware that, there was any Regulation in the Navy of the kind referred to by Captain Bayntun. In order to enable their Lordships to decide upon the propriety of suspending this regulations in favor of those Gallant Officers to whom Swords have been, or shall be, voted from this Fund, the Committee beg to request their Lordships inspection of one of the Swords which are all made in the same shape but of greater or less value – according to the Rank of the Officer in Command – The sword is described by the inclosed card and it has been the object of the Committee to make it worth of the donors and acceptors. The Committee beg to add that a vase may be substituted by a sword at the desire of the Officer to whom it is voted but which request has in no instance been made, and if it be their Lordships pleasure to allow those Officers to whom Swords may be voted for successful exertions of bravery to wear them in Uniform it will send very much to promote the objects of their noble restitution. His Majesty has been Graciously pleased to allow the two Volumes of the reports of the Committee to be laid before him. I have the honor to be, Sir, your most obedient servant. T. Reid, Chairman Lloyds 17th December 1805 (Lloyd’s ADM1/3993)

After a loss of over 20 per cent of ships sailing from Jamaica to Britain during the summer of 1806, the Committee of Lloyd’s sent the following letter to the Admiralty making specific recommendations to reduce the likelihood of losses due to climatic conditions. There is a reference in the letter to ‘this Commercial Kingdom’ which is emblematic of how merchants/underwriters at Lloyd’s understood the country at the time. The recommendations of the Committee were followed, as evident in the clerk’s notes after the letter.

Maritime insurance, the security of credit 49

PATRIOTIC FUND, LLOYD’s 1803. T H E OR NA M E N TA L DE SIGN FOR T H E

H I LT S O F T H E S WO R D S ,

Presented from this Fund, I N R E WA R D O F

B R I T I S H VA L O U R , IMPORTS THAT

National Union (fgured by the Roman Fasces) PRODUCES

H ERCU LEA N EF FORTS, (of which the Club of Hercules is emblematic;) W HICH, A IDED BY

W I S D O M , (denoted by the Serpent) LEAD TO

V I C T O RY,

(implied by the Skin of the Nemean Lion,—the proudest of that Here’s Trophies).

The Wreath of Laurel denotes that R E WA R DS

AWA I T T H E B R AV E W H O S H A L L S U C C E S S F U L LY W I E L D T H E I R S WO R D S I N T H E C AU S E O F T H E I R C O U N T RY,— I N D E F E N C E O F BR I T I S H S E C U R I T Y, I N DEPEN DENCE A N D HONOR.

Figure 2.1 Description of the Lloyd’s honourable sword (Lloyd’s ADM1/3992), author’s picture. Lloyds, 31st December 1806 Sir, The Committee for managing the affairs of this House in reviewing the disaster of the last Convoy from Jamaica, find that 25 Ships have miscarried out of 102, which left the Island under Convoy of H. M. Ship Magicienne on the 29th of July; besides every considerable damage to the Ships and Cargoes of the 77, which did reach Great Britain. It is calculated that from two to four out of 100, generally miscarry, from one misfortune or other; the extra number of twenty odd, in this instance is to be ascribed to their leaving Jamaica so late in July, which exposed them to the violent Gale they

50 Maritime insurance, the security of credit experienced the end of August; had the Convoy left Jamaica one week sooner, it is supposed they would have felt little or nothing of the Gale, from the Weather experience by other Ships which were at the time within two or three Degrees of their position. I am therefore directed by the Committee, to suggest for the consideration of the Lords Commissioners of the Admiralty, that Orders may be sent to the Commander in Chief at Jamaica that the Convoys leave the Island every year, between the 1st of May and 1st of August, to sail from the Rendezvous not from Kingston at the dates undermentioned. 10th May, 20th June, 20th July. The Sailing of the July Convoy to be particularly insisted on not to be later than the 20th which day was formerly the time limited by the Underwriters for Vessels sailing from Jamaica afterwards extended to the 26th of July, but in one or two instances during the present and late War, the Convoy did not sail till after the 26th of July. To the delay of the sailing of the Magicienne’s Convoy until the 29th, may be ascribed not only the destruction of a great value in Property, but the irreparable loss of lives and what in the present state of ship Building is almost equally irreparable, the annihilation of upwards of 6000 Tons of Shipping, which is of the most serious consequences to this Commercial Kingdom; and ought to be guarded against as much as possible, by the Admiral at Jamaica giving immediate Notice, that the last Convoy in July will depart from the Rendezvous 20th July by which means the Parties interested at Jamaica, cannot complain of want of time to make their arrangements accordingly. It would also be attended with considerable advantage, if the Admiral on the Leward Island State, was directed to give Notice that the last Convoy would leave the Rendezvous as for late on the 30th of July; in place of the 1st of August as has been customary. I am with Respect, Sir, Your most obedient servant. John Bennett. 4 Jan. [note by the Admiralty Clerk] Direction to the Admirals of the Leward Island of Jamaica stations conforming to what the Committee has recommended. (Lloyd’s ADM1/3993)

The relationship also involved the role of Lloyd’s as a superintendent of communications between merchant ships and signalling stations run by the Admiralty as well as being treated as the natural entity from which to disseminate signal codes to the maritime trade. In the letter that follows the Committee at Lloyd’s makes a recommendation on how best to communicate signals to ships off the British coast and the Admiralty agrees with the suggestion. Of particular interest in this letter is Lloyd’s concern with how to best deliver the signal. Lloyds, 7th November 1805 Sir, One of the Committee having been lately on the Coast, was informed that the Merchant Ships never answered the Signals from the Shore, informing them that an Enemy

Maritime insurance, the security of credit 51 was on the Coast, and upon Enquiry learned with surprise, that the signals have not been communicated to them. I am therefore desired to request if their Lordships approve of it, that they may be made known to the Merchant Service, and the Committee take the liberty of suggesting the Custom House, as the best mode of making them so. I have the honor to be, Sir, your most obedient servant. John Bennett 8 Nov [Clerk’s notes] The Signals No. 9, 10, and 11 of the Coast Signals to be sent to Lloyd’s Coffee House acquainting Mr Bennett that the Committee are at liberty to distribute copies of them to the Trade, if they judge it expedient. (Lloyd’s ADM1/3993)

Throughout the Napoleonic Wars men were recruited to serve in the Royal Navy through the old system of the Impress. Men could be impressed by ‘press gangs’ in British towns and ports but the Royal Navy could also request merchantmen to relinquish some of its men to a navy ship before reaching port (Rogers 2007). The Government, however, could issue Protections Against Impressment and the following letters testify to it. What is of interest for this chapter, however, is the role of Lloyd’s as the maritime agent from which to obtain information on crews and to relay messages from the Admiralty, as the following two letters attest. Note the difference in the time of the Protection granted by the Admiralty in the two cases based on the magnitude of gallantry involved. Lloyds, 7th December 1809 Sir, I have to acknowledge the receipt of your favor of yesterdays date informing me that in consequence of the Master (Hay) in and Crew of the Ships Leander from Cadiz bound to London, having succeeded in gallantry beating off a French Privateer on the night of the 4th Inst off Dover, the Lords Commissioners of the Admiralty intend to grant to each man three Months protection from the Impress, as a mark of the approbation: in consequence of their Lordships desire to be informed of the names of the Men who were actually onboard and doing duty in the Leander on that occasion, I beg you will inform their Lordships that I communicated their intentions to Mrs Smith, Chesmer and Down, the Owners of the Leander, who wrote by the last Post to the Master requiring him immediately to furnish them with a particular List of the Crew. I have the honor to be, Sir, your most humble servant. John Bennett Jr. John Barrows, Esq. (Lloyd’s ADM1/3993) Lloyds, 15th January 1811 Sir, I have the honor to acknowledge the receipt of your favor of this day’s date, inclosing a Copy of a Letter from Vice Admiral Campbell relative to an Action between

52 Maritime insurance, the security of credit the Ship Cumberland, and four French Privateers on the 13th Inst, in which the latter were beat off, and stating that in consideration of the gallant defence, the Lords Commissioners of the Admiralty intend to grant to each of the Crew a protection from the Impress for the space of three years, which I have communicated to the Committee for managing the affairs of Lloyds, who have directed me to request that you will be pleased to return their [until here image 1308] thanks to the Lords Commissioners of the Admiralty for the communication and inform their Lordships that they hope this measure will be the means of saving many Merchantmen from Capture, by inducing the Crews to defend them. I beg leave to inform you that the Cumberland belongs to Mrs Idles, to whom I have transmitted your Letter and inclosure and requested them to furnish me with the names of the Crew according to your desire, and which I will forward to you immediately it is received. I am with Respect, Sir, Your most obedient servant. John Bennett Junior John Wilson Croker, Esq (Lloyd’s ADM1/3993)

Finally, the following letter found within the correspondence sent by Lloyd’s to the Board of Admiralty but presumably sent directly to the Board, is quite peculiar. It constitutes a ‘bond of exchange’ between enemies in the form of insurance against future capture. The letter explains the situation well and the subsequent letter indicates that Lloyd’s was the natural entity for the Admiralty to enquire about the existence of such a ‘bond’. The case illustrates the transference of trust between two entities, one sovereign, the other commercial which reinforces the idea of Britain being assumed by the merchant/underwriters at Lloyd’s as a ‘Commercial Kingdom’ noted before. Bond of Exchange I the under signed declare that I have been made prisoner of war at sea acting as master on Board the sloop Maritimer of Palestine by the French Schooner Tilsit N 2 going to Baltimore Cptn. Michael Gerat and that the said Captain hath set me at Liberty and my crew and hath made me a present of the Ship and Cargo on the express condition of procuring for my exchange and the exchange of my sailors the libertys of an equal number of the officers belonging to the said Schooner supposing they are made prisoners by any British Cruiser the names of the officers are as follows [a list of 6 officers belonging to the French schooner starting by the captain is included, as well as a list of 6 officers headed by the Master of the British sloop]. And I do upon my honour promise and Engage to take all the necessary steps to accomplish loyally the said Exchange as soon as I get to in any port of Great Britain or his possessions and to write indemnity to the high Court of Admiralty of the United Kingdom of Great Britain and Ireland to inform them of this transaction. I do also certify that the captain of the said Schooner has treated me with all the courtesy and Loyalty that could be done by any Christian. Do help me God. At Sea Latd 47 22’N Long 17 W.

Maritime insurance, the security of credit 53 May 7th 1810 John Thom [note added below the signature] John Thom Master of the maritimer of Petershead abovementioned maketh Oath to the truth of the statement of the abovementioned agreement Sworn at the Mansion House, London this 15th December 1810 before me JJ Smith, Mayor. Lloyds, 2nd October 1810 Sir, I am apprehensive that you will imagine me to be very remiss in not having replied to your favor of the 20th ulto, enclosing a letter from two French prisoners of war, respecting an agreement said to have been entered into between the Commander of the Tilsit French Privateer, and M John Thom, Master of the Maritimer Sloop from St Michaelo to London; and therefore think it necessary to acquaint you that notwithstanding several enquiries of Parties interested in the St Michaelo Trade, I have not been able to learn the name of the owner of the Maritimer nor to whom she was addressed but hope in the course of a few days to give you the information required. I have the honor to be, Sir, your most humble servant, John Bennett Junior To: John Nelson Croker ***

The relationship between Lloyd’s and the Admiralty was limited to interaction intended for the protection of maritime trade. The Government did not go as far as getting involved in providing safeguards for insurance losses occurred as a result of war. Since the passing of the Traitorous Correspondence Act of 1793, insurance made on enemy property was void and insurers were obliged to return any premiums paid should the insured property happen to belong to an enemy. In effect, this meant that a British declaration of war against a country whose property was insured at Lloyd’s would represent a loss in premiums for the underwriters involved. When Britain unexpectedly declared war on the Netherlands in 1794, all Dutch ships and cargo in British ports were seized. This created serious losses at Lloyd’s, as we know from evidence given at the 1810 Parliamentary enquiry (House of Commons 1810: 69). As a consequence, in a letter dated February 6th 1795, the Committee of Lloyd’s requested an interview with Prime Minster Pitt to try to persuade him to ‘adopt such relief by Provision in the Act now under Consideration’, that changes in the amity and friendship subsisting between two countries should be exempted from the prohibition of insuring enemy property since insurance made on such property was done with

54 Maritime insurance, the security of credit very little apprehensions entertained that such amity and intercourse could be interrupted, and more particularly from the security held out by the Government of this Country to the Dutch trade in furnishing Convoys for the protection of Dutch ships to and from their respective settlements, as well as to and from every part of the world in amity with his Majesty’. (quoted by Martin 1876: 174) The Government’s unwillingness to intervene in the case was evidenced in the fact that the letter was never responded to although it was re-sent by the Committee on 25th September 1795 (House of Commons 1810: 174). The case illustrates the boundaries of collaboration between the Government through the Board of Admiralty, and the maritime insurance market represented by Lloyd’s.

Concluding remarks It is possible at this stage to highlight some of the defining characteristics of the moral economy of maritime insurance in time of war arising from the relationship between Lloyd’s and the Admiralty during the Napoleonic period. A moral economy, as noted in Chapter 1, is an organised system of behaviour which displays certain regularities. It is identifiable by the values that stand and function in a welldefined relationship. It entails a certain logic to its composition and operation in the form of standardisation of procedures, rules of behaviour and mechanisms for cooperation. The values that defined the relationship were fundamentally those of a mercantilist system in which the welfare of the nation operated a zero-sum logic where wealth should be concentrated in Britain and denied to competitors. Overseas trade was seen as a fundamental source of wealth and every effort should be made to profit from the competitors’ commerce. In time of peace this would represent a steady flow of income through exports, including invisible ones such as maritime insurance policies. In time of war it would involve the use of the navy as well as privateer ships to disrupt, control or destroy the enemy’s trade. In time of peace maritime insurance became a commercial instrument to promote overseas trade, and in time of war it assumed a strategic role in denying security and credit to the enemy. This was possible through the understanding of maritime insurance as operating a financial security to protect capital in case of loss. In so doing it enabled credit to shipowners and merchants who would use the security to fit ships and buy cargo. It also provided a mechanism to spread risks among merchants minimising the impact of loss and liberating capital with which to finance further ventures. The cash flow derived from the collection of premiums would constitute investment capital with which to buy Government debt, which was badly required for supporting the military efforts as well as for investing in the development of industry that would generate further export products. The development of maritime insurance into an instrument of strategy in time of war, however, required a long transformation in its ethos and practices evidenced in the first two sections of this chapter, which materialised in the New Lloyd’s

Maritime insurance, the security of credit 55 Coffee House of the early 1770 s. By then the principle of insurable interest was deeply ingrained in legislation and practice which warranted that insurance be made by individuals with evident stakes in the events for which cover was bought. Aligning subjectivity with underwriting practice was a necessary condition for the operation of trust as a fundamental value on which insurance relationships were to operate. The motto of Fidentia, as the entrepreneurial practice of trust portrayed by Lloyd’s as its symbol, represents the principle. The understanding that the security of capital was intimately related with the welfare of the nation, a recurrent aspect in the correspondence analysed in the last part of this chapter, was evident in the merchant/underwriters depiction of the nation as a commercial kingdom. Under such a conception, Lloyd’s selfconsciousness was expressed as being a partner of the state in what they depicted as ‘the National Union’. This entailed reciprocity and responsibility in the common venture of trade in time of war and an expectation that the Navy would be employed in the protection of trade. Examples of this are Lloyd’s superintendence on convoy protection and tactics as well as its concern with the licensing of shipping. It also involved considering shipping intelligence as an instrument of war. The partnership, however, was limited to the commercial enterprise and did not involve any other privileges of, for example, the Government exercising influence on behalf of Lloyd’s in Parliament. The threshold of cooperation is exemplified in the insurance loss derived from the 1794 Anglo-Dutch war. It is evident from the correspondence examined in the writing of this chapter that a very clear procedure of communication developed between the Committee of Lloyd’s and the Board of Admiralty. Extreme care was given to the wording of the letters, and, although in certain cases it is possible to observe disagreement and recrimination between the parties, these were communicated in very polite form. The Committee at Lloyd’s was recognised and respected as the natural entity representing the maritime insurance market in the country and its advice was adopted in matters of interest to the trade. When its role was seen to cross the threshold of the relationship, as in the case of the Lloyd’s swords, it was politely reminded that it had no jurisdiction in state matters. When communications were channelled through the right route and in the correct language, the Admiralty seemed receptive to Lloyd’s initiative. The moral economy of maritime insurance in time of war towards the end of the long eighteenth century helps understand the mercantilist imaginary of the time, which materialised into a mercantilist policy of empire. It would be simplistic to characterise the role of Lloyd’s as an instrument of the state in this period. It is possible to argue, however, that the relationship developed between the two entities constituted a form of insurantial sovereignty in the form of a partnership in risk.

3 King’s enemy risks, maritime insurance and strategy in the First World War

. . . our navy, however ample, is not everything. It is to the war danger of our commerce something like what the Fire Brigade is to the incendiary danger of London: necessary at all times, beyond measure essential at some times, but never quite sufficient at any time. We must steadily back it by insurance. Our next naval war will rapidly measure its actual value. No doubt it will do all it can; perhaps all it could possibly do. But it cannot do all that will be wanted. And maritime insurance will have to do the rest; expanding its capabilities, as it has done before, to meet the occasion. With the best possible navy, our unarmed merchantmen cannot go to sea uninsured. That would not be trading, but gambling. (Anon 1894)

On the 4th of August 1914, the day Britain declared war on Germany, Chancellor of the Exchequer David Lloyd George announced at the House of Commons the start of a War Risks Insurance Scheme (House of Commons 1914). The scheme, originally devised as a means to ensure security of food supply in time of war, allowed the government of Prime Minister Asquith (1908–16) to control the supply of maritime insurance during the first two years of the international confrontation. In effect, the scheme transformed the government into the maritime insurer and reinsurer of last resort exercising control on routes and protecting insurance information. This case constituted the first time the British government directly adopted a technology of insurance to manage a war effort. Most importantly, it became the first direct and explicit state/insurance partnership through which the British government assumed the control of shipping by enabling the operation of maritime insurance under conditions of declared war. This was done while preserving the rights to private property and the entrepreneurial spirit of merchants, underwriters and bankers. Maritime insurance at the time of the war constituted a strategic political economy problem central to the finance of international exchange. A shortage in the supply of maritime insurance could amount to the end of international credit for the United Kingdom. The case is most important since, by June 1914, the United Kingdom and its dominions controlled 36 per cent of the total number of maritime vessels in the world and the circulation of 42 per cent of global tonnage (Lloyd’s 1915: 960–961). By enabling the provision of private maritime insurance between

58 King’s enemy risks, maritime insurance and strategy in WW1 the war years of 1914 and 1916 the government operated a form of insurantial sovereignty here analysed as risk management. The strategy contrasted starkly with the policy of the following government led by Lloyd George, which was based on a war economy model where the state requisitioned ships and centralised the supply and distribution of vital goods. This chapter is devoted to analysing how the maritime war risks insurance scheme came into being as a strategy to ensure domestic order, economic security and international trade. The analysis is offered as a means to explore the scheme as a precursor of a novel rationality of governance devised to collectivise the management of uncertainty in time of war. The scheme, in turn, was evidence of the operation of a moral economy that combined traditional elements of sovereign power such as defence and diplomacy, political economic power in the form of state finance and public credit, and elements of entrepreneurial power including economic interests as well as the knowledge and expertise of merchants, underwriters and bankers. It constituted a form of insurantial sovereignty analysed here as risk management. As expanded below, the scheme operated in the following way. With respect to hulls, the government offered an automatic 80 per cent reinsurance for any British ship insured by a British underwriter which was part of the existing shipowners’ associations – more on which will be said later – and which grouped nearly threequarters of the British tonnage employed in overseas trade. With regards to cargo, a State Insurance Office was established in London offering a flat rate for all merchant voyages on British ships. These means were deemed necessary to ensure the survival of the British insurance industry, to encourage merchant shipping during the war, and to prevent insurance intelligence from falling into enemy hands through international reinsurance arrangements (Marangos 2007; Miller and Talas 2007: 89). The scheme also played a specific strategic role. By interacting with the insurance associations the Government could use shipping intelligence to exercise control on routes and support the state’s strategic defence plans. For example, on the 9th of March, 1916 the Admiralty issued a notice to the Liverpool and London Insurance Association that on or after the 15th of March all vessels proceeding to or from Atlantic ports and ports in the Far East or Australia would use the Cape route, whereas ships proceeding to or from ports in India would continue to use the Suez Canal (Halpern 1994: 386). This case, analysed in detail later, is an example of the way in which the Government influenced merchant shipping in light of the strategic imperatives of naval operations, particularly in the Mediterranean, operating a sovereign moral economy of war. A genealogy of the War Risk Insurance Scheme uncovers a deeper political economic problematic that underlies the use of maritime insurance as a sovereign instrument of strategy. Discussions leading to the setting up of the scheme were based on the strategic concern of how to ensure the security of food supply in time of war while maintaining a liberal polity where the market interaction between businessmen, bankers and merchants was preserved as far as possible (SubCommittee of Imperial Defence 1914: 3). Food security, a traditional sovereign

King’s enemy risks, maritime insurance and strategy in WW1 59 concern, had been approached under market principles ever since the protectionist Corn Laws of the post-Napoleonic Wars period were abolished in 1846 (see Schonhardt-Bailey 2006). Free trade was assumed to provide the mechanism to achieve the cheapest possible prices on staple foods while ensuring an optimum allocation of the country’s productive resources. However, under the context of the war in South Africa, food supply in time of war had become a great national concern (Owen 1909). Many believed that any international conflict involving one or more European powers would severely affect the continuous supply of foodstuffs into the country. Debate on this matter led to the formation of an association to promote an official enquiry into the security of food supply in times of war. This association represented various classes and interests in society and through representations made to Mr Balfour’s Government, the Prime Minister appointed a Royal Commission that met between 1903 and 1905 to study the problem. The Commission, where the Prince of Wales (later King George V) served as a member, recommended a scheme of national insurance or indemnity against the risk of capture to prevent higher insurance premiums that would have a direct effect on the prices of food. The implications of building the scheme as a form of indemnity or of insurance, however, were significant. As narrated in the following section, blending national indemnity into a scheme of war insurance in which the state became the reinsurer of the maritime industry became a central characteristic in the rationality that transformed the state into a risk manager. To work out the financial technicalities of the proposal, a small expert committee was appointed by the Treasury in 1907 which, according to Hill, was ‘unable to recommend the adoption of any form of National Guarantee against the war risks of shipping and maritime trade except that which is provided by the maintenance of a powerful Navy’ (Hill 1927: 16). The Treasury Committee’s reticence to recommend a war risks scheme did not do away with the problem. As evident in a debate that took place at the Royal United Services Institute (RUSI) in 1909 (Owen 1909), the issue of food security in time of war remained a prominent concern. It was taken up again in 1913, this time at the highest governmental level by a Subcommittee of the Committee for Imperial Defence. The Subcommittee, chaired by Huth Jackson, a director of the Bank of England, was set up to ensure a practical solution to the problem and involved the participation of notable people of the financial sector, including the deputy Chairman of Lloyd’s of London. The report recommended to the Government the setting up of the War Risks Insurance Scheme. In principle, the scheme that operated between 1914 and 1916 translated financial expertise derived from a well-developed private security technology of insurance into an instrument of sovereign governance. The scheme operated a rationality of government that merged traditional threat-based understandings of international security with one based on the likely occurrence of particular scenarios and their expected impacts on the way of life predominant in the country. While adopting what is now known as a risk analysis approach for the study of a traditional sovereign security matter, the Liberal government of Prime Minister Asquith sought to preserve as much as possible the principles of free trade and

60 King’s enemy risks, maritime insurance and strategy in WW1 entrepreneurial initiative of maritime underwriters, bankers and merchants in time of war while ensuring that the State maintained the capacity to defeat its enemies. In effect, the scheme also operated as security for international credit. Access to affordable and reliable insurance was directly linked to the country’s possibility to enjoy a credible financial standing in foreign markets, particularly in the United States. If the shipping of vital supplies was to remain affordable it was of paramount importance to ensure a stable and affordable supply of maritime insurance products at the outbreak of the war and throughout its duration. In light of the heightened risks associated with a war, maintaining the price of insurance premiums low became a priority since the ‘laying up’ of ships would affect the maritime trade on which the war effort was supported. The process that led to the adoption of the war risks insurance scheme, is, however, much more interesting. It details the negotiations between political and economic actors and the wider imaginary under which the uncertainty relevant to the state and the nation was made to matter in the form of risk. In what follows, the chapter is organised in three sections. It begins by offering a detailed account of the debates that led to the scheme emphasising on the elements that turned it into an expression of a form of insurantial sovereignty as risk management during the first two years of the world war. A second section explains the connection between the security of credit and the security of food supply in the imaginary of the ‘New Liberal’ government of Prime Minister Asquith. A final section ties up the argument of the chapter and brings forward the importance of insurantial sovereignty as risk management as an expression of a moral economy that set the grounds for forthcoming liberal governance schemes in the twentieth century.

Security of food supply and the sovereign maritime insurance scheme In light of the growing awareness of the German threat, the basic political economy discussion prior to the war centred on the need to adopt, or not, some form of state scheme against war risks at sea. The challenge was how to keep the nation trading and the population fed at acceptable prices while the state waged war against its enemies. The policy question was formulated as how to ensure that the supply chains and credit of the nation, required for feeding the population and for satisfying the industrial demand of commercial and military production, suffered as little interruption as possible during the international hostilities? Not being able to cope with the German threat solely through traditional military/naval and diplomatic means, as noted in the epigraph to this chapter, the challenge was to find a mechanism through which maritime losses could be managed in a sustainable manner. The process that led to the adoption of the War Risks Insurance Scheme began in the late 1890s. On the 6th of April, 1897, under the context of the Conservative government of Lord Salisbury, the following resolution on the motion of H. SetonKarr and seconded by R. Yerburgh, conservative member for Chester, was passed by the Government: That, in the opinion of this House, the dependence of the United Kingdom on foreign imports for the necessaries of life, and the consequences that

King’s enemy risks, maritime insurance and strategy in WW1 61 might arise therefrom in the event of war, demand the serious attention of Her Majesty’s government’. (quoted by Seton-Karr 1897: 651) Arthur Balfour, as the leader of the house, accepted the resolution on behalf of the Government by stating, [i]n the final resort, of course, our security rests upon the navy, and the navy alone, and if we have a navy adequate to protect our coasts, though the price of bread might rise to an alarming extent, and there might be difficulties and embarrassments, and the pinch of want might be felt, we need have no fear that we shall be starved into submission by continental nations. . . . I, both on my own behalf, and on behalf of the government, frankly accept the responsibility which the resolution throws upon us, and I heartily accept also the proposition that the strength of our navy shall be equal to the defence of our commerce as well as of our shores. (emphasis added, quoted by Seton-Karr 1897: 651) Political debate around the issue of security of imports in time of war had already been a constant concern in the preceding decades and spiralled in the context of the Boer Wars. The general terms of the resolution, however surprising, were in the opinion of Seton-Karr ‘intentionally framed. . . as the main point was to obtain a government inquiry’ (Seton-Karr 1897: 652). He summarised the problem in the following way: The facts of the case on which the resolution is founded are not a matter of controversy. The dependence of the United Kingdom of Great Britain and Ireland on foreign imports for the necessaries of life is now a well-known and established fact. In addition to five-sixths of our breadstuffs (wheat and flour), we import such articles as butter, eggs, cheese, meat, fruit, sugar, vegetables, milk, lard, as well as oats and barley, in large and increasing quantities each year, the money value of our yearly imports of food being now put at £150,000,000. (Seton-Karr 1897: 652) Of breadstuffs alone, for which a reliable, sufficient and affordable supply was expected ‘particularly for the wage-earning millions in the great industrial centres of the United Kingdom’, nearly 68 per cent was being imported by 1897 from the United States, Russia and the Argentine Republic, and 14 per cent from the rest of the British Empire (Seton-Karr 1897: 653). Supply, in his words, ‘never exceeds three month’s . . . , and frequently sinks as low as one month’s . . . or less’. As published in official statistics of that year, reserves that January were less than three weeks (Seton-Karr 1897: 653). According to the report of the Royal Commission on Supply of Food and Raw Material in Time of War of 1905, breadstuffs stock

62 King’s enemy risks, maritime insurance and strategy in WW1 in the UK would last about four weeks if supply was to be interrupted (Royal Commission 1905: 13). It was widely recognised in the informed public opinion of the time that the security of food supply in time of war was intimately related to the availability of maritime insurance. As a French report cited in an article of The Daily Graphic of April 15 1897 by Seton-Karr, noted, [t]he cause of England’s greatness will be a cause of weakness to her in war. Her daily life, her essential interests, are subordinated to the arrival and departure of her merchant shipping . . . At the simple menace of a conflict with a great maritime Power the rates of insurance would rise to enormous figures. (Seton-Karr 1897: 657) The House of Commons resolution of April 6 1897 expressed the concern as a problem of price of food in case of a war with continental powers. However, political worries were wider and encompassed the possibility of riots and the sustainability of trade within market economic principles. Imports of food from the cheapest markets had been actively promoted during the previous decades. As a result, domestic agricultural production suffered from cheap labour abroad and the operation of a trading empire supported by naval supremacy at sea. The reality of war, the threat to Britain’s international credit, the worry about internal riots, and the new naval circumstances moved the debate to find a ‘business as usual’ solution to the problem. However, under the current conservative government there seem to be no agreements either on facts or on the political urgency for a solution. The Boer War in South Africa had highlighted the dependency of the Kingdom on overseas food and there was pressure to raise the matter beyond political affiliations. As noted by Hill, in the statement issued upon the formation of an association formed to promote an official enquiry into the security of foodsupply in time of war, ‘more than three-fourths of our population was dependent upon food which was imported from abroad, and therefore liable to capture on its way to our shores in the event of a war between Great Britain and any of the Great Powers’ (Hill 1927: 13). Ceding to pressure, Lord Salisbury as Prime Minister appointed a Royal Commission in 1903 to look into the matter (Hill 1927: 13). The Royal Commission reported on the dependence of the Kingdom on overseas trade to provide staple food. At the same time it highlighted the geographical distribution and diversity of overseas supply which meant that if a source failed another would take its place. The Commission concluded that ‘not only is there no risk of a total cessation of our supplies, but no reasonable probability of serious interference with them, and that, even during a maritime war, there will be no material diminution in their volume, unless we lost command of the sea’ (Royal Commission 1905: 14). However, a point was made about the risk of ‘public panic’ arising from a potential rise in the price of food. This issue was to become a crucial aspect of further discussions leading to the creation of the War Risks Insurance

King’s enemy risks, maritime insurance and strategy in WW1 63 Scheme. As noted in the Commission’s report, We do not [. . .] apprehend that any situation is likely to arise in which there would be a risk of the actual starvation of our population into submission. But we do regard with much concern the effect of war upon prices, and especially therefore on the condition of the poorer classes; for they will be the first to feel the pinch, and it is on them that the strain of increased prices would chiefly fall. We do not, however look with any great alarm on the effect of war upon prices, so far as concerns what we have referred to as the economic rise of prices, i.e., the increase likely to be produced by the enhanced cost of transport and insurance in time of war. We consider that the addition to the price of commodities under this head will be covered by a moderate percentage on their ordinary cost, and we believe that even this moderate increase might to a large extent be obviated by the adoption of a scheme of National Indemnity. (Royal Commission 1905: 59, par. 253) At the same time it seems to us that it would be unwise to disregard the dangers that might accrue from what we have described as the ‘panic’ rise of prices of staple articles of food, which might take place in the excitement sure to be caused by the outbreak of a great maritime war. No doubt the rapid spread of accurate information would tend to prevent any considerable duration of a rise due solely to panic, and we may assume that the greater the rise of prices the greater would be the exertions made to pour in supplies. But it can hardly be doubted that much suffering would be caused if the rise in prices was sudden in its inception, and more especially if it were to continue over any lengthened period of time; and we cannot disregard the possibility that it might result in danger to calmness and self-possession, just when those qualities would be of the greatest importance. (Royal Commission 1905: 59–60, para. 254) The report closed with the following paragraph which denotes its preference for a scheme of national indemnity to protect the availability of credit and insurance in times of naval warfare. We look mainly for security to the strength of our Navy; but we rely in only a less degree upon the widespread resources of our mercantile fleet, and its power to carry our trade, and reach all possible sources of supply wherever they exist, and we believe that a guarded and well-considered scheme of National Indemnity would act as a powerful addition to our resources, because it would tend to keep down the cost of transport and therefore go far in the direction of preventing high prices in time of war, while at the same time it would be a stimulus to the enterprise of British Shipowners. (quoted by Hill 1927: 16) It is worth noting at this stage that the Commission did not prioritise the effect that a maritime blockade could have on the availability of credit. As noted by

64 King’s enemy risks, maritime insurance and strategy in WW1 Hill, who was not a member of the Commission but of the later Sub-Committee of Imperial Defence, ‘[t]his risk was even greater than they foresaw, because they had not clearly before them the fact that owing to the colossal proportions to which the volume of trade had grown during a century of unprecedented expansion, the movement of goods in transit had become dependent on credit provided by banks and discount houses (Hill 1927: 14). The threat to the availability of credit became a primordial concern if the security of trade was to be ensured during a period of maritime hostilities. As further explained by Hill,

Under the conditions of modern commerce, by far the greater proportion of the cargoes at any time afloat belong not to the producers, the merchants, or the consumers, but to the financial interests who have discounted bills of exchange representing the purchase price of the goods, and who hold as their security the bills of lading and policies of maritime insurance. Under peace conditions there is not more attractive opening offered for the employment of capital. The security against all ordinary trading risks is ample, because the advance is repaid out of the selling price of the goods on the completion of the voyage, if the goods be lost, out of the insurance money. (Hill 1927: 15)

The report of the Royal Commission was received by the new Liberal Government who took office as a minority government in 1905 and was then confirmed in the general elections of 1906. A major concern then was to address the problem of public ‘panic’ in food prices referred to in the Commission’s report. In order to explore the Report’s recommendation that suggested that ‘a small expert committee should be appointed to investigate the subject to frame a scheme’, a Treasury Committee was established in 1907 headed by Austen Chamberlain. The Committee showed concern about the financial responsibilities that such a scheme would entail and the administrative difficulties of running it. Based on evidence provided by witnesses, the final report stated that the scheme was not required since the commercial insurance industry could afford the risks, as it had done in the past, and that the State lacked the technical experience to differentiate fraud from legitimate claim and therefore did not have the administrative capacity to run the scheme. They also argued that due to the unknown financial consequences it was not feasible for the State to contemplate such a system. This obstacle was one that would be remedied, by a later recommendation of the Sub-Committee of Imperial Defence, through the agency of the existing shipowners associations. As a result of war losses during the Spanish-American and the Russo-Japanese wars, insurers had begun to find it difficult to provide continuous cover for maritime trade during international hostilities. To compensate for the difficulties of obtaining insurance cover once war had started, shipowners began to organise themselves following the example of the North of England Protecting and Indemnity Association established in 1899. In 1912 the London and Liverpool

King’s enemy risks, maritime insurance and strategy in WW1 65 Shipowners Association was established, and together with its older sister provided indemnity cover for ‘nearly three-fourths of the British steamship tonnage employed in our oversea trade’ (Hill 1927: 18). Having the Royal Commission in 1905 highlight concerns about public panic arising from the rise of food prices at the outbreak of war, and having the Treasury Committee identify in 1907 the operational difficulties to implement the indemnity scheme recommended by the Royal Commission, official debate stalled until 1913. However, informal debate was far from over. On 10th of November, 1909 Douglas Owen, a recognised barrister and authority in maritime law (see Owen 1889), addressed the Royal United Services Institute (RUSI) on the issue of ‘our food supplies’. The lecture was chaired by Sir Gerard Noel, Admiral of the Fleet who had previously served in the Royal Commission. Owen’s address was intended to explore the issue of ‘whether there are not, in fact, means of securing or increasing food supplies and of greatly reducing the risk of panic, to which means no reference is found in the [Royal Commission’s] Report at all’ (Owen 1909: 1553). His proposition was one of force, that in case of an emergency, ‘we should seize any neutral wheat passing our shores, giving notice of our intention and of its justification, and declaring our willingness to pay a fair price for the food and to compensate the carriers’ (Owen 1909: 1558). He then quoted Bismarck, speaking in 1886 on the Polish question: ‘Neither in peace nor in war could a nation, which is fighting for its existence, follow ordinary rules of conduct. Emergency rights could be asserted by a State when its very existence was imperilled’ (Owen 1909: 1558). Such a position, however, was not to be the desired course of action of the Liberal government who would rather seek an alternative that would preserve the entrepreneurial drive of merchants, bankers and insurers under the international legal framework of European public law. In May 1913 a Sub-Committee of the Committee of Imperial Defence (CID) was appointed by Prime Minister Asquith to revisit the debate. The membership of the Sub-Committee combined political, technical and administrative expertise: Huth Jackson (a director of the Bank of England, at the chair); Lord Inchcape; Sir Norman Hill, Secretary of The Liverpool Steam Ship Owners’ Association; Sir Raymond Beck, deputy Chairman of Lloyd’s of London; and Arthur Lindley. As part of the CID it had only an advisory role and its recommendations could only be considered as input for policy-making (see Ason 1926; MacKintosh 1962). Its remit was stated as to consider without prejudice to the question of a policy, whether an administratively practical scheme can be devised to secure that, in case of war, British steamships shall not be generally laid up, and that overseas commerce shall not be interrupted by reason of inability to cover the war risks of ships and cargoes by insurance, and which will also secure that the insurance rates shall not be so high as to cause an excessive rise of price. Any scheme prepared must be on the basis of reasonable contributions being paid by the owners of ships and cargoes towards the cost of insurance. (quoted in Hill 1927: 19)

66 King’s enemy risks, maritime insurance and strategy in WW1 Reporting on April 30, 1914, the Sub-Committee suggested that the problems identified by the Treasury Committee in the scheme recommended by the Royal Commission should be compensated by shipowners’ contributions towards a national insurance scheme. The problem was then to provide some form of metric upon which such ‘reasonable contributions’ could be made. It was impossible to estimate the possible captures or damage inflicted by the enemy, but it was possible to assess ‘the extent of the liabilities the scheme would impose on any percentage basis of captures the Admiralty thought necessary to assume’ (Hill 1927: 20). In the opinion of Norman Hill, following the discussions of the Sub-Committee, [the] unknown financial liabilities which had frightened the Treasury Committee were not of a very formidable character, for even an assumed loss in six months of five per cent of all British steamships employed in foreign trade, and of the cargoes carried in those ships, would be covered by a charge of slightly exceeding one per cent on the total values of such cargoes. (Hill 1927: 20) Based on that assumption, the Sub-Committee’s main discussions centred on deciding which course of action would be optimum. On the one hand there was the possibility of having the state assume responsibility for losses at sea without charging for it. This constituted a form of indemnity. On the other, it was possible to think of the State as assuming responsibility while charging for a premium thereby providing a form of insurance. Hill argued that ‘both schemes were based on the same principle, and in application they would both throw, in the one case directly, and in the other indirectly through the premiums, the burden of the war risks on those dependent on our overseas trade, that is to say, the nation at large’ (Hill 1927: 12). The differences of both schemes are far from subtle, not least in terms of the moral economies that would derive from them. An indemnity scheme operates a technology to compensate for damage while an insurance scheme operates an entrepreneurial system, which while providing resources to compensate for damage, profits from the collection of premiums to multiply the availability of what could be called ‘reparational capital’. Whereas both operate a principle of responsibility, the latter has the added advantage of multiplying capital in the process of managing risks. In light of the terms given to the Sub-Committee, which established that the proposal must ‘secure for the State the advantages of the active and interested cooperation of the Mutual Associations’ (Sub-Committee of Imperial Defence 1914 paragraph 4), it was decided that any insurance on hulls should be provided by the Mutual Associations themselves and 80 per cent of all premiums would be automatically reinsured by the State. In this way various objectives would be achieved. First, insurance at affordable prices would be provided at the outbreak and for the duration of the war. Second, since membership of these associations was contingent on the collective share of losses, underwriting concerns such as moral hazard and adverse selection would be reduced to a minimum. Third, because the private/public nature of the insurance scheme meant that a member of

King’s enemy risks, maritime insurance and strategy in WW1 67 the Treasury and of the Admiralty would sit at the board of the Associations, it would be possible to maintain communication on the performance of the scheme. Moreover, it would contribute to the settlement of claims, as noted below: We make provision for the State to be represented on the Committee of each Club or Association. Claims will be dealt with and settled by the Committee of the Club. But if the State’s representative on the Committee should protest against a proposed settlement, the liability of the State will have to be settled (failing agreement to refer to arbitration) by the Courts of Law’. (Sub-Committee of Imperial Defence 1914: paragraph 35) Fourth, since the State would reinsure 80 per cent of all maritime policies, it could use strategic intelligence to inform and/or re-direct maritime circulation around the globe when required, as will be noted in an example below. Fifth, since the underwriting of hulls would be conducted by the Clubs, the State could offer flat rates for the insurance of cargo reducing administrative burdens and the costs of underwriting. By controlling the movements and circulation of the ships themselves the Government could then create a State Insurance Office supported by the expertise of the maritime insurance industry to cover freight. A significant moral effect of the Scheme was to be found in the transference of the control of shipping to the State. The effects were not simply the implications these controls had on the conduct of shipowners. They were also the steering mechanisms through which the Admiralty, represented at the Clubs, made sure its control was effective. As stated in the report of the Sub-Committee it was felt, not only by us, but also by the Managers of those Mutual Associations who appeared before us – that as the State, under the arrangements suggested, would be taking such a large proportion of the risks after the outbreak of a war in which we were a belligerent, the movements of all ships thus insured should be subject to the control of the Admiralty. It was therefore agreed that words should be introduced into the new policies providing a warranty that after the outbreak of war every ship shall, so far as possible, carry out any orders that the Admiralty may give in regard to their routes, ports of call, and stoppages. If, however, they fail to carry out those orders, they will not lose the benefit of insurance, provided the assured can satisfy the Committee of the Club that the breach of orders happened without the fault of privity of the assured and of the owners and of the managers of the ship. But, even then, we think the shipowner should be liable to some penalty, and we suggest that the State should require that the rules of every approved Club contain provision for an appropriate penalty. This might take the form of the levy of an extra premium payable by the Member to the Club on the insured value of the ship in which the breach has taken place, or it might take the form of a deduction in the settlement of a claim of an amount to be fixed, within reasonable limits, by the Committee of the Club, or, in extreme cases, the Committee might have the power of expelling of a Member from the Club.

68 King’s enemy risks, maritime insurance and strategy in WW1 It would not be possible for the Club to impose penalties upon the Master of the ship who deliberately disobeys the orders of the Admiralty, but we are of opinion that this might be made an offence with an appropriate penalty, under the Act sanctioning the scheme’. (Sub-Committee of Imperial Defence 1914: paragraph 20) The issue of insurance of cargo on voyages already under way at the outbreak of war deserved special attention since it would not be automatically covered by the 80 per cent State reinsurance on hulls. It was agreed that if shipowners at the outbreak of war instructed their ship masters to call on the closest neutral port in order to protect their risks on the value of cargo under shipment, the objective of maintaining British shipping in circulation at time of war would not be achieved. As a remedy the Sub-Committee recommended that the State Insurance Office, to be created under the Scheme, would issue State policies to back those policies that the private insurance industry would invalidate at the outbreak of war (Sub-Committee of Imperial Defence 1914: paragraph 62). The rationale for this particular move was mainly financial. The proof of insurance on cargo would be required as a condition for credit by banks and this was to become a cornerstone of the security apparatus at stake (Sub-Committee of Imperial Defence 1914: paragraph 69). No insurance, no security, no credit, no voyage, no trade, no revenue, no economy, no taxes, no shipping, no possibility of overcoming the war and winning it. If shipments at the outbreak of war were not protected in their insurance, ships will be laid at neutral ports without major incentive to continue trade for Britain. War risks clubs, such as the North of England, the Liverpool and London War Risks Insurance Association and the London Group (representing six different shipowners associations), were central to the operation of the scheme. For voyages already underway at the outbreak of war, ‘each Club held all its members insured against King’s enemy risks up to the values at which the vessels were entered, and the State, as re-insurers, covered the Club up to 80 per cent of the liabilities they so assumed’ (Hill 1927: 26). For voyages starting after the outbreak of war, Clubs offered their members facilities for insurance against King’s enemy risks ‘up to values and premiums, approved by the State, and the State as re-insurer covered at the same rates of premium 80 per cent’ of all insurances effected with the Club (Hill 1927: 26). Members could opt to insure in the open market or to run the voyage without insurance, in which case credit would be a problem for them. It was however a condition of the insurance of cargo under the Scheme ‘that the vessel carrying that cargo must be insured in one of the Clubs’ (Hill 1927: 26). If the vessel was not insured its cargo would not be covered by the Government cargo reinsurance scheme. The conduct of shipowners was constrained by the operation of the scheme to a great extent. Conditions of membership in the Club depended on the members’ willingness to accept common liability of losses incurred by fellow members. As noted by Hill, ‘[w]hether the member used the insurance facilities or not he remained liable to pay any calls the Club might have to make’ (Hill 1927: 26).

King’s enemy risks, maritime insurance and strategy in WW1 69 This, added to the fact that representatives of the Admiralty and the Board of Trade were made members of the Club’s committees, and that they did exercise their right to examine the books and documents of the Clubs, ensured quite a direct control over the movement of ships and by extension, cargo. For example, as noted by Hill, [c]ertain risks were, from time to time, excluded by the Government from insurance under the Scheme, as for example Baltic and Black Sea voyages throughout the war, and to certain Scandinavian ports at different periods during the war. The Clubs issued no policies in respect of these excluded voyages. (Hill 1927: 31) Another example illustrates the case. By February and March 1916 the Mediterranean had become a much more dangerous area for British shipping as the result of the success of German U-Boat sinking military and civilian transports. This forced the Admiralty to issue a notice through the Liverpool and London War Risks Insurance Association that on or after 15 March vessels proceeding to or from Atlantic ports and ports in the Far East or Australia would use the Cape route, whereas ships proceeding to or from ports in India would continue to use the Suez Canal. (Halpern 1994: 237–38) On the 11th of December that same year, the Admiralty prohibited insurance from being issued to ships entering the Mediterranean unless they were provided with a special license that was normally given only to ships carrying cargo to Mediterranean ports or using the Suez Canal while proceeding to ports in India west of Colombo. This had the effect of shifting shipping for Calcutta, Madras, Rangoon, and other Bay of Bengal ports to the Cape route. Once again, as with earlier measures shifting the Far East trade to the Cape, the disadvantages of reduced carrying capacity because of the longer route were offset by the reduced risk. (Halpern 1994: 389) Influence of the Admiralty and the Treasury on global shipping also extended to ships of neutral countries. Neutral countries shipowners had as a condition to access the scheme to ‘agree to instruct their masters to comply strictly with all orders given by British authorities regarding sailing, ports of call, routes, etc.’ (War Cabinet 1917: 6). In this way the scheme would become an instrument through which the flow of neutral shipping could be steered by British authorities. The conditions excluded ‘any claim arising from capture, seizure, arrest, restraint, or detainment except by the enemies of Great Britain’ (War Cabinet 1917: 6), ensuring that cargo and hulls were strictly related to supplying maritime trade to Britain. As the direct insurer, the British government would collect detailed information

70 King’s enemy risks, maritime insurance and strategy in WW1 on the ships and shipments since applications for the scheme had to be made by the owner’s representative in Britain at the Commercial Union Assurance Company, at the Royal Exchange in London providing full details of the cargo to be carried (War Cabinet 1917: 6). It was suggested at the War Cabinet meeting that the government of France and Italy ‘be informed of the action taken and asked to share in costs of the insurance scheme and generally adopt measures similar to those taken by His Majesty’s Government’ (War Cabinet 1917: 5). The original idea of the government was to keep premiums as low as possible in order to stimulate the flow of traffic. However, as a result of wartime inflation on the value of vessels, valuations were increased by 20 per cent on 10 March 1915 and later by 30 per cent on January 3rd 1916 (Committee for Imperial Defence 1923: para 34; cited in Doughty 1982: 118). As a consequence, the Government realised it was not obtaining sufficient sums in premiums to compensate for losses and the requisitioning of ships began to erode the financial basis of the Associations (Doughty 1982: 118). The operation of the scheme in relation to cargo was somewhat different. At the outbreak of the World War ‘it was found that the open market was entirely unable to deal with the cargoes then afloat. Only a small proportion were insured against war risks, the market was timid and narrow, and such rates as were quoted were prohibitive’ (Hill 1927: 34). The implications of this shortage were made more acute with the demands on shipping for war purposes. As narrated by Hill, [e]ven with credit available, the position was one of extraordinary difficulty. The sources from which we had obtained from the continent of Europe nearly 20 per cent of our imports were closed, and we were left almost entirely dependent on the supplies which could only be brought in by the larger vessels on ocean voyages. On the declaration of war, nearly 20 per cent of the British ocean-going steamship tonnage was taken up for war purposes, and the tonnage so employed went on increasing until the proportion reached 25 per cent. The war created conditions on the sea and in the ports under which voyages were protracted, and the time spent in port was lengthened, with the result that at least five ships were needed to do the work that had been done by four under peace conditions. (Hill 1927: 46) As a result, the State Insurance Office provided the insurance of ‘about 27 per cent of the total value of the cargoes carried on British ships during the war. The balance of the value, about £5,800,000,000, was insured in the Open Market, and the loss ratio was probably well under three per cent’ (Hill 1927: 44). The system began working from the 4th of August 1914 until August 1917. By February 1917 the German government proclaimed that their new submarine campaign may have effect on neutral countries. The British government considered that the proclamation would cause anxiety among shipowners with regards to insurance as well as cause premium rates to rise excessively. As a consequence, the British government began to offer direct insurance to neutral

King’s enemy risks, maritime insurance and strategy in WW1 71 countries’ shipowners. Insurance was provided ‘on the hulls of neutral vessels engaged in carrying essential cargoes, such as foodstuffs, munitions, material for munitions, and coal, to Allied ports’ (War Cabinet 1917: 5). Values to be insured were fixed depending on the age of the hull and based on gross registered tonnage. Premiums for freight were fixed based on the voyage; for example, United Kingdom to north coast of France, two per cent; America to French Mediterranean and Bay and to the west coast of United Kingdom, three and half per cent, etc. (War Cabinet 1917: 6). The scheme operated under the assumption that there would be an effective command of the sea: ‘not an absolute command, because it was recognized that that was an impossibility, but such a command as would assure a reasonable probability of the trading ship being able to complete its voyage’ (Hill 1927: 25). The scheme operated successfully between August 1914 and early 1917. However, German submarine warfare ignoring traditionally accepted prize rules (see Owen 1905), transformed the security context under which the state reinsurance and insurance scheme operated. The Royal Navy had by then lost control of underwater-warfare around the coasts of the United Kingdom. The first six months of 1917 therefore forced a transition from commercial to State control of international shipping and trade where the state-insurance industry partnership of the Scheme was transformed into a state-led war economy (Hill 1927: 25). The government entered the war with a clear policy of non-intervention in commercial affairs for as long as it could, and of doing so only inasmuch as was strictly necessary. The policy proved difficult to sustain during the war. As Doughty describes, the problem of restricted provision of shipping for certain routes began to affect the import of specific products which were necessary for the subsistence of the nation and for supporting the war effort. To enable state intervention in commercial affairs, for example through the requisitioning of ships to cover certain routes, and also as seen in the case of the War risks scheme, the government included the participation of very influential industrial names in its cabinet. This fact is particularly important for understanding the shift in the imaginary of managing collective uncertainties, a shift from a very well-engrained principle of mutuality, for one of solidarity. By January 1916 the state policy of non-intervention in the commercial direction of merchant ships stood in tatters, and there can be little doubt that it should have been abandoned entirely at this ministerial talent from swamping the decision-making process, since ministerial rank no longer entitled the holder to a role in that process. A further vital advantage of the adoption of the War Cabinet system was that it allowed the new ministers to be chosen without regard to political experience. Therefore, they were large drawn from industry – Maclay (shipping) was a shipowner, Devonport (Food) was a wholesale manager, Neville Chamberlain came to National Service from Birmingham, and there were Geddes, Northcliffe and, at Information, Beaverbook. Such appointment not only provided government with a wealth of practical experience it could have obtained in no other way, but they

72 King’s enemy risks, maritime insurance and strategy in WW1 smoothed the introduction of state control by reducing commercial distrust of the state’s competence. It would be no exaggeration to say that most of the success of state intervention in 1917–18 derived from the enlistment of industrial leadership and cooperation, of which these appointments were the most striking example. (Doughty 1982: 28)

The connection between the security of credit and the security of food supply in the ‘New Liberal’ imaginary The War Risks Insurance Scheme of World War One was the result of transformations in the liberal ideology of government in early twentieth-century Britain. If as Freeden suggested ‘ideology be defined as action-oriented political theorizing’ (1986: 16), the Liberal governments that took over from the Conservatives in 1905 reformulated some of the basic assumptions of liberalism in a substantial way. Social insurance, the reduction of power of the House of Lords, and a different appreciation of the individual and the social were characteristics of an ideology that was presented as standing up to the economic and social transformations of the time. Whereas classical liberalism fell neatly into line with Benthamite premises regarding the isolated and autonomous individual, social activity being the sum of free choices of rational individuals, new liberal thought operated under a clearly different set of assumptions. The salient issue in the liberal transformation was the awareness of the ‘social’ in addition to, and qualitatively different from, the ‘individual’ and hence the coining of the phrase ‘social utility’. (Freeden 1986: 13) The government faced the challenges of the socialist ideas of the time by developing a different perspective to political economy. Such an approach should be congruent with the social and economic transformations of the industrial revolution and aim to improve the material conditions of the working classes through the financial support of the state implementing a principle of solidarity. Discussions of social reform for the New Liberals, for example through the thought of Hobson and Robertson, focused on pushing political economy out of the academic world and engaging in a wider dialogue with the ethics and politics of economic production (Freeden 1986: 20). As argued by Freeden, ‘Ruskin’s famous dictum, “there is no wealth but life”, became the motto of the transformation’ (1986: 20). Moving the analysis away from the economics of production, debate began to centre on understanding the individual as consumer and on this base, re-thinking the wider problem of distribution. This move was part of approaching economics as ‘an instrument for realizing human values and social ends’ (Freeden 1986: 20). Issues such as the redistribution of wealth through social welfare schemes were now to be supported by a ‘qualitative and integrated approach to man’ (Freeden

King’s enemy risks, maritime insurance and strategy in WW1 73 1986: 20). In order to achieve this, a central element of liberal thinking had to be challenged. The free and self-regulating market that had guided liberal thought in great part of the nineteenth century was to be re-understood in light of an increased awareness of ‘socio-economic ills’ (Freeden 1986: 20). Such was the ideological context under which the problem of security of food supply in time of war was being discussed. However, free trade remained a central element of New Liberal thought and figured prominently in the debates leading to the War Risks Insurance Scheme. As noted in the following pamphlet entitled ‘Stick to Free Trade’ used by the Liberals in 1914, free trade remained the preferred option to seek low food prices in international markets. The best thing a Government can do is to stick to Free Trade, and the only Government that can be relied on to do this is a Liberal Government. . . As long as we stick to Free Trade, we shall command the world’s food supplies at the lowest price possible. This is the only thing that can be asked from any fiscal system, and free trade is the only fiscal system that can give it. (Liberal Party 1914) Undisturbed free trade, however, was a peacetime luxury. Under the strategic international environment of 1914, and particularly after Germany had violated Belgium’s neutrality which Britain had agreed to defend by the Treaty of London of 1839, Britain’s free trade had found a sovereign enemy. Seaborne transport, both military and civilian, was to become a military objective. The disruption of maritime trade to Britain was to become a chief strategic German priority. The price levels of foodstuffs achieved in time of peace were to become a central concern to the British government. Seeking to ensure internal support for the war cause, particularly in terms of military recruitment, the Prime Minister delivered a series of speeches in various British capitals where he explained the reasons for the declaration of war on Germany. In the following excerpts of the Edinburgh speech of the 8th of September, Prime Minister Asquith focused primarily on the moral imperative to defend Belgium’s neutrality as a matter of principle of civilisation, expressed in European public law. We are at war for three reasons. In the first place, to vindicate the sanctity of treaty obligations, and of what is properly called the public law of Europe; in the second place, to assert and to enforce the independence of free States, relatively small and weak, against the encroachments and the violence of the strong; and in the third place, to withstand, as we believe in the best interest not only of our own Empire but of civilisation at large, the arrogant claim of a single Power to dominate the development of the destinies of Europe. (Asquith 1914: 11–12) In a separate speech delivered as an appeal to the nation on September 19th in London, this time by Chancellor of the Exchequer Lloyd George, the British high

74 King’s enemy risks, maritime insurance and strategy in WW1 moral ground was combined with the relationship between European public law and credit. What was at stake for the British Empire, in Lloyd George’s speech was the very foundation of trade and commerce anchored on an international system supported by European public law. As colourfully put by the Chancellor of the Exchequer – worth quoting in full below – if European public law failed, so would the instruments of credit that supported the trading capacity of Britain. It is the interest of Prussia to-day to break the treaty [to defend Belgium’s neutrality], and she has done it. She avows it with cynical contempt for every principle of justice. She says: ‘Treaties only bind you when it is your interest to keep them.’ ‘What is a treaty?’ says the German Chancellor: ‘A scrap of paper.’ Have you any £5 notes about you? I am not calling for them. Have you any of those neat little Treasury £1 notes? If you have, burn them; they are only scraps of paper. What are they made of? Rags. What are they worth? The whole credit of the British Empire. Scraps of paper! I have been dealing with scraps of paper within the last month. One suddenly found the commerce of the world coming to a standstill. The machine had stopped. Why? I will tell you. We discovered – many of us for the first time, for I do not pretend that I do not know much more about the machinery of commerce to-day than I did six weeks ago, and there are many others like me – we discovered that the machinery of commerce was moved by bills of exchange. I have seen some of them – wretched, crinkled, scrawled over, blotched, frowsy, and yet those wretched little scraps of paper move great ships laden with thousands of tons of precious cargo from one end of the world to the other. What is the motive power behind them? The honour of commercial men. Treaties are the currency of International statesmanship. Let us be fair: German merchants, German traders, have the reputation of being as upright and straight-forward as any traders in the world; but if the currency of German commerce is to be debased to the level of that of her statesmanship, no trader from Shanghai to Valparaiso will ever look at a German signature again. This doctrine of the scrap of paper, this doctrine which is proclaimed by Bernhardi, that treaties only bind a nation as long as it is to its interest, goes under the root of all public law. It is as if you were to remove the Magnetic Pole because it was in the way of a German cruiser. The whole navigation of the seas would become dangerous, difficult and impossible; and the whole machinery of civilisation will break down if this doctrine wins in this war. We are fighting against barbarism, and there is only one way of putting it right. If there are nations that say they will only respect treaties when it is to their interest to do so, we must make it to their interest to do so for the future. (Lloyd George 1914: 4–5) The connection of credit to the security of food supply was further explained by Norman Hill, a member of the Sub-Committee for Imperial Defence on the Insurance of British Shipping in Time of War. ‘A steady insurance market was essential in all forward contracts. Credit was essential in the carrying out of all

King’s enemy risks, maritime insurance and strategy in WW1 75 transportation, and that could only be obtained on security’ (Hill 1927: 46). If the security afforded by maritime insurance was restricted, so would the security of credit for the British state. Based on this connection between European public law as the international legal order that supported the balance of power theory, and the operability of international credit instruments such as bills of exchange, the possibility of offering low prices on staple foods to the British people based on free trade principles was seriously challenged. The Royal Navy, having enjoyed ‘command of the ocean’ throughout most of the nineteenth century was now being rivalled by other navies (Halpern 1994). The pax Britannica was challenged by naval developments of recent decades. The change from sail to steam, and the development of cable and wireless communications, were joined by the development of the torpedo and its tactics as well as by new ideas on commerce warfare against British maritime trade by the French and the German. In spite of advanced technological and administrative transformations undertaken by the Royal Navy in terms of capabilities and organization (see Halpern 1994: Chapter 1), the Germans presented a credible and growing threat. Nobody at the beginning of the war could anticipate the developments of submarine warfare that were to transform British naval supremacy, particularly in the Atlantic. Considering that 80 per cent of British food supplies depended on seaborne trade (Royal Commission 1905), the Royal Navy was not in a position to guarantee open and undisrupted sea lanes for the maritime commerce of Britain and its allies. The risk of capture or destruction by enemy fleets could no longer be embraced. However, raids on maritime commerce were an old naval practice. What was new was the impact they would have on a nation that depended on five sixths of its foodstuffs from it.

Rationalising the War Risks Insurance Scheme The British experience with the War Risks Insurance Scheme of World War One details a process in which a traditional rationality of security that proceeded through the identification of threats, their management and eventual destruction, began to be taken over by a rationality of security premised on its capacity to understand threats as risks. By means of applying an imaginary of uncertainty to the management of a problem of food supply in times of war, the Asquith government generated a scheme to embark on the war effort as a strategic business enterprise. The details through which such an approach was possible have been documented in the previous sections of this chapter, in particular revealing the processes through which the threat was transformed into a risk by developing the metrics and adopting the forms of knowledge required to treat it as an insurance issue. Making the maritime war risk insurable was then a technical matter that brought together the state apparatus with that of the private insurance sector. The very fact that the scheme came into existence, however, should not be taken lightly. The introduction of the Scheme was not a simple issue. It contradicted decades of political economic policy and the very ethos of the shipping industry,

76 King’s enemy risks, maritime insurance and strategy in WW1 an industry characterised by its independence from the state, as the following paragraph by Doughty describes. If it is possible for a complex industry to be described in a single phrase, the shipping industry in 1914 was characterised by the concept of the traditional freedom of the shipowner to employ his tonnage in whatever trade and to whatever purpose he wished. In so far as this freedom was curtailed it was through the operations of commercially controlled regulating bodies, such as the system of liner conferences, but the state had no part in this. So far as the state was concerned, the owner could use the ship as he pleased, providing he conformed to the regulations concerning the vessel and her crew. The accepted view in 1914 was that the industry was self-regulating – that the importance of the demand for a particular commodity could be measured by its ability to pay for its transport, and that, in the constant competition for transport of the capitalist market place, those commodities which would not receive transport, (because of their inability to pay for it and still sell at an economic price), would be those least required by the nation. In such circumstances there was not only no need for the state to concern itself in the direction of ships to cargo, but such intervention would have unbalanced the system had it occurred. (Doughty 1982: 18) World War One, and in particular the naval threat posed by the German Empire to the security of supply of the United Kingdom through its doctrine of submarine warfare against commercial seaborne trade, changed the trading environment for the nation. Against the alternative of resorting to a war economy model whereby the state would requisition the necessary ships and centralise the supply and distribution of vital goods – as the following Lloyd George government did – the Asquith government opted for a business-as-usual approach. As an extension of a new liberal ideology that sought to promote the entrepreneurial spirit of the private sector the public/private partnership of the War Risks Insurance Scheme was presented as a novel way of waging war in a liberal manner. Although the scheme was modified after the new government took office in December 1916, the experiment highlights various aspects that help understand a very clear relationship between insurance as an instrument of government in times of war. First, the scheme enabled the operation of the private entrepreneurial spirit in times of war. Through an ideology premised on free trade, the problem of security of food supply in times of war was initially imagined by the New Liberals as a problem of efficient and economic allocation of resources for which free trade was seen as offering the best of models. The problem was then how to enable such a rationality of exchange when the context of international war, in which the Royal Navy could not guarantee secure sea-lanes, constrained the free circulation of goods and services. The solution was found in combining the capital, forms of knowledge, know-how and expertise of the private sector – in this particular case of merchants, underwriters and bankers – with the financial and

King’s enemy risks, maritime insurance and strategy in WW1 77 intelligence capacities of the state. The resources of the private sector were seen as ideally suited for dealing with the logistical challenge of supply and distribution of goods under a context of international war. It was believed that by enabling the operation of private entrepreneurship in supplying the goods for the nation, acceptable prices of basic foodstuffs would be ensured. By allying the financial capacity and the intelligence resources of the state with the entrepreneurial spirit of the merchant it should be possible to overcome the economic emergency of the state of war through liberal means. However, as noted in the debates leading to the scheme, this understanding of free trade and faith in free trade was far from unanimous. The process indicates the transition from an overwhelming trust on the capacity of the Royal Navy based on its uncontested command of the ocean of almost a century, to one in which free trade could be enabled through sovereign support and guarantees as a solution to the domestic economic challenge posed by the war. Second, the main driver for the scheme, as evident in the early discussion on the need for such a strategy, was to prevent panic in the population around the prices of basic foodstuffs. Although this chapter only touched on the issue of panic, once governance relies on biopolitical strategies that take as their object of power the life of individuals and populations, panic becomes a direct threat to an order that depends on the success of those strategies on conducting behaviour. Panic represents irrational behaviour, a return to ‘raw’ selfishness and therefore a state in which the individual precedes over the social, a direct challenge to biopolitical governance. Moreover, panic represents the absolute short-sightedness of decisions, individuals reacting to information without taking into account the collective consequences of their actions which constitutes a challenge to the very idea of liberal governance which seeks to accumulate capital as investment towards a future productive capacity of the population. However, what appears to be a simple concern with public panic begins to profile an understanding of the relationship between liberalism and war in the twentieth and later twentieth century where it has been widely argued that liberalism and war are deeply implicated. This implication, however, is not as simple as the extrapolation of a rationality of threats and its economies of fear, as has been traditionally argued by realist scholars within the discipline of International Relations. As the case analysed in this chapter illustrates, a relationship between liberalism and war in the twentieth century begins with a radical transformation of the rationality that wages industrial war in the name of free trade and commerce. The liberal way of war, to borrow the phrase that gives name to the book of Dillon and Reid (2009), is one that adopts a rationality of risk as a governmentality of governance in early twentieth century Britain. It is a rationality that is not restricted to armed international conflict but that is also employed to control ‘the home front’ and prevent the dissatisfaction of the industrial classes in the form of revolution. It materialises as well in the liberal reforms that give rise to what we know as the welfare state in Britain, an approach to understanding the security of an industrial society that employs risk management as its ethos. This is not the liberalism of Kantian pacifism; it is the enterprising liberalism for which war is a means to maintain markets open to

78 King’s enemy risks, maritime insurance and strategy in WW1 trade. But markets are not in this case insatiable monsters that devour resources but a spaces of production and consumption where consumers, as citizens, demand supply of basic goods at affordable prices, where the state assumes a role of market regulator for the security of its own existence and stability. The rationality through which such an endeavour is enabled is that of risk management. It is a rationality that had permeated the deep biopolitical function of private enterprise in the form of life insurance since the emergence of a landless middle-class in eighteenthcentury Britain. It had developed as a way to compensate for the social impact of the economic ‘externalities’ of the liberal economies of the industrial revolution in the nineteenth century in various parts of Britain and the United States. It had not been developed yet as the governmentality for supporting an international industrial war effort until the Great War. The practice of liberal rule in early twentieth-century Britain, as the case of the War Risks Insurance scheme denoted, is one which allied a liberal tradition of war with a risk-based approach to the management of uncertainty as a technology of security. Concerns with public panic were therefore the manifestation of a rationality of rule forced to satisfy the conditions of possibility of industrial consumer classes that depended on free trade for the satisfaction of their basic economic needs. In this respect a declaration of war that had traditionally known as an act of state, a sovereign decision to engage in armed conflict with other states, was read as a biopolitical necessity. The basic conditions for a form of life expressed in the form of industrial livelihoods and industrial lifestyles was threatened. Declaring war on the German Empire was not simply a matter of honour or the need to safeguard the values upon which European public law as the international order that safeguarded peace was supported. It was more pragmatic than that, although the preservation of European public law was but a manifestation of an order of governance of free trade. When Britain declared war on Germany it stated its commitment to preserve its open markets at whatever price it took in order to guarantee the ways of life of the Kingdom. This element leads to a third observation. There is a growing discussion in the literature of what could be termed the socio-legal studies of insurance around two distinct principles upon which insurantial technologies operate. On the one hand, the principle of mutuality groups together clients with similar levels of risk constituting a scheme where only those who contribute would benefit. It is the basis for private insurance. On the other hand the principle of solidarity serves a whole population where every individual is eligible to claim compensation regardless of having made contributions to the scheme. This is the basis for welfare state systems orchestrated by national states (e.g. Ewald 1986). The war insurance scheme does not fit clearly into any of these two principles. It represents the operation of what could be called a form of ‘state-backed mutuality’ where the successful operation of mutualist insurance schemes are seen as necessary for the operation of a national political economy. The scheme differentiates itself from mutual and solidary insurance in that its implementation is expected to generate a common value by way of securing lifestyles and livelihoods. As such, the war risks insurance scheme studied in this chapter generates a biopolitical outcome that can

King’s enemy risks, maritime insurance and strategy in WW1 79 be understood in relation to the ideology-turned governmentality upon which the New Liberal political economy was supported, the idea of free trade and the prioritisation of the individual as a consumer whose demands were to be satisfied. Treating the citizen as a consumer posed the political relationship in logistical terms. Providing goods and services at the right time, the right place and under the right conditions was the challenge that New Liberals assumed when the Great War started. Dealing with this challenge through a business-as-usual approach based on the promotion and protection of free trade was the immediate reaction. However, once the state becomes the insurer and re-insurer of first and last resort as a way to support the private insurance industry’s role in providing securities for the running of the economy, what results is a sovereign form of private insurance. This new form of insurance was a novel creation and was to become a fundamental aspect for liberal governance in the twenty-first century.

4 The war risks insurance regime of World War Two and the constitution of the ‘national interest’

During the first half of the twentieth century, different forms of insurance against political risks, as a way to secure international trade in time of war, were developed in Britain. The War Risks Insurance Scheme employed during the first two years of World War One, analysed in the previous chapter, is an example of how the government developed a strategy to enable the operation of maritime insurance in a context under which a commercial actuarial logic alone would have brought the merchant fleet to a standstill. The details of the debates that led to the adoption of the Scheme in 1914 witnessed the complexities involved in balancing a liberal political agenda with the requirements of war. The interwar years, after a short period of optimism characterised by the development of novel political risks insurance instruments, as will be detailed later, were faced with the pressing problem of a shifting international political economic context characterised, among other features, by growing protectionism. The situation was made more difficult by the Soviet challenges to the relationship between state and property and the development of fascist regimes in the continent and in Japan, as well as the geopolitical ambitions of these regimes. The expectation of a new international war in which Britain would be party to led to lengthy debates in the country in which the experiences of the First World War scheme were analysed to devise a system to cope with the new international commercial and political complexities. A central element that arose from those debates was the need to clarify the difference between ‘war risks’ and ‘king’s enemy risks’ in relation to ‘commercial risks’ in any future state-supported insurance scheme. The distinction mattered greatly since it led to clarifying the liabilities of state and industry in time of war, a difference which was of great importance in making sure that the British maritime insurance sector remained competitive in international markets – and therefore generated badly needed revenue to the country – and also, that the state did not unduly subsidise the industry using scarce resources that could be used otherwise. Agreeing on the distinction between these forms of risks and the liabilities of the parties, however, was not an easy process. It involved complex and protracted negotiations between the interests of the parties involved and the rationalities employed in making those interests actionable. When the insurance scheme was finally put in place in 1939, the definitions included in the Act that implemented it, were not at all clear. Ultimately it

82 The war risks insurance, WW2 and the ‘national interest’ was left for the Treasury to decide on the particularities of these risks as the war evolved based on a principle of national security. This chapter analyses the process that led to the development of a new war risks insurance scheme in 1939 aimed at coping with the challenging of retaining the competitiveness of the maritime insurance industry under conditions of war. The process provides a useful empirical site from which to understand how the new Scheme became an instrument with which to portray the idea of ‘a national interest’ around which insurers, bankers, shipowners and state institutions coalesced to promote, as noted in the debates, a principle of national security. In analysing the process, the chapter illustrates how the idea of a national insurable interest reveals the political relationality upon which forms of insurantial sovereignty – such as that exposed by the new scheme – rely. As relational, that is, as resulting from the emerging interaction between actors with varied interests, the political process involved in the new arrangement also sheds light on the contingent character of forms of insurantial sovereignty. As will be elaborated on later, elements of the scheme became permanent legislation during and after the war as a means to sustain the protection of national security. This chapter shows that ideas such as national security and national interest, so loosely employed as ontological principles for justifying governmental security policies after the Second World War, should not be taken for granted but understood in light of the moral economy from which they derive. The chapter proceeds in four parts. First, a brief history of the evolution of the insurance of political risks in the first half of the twentieth century is offered as a way to introduce the complexities of rendering the uncertainty of political instability and war insurable. A second section provides an analysis of the details of the political and international context that led to the need to develop the new war risks insurance scheme in Britain. Thirdly, the complexities of the debate that gave rise to the scheme are analysed by showing how the distinction between ‘war risks’ and ‘king’s enemy risks’ was settled in the 1939 War Risks Insurance scheme. The scheme is presented as an exercise of insurantial sovereignty and a conclusion is offered in the form of reflections on the constitution of national interest as an effect of the moral economy that gave rise to the form of insurantial sovereignty expressed through the new scheme.

Insuring political risks in the first half of the twentieth century The use of insurance to cover war risks, as evidenced in previous chapters, has an old history within the British late modern period. From the end of the Napoleonic wars and throughout the prolonged period of peace and economic prosperity dominated by the Pax Britannica, insurers at Lloyd’s had traditionally included war risks in their maritime policies. As will be noted below, this situation began to change in the late nineteenth century and, as analysed in the previous chapter, at the time of the First World War the state had become the direct reinsurer of hulls, and insurer of cargo, to guarantee the continuation of shipping throughout the military confrontation. After the war, a period of insurantial creativity followed

The war risks insurance, WW2 and the ‘national interest’ 83 during which insurers at Lloyd’s ventured to cover political and war risks that had been rendered uninsurable in the past. After having made significant losses during the Spanish Civil War, they withdrew cover creating a vacuum that the state had to fill-in once again at the outbreak of World War Two. The new state-led maritime insurantial scheme organised to supplement private insurance cover after 1939, was, however, quite different from the Scheme of World War One. It relied in this case on a gentlemen’s agreement with Lloyd’s and at its core was a crucial distinction between ‘war risks’ and ‘king’s enemy risks’. The debates that led to this distinction are explored in this chapter to make explicit the insurable interest of the new scheme as an expression of a moral economy of war which thereafter came to be referred to as an interest of national security. During the last two decades of the nineteenth century specific exclusions began to be made in maritime insurance policies for ‘warlike operations’. One particular case was the Royal Navy’s bombardment of Alexandria in 1883 (Marangos 2007: 16). The other two cases involved incidents in which the Royal Navy came to the brink of war with the American and the French navies. In 1895 the United States and the United Kingdom were embroiled in a boundary conflict between Venezuela and British Guiana. Venezuela had sought the protection of the United States, which, invoking the Monroe Doctrine, asked Britain to submit the matter to international arbitration. Britain’s argument was that the Monroe Doctrine was not valid under international law. Notwithstanding, in December 1895 President Cleveland wrote to Congress seeking authorization to appoint a boundary commission suggesting that the findings of the commission be enforced ‘by every means’ as a way to support Venezuelan sovereignty. The message was interpreted as an ultimatum to Britain which ultimately accepted the American’s right to intervene under its Monroe Doctrine and left the case to be solved through arbitration by a tribunal that convened in Paris in 1898 (Van Alstyne 1947: 206–213). This last event had a particular effect in the London insurance market where the London Assurance Company wrote to the Committee of Lloyd’s in early 1896 suggesting that the traditional attitude of the maritime insurance industry of including war risks within standard maritime policies had to be changed. They suggested that because the risks derived from a military confrontation to which Britain would be party would result in unaffordable risks, war risks should be excluded from standard cover. To that extent, they recommended the inclusion of a clause in all future policies. They asked Lloyd’s that the proposal for these changes be put in front of its members at a general meeting (Gibb 1957: 222). The proposal, however, and as noted by Gibb – a historian of Lloyd’s of London – ‘had a very cold reception from the Committee’ who replied to the Company that ‘they could not bind the members of Lloyd’s, nor would they consent to a General Meeting for the consideration of the idea’ (1957: 222). It would take another international incident to change the mind of the members of the Committee of Lloyd’s. It was the 1898 Fashoda Crisis in which British and French colonial geopolitical strategies for the continent clashed in today’s Eastern Sudan (for the details of the incident, see Bates 1984). The incident was resolved diplomatically in the British interest but nonetheless raised the alarm for insurers

84 The war risks insurance, WW2 and the ‘national interest’ in London of the consequences of naval war with an industrialised nation. Subsequently, the Committee of Lloyd’s called a meeting ‘to ballot on a resolution that in future in all Lloyd’s policies the risk of war should be excluded unless a special agreement had been reached that it should be covered’ (Gibb 1957: 223). Defeating strong opposition, the resolution was passed on 15 June 1898 and effectively brought along a ‘divorce between war and maritime’ risks. From then onwards, the two risks could be brought together temporarily by mutual agreement ‘but the long lasting bond between them ha[d] been broken’ (Gibb 1957: 223). The free of capture and seizure clause (fc&s)1 that formalised the separation between war and maritime risks and that would be included in subsequent policies, read: ‘Warranted nevertheless free of capture, seizure and detention, and the consequences thereof, or any attempt thereat, piracy excepted, and also from all the consequences of hostilities or warlike operations’ (Marangos 2007: 16). The introduction of the fc&s policy created a problem for shipowners who could not risk being caught without cover at the start of an armed conflict. To rectify the problem they established the mutual associations against losses on shipping from military conflicts noted in the previous chapter. These associations, however, excluded British war in their conditions of cover, a situation that led the state to intervene through the War Risks Insurance scheme employed for the first two years of World War One. In the aftermath of the war, the context for the underwriting of political and war risks had taken a positive turn and offered plenty of opportunities for profit and growth. Insurers claimed to have found the way to render the otherwise catastrophic losses of political and war risks coverable. Mainly as a result of chance, underwriters at Lloyd’s had created during the war a new area of business which was to provide the basis for a brief spell of insurantial creativity in its aftermath. The new area of business was that of protection against bomb damage. As narrated by Gibb, in the very early days of the war the owners of a building in the City of London enquired at Lloyd’s for rates to cover it against bomb-damage. The enquiry was taken to Sidney Boulton who had never seen such a risk before and he quoted 2s. per £100. The rate was accepted by the property owners and it then turned out that Boulton had not taken the enquiry seriously. His quotation had been a jest but he stood by it and wrote the risk – the first of its kind in world history. Lloyd’s had invented another new insurance. . . The tariff companies preferred to leave the business alone and for three years Lloyd’s, which was the main market for air-raid damage, was flooded with orders and the underwriters did very well out of them. (1957: 226–227) Through products such as these, in the 1920s members of Lloyd’s and other underwriters in the London market began to get increasingly involved in the underwriting of ‘war on land risks’. With insured war risks in Ethiopia, China, Palestine and Spain, underwriters challenged the principle that political risks were

The war risks insurance, WW2 and the ‘national interest’ 85 technically uninsurable. As recorded in the work of Virginia Haufler (1997, 1993), underwriters believed they had mastered techniques that enabled them to insure for events such as ‘civil commotion’. In particular, underwriters developed a reputation for willing to develop new forms of specialised insurance which appeared to solve the problem of the exclusion of these risks from standard maritime cover (Haufler 1997: 61). At the same time, market solutions for political risks after the war seemed for a moment to provide the security that had been lost with the end of the British pre-eminence after the First World War. This situation was to be short lived. As narrated by Gibb, after 1918 [insurers at Lloyd’s] continued to write not only the bombing risk but other war damage in various parts of the world. They wrote in Ethiopia, in China, in Palestine, and in Spain – above all in Spain. And it was Spain that pulled them up short, for there they learnt how many claims a single raid on a comparatively small town could produce. The early reports of the destruction done by aircraft in the Spanish Civil War were exaggerated, but the figures when they reached London were bad enough to show that the experience of 1914–18 was no guide to what would happen in the next Anglo-German War. To Spain Hitler had sent only a few squadrons of bombers and they dropped their bombs on a poor country with few rich cities and little concentration of wealth in its crowded areas. He had sent them in an experimental mood. . . (1957: 230) The experience of the Spanish Civil War made losses derived from land-based war risks unsustainable. As a result, insurers quickly organised a voluntary international ban on land war risks insurance coordinated and enforced by the London insurance market. This ban, known as the Waterborne Agreement, was subsequently reinforced by the 1937 War and Civil War Exclusion Agreement, which was a market pact that barred marine cover from any form of war event. In light of this situation there was a pressing need to find a way to enable cover for shipowners by employing a rationality different from that of standard market principles. For the moment, it remained difficult to reconcile the interests of shipowners and merchants, insurance underwriters, and the government, into a single strategy. The situation was narrated by Gibb in the following way: The underwriter said quite rightly: ‘War may break out at any moment and I dare not commit myself to fixed war rates that will hold good for weeks ahead or quote rates that would normally satisfy me in times of peace’. The merchant with equal justice said: ‘War may break out at any moment and I must be insured against the risk. I cannot pay high rates before it has actually begun and if I am to place forward contracts with my customers, as I am bound to do, I must have a firm rate for insuring the cargoes when they are shipped’. It was very nearly a dead-lock of conflicting necessities. (1957: 228)

86 The war risks insurance, WW2 and the ‘national interest’ It was believed by shipowners and insurers that the way out of this problem would be some form of state intervention to enable the insurance of shipping and cargo in case Britain went to war. The expectation was that the British state would draw on its experience of running the 1914 War Risks Insurance Scheme. However, a crucial matter had to be clarified before any such scheme could be implemented, the difference between ‘war risks’ and ‘King’s enemy risks’ and the liability of the state in each case. This was not a new problem and had been identified almost twenty years earlier at the outset of debate in the early 1920s. Then, the government commissioned a sub-Committee of the Committee for Imperial Defence to clarify the question of the necessity for a state-backed maritime reinsurance scheme in time of war and to determine the state’s liability in such an arrangement. Opinion on the usefulness and relevance of the previous experience tended towards an agreement that a scheme of that kind constituted a strategic imperative for the state. The following extract from a memorandum authored by Norman Hill, who had been part of the Sub-Committee chaired by Huth Jackson that recommended the creation of the 1914 War Risks Insurance Scheme, illustrates the point. Before the war, the opponents of the War Risk Insurance Scheme insisted that no form of insurance could guarantee the arrival of overseas supplies; that that could only be done by affording adequate protection to the ships employed in the bringing of those supplies. The statement was a truism, but what the Scheme could and did do, by relieving the individual shipowner, trader, and banker of the possibility of the burden of an overwhelming loss, was to maintain both the running of the ships, and the credit which was an absolute necessity in the purchasing of the supplies. (Hill 1923: 21A) Drawing on the experience of the Huth Jackson scheme, the current subCommittee agreed that the state should definitely be involved if merchant shipping was to be kept sailing to and from Britain. It suggested that an organising committee should be appointed to discuss the technicalities and practicalities of the new system. By the time the Organising Committee made its recommendations in 1937, the enthusiasm of the private insurance industry to underwrite political and war risks had waned almost completely. For example, industry organisations such as the War Risks Insurance Clubs, associations organised to pool the exposure of British shipowners to risks of war when Britain was not directly involved in a conflict (e.g. the Abyssinian crisis or the Spanish Civil War), operated under the premise that they would cease cover the moment Britain became a belligerent. Thereafter the intervention of the state would be required to keep the merchant fleet insured. As noted by Haufler, these associations, known as War insurance clubs or War Risks Associations, could control losses and build up financial capacity better than commercial underwriters (Haufler 1997: 46). The reason was twofold. As mutual associations their objective was not to generate profit but to provide a service to

The war risks insurance, WW2 and the ‘national interest’ 87 its shipowner membership. The second advantage was that the traditional problem of moral hazard – the incentive on the insured to assume a risky behaviour when covered by a policy – was eliminated since in the case of claims exceeding the financial capacity of the Clubs, members were called to make contributions. These associations limited their war risks cover to situations where Britain remained neutral. If the country became a belligerent the Clubs’ resources would not be adequate to cover damages which were expected to be of an unprecedented magnitude given the technological advances of naval warfare. The three Clubs created for this purpose were the North of England Protecting and Indemnity Association, the London and Liverpool War Risks Insurance Association and the London Group of War Risks Associations. In light of the imminence of Britain entering the war in 1939, and considering the reticence of private insurers to cover risks, a new regime of sovereign-led war risks insurance in times of war developed. Preparations were made by the Government to ensure maritime trade would be guaranteed throughout the conflict and the 1939 War Risks Insurance Act, which had parallels with the US Merchant Maritime Act of 1936, was passed by Parliament. Its core objective was to ensure that merchant ships will not be held up or the trade of Britain interfered with by lack of insurance facilities once a war began (Great Britain 1939, part I). The Act explicitly authorised the Board of Trade to arrange with maritime underwriters to provide cover for King’s enemy risks on ships and cargoes by sea and air and to reinsure them in the totality for that risk. The Act was complemented in Part II with the creation and operation by the Board of Trade of a Commodity Insurance Scheme for the insurance of commodities at time of war. On the 3rd of September 1939, Britain entered the Second World War. With the 1939 War Risks Insurance Act in force, and as a way to complement the security for hulls, it created a monopoly of war risks for cargo through the formalisation of a gentleman’s agreement with Lloyd’s of London. Under the arrangement, underwriters would always quote higher rates than those offered by the government’s War Risks Insurance Office for voyages to and from Britain. For voyages involving two overseas countries, insurers were free to quote what they liked. In the words of Gibb, the scheme ‘was an ingenious plan and it worked admirably. Rates were kept down to a comparatively low level; the merchants were able to make their contracts; trade flowed and the raw materials for ships, guns, and planes were brought to Britain’ (1957: 228). The Act was subsequently amended during the War, particularly in 1940 and through the Emergency Laws Act of 1947. Its provisions were finally incorporated into permanent legislation through the Maritime and Aviation Insurance (War Risks) Act of 1952 which still stands.

The political international context for the new scheme The 1939 War Risks Insurance Scheme was not simply the logical continuation of the 1914 insurance and reinsurance agreement. By 1939 Britain’s position in the world had changed dramatically and the context for international trade on which the British Empire had flourished from the mid-nineteenth century had changed

88 The war risks insurance, WW2 and the ‘national interest’ beyond recognition. The threats to liberal regimes by fascist and communist factions posed a challenge to the peace settlements of World War One as well as to international trade. Customary international property law had been seriously undermined during the inter-war period through the success of the Soviet revolution. The policies of the Third Reich threatened the post World War One balance of power and reduced the possibilities for economic cooperation. Prime Minister Chamberlain’s policy of appeasement as an intent of maintaining peace with the major European powers had failed. Adding to the political unease, the economic depression of the early 1930s had affected the British shipping sector in a significant way. By 1936 Britain, excluding the Commonwealth, had almost 10 per cent less shipping tonnage than in 1914 (Doughty 1982: 69). Under that context, an urgent strategic challenge for the British government was to protect its foreign investments at a time when the country’s military and economic influence in the world was diminishing. Whereas British foreign investment had flourished between 1854 and 1914, the situation had deteriorated by the mid 1930s. According to Imhlah, foreign investment quadrupled between 1854 and 1874 and quadrupled again before 1914. Then, between 1911 and 1913 nearly 80 per cent of London’s new loans went overseas (1958: 72–75). As noted by Hobsbawm, by the mid 1920s British investments ‘earned more than ever before’ (1968: 188). In the three years following 1929, British foreign dividends fell from £250 million to £150, ‘her other invisible earnings [financial and insurance services, amongst others] from £250 to £150 million’ (1968: 188). By 1934, 80 per cent of British investments stayed at home and when foreign investments were made they were done mainly within the British Empire (Hobsbawm 1968: 189). The changes evidenced in these figures need to be understood within the context of the Great Depression of 1929. As noted by Clayton, ‘by the third quarter of 1932 the volume of world trade was only two-thirds of the quarterly average in 1929, whilst by 1933 the value of world trade had fallen dramatically, so much so that in 1932 they amounted to only 63 per cent of the 1929 figure’ (Clayton 1971: 150). Comparative figures for the United States were 53 per cent, and 59 per cent for France and Germany (Lipson 1985: 66, based on Imlah 1958: 72–75). These transformations came along with a shift in British foreign policy. During the period which Hobsbawm called ‘the Age of Empire’ (1875–1914), efforts focused on fostering a fair-field on international trade where, under a liberal policy, the state would seek to guarantee investors’ access to markets but would not provide particular favours to them (Hobsbawm 2003). This policy was supported by Britain’s naval supremacy, its agency as lender and creditor of global trade and a robust industrial and financial output. Following the First World War the context had changed. Liberal international trade was challenged by the undermining of customary international property law that resulted from the Soviet Revolution, new protectionist policies in the European continent, and the financial crisis of the late 1920s which had visible effects in the 1930s. Under such circumstances Britain faced a situation where its industrial output had to compete in an international environment of declining profit margins and high tariffs (Lipson 1985: 42). As an illustration, and as noted by Hobsbawm, between 1912

The war risks insurance, WW2 and the ‘national interest’ 89 and 1938 ‘the quantity of cotton cloth made in Britain fell from 8,000 million to barely 3,000 million square yards; the amount exported from 7,000 million to less than 1,500 million yards. . . In 1913 twelve million tons of British shipping had sailed the seas, in 1938 there was rather less than eleven million’, and in 1913 almost a million tons of vessels for shipowners had been built, in 1938 only little more than half a million (Hobsbawm 1968: 185). Continental protectionism, the Soviet Revolution and the interventionist economic diplomacy of Germany as described by Hirschman (1945), posed a direct challenge to Britain’s laissez-faire policy which could only operate if the traditional liberal principles enshrined in customary international property law were observed. In 1922 Britain tried to assert international rules of trade in front of the Soviet Union. It argued that regardless of domestic political changes international property law should prevail in international transactions and that in case of nationalisations of industries full compensation should be paid. This was not an easy fight since the spirit of the Soviet decrees ‘systematically abolished private property’(Lipson 1985: 67) and, overall, threatened to redefine ‘the potential relationship between the state and private property’ (Lipson 1985: 69). As noted by Lipson, the significant challenge of the Soviet expropriations was that they resulted from ‘neither turmoil nor executive decree but from the redefinition of the social character of the state’ (1985: 70). By this time, the United States had become the new world’s leading creditor and Wall Street the new banker. Its role became vital in the enforcement of international trading rules. However, the US decision to restrain itself to the Western Hemisphere left Britain with its diminished military, economic and diplomatic resources in a difficult position (Lipson 1985: 66). The British inability to shape circumstances in the global sphere led it to concentrate on its empire, the quarter of the world it still dominated, and, as Hobsbawm put it, to fence it off ‘against aggressive foreigners’ (1968: 222). From 1932 onwards, after the British Empire Economic Conference in Ottawa agreed on establishing a zone of limited tariffs within the Empire and high tariffs with the rest of the world, the policy of Free Trade was abolished and the gold standard abandoned (1968: 206). Under such a context debate on what was to be covered by the state within a new war risks insurance scheme began to develop. In light of British investments abroad and its dependence on overseas trade, spelling out the separation between war risks and King’s enemy risks, as well as their difference with standard commercial risks, became a priority. The articulation of those risks into a national strategy of risk management, as will become evident throughout the next section, lied at the core of the new war risks insurance scheme as an expression of a national interest. The following section is based on genealogical research on the debates that led to the scheme as a form of national risk management.

The struggle to define war and King’s enemy risks On 27th February 1923, the sub-Committee on the Insurance of British Shipping in Time of War, a standing sub-Committee of the Committee for Imperial

90 The war risks insurance, WW2 and the ‘national interest’ Defence, reported that adherence to the principles of the 1914 War Risks Insurance Scheme was an essential measure and ‘that all necessary steps should be taken to make certain that Schemes carrying those principles into effect will be immediately available whenever this country becomes involved in war’ (CAB 16/57, 1923: 7). Under its terms of reference, the sub-Committee reviewed the working of the 1914 arrangement to determine the extent to which the schemes were needed, the possible need to vary the methods advocated by the Huth Jackson Committee, determine if the benefit of the schemes were secured at the minimum cost to the country, and finally, evaluate the possible advantages deriving from varying or amending the methods of the experience of the previous war (CAB 16/57, 1923: 7). Although the War Risk Scheme of 1914 was limited to situations in which Britain was a belligerent, this Sub-Committee considered it important to analyse the need for new schemes in a future war in case Britain remained neutral. The Huth Jackson Committee had based the 1914 scheme for hull insurance on the organisation of the Shipowner’s Mutual War Risk Insurance Clubs. The arrangement was based on the agreement that Clubs had the right to reinsure with the state 80 per cent of all risks insured by them. The Scheme’s underlying principle was that the state recognised its liability for King’s Enemy Risks. It was tacitly accepted that the remaining 20 per cent of risks corresponded to commercial risks for which shipowners provided their own cover through the Clubs. After Germany’s implementation of its policy of unrestricted submarine warfare in January 1917, and when more and more ships were requisitioned by the state, the risks incurred ceased to be of a commercial nature and became to a great extent King’s Enemy risks, a situation which led to the direct insurance of hulls by the state. The valuation of those risks constitutes a central element from which to understand the implications of assuming commercial risks as King’s enemy risks in time of war. According to the Sub-Committee, from the insurance point of view the main problem presented by the 1917 Scheme was ‘the assessment in advance of premiums to produce an income fund sufficient, but no more than sufficient, to cover the losses as they occur’ (CAB 16/57, 1923: 13A). The understanding was that under liberal principles the state should intervene as little as possible in the commercial running of the economy and should only do so to allow the sailing of ships under conditions of war. Unacknowledged in the report, however, was the assumption that the state should only incur the costs of King’s Enemy Risks and would leave private insurance, through the agency of the Clubs, to cover the rest. The problem of valuation here acquired a particularly important dimension since the uncertainty resulting from a situation of war was completely different from the uncertainty of competition within an open market. How was value to be determined under an order of war? How was capital to be understood liberally when the state, its constitutive forces and resources, and the security of its people, their lifestyles and livelihoods were under existential threat? If the open insurance market was driven by the expectation of profit, what should be the principle of valuation for a sovereign-led insurance market in time of war? Where would the boundary between King’s enemy risks, assumed to be of a sovereign nature and

The war risks insurance, WW2 and the ‘national interest’ 91 implying a sovereign responsibility and therefore liability, and commercial risks that involved the risks of operating uncertainty within a market environment, be drawn? The crux of the matter was that the very livelihood of the British State depended on its capacity to operate as a liberal economy in time of war. A posteriori, the Sub-Committee decided that the best way to judge the reasonableness of the cost of the 1914 Scheme was by comparing the premiums charged with the losses sustained (CAB 16/57, 1923: 13B). The difficulty of pricing risk in the way of insurance premiums was evident in the following extract of the report. The report of the Huth Jackson Committee was adopted by the Government only a few days before the declaration of the late war, and there was no time even to attempt to assess different rates of premiums on hulls for different zones or different voyages. Even if there had been time it is very doubtful if any such differentiation would have been possible in view of the information then available as to the disposition of the enemy’s armed vessels, and still more as to the methods he would be likely to adopt against Merchant Shipping. It was generally believed that many of the trading ships, which were scattered all over the world, carried guns, and it was known that he claimed the right to convert on the high seas a trading ship into a war ship. . . In the result, the Government adopted on the outbreak of the war a flat rate of premium for all voyages, and this method was adhered to until the underwriting partnership came to an end in August 1917. (CAB 16/57, 1923: 13B) Under those circumstances all limits were blurred. Traditional sovereign boundaries that distinguished combatants from non-combatants and commercial vessels from ships of war were crossed challenging the international legal order that sought to protect the civilian and the commercial from the military. Liberal arrangements for international trade supported on the moral order of international treaties would no longer guarantee the conditions for commerce. Where the King’s enemy risk ended and the commercial risk started was no longer clear and as evidenced in the previous quote the Government decided to apply a general policy to all vessels. Because the real risk was difficult to foresee – that is, the time-bound event for which insurance was bought – the state agreed to a time rate being quoted to cover a period of ninety one days (CAB 16/57, 1923: 13B). These arrangements were designed to provide the kind of cover that commercial insurers were not willing to offer and in so doing to keep the fleet afloat and trading. As the war evolved the flat rate system began to generate a loss for the state and although by the time the Scheme was replaced in 1917 the differential rate did not make sense in light of the state having requisitioned most ships, the idea of incorporating a system of incremental rates for future schemes remained. That the position of having variable rates was not universal indicates the difficulty in identifying the boundary between the King’s enemy risk and the commercial risk. In his analysis of the Scheme, Douglas Owen noted that ‘I may here record my decided opinion that if at some future time the State Insurance

92 The war risks insurance, WW2 and the ‘national interest’ against War Risks should become necessary, the State should set out by making War Risks Insurance a Government monopoly’ (CAB 16/57, 1923: 15A). Owen’s opinion would imply that the Government recognised the overall primacy of King’s enemy risks and consequently assumed responsibility in managing all risks affecting the merchant fleet. As things happened, this would also imply a profit for the Government. The problem, however, was the liberal aspect of the scheme. If the commercial viability of the British insurance industry was compromised this would have effects on the revenue generated by insuring foreign risks in the London market. Furthermore, if private insurers were affected in their business through the competition of a variable-rate state insurance scheme, they might cease sharing their knowledge and expertise with the Government in the operation of the arrangement. The monopoly could end up giving the insurance business to foreign competitors since shipowners would be free to insure abroad affecting the loyalty and the beneficial effect of the scheme itself (CAB 16/57, 1923: 15A). Due to these and other considerations the Sub-Committee did not recommend the establishment by law of a state monopoly (quoted in CAB 16/57, 1923: 15B). The measurement of the risk for which insurance was to be offered remained a central aspect of the debate at the Sub-Committee. If it became possible to measure risks once the war had begun it would then be possible to introduce variable rates within a war risks insurance scheme. Not doing so would amount, in the opinion of the Sub-Committee, to subsidising voyages. This point is quite significant since it introduces a scale of variation within the boundary between King’s enemy risks and commercial risks. The variable rate, if applied to reinsurance agreements by the state, would indicate the percentage belonging to state and commerce. If the object of the scheme had been, as the Sub-Committee suggested, ‘to enable the shipowner and merchant to disregard war risks’ (CAB 16/57, 1923: 16A), then the variable rate would have been the ideal mechanism. But in the case of a war in which unrestricted submarine warfare and the implementation of airpower and new weapon technologies promised to be the norm, the quantification of King’s enemy risks did not seem to be a clear option. Ultimately, the very fact that debates on the possibility of including variable rates to prevent the subsidy on the insurance of private vessels indicates a clear separation between state interests and commercial interests. Contrary to the idea that commercial interests in time of war merge with the national interest, the design of the scheme started from the pragmatic position that merchants and commerce could move their capital and expertise abroad if the state was not prepared to recognise its share in the risk environment. This is an important aspect that must be taken into account when analysing the operation of the scheme since the entrepreneurial form of power of the shipowner and insurer does not necessarily correspond to that of the sovereignty of the state, although both forms of power were part of the scheme itself. If Britain was to preserve its liberal status, at least within the domestic market, it would have had to ensure that the war risks insurance scheme for a future European confrontation satisfied the interests of both state and commerce. The agreements to be reached with the War Risks Insurance

The war risks insurance, WW2 and the ‘national interest’ 93 Clubs would therefore have to be reached ‘as a matter of bargain’ (CAB 16/57, 1923: 15B). For this bargaining process the issue of the valuation of ships became central once again. War risks clubs were of the position, with variations, that the value of the ships to be insured should be determined by experts. The Sub-Committee, on the other hand argued that because the object of a war risks insurance scheme would be to maintain overseas trade in time of war, and that the credit of the state, in the form of insurance, should only be extended to reach that objective, a valuation formula should be adopted. Such formula would be in the form of ‘first cost less depreciation at the rate of 4 per cent per annum’ (CAB 16/57, 1923: 17A). Any difference between the state covered value and the commercial assessment could be insured privately by the war risks clubs. Part of the problem for the Clubs was that in case the state exercised its power to requisition a member’s ship the Club would lose the ‘calls’ which were the shipowner’s contribution to the insurance pool. A compromise could be reached if the state would agree to its liability of calls if it assumed property of a vessel. However, if the state was to requisition the majority of ships as it did after 1917, the Clubs would be released from their liability on those ships and the state would be responsible. In effect, this meant that under a risk sharing system, such as the proposed war risks insurance scheme, shipowners would insist on the valuation of their ships based on commercial principles and not on a standard formula which although convenient for the state’s administration of risks did not correspond to the market environment under which the policies operated. Put differently, shipowners claimed that the risks of the scheme should be underwritten under standard actuarial practice. The conflict on the basis on which to calculate the risks of the scheme was to continue until 1939. The Club’s claim for the state to assume the totality of war risks was evidenced further in their petition to the 1923 Sub-Committee that the state offered 100 per cent reinsurance of all war-related risks. These included risks that were normally contemplated in the fc&s maritime insurance clauses which would be automatically excluded at the commencement of a war. In particular, shipowners were asking for risks of civil commotion and riot to be covered by the state and also other risks such as casualties arising during the navigation of insured ships under convoy, casualties occurred whilst navigating at night under Admiralty orders, as well as stranding resulting from shore lights having been obscured for war reasons (CAB 16/57, 1923: 17B). These risks gave rise to numerous and costly court cases which sought to ascertain ‘whether the Maritime or the War Risk Underwriters were liable’ (CAB 16/57, 1923: 17B). The problem evidenced in court cases was far from being a technical matter. What was at stake was the nature of the risk for which insurance was extended as an indemnity instrument. If the risk was incurred as a result of actions of war then the state would, in principle, be liable. The difficulty arose out of determining if a particular event, in the context of a war risk management manoeuvre such as convoy escort, was a maritime or a war risk. In a discussion at the Harvard Law Review in 1920, for example, it was noted that in cases in which there is a single cause of a catastrophe, as opposed to a case in which a catastrophe results from the action of two separate attacking forces,

94 The war risks insurance, WW2 and the ‘national interest’ deciding if the nature of the risk was war or maritime-related had been left to the discretion of the court (1920: 708). Such is the case where a vessel in convoy, sailing a zigzag course ordered by a naval officer, runs upon a reef, or where ships collide while navigating the war zone without lights. Stranding and collision are but the commonest of the perils of the sea; yet in these cases the accident would not have happened but for the extra-hazardous methods of navigation necessitated by the war. In British Steam Navigation Co. v. Green the Court of Appeal held that stranding under the circumstances above mentioned was not a consequence of hostilities or warlike operations. On the collision question the British courts have decided that where one of the colliding ships is a war vessel on active duty the collision is a consequence of a warlike operation. But in Britain Steamship Co. v. The King, although it was admitted that the proximate cause of the loss was the absence of lights on the vessels, it was held that the loss was not a consequence of hostilities or warlike operations. Bailhache, J., in the Divisional Court said, ‘In my judgment the Admiralty regulations that vessels should navigate at night without lights greatly increased the risk of collision but left it a maritime risk’. (Harvard Law Review 1920: 708) A suggestion was made by the Clubs to the Sub-Committee to refer these cases to arbitration but the Sub-Committee was of the opinion that it should remain in the realm of the Courts of Law. What matters in this debate, however, is the unclear definition of what constitutes or not a King’s enemy risk. Although it is evident in the narratives and the language used in the reports of the Huth Jackson Committee and generally in all documents leading to the 1939 War Risks Insurance Bill, that both the Government and the war risks insurance clubs would coalesce around ‘the national interest’, what is not clear is what that national interest looked like in the eyes of shipowners and government officials. For example, and as noted by Hill, on the declaration of war in 1914 the shipowners through their clubs assumed the following position: The intention of the Scheme and the object of the state in re-insuring the King’s Enemy risks to the extent of 80 per cent is to maintain the oversea trade of the Country wherever it can reasonably be maintained. Of course, members should act prudently, remembering that they are all partners, the one with the other, and with the state. The Association relies on every partner doing his best to minimise calls, but members will at the same time recognise that their duty to the state is to keep their ships going wherever it is reasonably possible. (Hill 1923: 21A) On 30th of July 1924, a new Committee for ‘draw[ing] up the heads of the necessary Parliamentary Bills, and prepare the machinery required to give effect to the detailed recommendations contained in the report’ of the Sub-Committee, was established. The remit of the Committee, however, as stated by its Chairman on

The war risks insurance, WW2 and the ‘national interest’ 95 the meeting of the 29th of April 1937, was concerned ‘only with King’s Enemy Risks – all other risks are outside of the scope of the Committee’ (CAB 16/58, 1937: 79). Defining the remit of King’s enemy risks was always a difficult matter. In the Sub-Committee report of 1923, the advisability of defining the state’s responsibilities with regards to hulls and cargo with reference to any particular war in which Britain was a belligerent was pushed for by the Treasury (CAB 16/58, 1937: 79). The Committee at this time was discussing the inclusion of a ‘precautionary period’, a period which had not been specifically defined, but allured to the on-going ‘Spanish Crisis’. In 1937 it was suggested at the Committee that under such a period British ships would be insured by the Clubs, and although not reinsured by the state – this would happen once Britain became a belligerent in a war – they should obey advice and instructions provided by the Admiralty. During the Spanish Civil War Britain’s ‘Non-Intervention Policy’ officially kept the country out of the conflict but there was discussion about what were the responsibilities of the state towards its merchant fleet in light of the conflict. If a precautionary period was indeed to be included in the Scheme then clear definitions as to what the liabilities of the state would be had to be established. Under the 1914 Scheme the state’s liabilities would commence at the declaration of war or when hostilities began by or against the King’s Enemies. Even then the threshold between maritime risks and king’s enemy risks was not clearly defined and the urgency of the debate, in light of the Spanish confrontation and in light of the Waterborne Agreement (which restricted cover to maritime-borne assets excluding all land-based risks) called for specific definitions. Although War Risk Insurance Clubs’ policies covered losses from enemy actions ‘whether before or after the declaration of war’ the state’s reinsurance against such losses would only be effective once Britain became a belligerent (CAB 16/58, 1937: 80). However, the Clubs were formed to cover war perils other than king’s enemy risks, such as incidents of war between other countries, and they would only cover for King’s Enemy Risks if reinsured by the state (CAB 16/58, 1937: 84). Due to the technological advances in warfare and the unreliability of international treaties as a safeguard against attack on commercial maritime trade establishing the threshold of King’s Enemy Risks was an imperative. The following extract from Sir Norman Hill’s notes of June 1937 on the matter illustrates the point: It has been under the protection afforded by the Clubs that, since the war, British shipping has been free to carry on its activities in the face of the longthreatened war risks in the Far East, in the war between Italy and Abyssinia, and in the existing war in Spain. And the only loss the Liverpool and London Club has been called on to meet since the [First World] war is the claim for the damage sustained by the Union Castle boat in the Mediterranean during the present war in Spain. The whole 100 per cent of that loss will be met by the Club. (CAB 16/58, 1937: 84) On the 11th of July 1939, a Bill to authorise the Board of Trade to undertake the insurance of ships and other goods in time of war and to compensate for goods lost

96 The war risks insurance, WW2 and the ‘national interest’ or damaged in transit, and also to require persons to insure goods against certain risks in time of war, was passed in Parliament (CAB 16/58, 1939: 327). The Bill granted the Board of Trade the authority to enter into agreements with any persons to the effect of re-insuring any ‘King’s enemy risks against which a British ship is for the time being insured’, and for the re-insurance ‘of any King’s enemy risks against which the cargo carried in a ship or aircraft is for the time being insured’ (CAB 16/58, 1939: 327B). The Bill was explicit in stating that for the two abovementioned provisions the term ‘king’s enemy risks’ could be equated to that of ‘war risks’ during periods at which the country was officially at war. The text of that paragraph is of great importance and reads: ‘In relation to any period during which His Majesty is at war the preceding provisions of this subsection shall have effect as if for any reference therein to King’s enemy risks there were substituted a reference to war risks’ (CAB 16/58, 1939: 328A). Through such a move, Parliament granted the Board of Trade enormous leeway in establishing the boundary between the two concepts, a matter for which the Organising Committee could not provide a definitive answer precisely because of the reasons noted before in relation to, for example, cases of ‘precautionary periods’. Further on, the Bill proceeded to provide definitions for the two separate risks but it preserved on the Board of Trade the authority to determine the specificities of definition as circumstances arose. It is worth noting as well, that in the definitions quoted below it is clear that the petition made by shipowners to the Sub-Committee of Imperial Defence for the Insurance of British Shipping in Time of War in 1923 in relation to incorporating the exclusions of the fc&s clause, was considered and accepted. This petition, of course, lied at the core of equating ‘King’s enemy risks’ with ‘war risks’ once a war had started. The expression ‘war risks’ means risks arising from any of the following events, that is to say, hostilities (including action taken in repelling an imagined attack), rebellion, revolution and civil war, or from civil strife consequent upon the happening of any of those events, as the Board of Trade may by order define for the purposes of this Part of this Act, having regard to the meaning assigned to that expression by any agreement under section one of this Act, and includes piracy. (CAB 16/58, 1939: 330A) The expression ‘King’s enemy risks’ means such risks arising from action taken by an enemy, or from action taken in combating an enemy or in repelling an imagined attack by an enemy, as the Board may by order define for the purposes of this Part of this Act, having regard to the meaning assigned to that expression by any such agreement as aforesaid. (CAB 16/58, 1939: 330B)

The national interest and King’s enemy risks Synchronising the interests of the British maritime insurance industry, shipowners and the government, in its attempt to ensure the continuation of shipping in time

The war risks insurance, WW2 and the ‘national interest’ 97 of war, amounted to bringing together the interests of the parties into a grand, national interest. In principle, the pooling together of interests would work to the commercial and political advantage of the parties, but deciding the extent of liability of the parties involved, in this case shipowners and the King as the state, accrued to creating an alliance of interests which would not normally exist at peace time. Under market conditions shipowners would be free to explore the market for the best rates and conditions of coverage for undesired events. Under conditions of war the trade environment would be significantly affected by causes that escaped their own agency and interests. A declaration of war is an act between sovereign states and a condition of belligerence transforms the context under which trade operates. Merchants, insurers and shipowners would claim that the sovereign character of a declaration of war and a state of belligerence should be recognised by the state in the form of liabilities. If trade and commerce is a private venture, then, changes in the environment as a result from sovereign decisions creates risks that escape the nature of the private enterprise. In that respect then, the state should either compensate or repair the private agents for damages resulting from its sovereign actions. The question underlying the debates leading to the war risks insurance schemes of World War One and World War Two was about the extent of the private character of enterprise in relation to the national interest of the state. During the two world wars where the threat to the country was presented as an existential menace to the form of life of its nationals it was expected that the economy and the defence of the country would become part of the strategy and that the national interest should be promoted and protected by all means. The evidence present in the debates mentioned above, however, reveals a different reality. The interests of the private sector were tightly interlinked with financial and commercial interests abroad, in many cases in countries that were now the declared enemies of Britain. If King and Country prevailed over the commercial and financial interests of the ‘private’ sector, then what was taking place through the articulation of the new war risks scheme was a shift in the order of commerce upon which Britain relied. In this new order of commerce the state would play a more active role by steering some sectors and bringing others considered to be of strategic interest, under its remit – the railway sector, for example. In the case of maritime insurance, taking into consideration the international credit links on which it depended, it is illusory to conceive that underwriters and merchants would simply accept a national interest to preserve national security as the driver for their action, unless they were compelled to do so by law. This is precisely what the 1939 War Risks Insurance Scheme did under the imminence of war and the devastating military technologies at stake. The form of sovereignty employed in doing so is different from that of risk management analysed for the case of the 1914 scheme. In this case the form of insurantial sovereignty was one driven by a narrative of national security in which sectors of the economy are compelled to cooperate with the government under an existential fear of national survival. What is remarkable is that such compulsion, which was contingent to the war effort, became enshrined in law after the years of hostility and remained in force throughout the Cold War and part of it still applies today.

98 The war risks insurance, WW2 and the ‘national interest’ The coincidence of interests of insurers and government under the 1939 Scheme also defies the rationality on which insurance has developed a technology to transform uncertainty into risk as a tradable asset. As noted in Insuring Security, the modern understanding of risk relates to a process through which uncertainty is made fungible – that is, amenable to trade and exchange – within an established time period. The result of making uncertainty fungible is expressed in the form of a price, a price that represents the financial cost of repairing a loss should it occur. The loss is formulated as the imagined ‘event’ against which a strategy to, either prevent its occurrence or manage its consequences, is devised. In the modern understanding of risk, the very concept of the event plays a primordial role and crafting its definition becomes a crucial aspect in any risk management strategy. The loss, as event, is enframed within well-established time limits and changes in those limits modify the event itself. This understanding of event-bound risk implies the interaction of different forms of knowledge, expertise, language, orders of calculation and cultural settings, which vary depending on the actor ‘interested’ in assessing and managing risk. By definition, then, the assessment of risk by one actor will differ from that of any other actor unless the interests upon which risks are calculated coincide exactly. Within a liberal order of governance where individuals and actors are assumed to be interested subjects (Hirschman 1977), a situation of perfect coincidence of interests is utopian and a negotiation of interests into a common ground is more likely to be the case when more than one party agrees to participate in a risk management scheme. The process that led to the establishment of the scheme did not lead to a coincidence in interests between shipowners, insurers and the state. Instead, it led to a lengthy and complex negotiation whereby the interests of the various parties created what can be called an assemblage of interests. Whereas it is tempting to refer to this assemblage as the ‘national interest’, such a label would imply an agreement between various parties under a national strategic priority. What can be observed in the discussions that led to the Scheme is precisely that no final agreement was reached in terms of the definition of what constituted a war risk, a commercial risk and a King’s enemy risk. In the definitions included in the War Risks Insurance Bill of 1939 cited before it is clear that the Board of Trade was granted the authority to define these risks as the circumstances arose. In practice, this authority allowed the government to adapt the scheme to the shifting conditions of the war while maintaining a constant communication with the shipowners through their Clubs and also with insurers through Lloyd’s. The novelty of this relationship was the ability of the government to bring together a disparate set of interests, both political and financial, into a single strategy that consisted in the mobilisation of maritime insurance as a strategic resource at the start of the war. Given the economic, political and military circumstances of the country in 1939, the War Insurance Scheme became an instrument with which to mobilise merchants, shipowners, insurers and government agencies into a form of politics in which the government assumed a role of conductor of the economy. The result was a blend of interests of the public and private sectors, not through agreement, but through orchestration.

The war risks insurance, WW2 and the ‘national interest’ 99 The politics that allowed the practice of the scheme did not arise suddenly at the beginning of 1939. They were part of a slow transformation of Britain’s imperial political economy that began towards the end of the First World War, and as analysed by E. H. Carr, was characterised by four distinct phases. The first, which lasted until 1931, was one aimed at the promotion ‘of a general return to the preWar system of relatively free markets’ (Carr 1939: 71). The second, covering the period 1931–32, ‘was the period of crisis and transition, when Britain abandoned her own tradition of free markets and a fixed standard currency’ (Carr 1939: 72). In the third phase, between 1933 to 1938, ‘Britain consolidated her own economy on ‘national’ lines, while endeavouring to defend the last vestiges of the principle of free markets against countries which had moved further than herself along the road of economic nationalism’ (Carr 1939: 72). The latest phase began in 1938 and was marked with the special characteristics of a war economy. It was within the context of this war economy that the Scheme finally came into operation and assuming its role of ultimate political and economic conductor of the nation, the government, through the Board of Trade, was in the position to coordinate the interests of the various parties into a coherent economic policy as part of a wider national defence strategy. The effect was a new form of insurantial sovereignty. Insurantial sovereignty in this case involved not only the practical administrative, legal and operational arrangements necessary for the Scheme. Most importantly, it implied a rationality that allowed the government to manage uncertainty in the form of risk. This rationality differed clearly from the form of risk management analysed for the 1914 scheme. It did not imply the governance of risk under market principles, which would have in principle been possible had the distinction between king’s enemy risk and commercial risks been clarified. It implied, instead, that as a strategy for national survival the government claimed the right to decide on the distinction as a matter of national security. Such claim was to become a constant during the post-war period well into the twenty-first century as enshrined in legislation that derived from the Scheme.

5 Insurantial sovereignty beyond the state Lloyd’s and maritime insurance at the start of the twenty-first century1

The best kind of authority works invisibly. If it must brandish weapons and admonish its subjects, it only advertises its weakness; the stablest order is unfelt and unquestioned. (Daston and Vidal 2004a: 21)

In April 2009 Captain Richard Phillips was rescued by US Navy Seals from his Somali captors. Phillips was the captain of the Maersk Alabama, a ship hijacked by four Somalis 240 nautical miles southeast of the port of Eyl. The case became the first successful seizure of an American-flag registered ship since 1821 (Tran 2009, accessed: 4 January 2012). Some months earlier, in September 2008, the MV Faina, a transport ship carrying Soviet-made weapons allegedly bound for Kenya was captured off the coast of Somalia and a ransom of US$3.2 m was paid to its hijackers (BBC 2009, accessed: 7 July 2011). High profile cases such as these have raised public awareness of the potential effects of contemporary piracy in disrupting global maritime trade. In the process, they have also brought to light the operation of maritime insurance as a silent, if ubiquitous, kind of authority that produces a security effect on which the continuous circulation of hulls and cargo relies. According to Lloyd’s Maritime Intelligence Unit, close to 77 per cent of total world trade measured in terms of volume is carried by the international shipping industry (MIU 2007). With increased piracy activity around the coasts of Somalia, the Strait of Malacca, and more recently the northern coasts of South America, as well as Cameroon and Nigeria (see e.g. International Chamber of Commerce 2010, accessed: 7 July 2011), the security of shipping has become a top international priority. As part of the response, and as elaborated in the section that follows, governments have identified the role of insurers as a crucial instrument in coping with the peril. The Lloyd’s of London market, which insures around 70 per cent of all ship transits through the Gulf of Aden, has become a focus of attention. For the case analysed in this chapter, the moral economy of marine war risk is explored through discourses and practices of underwriters at the Lloyd’s of London marketplace. As understood here, and as noted in Chapter 1, moral economies

102 Insurantial sovereignty beyond the state are revealed by the expression of communal discourses and practices that are not natural in any way. They are the result of complex power relations aimed at proactively shaping the conditions for a market of risks to operate (c.f. MacKenzie 2009). Specific discourses and practices considered here are those of one of the committees of the LMA, the Joint War Committee (JWC), which will be introduced in the following section. The production of those discourses and practices relates to what is known in Science Studies and International Relations as ‘epistemic communities’ (e.g. Holzner and Marx 1979: 107–111; Ruggie 1972; Holzner 1968: 60–71; Antoniades 2003). Those communities are defined, not simply by what Peter Haas noted in the early 1970s based on the work of Holzner and John Marx: ‘their shared belief or faith in the verity and applicability of particular forms of knowledge or specific truths’ (1992: 3, footnote 4). Faith and belief are not ontological categories. Individuals and collectives can be socialised into them through practices and rituals. As noted by Daston, ‘[a]pprenticeship into a science schools the neophyte into ways of feeling as well as into ways of seeing, manipulating, and understanding’ (1995: 4–5). What is observed in the community of underwriters constituting a market of marine war risks marketed at Lloyd’s of London is a logic which, far from faithfully employing established underwriting techniques, continuously pushes the limits of insurability by shaping the security environments under which their markets of risks operate. They do so, as analysed in the third section of this paper, by actively constituting a security apparatus (see Deleuze 1989: 159–165, Foucault 1994a), which, they claim, operates a principle of indemnity but which ultimately operates a logic of risk embracing. The interaction between the epistemic communities that constitute the global maritime insurance industry, the global body of shipowners and wholesalers, national governments and supranational (e.g. European Union), as well as inter governmental organisations (e.g. NATO), constitute a global moral economy of risk management. Its expression, in terms of power, is read in this chapter as a form of insurantial sovereignty that transcends the territorial strictures of the national state and relates to the commercial interests of the global maritime insurance industry with a hub at Lloyd’s of London. The form of insurantial sovereignty ‘beyond the state’ in which market entities such as the Lloyd’s Maritime Association (LMA) play a role of ‘stewards’, is a rather new phenomenon. It disrupts a state-centric analysis of sovereign power characteristic of twentieth century International Relations scholarship, particularly until the end of the Cold War. Instead, it marks the pre-eminence of commercial interests beyond state borders in which national states still play a preponderant, albeit not a directing role. Whereas in the world wars of the twentieth century war risks insurance schemes enabled the capacity of the British government to conduct its war efforts and enabled it to steer shipping according to its strategic imperatives, at the beginning of the twenty-first that role has changed. As will be analysed in this chapter, Lloyd’s of London, as a market association, is performing a global security role in which it advises on the issue of what are known as ‘navigation provisions’ through which shipowners are advised to behave in particular ways if they are to

Insurantial sovereignty beyond the state 103 obtain maritime cover to sail through areas of heightened risk. This is particularly so for waters affected by maritime piracy. For these navigation provisions to be possible, an epistemological change has had to take place in the way man-made risks at sea are conceptualised, underwritten and managed. In particular, a shift in the understanding of war risks, in relation to hull and machinery (H&M) risks took place in the mid 2000s in which the risk of piracy at sea was migrated from the latter to the former. This chapter offers an analysis of this migration and its implications to the understanding of the role of non-state actors such as Lloyd’s of London in securing global maritime circulation. A clear implication of the transcendence of the form of insurantial sovereignty beyond state boundaries analysed through the practices of the Lloyd’s Market Association (LMA) of Lloyd’s of London role is reflected in the ways in which insurers are understanding and treating piracy. Although under international law piracy relates to events taking place in international waters, issues of jurisdiction have not stopped maritime insurers from treating as piracy events taking place within domestic waters such as those of Somalia. Basing their definition of the problem as a business-model, where value is obtained through the capture of property and lives at sea, instead than basing their understanding on the legal definition of the Law of the Sea, insurers have articulated strategies to cope with the peril based on a principle of indemnity, more on which will be said later. This form of insurantial sovereignty beyond the state puts the idea of national interest, as theorised after the Second World War, in perspective. At a time when the role of national borders is experiencing dramatic change, the interests that are promoted and protected through global maritime insurance arrangements, as detailed in this chapter, transcend the understanding of a national interest. For example, there is nothing new in stating that most of the world’s maritime trade sails under flags of convenience instead of flying the national flag of the shipowner, an issue with consequences on the legal frameworks operating upon vessels and crews. It is also evident that most international trade is financed overseas through complex networks of credit, finance and insurance that in most cases cannot be mapped accurately due to their dynamic nature. Networks of reinsurance, for example, are global and involve capital from all sectors. What is new is to conceptualise a form of contemporary insurantial sovereignty where, instead of prioritising territory and populations, it is capital what deserves the focus of analysis. Such capital is contingent on the networks that make it possible, and those networks rely on connectivity and circulation as the conditions of possibility that detail the complexity upon which value is created in capitalist economies (Dillon and Lobo-Guerrero 2009). This form of insurantial sovereignty beyond the state does not take place in the abstract. It is the result of interacting rationalities of governance that constitute a moral economy of global risk management. When analysed in its details, through its singularities, it is possible to make such moral economy explicit and understand how the rationality of risk management that supports it depicts an important epistemological shift. This chapter is devoted to making that shift visible.

104 Insurantial sovereignty beyond the state

Insurantial sovereignty and the shaping of security environments Political concern with heightened piracy in the Gulf of Aden has been recorded in high level reports and enquiries on how best to respond to this risk and what role should insurers play in dealing with it. Recent US Congress hearings on how to handle marine piracy risk took place after Captain Richard Phillips was rescued from Somali captors in April 2009. Statements given at the May hearings described the piracy event and were used by members of the House to demand responses from the US government. Drawing on the case, the Congressional Research Service published in April 2010 a report entitled ‘Piracy off the Horn of Africa’ which stated that ‘the increase in pirate attacks. . . is directly linked to continuing insecurity and the absence of the rule of law in war-torn Somalia’ (Ploch et al. 2010: i). Implicit in the report was the concern that if insecurity prevailed, the cost of insurance would rise and affect American trade. Such concern followed an earlier report by the same body where the impact of ocean piracy on insurance had been discussed. At the time, the option of adjusting the US Merchant Marine Act of 1936 to enable the Government to underwrite marine war insurance in circumstances such as piracy, in case the private industry would not be able to handle the risks, had been explored (King 2009: i). The report concluded, however, that ‘the insurance industry appears to be financially capable of handling US exposure to the current piracy threat and that the existing [Governmental] policy. . . will be adequate’ (King 2009: i). In the UK, debate has been somewhat harsher on the insurance industry. The House of Lords European Union Committee heard evidence in February 2010 from the industry in relation to its role in providing security against piracy in the Gulf of Aden. The report ‘Combating Somali Piracy: the EU’s Naval Operation Atalanta’, which resulted from the hearings, stated in its conclusions that [t]he insurance industry is not taking sufficient responsibility for ensuring that commercial shipping transiting the area complies with readily available, tried and tested procedures to reduce the risk of capture by pirates. At a minimum the industry should impose increased insurance premiums on ship operators who do not comply. (House of Lords EU Committee 2010: 6) In both cases the US Congress and the UK Parliament have made it clear that insurance is a central element in coping with the risk of piracy. Whereas in the US the main concern has been making sure that the industry has the financial capacity to cope with claims derived from piracy, in the UK concern has focused on the effects that could be obtained if insurers tightened their underwriting practices and increased their premiums to ensure shipowners’ compliance with ‘best practices’ to reduce exposure to piracy risk. For centuries, insurers at Lloyd’s of London have dealt with cases of this sort. Piracy reached its heights in the mid eighteenth century and since then had become a relatively tamed risk (c.f. Konstam 2008). The contemporary legal base for insuring against this peril is provided by section three of the 1906 Marine Insurance

Insurantial sovereignty beyond the state 105 Act, an act which affects marine policies written in the London market but which also has global effects due to the worldwide character of shipping operations. The Act recognises piracy as an insurable interest coverable by marine policies (6 Edw 7 Ch 41, 1906). Within this context insuring against piracy appears to be a straightforward risk. The complications arise from the process of identifying what constitutes piracy as a ‘risk’ and under what kind of policies it should be covered. Historically, the issue has shifted from being considered part of standard marine Hull and Machinery (H&M) policies to being a ‘war risk’. The distinction between ‘marine’ and ‘war risks’ policies for underwriting purposes is not simply a matter of technicality. It denotes a complex difference in the nature of risks which insurers are expected to cover. The Lloyd’s standard policy (also known as SG-Ships and Goods-policy) had developed through the experience of underwriting marine risks at Lloyd’s since the early eighteenth century (see Chapter 2). Over time, it became customary to add a clause known as ‘free of capture and seizure’ (fc&s) that would exclude piracy and rovering from the contract (Rose 2004: 279, 320). The fc&s clause, according to Howard Bennett, began to be adopted during the 1739 war between Britain and France and developed further during the Napoleonic Wars (1993). Later in the nineteenth century, during the Fashoda incident of 1898 (see Bates 1984), when a French captain planted his country’s flag in the village of Fashoda in Sudan – then part of British territory – members of Lloyd’s collectively decided to automatically include fc&s clauses in all standard contracts, reinforcing the division between H&M and war risks. However, as noted in the following text of the fc&s clause, piracy, was returned to the SG policy. Warranted nevertheless free of capture, seizure and detention, and the consequences thereof, or any attempt thereat, piracy excepted, and also from all the consequence of hostilities or warlike operations. (Marangos 2007: 16) The Fashoda Incident was resolved diplomatically but it raised awareness amongst insurers of the fact that the introduction of weapons such as the propelled torpedo in 1863 and the submarine in 1893 had affected the magnitude of risks they would have to cover should a war between European powers take place (Bennett 1993). Underlying the inclusion of the fc&s clause in SG marine contracts was the understanding that private insurers should not cover risks derived from war (see Chapter 4). The argument went, that because the nature of the risks derived from war were different from other risks considered in the standard marine policy, war and war related risks should be underwritten in specialist ways and covered by specialist products. In slightly revised forms, the fc&s clause that made the separation between H&M and war risks endured until the 1980s (Bennett 1993). In practice, this separation created all kinds of contradictions and misunderstandings which led the Institute of London Underwriters (a grouping of London insurers that agrees on wordings for common clauses) to reform its marine clauses in 1983. As a result, specific sets of clauses for marine risks and for war risks were

106 Insurantial sovereignty beyond the state introduced making it clear that risks covered by war risks clauses were excluded from marine risks coverage. In 2005, due to an escalation in the number and significance of marine piracy events, the distinction between marine insurance and war risks noted before experienced a new change. In November that year, piracy was shifted to the world of marine war risks by the Joint War Committee (JWC), a specialist committee of the Lloyd’s Market Association (LMA). The announcement of the LMA to bring back piracy into war risks policies came after a ‘pirate’ machinegun attack which opened a hole on a Bahamas-registered cruise ship sailing 100 miles off the coast of Somalia in November 2005. As the manager of marine, aviation and transport of the LMA commented at the time, ‘the removal of piracy from marine insurance policies. . . would help underwriters to price the piracy risk more accurately and to reduce the risk of legal wrangles’. In so doing, ‘the attacks will be treated like those by terrorists’ (Seib 2005, emphasis added). The expression of ‘pricing the piracy risk more accurately’ operates a similar logic to the one argued for the separation of standard marine policies from marine war risks in the late nineteenth century. The understanding is that the nature of the peril is different from the risks considered in SG policies and therefore requires specialist underwriting to match the right level of risk with the right premium. The need for specialist underwriting, however, is not simply a technical matter. It implies a different approach to the management of uncertainty. Whereas actuarial logic and practice would provide some level of probabilities for the occurrence of events considered in SG policies, piracy events cannot be measured in the same way. If probabilistic analysis were to be based solely on statistical records, evidence would indicate a heightened risk within specific geographical areas. Piracy attacks take place in vast areas (e.g. Indian Ocean basin) and although particular corridors are identified as of higher risk (e.g. approaches to the Gulf of Aden), the assessment of the likelihood of an attack remains extremely vague. Because the alternative of re-routing shipping (e.g. around the Cape of Good Hope in light of piracy around the Gulf of Aden) is not always practical (e.g. attacks are now also affecting the Cape route), the geographical scope of the assessment remains too vast for the accurate calculation of risks. There is also the issue of timing. Pirate tactics are evolving rapidly and by employing mother ships pirates operate deeper at sea launching rapid attacks reducing the capacity of the victim to react. If routes cannot be altered and reaction to attacks is limited, shipowners are exposed to a heightened, if incalculable, risk of capture. As will be illustrated below, and contrary to Beck’s reflexive modernity understanding, the exposure of insurers to those risks does not render insurance inoperable. Insurers raise premiums to compensate for the higher likelihood of losses but they also resort to strategies to affect the strategic security environment in areas of heightened piracy risk. In doing so they assume a proactive role in shaping the market from which they profit, and, more importantly for this chapter, they exercise a form of insurantial sovereignty that operates beyond the territorial strictures of the modern nation state. The JWC has been central in making possible this form of insurantial sovereignty. The Committee involves underwriters from the Lloyd’s marketplace

Insurantial sovereignty beyond the state 107 as well as members of the International Underwriting Association and analyses the security environment that can affect the level of risk of vessels travelling the world. As a result of their deliberations they agree on a list of areas of heightened risk, usually known as the War List and officially called the Hull War, Strikes, Terrorism and Related Perils List. The List, as described elsewhere (Lobo-Guerrero 2008b), includes ports, places, coasts and countries which exceed an ‘enhanced risk benchmark’ assessed by the independent security consultant that advices the LMA on these matters. Underwriters covering transits through those places are advised to load their premiums to reflect the higher risk. In some cases best practice is recommended to clients to manage risks and reduce premiums. In other cases it is expected that the states concerned will do something to modify the risk environment of the area in order to normalise the security of maritime transit. Marine insurers in the London market are clearly aware of their role in influencing the security of global maritime trade. They are also conscious, however, that under competition law they cannot be seen as operating a cartel which dictates market rules. During the House of Lords enquiry noted before, David CroomJohnson, senior marine underwriter and Chairman of the Marine Committee at Lloyd’s of London, stated that ‘the primary function of marine insurance is to take on and manage risk on behalf of the shipping community and on behalf of cargo owners and, in doing so, to facilitate the smooth operation of world trade’ (House of Lords EU Committee 2010: 64, evidence section). In his evidence Croom-Johnson expressed the views of the community in the London market but made it clear that they were only part of a much broader global insurance market characterised by intense competition. When asked about how did underwriters approach risks that could be perceived as being higher than standard, Croom-Johnson answered: We have risks that are put in front of us and it is up to us to ascertain what is a good and what is a bad risk, for us as insurers, so, yes, we go down the road of understanding whether ship owners are conforming to best management practice and of understanding the risk. The underwriter has lots of ways in which he can then manage that risk. He can do it by applying warranties on the insurance policy. He can reject the risk in its entirety. He can accept the risk but obviously at different terms and conditions, he can charge more money for it and he can put restrictive exclusions into the insurance policies as a method of underwriting the risk’. (House of Lords EU Committee 2010: 65, evidence section) Lord Crickhowell, a member of the sub-committee that conducted the enquiry, then asked: ‘Assuming that you are doing all those things, as I am sure you are, is it having any positive effect’? Croom-Johnson replied, Yes, it can have positive effects. . . but one thing I would stress is that there is no compulsion on an underwriter to apply specific warranties or specific exclusions. . . One of the things that insurers have some fear of, and it has

108 Insurantial sovereignty beyond the state come about also when we were dealing with the insurances in the Malacca Straits, is we received several complaints from nation states and from our own Government with regards to restrictive practices, anti-competitiveness and, the formation of cartels, so insurers have to be extremely cognisant of those issues as well’. (House of Lords EU Committee 2010: 65, evidence section) Neil Roberts, senior executive of the Lloyd’s Maritime Association and secretary of the JWC, added: the Joint War Committee issues its listed areas, which is areas which it perceives to be an enhanced risk, on an advisory basis, and the effect of those is to ensure that ship owners transacting those areas will notify the underwriters and therefore they can have a voyage negotiation. (House of Lords EU Committee 2010: 65, evidence section) Aware of the influence their collective decisions might have in the global shipping market, but also fearsome of the effects violations of competition laws could have on their own market, the Lloyd’s Market Association has been careful in noting that decisions of the JWC are only recommendations with no compulsion on members. Operating from London in a global market for which alternative (re)insurance capacity could be found elsewhere, the LMA has in effect assumed the role of a steward instead of that of a director of global shipping. Without imposing conditions on its members it makes recommendations based on evidence it considers relevant. Due to the unpredictability of piracy risk, such evidence is not based on actuarial science, as standard insurance would in principle do, but relies on the judgment of committee members influenced by intelligence reports and recommendations made by an external security consultant. Its role of steward is not precautionary in the sense of being passive or counteractive, or pre-emptive as being active or aggressive (Cooper 2006: 120–121). It is not the implementation of a principle of precaution where that which is not known is to be anticipated through alternative, if dubious, forms of truth (Ewald 2002: 288). Even if the informed decisions of the LMA rely on the expert knowledge of consultants – whose factual knowledge might not be as accurate as claimed (e.g. IISS 2005, accessed: 4 July 2011) – decisions to recommend loaded premiums for hulls in transit through areas of heightened risk rely on the collective imaginary, the communal discourses and the accepted practices of the epistemic community of which members of the JWC – underwriters themselves – participate. The shaping of security environments in which members of the London maritime insurance community engage is not of the kind of pre-emption that incites the emergence of the ‘threat’ (e.g. Massumi 2007: 16, Anderson 2010). Instead, in the logic of ‘risk embracing’ (Baker 2008) employed by maritime war risks insurers, lack of calculable knowledge leads them to actively shape a security apparatus to enable the

Insurantial sovereignty beyond the state 109 profitable operation of their insurance venture. In doing so, they constitute a moral economy of marine war risks.

The security apparatus of ‘indemnity’ The emergence and evolution of Lloyd’s of London is very particular in the history of insurance and indeed of market associations (Gibb 1957; Martin 1876; Wright and Fayle 1928). Its tradition allows it to operate a marketplace with internal rules and regulations with global effects which would very unlikely be allowed to flourish under contemporary competition law. Making sure the legal possibility of such an association is preserved is one of the paramount priorities of the LMA. Modulating the power effects of such a market association is the role of the committees of the LMA such as the JWC. The effects of JWC decisions on what regions to include in the War List are evident, for example, on the price of shipping and of everyday goods. As an illustration, in January 2010, by virtue of the Gulf of Aden being included in the JWC List, the war additional premium on H&M, which is usually worked out as a percentage of the value of the ship, was rated at 0.1 per cent, and some underwriters were charging up to 0.2 per cent. For a vessel priced at US$50 million a one-way transit would reach between US$50,000 and US$100,000. In comparison, similar policies for a typical Gulf of Aden transit were of around 0.04 per cent (Norris 2010, accessed: 10 July 2011). If these additional costs are transferred to the final consumer, inflation and its consequences are to be expected. Of particular concern are the pressures that loaded premiums can have on energy prices. It is estimated that a third of all crude oil is carried through the Gulf of Aden waterway (King 2009: 1) and oil prices would be sensitive to higher premiums. In contrast, the role of the JWC of actively shaping global shipping security environments, is not that evident. It exceeds the self-proclaimed economic and social role of the marine insurance industry but it is not publicly acknowledged or advertised. Insurers publicly advertise their role as one of providing indemnity against loss. For example, during the House of Lords enquiry on piracy in the Gulf of Aden, Lord Williams of Elvel asked David Croom-Johnson: You sound as though you are slightly detached from what is going on operationally. You say you are assessing risk and that is your job. You do not believe in being more proactive. Are you, for instance, talking to government departments, are you talking to NATO?’. (House of Lords EU Committee 2010: 65, evidence section) Croom-Johnson replied: No. . . our role as we see it is to sit behind our policyholders, behind the ship owners and the cargo owners themselves. The simple principle of insurance is one of indemnity, so we are there to indemnify them for their losses. We tend to take a supportive rather than a proactive approach. (House of Lords EU Committee 2010: 65, evidence section, emphasis added)

110 Insurantial sovereignty beyond the state The effects of this principle of indemnity are manifest in detailed provisions on where shipowners are allowed to operate if they are to be covered by hull war risks policies, as will be shown later. However, for those navigational provisions to be possible, a wider intervention in the security strategic environment under which shipping operates is necessary. Not mentioned by Croom-Johnson at the time of the enquiry, Lloyd’s had in fact been cooperating with NATO in exploring their common concerns of marine piracy, cyber-security and climate change as a way of proactively shaping the strategic security environment of their risk management practice. On 5 September 2007, by invitation of Lord Levene, chairman of Lloyd’s of London, NATO Secretary General Jaap de Hoop Scheffer, addressed the Lloyd’s City dinner where he stated: Like Lloyd’s, NATO is in the insurance business. Like Lloyd’s, we spend a lot of time assessing global risks – political, military, even environmental. We invest heavily in diminishing risk, for Allies but also our global partners. And, like Lloyd’s, when disaster does strike, somewhere in the world, often the first call is made to NATO to deal with the consequences. (de Hoop Scheffer 2007) On 23 October 2008 the Chairman of Lloyd’s and NATO’s Secretary General were brought together again at a dinner co-hosted by The Economist to discuss energy security and its related risks (de Hoop Scheffer 2008). De Hoop Scheffer noted the role of NATO in protecting essential choke points and navigation routes for commercial and energy flows and Lord Levene highlighted the role of Lloyd’s in insuring production, storage and transport of energy resources. It was agreed that energy security was tightly linked to supply-chain risk, an issue that transcended traditional geopolitical considerations and required concerted marketmilitary cooperation (Lloyds of London 2008: 4). The relationship between the two entities went deeper. On 7 July 2009 Lord Levene addressed the NATO Strategic Concept conference on the security implications of climate change. Following the event Lloyd’s and NATO co-hosted two conferences, one in London and one in New York, to begin to develop their agenda on climate change, cyber-crime and maritime piracy. Their goal was to anticipate thinking about security challenges under the principle of ‘good business sense’ (Lloyds of London 2009). The results of this cooperation in terms of ‘anticipatory thinking about security challenges’ are yet to be documented. Contacts leading to the events were made at the highest levels and no records are available on the precise actions that will derive from NATO-Lloyd’s interaction. Regardless of the detail, the relationship between these two entities, one a marketplace and the other an intergovernmental organisation, puts the principle of indemnity as ‘the simple principle of insurance’ into a different perspective. If it could be accepted that within an international system of national states it was the sovereign function of governments to become, in one way or another, the insurers of last resort in case of catastrophic events (Moss 2004), the Lloyd’s/NATO relationship challenges that

Insurantial sovereignty beyond the state 111 role. It projects the ‘simplicity’ of indemnity into a multinational sphere where the responsibility to protect capital becomes a mixture of ‘good business sense’ with NATO-style strategic security casting a shadow over ideas of political control and public accountability. The moral effects of this cooperation are hardly noticeable to the layperson’s eye but become a centrepiece in the security apparatus of global maritime circulation. This is easier to appreciate through the detail, which is after all where the micro-practices of power take place (see, e.g. Gordon 1991).

Underwriting maritime piracy risk Marine insurers take a very pragmatic approach to the problem and recognise piracy as a specific peril for which they can offer shipowners a form of financial protection. They consider their role as one that provides protection for property and shipping operations in which piracy is but one of many perils for which they offer cover. They do so either in the form of an all risks policy or as an independent peril. As noted in an interview with a director of a leading marine insurance company, piracy risk is just another peril for which probabilities of occurrence are determined based on the best available knowledge and the peril is depicted in the form of risk according to how the company evaluates probabilities and expected damage or claims. In this respect, there is nothing quite new about talking of piracy risk as such. What is new are the particular conditions that are determining contemporary piracy risk. The depiction of piracy risk by particular insurers confirms this understanding of the problem. In a brochure by the German company Allianz, piracy is presented as ‘an ancient risk with modern faces’ (Allianz 2009). This depiction entails a historical continuum of a phenomenon that goes back in history and for which insurers have traditionally provided cover. In various interviews conducted for this study senior members of the London marine underwriting community coincided in stating that piracy, as is seen today in the Indian Ocean, corresponds to an old business model where value is derived from the capture of property and lives at sea. Taking a vessel or a crew hostage, either to plunder its contents and hull or to demand ransom to release its people and cargo goes back to immemorial times (see, e.g. Konstam 2008; Besson 1929). There are however slight changes in the historical business model to which underwriters are adapting. For example, captured property and lives are not sold, mainly because of the traceability of goods and people which is now possible through the sophistication of logistical systems and computer-assisted technologies. Captured vessels and crews are mainly held for ransom, and if possible, as a bulk that maximises the profit for the pirate enterprise. The picture of piracy from the 1970s, 1980s and 1990s has also changed in its intensity. One of the interviewees active in the market for the past forty years stated that although piracy events were always in the agenda as sporadic, although important cases, it was only in the first years of the 2000s that it became a significant issue deserving special attention. Not only because of the attention piracy cases were beginning to attract in public opinion and the claims that began to

112 Insurantial sovereignty beyond the state accumulate, but also because of the strategic importance of the routes which were mainly affected by this risk (e.g. the Strait of Malacca and the Gulf of Aden). The language through which piracy is depicted by insurers matters greatly. Within the industry a debate took place after 2005 to decide if what was presented as piracy was in fact something that could be labelled as terrorism or armed robbery. According to the Law of the Sea not all cases of contemporary piracy fit the definition of law since events must take place within international waters. However, as noted by members of the industry, for them it has been much simpler to widen the definition of piracy to encompass those cases that take place in domestic waters in a move to make cover available to clients. In this respect, jurisdiction ceases to play the predominant role it performs in International Law, and what matters for insurers is the form of protection made available to shipowners in their global trade. This concern led the industry to separate piracy risk from standard H&M cover to the realm of war risks. On the 17 October 2005, the JWC recommended underwriters at Lloyd’s to include ‘violent theft by persons outside the Vessel’, ‘piracy’ and ‘barratry of Master Officers or Crew’ into the Institute War & Strikes Clauses Hulls – Time 1/10/83 (JWC 2005b) and 1/11/95 (JWC 2005c). The Institute’s war risk clauses contemplate risks such as war, civil war, revolution, rebellion, insurrection or civil strife arising from belligerent activities; capture, seizure, arrest, restraint or detainment and their consequences; as well as risks derived from derelict mines, torpedoes, bombs or other weapons of war as insurable interests. According to the 1906 Act, as insurable interests, it is legal to insure against these war risks. However, including piracy and barratry of officers and crew as part of war risks involved as well the imposition of ‘Navigation Limitations for Hull War, Strikes, Terrorism and Related Perils’ (JWC 2005d). As a consequence, underwriters, following the recommendation of the JWC expressly expected from their insured the following ‘navigation provisions’: Unless and to the extent otherwise agreed by the Underwriters in accordance with Clause 2, the vessel or craft insured hereunder shall not enter sail for or deviate towards the territorial waters of any of the Countries or places, or any other waters described in the current List of Areas of Perceived Enhanced Risk (listed areas) as may be published from time to time in London by the Joint War Committee. (JWC 2005d: clause 1) The navigation provisions were accompanied by a Notice of Cancellation and an Administration Clause that clearly stated the procedure to be followed by underwriters when notifying their clients about changes in the areas to be considered as high risk (JWC 2005a). Whenever the JWC agrees on a modification to its List of Areas of Perceived Enhanced Risk, a process that involves the expert advice of a private security consultancy, underwriters apply the Notice of Cancellation and those insured must comply with the new navigation provisions. As an effect, JWC decisions get reflected in the real costs of shipping and also affect the behaviour

Insurantial sovereignty beyond the state 113 of shipowners who can either manage the risk and comply with the restrictions, or change their routes or sail uninsured through troubled waters. The recommendations of the JWC were also echoed by the International Chamber of Commerce in the form of ‘best practices’ (see: ICC 2009). These practices identify some common vulnerabilities of ships and recommend risk mitigation measures such as installing razor wire or electric fences, using pressurised fire hoses to repel an intrusion, increasing speed through at-risk areas to prevent a pirate boarding, amongst others. As risk mitigation practices they are seen by insurers as responsible management of piracy risk and clients following the recommendations expect a reduction in the price of premiums. As noted in an Allianz brochure dedicated to piracy risks, [p]irates are opportunists. They attack ships they come across that happen to fit the right profile. For this reason, it is especially important to shippers to be aware of what kind of prize pirates in specific regions are after. To match pirates’ tactics, boat crews need to be properly trained to employ certain defences, although they are strongly cautioned not to use weapons. (Allianz 2009: 16) Although navigation provisions have become the preferred form of managing the behaviour of shipowners, in a context of heightened maritime piracy alternatives to this way of controlling risks have developed. For example, with ransoms of an average of US$3 m per ship – armed security teams began to be taken on board ships transiting areas of heightened risk at a cost of around US$60,000 for a group of four (Norris 2010). Because of potential liability claims arising from the shooting of a ‘pirate’ or member of the crew, as well as possible damage to the ship, some insurers have preferred to keep a distance from this response. As an Allianz’s marine risk consultant stated, insurers would be very wary of insuring any vessel that carried arms or armed guards on board. A potential liability claim for shooting a pirate – or causing a crew member’s death- could be very costly, as could the resulting damage to the hull. (Allianz 2009: 17) In particular, insurers worry that independent armed responses to cases of hijacking could escalate the violence involved in piracy practices. For example, in relation to the case of the hijacking of the Maersk Alabama noted in the introduction, the head of hull underwriting at Allianz stated: ‘prior to this incident, most pirate attacks had been relatively peaceful, even though the pirates were armed. Crews were held hostage but were not harmed, and the pirates simply waited for their ransom to be paid’ (Allianz 2009: 14). Instead of individual armed responses, the option of collective security has been favoured by the industry and this is where the proactive logic underlying potential Lloyd’s/NATO cooperation is most visible. With 25 per cent of global trade

114 Insurantial sovereignty beyond the state equivalent to close to 25,000 ship transits a year, the Gulf of Aden a constitutes a ‘vital strategic artery’ for world trade (House of Lords EU Committee 2010: 10). Although disruption of trade through this artery has been the object of UN Security Council resolutions, implementing them has been a political struggle. Resolution 1851 authorises international naval forces to carry out anti-piracy operations in Somali territorial waters and ashore with the consent of the Somali Transitional Federal Government (STFG). Resolution 1872 authorises UN member states to participate in the training and equipping of the STFG security forces for 12 months starting in May 2009, later extended for another year. Within the framework of Resolution 1851 the EU launched Operation Atalanta in December 2008, the first-ever operation of the EU Common Security and Defence Policy, a mission covering an area comparable to the Mediterranean Sea (House of Lords EU Committee 2010: 7). Operations such as Atalanta, however, are subject to political scrutiny, as the House of Lords enquiry noted before demonstrates, making the decision-making process slow in a shifting strategic environment that requires quick and decisive action. Resorting to the command, control and communications of well-established military alliances such as NATO would in principle enhance the operational results, and as put by one anonymised senior manager of the London marine insurance industry interviewed for this chapter, ‘it will make better business sense’. At the moment the best results have been achieved by a combination of forces led by the United States Navy and naval ships of other countries. The force has created a ‘coalition-patrolled-channel’ to enable the security of circulation towards and from the Suez Canal. Maritime insurers have made it a condition of insurability to sail within the coalition-patrolled-channel by including this stipulation in navigation provisions for war risks policies. In this way the principle of indemnity, which marine insurers claim as the basis of their business is the result, not of a market principle, but of a complex security apparatus that involves the interaction of a multinational form of sovereignty, combined with ‘good business sense’. The articulation of such an apparatus demands the careful strategic interaction that Lloyd’s pursues with organisations such as NATO. The effects of the new regime for marine war risks insurance agreed by the JWC, the best practices suggested by the International Chamber of Commerce, and the coalition-patrolled-channel established and maintained by the multinational naval force, are being included in hull war risks policies used by shipowners to transit the Gulf of Aden. A specimen declaration to cover transit through the Gulf of Aden by a marine hull war insurance of a well-known London underwriter seen by the author in the writing of this chapter clearly states that the vessel must transit through the ‘Safety Corridor’ established by the multinational naval force. As an ‘express warranty’ it establishes that the shipowner must engage the services of a specified security consultancy and abide by its requirements and recommendations as well as enter the area within seven days of the date of issue of the policy. Finally, it recognises the Institute War Risks and Strike Clauses noted above together with the modifications recommended by the JWC and other standards of the marine insurance industry. The choice of law and jurisdiction of the

Insurantial sovereignty beyond the state 115 policy is the Law of England and Wales. The security apparatus at play in this express warranty reveals the silent, if effective, operation of a moral economy of marine war risks.

Effects of treating piracy as a war risk After the LMA’s recommendation to separate piracy from hull and machinery contracts and move it to war risks, insurers in the London market reacted differently. Some adopted the recommendations quite soon, the majority continued to monitor the situation closely but did not take immediate action. As a recommendation, London marine underwriters were free to act as they wished. After all, including piracy as part of marine risk cover was not a new practice. As mentioned by one of the interviewees, this was standard practice in the Norwegian market were piracy has been for a long time a war risk, and other European markets such as the French went even further by discriminating within piracy between political and economic piracy. Under French market conditions, which are not widely reflected in the international community, economic piracy is normally covered under H&M and political piracy is traditionally covered under war. After 2005, however, and mainly due to the intensification of the problem, piracy became a more important issue in the insurer’s agenda and this was so mainly due to the nature of H&M underwriting. H&M is usually underwritten on an annual basis and a lump sum is paid regardless of the number of accidents and collisions, regardless of the places and regions of trade – within the areas and regions considered in the contract. War risks, on the other hand, are underwritten per voyage and the period and geographical region of cover is limited to that voyage. This allows underwriters to carefully assess the specificities of the risks involved in sailing to, from, or through areas of heightened security risk. Although involving higher costs in the underwriting process, considering piracy as part of war risk allowed them greater flexibility in underwriting a peril whose circumstances can change daily. As H&M policies in place by 2005 reached their end, underwriters had began to calculate the real costs of maintaining cover for piracy included in these policies. The problem ultimately had to do with the accurate pooling of risks of shipowners who did and did not sail through pirate-infested regions. Underwriters offer competitive quotes to their clients by pooling risks of similar kind together. For shipowners whose trade was mainly in the Baltic Sea it made no sense to end up paying higher premiums as a way of subsidising those sailing through the Gulf of Aden if piracy was to be kept within standard H&M policies. On the other hand, loaded H&M premiums for those who did tend to sail through troubled waters made no sense in light of the volatile nature of the shipping industry. Shipping operates on a precarious supply and demand basis and is very sensitive to slight changes in global and local changes such as economic productivity, political unrest, environmental issues, amongst others. War risk policies offered the added flexibility to underwriters of being able to draw on the latest understanding of the local and regional situation before setting a quote. Under a war insurance pricing risk assessment a client can have a cover that costs e10,000 that allows it to sail to most parts of

116 Insurantial sovereignty beyond the state the world. However, there are some exclusion areas: areas of higher than average risk as a result of, for example, warlike or terrorist events, which are updated regularly. If the client requires to sail through those areas then an exclusion to the contract forces it to contact its insurer who will assess what the current situation in that particular area is. Based on that information the underwriter will consider, for example, that sailing in Nigerian water incurs a relatively high probability at the given time and that the heightened risk amounts to a fixed transit premium of a given percentage. That fixed premium is based on an assessment of probabilities that a hull claim would occur. That probability can be relatively low, although higher than average, or extremely high. A war insurance pricing risk assessment works on the basis of relevant timely information provided, in most cases through security consultancies that specialise in monitoring the latest events in their areas of interest. Being able to employ that information for pricing piracy risk allows underwriters to issue policies to match, as accurately as possible, the level of risk with the price of the premium which is after all how their business model operates. Interviewees referred to this process as ‘risk steering’ and risk managing the uncertainty of piracy. At the same time, risk steering implies being able to affect the behaviour of the client to force it to consider alternatives to control the risk under a principle of economic effectiveness. Central to risk steering is the knowledge-base on which decisions are made. Marine underwriters tend to outsource their knowledge for war and political risks. The bigger insurance companies have research departments that provide understanding on general trends, but the particular nature of political and war risks demands of them to employ the services of expert consultants. Outsourcing allows them greater detail in the information they require and specialist knowledge in relation to the particular area and event taking place. Some of the bigger insurers also write war policies in different parts of the world and inside expertise will by definition be limited. The kind of knowledge required to understand the situation in the Strait of Malacca differs, for example, from that off the coast of Peru or Nigeria. This trend of outsourcing the knowledge provision intensified and consolidated after 9/11, but particularly after 2005. Not by coincidence, seven of the interviewees approached when writing this chapter agreed that security knowledge services became more available at this time. The period coincides with an expansion of the security consultancy market in London where some academics previously employed in centres devoted to the analysis of terrorism, for example, together with retired senior officers of mainly British armed forces were absorbed into the market. The move towards a professional provision of security knowledge was accompanied by a demand from insurers for a more detailed evidence base on which to make their underwriting decisions. As put by one interviewee, ‘the level of certainty that insurers require to make their decision on whether to go or not into high risk areas needs more than a good feeling. It needs to be thick-based and proven and this has in any part of the insurance business been improved over the past years’. As put by another, ‘the complexities of emerging situations in various parts of the world, always exceeded our inside expertise, and no matter how large our research teams were there would always be some regional information beyond

Insurantial sovereignty beyond the state 117 our reach’. Another marine underwriter stated, ‘from a money for value perspective we realised in the early 2000s that it was much more economical and effective to outsource some of the security knowledge resources to professionals who specialised in the regions where we operate’. Another factor that justified the resort to specialist services was the growing scrutiny to which officers and directors of marine insurance companies were being held. By using the services of expert consultants officers would be able to justify their risk management approach in front of stakeholders. This was not an isolated case of marine insurance, it involved other areas where greater accountability in the pricing of policies, for example because of the controversial nature of the policies (e.g. life insurance in light of genetic information in the early years of the century). This led to a situation in which, as put by an interviewee, ‘insurance became, not necessarily more intellectual, but certainly more scientific’. Other interviewees agreed that this corresponds to a general move within the insurance industry towards a more evidence-based form of underwriting. For the bigger underwriting companies whose business involved various markets and underwriting locations, changes in the underwriting of piracy risk involved a slight transformation in the underwriting mentality and operational standards and were not as swift as it was more specialised insurers. This had to do, in a very important way, with the fact that marine insurance is tightly linked to reinsurance either through the Lloyd’s marketplace or reinsurance companies. Contracts between insurers and reinsurers are known as treaties and these require careful negotiations when changes are to be made. It was also related to the specificities of the underwriting markets. Relations between insurers and shipowners are not the same in France that in London. The fact that some marine insurers write their business in situ is very telling of the cultural nuances relevant to the industry. In the midst of a debate between centralised underwriting for the global market or diversified underwriting for particular markets arising from the positions expressed by multiple interviewees, it is possible to observe that what appears as a consolidated global business is not more than a collection of regional markets competing with each other. Preference for the latter model by the larger corporations is based on the advantage of being able to learn and profit from knowledge arising from different markets, understand and work on the different market behaviours and structures, capitalise on the proximity to clients, and finally, the opportunity that results from diversifying practices between various markets which allows companies ‘not to put all eggs in the same basket’.

Insurantial sovereignty as a partnership in risk beyond the state In its 2010 report on piracy, the House of Lords claimed that the insurance industry could undertake greater responsibility in ensuring that commercial shipping reduced its risks of capture by pirates (House of Lords EU Committee 2010: 6). The statement did not come as something new to the marine insurance community. Indeed, similar arguments were made in the 1810 report of the House of Commons Select Committee on Marine Insurance discussed in Chapter 2 (House

118 Insurantial sovereignty beyond the state of Commons 1810). The assumption that insurers could always do more to act on the behaviour of shipowners was also present in eighteenth century debates and the war risk insurance schemes analysed in previous chapters. More recently, a directive of the European Parliament and Council resorted to using insurance as a vehicle for governing the standards of shipping within EU waters. The directive was aimed at improving ‘the quality of merchant shipping by making operators act more responsibly’ (European Union 2009: L 131/128). It made it compulsory for all ships flying the flag of an EU country, or those of other flags calling at EU ports or operating in EU waters, to carry an insurance certificate (2009: L 131/129). The assumption of the directive was that under market principles marine underwriters would price-out substandard shipping, promote and reward higher standards of safety and risk management amongst shipowners, and in so doing improve the overall security of the shipping industry in Europe. Resorting to the statutory requirement to force shipowners operating in EU waters to hold valid marine insurance certificates is but another case in which the role of the technology of insurance is called upon to regulate the shipping activity in support of the traditional state sovereign function. In the particular case of the directive the aim was to regulate sub-standard shipping based on the fact that member state’s jurisdiction upon ships had changed dramatically since the shipping industry widely adopted the practice of flags of convenience from the 1950s onwards. The practice entails the registration of a ship at a different state than that of its shipowner and is done to reduce costs, but mainly as a way to skip regulations from some states (see Langewiesche 2005: 5–8). Although the governance of ships falls outside the jurisdiction of EU member states, the directive aims to operate upon the behaviour of shipowners and forces them to observe certain standards imposed not through the EU’s sovereign action, but through the action of insurance underwriting. After all, the marine insurance business model, as in most insurance, operates upon the discrimination between acceptable and unacceptable risks through the pricing of policies. Such was the context under which the House of Commons called for a greater insurance responsibility in dealing with maritime security. Nonetheless, insurers see themselves as service providers to their clients. As revealed throughout interviews by several strategists of the industry, their role is to provide the financial security required by their clients to run their operations. They clearly see their role as a financial security provider and not as the guarantors of an order of security. As put by a senior underwriter, One can easily say we are not the police to execute political orders and desires and wishes. If the political environment cannot manage to bring political stability to Somalia, why should the insurers be doing so? [. . .] Many people from outside the insurance industry belief that if an insurer, says something, the insured will comply. Insurance doesn’t often work like this. This is what I call direct steering. Insurance very often works on indirect steering [. . .]

Insurantial sovereignty beyond the state 119 Indirect steering for marine insurers means to be able to ask, as underwriters, why a claim has been made and why did the insured not prepare for that eventuality in advance. This role, however, has changed in recent years and underwriters are more keen on influencing the behaviour of their clients, as becomes evident in the following quote from another interview. We are working very much on an indirect steering basis and piracy also works on this direction. Two years ago we had a case where a then shipowner from a Nordic country sent a ship into an area [of heightened piracy risk] with no preparation of the crew at all. The ship was taken hostage and the crew as well. If today such a shipowner would do exactly the same, [. . .] we have truly to ask if such insured conducted all the precautions and all, say, the standards to keep his vessel seaworthy, or if he has done all the necessary things to ensure the ship is capable to withstand the risk of the voyage. Two years ago [2008] nobody would have asked, if this happened now the insurer would have to ask questions. And this is indirect steering through which we are actively promoting best practices. We are not aboard and only shipowners, masters and crew know best how to protect their vessels. They also understand the cultural mindsets of the people involved. A crew from Burma might work differently than a crew from Peru or Philippines and they [shipowners and officers] are obliged to know. One case can happen, but if three cases have happened where they have done nothing prevent them, then we, as insurers, have truly to ask if we should carry on insuring them when we agreed that certain risk levels should be maintained. Indirect steering seeks to affect the behaviour of shipowners and hold them accountable for claims that could be prevented. Interviewees made it very clear that they understand this role as being in the best interest of all the parties involved. As put by one of them, if a piracy event takes place and a ship is captured, the trouble lies primordially with the shipowner who will have to deal with negotiations, responsibility for the security of the crew, public opinion, its reputation in front of current and prospective clients, legitimate concerns by the families of crew members, and also the lost charter. Because the stakes and costs incurred in a piracy event can potentially be so high, it is the understanding of insurers that a well designed and planned risk management strategy by the shipowner would allow them to run a profitable business without undesired disruptions. In case things go wrong, then there is the insurance cover. Compared to other lines of insurance, moral hazard, as the risk the client’s behaviour poses to the insurer who has promised to cover against accidental events, operates in a different way. Since the business model of the shipowner is premised on the continuous and optimised utilisation of its transportation capacity, any disruption in the flow of trade will affect profits. The management of risk is therefore seen by the parties involved as a way to maximise the productive capacity of the shipping enterprise.

120 Insurantial sovereignty beyond the state When the time comes for a shipowner to renew its marine cover, typically every year for H&M, underwriters are tending to ask in general for the company’s safety standards and the policies it has put in place to enforce them in the daily operations. ISO certifications, as well as risk management plans contribute to satisfying the underwriter’s demand to know that structures have been put in place to react to risks that are known to be possible within the route to be sailed and the time frame included in the policy. Questions go as deep as asking how many inspectors does the company have available per vessel as well as many other technical specificities of the risk management plans. When claims have been made by a client, the insurer would want to know what has been done to respond to the risk deficits involved in the claim. In sum, underwriters operate a superintendence upon shipowners’ risk management strategies and plans. Indirect steering is however not a novel move. Throughout the chapters of this book it has been shown how marine underwriters have historically exercised this role. What is novel is the complexity of the apparatus developed to make it possible. For example, whereas traditionally underwriters dealt with brokers who approached them to arrange marine cover for their clients, it is more common now for underwriters to meet the client as well as the broker. As explained by an interviewee, talking to the client is increasingly becoming a key part of the underwriting process. In the opinion of two senior leaders of the industry this change has been accompanied as well by a transformation in the mentality of brokers who do not see their role constrained to the negotiation of good terms for their clients. Because of the technical background involved in the shipowners’ risk management strategies and plans, brokers need to provide a communication bridge between the client’s risk managers and the technical details of the marine underwriting process. Instead of the broker approaching the insurer, the insurer talks to the client with the mediation of the broker to ensure that there is an understanding by both parties of the risks they are mutually agreeing to engage with. Ultimately, the brokerage is one of knowledge. In this respect, marine underwriting is not a passive risk management activity for the shipowner but is part of an active engagement with the management of risk. Some authors would like to refer to this process as risk embracing (e.g. Baker and Simon 2002). As a result of these changes marine underwriting practice is demanding more specialised skills and knowledge from the actors involved. It demands careful attention to understanding the client’s operations and the different risk factors involved in assessing a peril for which insurance is sought. It also involves the capacity to translate the information provided by professional security consultants into data to be taken into account in the design of actionable policies. The evidence base on which contemporary underwriting practice is expected to operate, however, transcends the stochastic tradition that seeks to quantify risks in terms of probabilities of occurrence and the magnitude of events. It increasingly involves an understanding of the cultures in which business models evolve and develop and a constant effort to seamlessly adapt to changes in the market and the wider environment. If underwriting is becoming ‘a bit more academic’, as put by two interviewees, it is not only facts but the capacity to relate to them with a strategic

Insurantial sovereignty beyond the state 121 mentality what matters most. In the words of a senior underwriter, Underwriting is not simply providing a quote. It is more about understanding the client’s operation, the client’s risk management in order to take this into consideration, when assessing the facts to identify the risk. It is not only to say there are fifty vessels that are between twelve and twenty years old but about understanding the soft effects which are behind the operation to get a true and full picture. Another interviewee commented on this process on the following terms: We are developing a capacity to understand in a way that we don’t only see what is written on an underwriting proposal presented to us by a client. We are slowly learning to appreciate the importance of the details which matter both for the client in transforming its risk management strategy into effective operational plans and also to us in getting a clear picture of what risk the client truly represents in terms of risk. If we get this wrong we cannot fully blame it on the client since we failed to understand the risk we were taking. A third underwriter added: It is impossible for us to keep an accurate control on what the client does. We cannot visit all the vessels we underwrite, we simply do not have the capacity to do that and if we did we would have to transfer the cost to the client who would then try to offset it on its clients, and then on to the final customer. We have to be more practical than that and more efficient in our indirect steering. Random inspections are only part of that. What is more relevant to us is to be able to know what lies behind the client’s operations. Piracy risk, for example, is not limited to knowing where the client sails. It involves how the client is prepared to deal with it if and when it happens. As shown in this chapter, contemporary marine underwriting practice does indeed play a role in affecting the behaviour of shipowners, although the effect is not unidirectional as assumed by many and affects all parties in the insurance relationship. A marine policy in this way becomes a partnership in risk where all parts assume a responsibility in the management of uncertainty. For cases where the risk arises from the behaviour of shipowners, for example failure to maintain industry standards, using insurance as an instrument of governance might work well. The case of the European directive to regulate substandard shipping through the compulsory use of insurance is a case in point. In others, where the risk is not necessarily related to the behaviour of shipowners, such as piracy in the Indian Ocean basin where most of the waters have become risky, indirect steering will at most persuade shipowners to adopt some safety standards and security tactics to counter the risk. Those standards will, however, not be enough to cope with the

122 Insurantial sovereignty beyond the state risk itself and might end up being only a consolation price to those who put their hopes in the industry to sort out the problem. This idea was nicely expressed by one of the interviewees. You can invent more or less whichever insurance products you want to cope with whatever problem you seem to find. So if the piracy issue continues you can develop kidnap and ransom insurance and all sorts of things. But you must be aware that you are only sharing the costs of claims amongst those upon which they are falling. So ultimately, as insurers, we are only cost distributing. As insurers we cannot steer the political situation. There is a client who is facing a financial loss which can ruin his business, can bring him into bankruptcy or anything like this. And we are here to help him to manage this loss. So that’s our business model. And whether we are doing good or bad you can see the balance sheet. On the long run this will for sure not solve the problem, absolutely not. And we have, from what we are doing, providing financial security to our clients, our financial possibilities for direct steering or direct involvement are very limited. For the underwriting community contacted in the writing of this chapter there is consensus that issues such as piracy have to be solved politically. In the case of heightened piracy in the Strait of Malacca in the first years of the 2000s the JWC could only put pressure on the regional governments by including the whole region in the War List. This was in effect a form of indirect steering since there was no compulsion on the sovereign states to create a joint naval taskforce to cope with the problem. But there was an incentive and finally a political solution was found to the problem. This does not mean the problem might not come back, as it has historically been the case with piracy. It only means that regardless of the immense influence the wider insurance industry might have due to its underwriting practice and investment capacity, its role remains a commercial one, to generate profit to stakeholders and profit will depend on the successful implementation of their business model.

The moral economies of marine war risks Behind Croom-Johnson’s statement that ‘the primary function of marine insurance is to take on and manage risk on behalf of the shipping community and on behalf of cargo owners and, in doing so, to facilitate the smooth operation of world trade’, lies a performative role that actively shapes the security of global commerce. Behind his assertion that their role is ‘to sit behind [their] policyholders, behind the shipowners and the cargo owners themselves’ and ‘to indemnify them for their losses’ lies the fact that marine underwriters are actively contributing to shaping the security environment under which they insure risks, as their interaction with NATO attests to. In doing so, marine underwriters at the London market operate as ‘silent’ security professionals whose behaviour translates into the moral order upon which the circulation and connectivity of global shipping, and our everyday goods, depends.

Insurantial sovereignty beyond the state 123 As illustrated throughout the chapter, in a market of contemporary marine war risks, categories of thought such as fact, evidence and measurement have changed their meaning. There is no solid actuarial basis on which to prize risks such as piracy. Evidence is not ‘hard’, it is instead the result of a combination of informed and authorised opinions based on expert knowledge (supported in the case of the LMA by services provided by a security consultancy), decades of underwriting experience by its members, the operation of navigation warranties imposed on shipowners, and the continuous lobbying of Lloyd’s to influence the strategic security level in which the business operates. The security apparatus that results from this ensemble of power relations can be observed as an organised system with explicit regularities, which, although explicable, are not predictable, to paraphrase Daston as cited in the introduction. The moral economy that derives from the successful operation of this apparatus provides a level of stability required for the active management of uncertainty, which is ultimately the basis for the operation of an insurance market. At the core of the security apparatus that performs this moral economy, lie its epistemic communities. These are communities of actuaries, underwriters, brokers, shipowners and security consultants that interact on a daily basis based on a shared understanding that orders can be altered. Marine war risks underwriting practice, in this respect, is not defined by a principle of indemnity but by one of risk embracing for which the precautionary principle and ideas of pre-emption do not seem to offer explanatory value. Instead, by analysing the effects of the security apparatus as a moral economy it is possible to reveal the proactive role of Lloyd’s JWC in rendering marine war risks such as piracy, insurable and in the process, governable. In this way, the authority of Lloyd’s of London is after all not so invisible. Since its effects can be felt and have global repercussions, its practices, and the form of insurantial sovereignty that derives from them, should in principle be the subject of scrutiny and question and opened up to political debate.

6 ‘Insurantial sovereignty’ and the re-constitution of ‘the international’

Previous chapters have dealt with empirical sites where the political has become an art of bonding together the sovereign with what can be called ‘the insurantial’. The bond between these two entities has been analysed through forms of insurantial sovereignty developed to cope with the exceptional circumstances that derive from contexts of war within liberal environments. The form of politics enshrined in the cases analysed in this book requires some clarification and contextualisation in relation to its wider contribution to knowledge on liberal security. This concluding chapter aims at advancing elements for a wider theorisation of insurantial sovereignty as a form of liberal politics. The book has been written understanding politics as the concerted art of managing uncertainty. The results of this active negotiation has produced regimes of risk management that have been central in facilitating a productive interaction between the political power of Westminster and the financial influence of actors within the City of London, a relationship that has enabled Britain to play an influential role in global politics beyond the age of empire. The analysis of the rationalities underlying those risk regimes makes explicit the evolution of strategies of liberal government premised on the capacity to transform uncertainty into risk and to act upon it through risk management partnerships and schemes. These risk regimes are not of a single kind, and, as noted throughout the chapters, they adapt and develop in light of emerging circumstances. A major effect of these strategies of government is a shift from a traditional threat-based understanding of security to one in which risk becomes the modulator of danger. As evidenced in the first chapters, the problematisations of danger out of which partnerships in risk management were de jure and de facto established with the British maritime insurance industry, transcend the traditional geopolitical concern with the control of territory and expand to the very possibilities of securing everyday life through the management of risk. These partnerships in risk management differ from the time-honoured Schmittian definition of the political as based on the friend/enemy distinction (Schmitt 2007: 26). Aimed at managing uncertainty in actuarial ways, they articulate the dangers of war in the form of risks, a logic that does not require the idea of an enemy. The enemy, for Schmitt, ‘need not be morally evil or aesthetically ugly; he need not appear as an economic competitor, and it may even be advantageous to engage

126 Insurantial sovereignty and the international with him in business transactions’. He then added, ‘[b]ut he is, nevertheless, the other, the stranger; and it is sufficient for his nature that he is, in a specially intense way, existentially something different and alien, so that in the extreme case conflicts with him are possible’ (Schmitt 2007: 26–27). It follows that for Schmitt the space of the political was by necessity conflictual. Only the actual participants can correctly recognise, understand and judge the concrete situation and settle the extreme case of conflict. Each participant is in a position to judge whether the adversary intends to negate his opponent’s way of life and therefore must be repulsed or fought in order to preserve one’s own form of existence. Emotionally the enemy is easily treated as being evil and ugly, because every distinction, most of all the political, as the strongest and most intense of the distinctions and categorisations, draws upon other distinctions for support. This does not alter the autonomy of such distinctions. Consequently, the reverse is also true: the morally evil, aesthetically ugly or economically damaging need not necessarily be the enemy; the morally good, aesthetically beautiful, and economically profitable need not necessarily become the friend in the specifically political sense of the word. Thereby the inherently objective nature and autonomy of the political becomes evident by virtue of its being able to treat, distinguish, and comprehend the friend-enemy antithesis independently of other antitheses. (Schmitt 2007: 27) In contrast to this tradition, an emphasis on risks, which result from shifting imaginaries of the uncertain, does not require the constant definition of the other, the stranger, or the alien, as a function of the political. It relies on its capacity to modulate and manage danger rather than typifying it in antithetical form leading to its radical exclusion or annihilation. The modulation of danger that thinking politics as the concerted art of managing uncertainty allows, involves a shift in the problematisation of fear, from a friend/enemy distinction, to a politics of relative openness towards unforeseen and unknown events. The paradoxical aspect of this form of politics evident in war risks insurance schemes is its operation within a context of war, a context that fits closely the Schmittian understanding of the political. This paradox will be explored later in relation to the provocation, endorsed by Foucault, of politics being the continuation of war by other means. A politics of relative openness towards unforeseen and unknown events, as explained in Chapter 1, is not new. It is evident in modern forms of government such as those involved in practices of premediation and pre-emption (as detailed, for example, by De Goede 2008; Amoore 2009; Amoore and De Goede 2008). As practices based on anticipatory logic(s), they rely on the possibility of thinking temporal frames of the future (see, e.g. Tellmann and Opitz 2010). This very possibility entails different kinds of prognosis, which are practices that simultaneously liberate the political from the fixture of ontological imaginaries such as religion, but that also entail a responsibility to react to the unforeseen. Reinhart Koselleck, from a historical tradition of conceptual history, formulated what can perhaps be the closest framework with which to understand this problem.

Insurantial sovereignty and the international 127 For him, the modern period is characterised by the emergence and development of ‘rational prognosis’ which opposes a previous idea championed by the Christian Church, that of apocalyptic prophecy. Through a process that he referred to as ‘the secularisation of prognosis’, the once monopoly on prophesy claimed by the Church, became one of the prerogatives of the modern state. It was a process in which ‘[t]he rational forecast, the prognosis, became the counterconcept of contemporary prophecy’. The process entailed ‘[t]he delicate art of political calculation [. . .] first developed in fifteenth- and sixteenth-century Italy and then brought to a peak of finesse during the seventeenth and eighteenth centuries in the cabinets of the European courts’ (Koselleck 2004: 18). As a result, [t]he future became a domain of finite possibilities, arranged according to their greater or lesser probability. It is the same plane that Bodin disclosed for the operation of historia humana. Weighing the probability of forthcoming of nonoccurring events in the first instance eliminated a conception of the future that was taken for granted by the religious factions: the certainty that the Last Judgment would enforce a simple alternative between Good and Evil through the establishment of a sole principle of behaviour. (Koselleck 2004: 17) The effects of this transformation were felt in the realm of governance. As he argued, ‘the more a particular time is experienced as a new temporality, as “modernity”, the more that demands made of the future increase’ (Koselleck 2004: 3). Rational prognosis therefore moved governance beyond determination and into the world of possibilities, which in turn posed a new challenge. Rational prognosis as ‘assign[ing] itself to intrinsic possibilities [. . .] produces an excess of potential controls on the world’ (2004: 19). Against fortuna, the excess of prognosis liberated a future, and as a result, time became ‘reflected in a surprising fashion in the prognosis; the constant similitude of eschatological expectation [. . .] dissolved by the continued novelty of time running away with itself and prognostic attempts to contain it’ (Koselleck 2004: 19, emphasis added). This, in his analysis, gave rise to a temporal structure for the modern state where ‘prognosis can be seen to be the integrating factor [. . .] that transgresses the limited future of the world to which it has been entrusted’ (Koselleck 2004: 19). The role of prognosis in the articulation of power in the western modern state, and the projection of its politics around the globe, has curiously escaped the attention of International Relations theory. However, if a contribution to the theory is to be made, the idea of prognosis, as the modern capacity to formulate futures, must be exposed to the imminence of disruption, as a defining feature of what an event is. Nancy referred to this idea as ‘the surprise’ of the event (see Chapter 1). For him, ‘what makes the event an event is not only that it happens, but that it surprises’ (Nancy 2000: 177). It disrupts an order of the real, which, however anticipatory in its technological nature – say for example in logics of premediation and pre-emption – is always exposed to the ‘incalculability’ of the uncertain. This is a feature that is normally ignored in state actions and by state agents who react to emerging events as if they were the projection of historical occurrences.

128 Insurantial sovereignty and the international The surprise of the event to which the political must always react, is often interpreted in evental forms familiar to specific experiences. For example, the waging of wars is premised, among other elements, on ‘lessons learned’ from previous conflicts; the idea of preparedness for unforeseen catastrophe is widely supported by reflections on the way emergency services reacted to previous disasters. However, when an emerging event is examined in the detail, it reveals its uniqueness and challenges the knowledge resources and expertise deployed to deal with it. An example of this is provided in Chapter 5 with the phenomenon referred to as ‘piracy’. The pirate events that policy makers, security professionals and insurers deal with differ significantly from the way piracy had traditionally been understood and that led to the development of instruments such as the law of the sea as a way of coping with them. A similar argument could be made for ‘terrorist’ attacks. A ‘terrorist’ attack by a franchise of Al Qaeda compared to one by the FARC in Colombia, or the bomb and shootings by a right-wing radical in Oslo in July 2011, might not lend themselves to comparison, and yet, they are referred to as ‘terrorist events’ for which a particular reaction is expected. When examined carefully, those pirate and terrorist attacks display unique features that challenge the criteria under which they were classified, or, in the best of cases, make those criteria so vague and general that no specific knowledge can be derived from them. The surprise, as a defining factor of an event, not only disrupts the knowledge resources and expertise available to practices of governance, it also constitutes the very basis for political action, as will be analysed below. The problem of political reaction to the surprise of the event is allied to that of interpreting uncertainty as risk. The very possibility of thinking ‘un-certainty’ depends on its relationship with an order of truth; that is, a system of validated knowledge of what it means ‘to be’ in the world. In modernity, such a system has relied extensively on scientific knowledge based on Cartesian scientific reasoning leading to scientific methodology, on the method of identifying ‘factual’ and ‘measurable’ evidence to prove what something is and determine its possibilities of becoming. This is not to say that there is a single modern regime of truth and therefore a single way of approaching ‘un-certainty’. It is simply to indicate that any depiction of the uncertain relates directly to orders of being in the world. Depictions of the uncertain imply what Foucault referred to as an apparatus of power/knowledge explained as ‘the coupling of a set of practices and a regime of truth. . . that effectively marks out in reality that which does not exist [by necessity] and legitimately submits it to the division between true and false’ (Foucault 2003: 19). As such, depictions of the uncertain constitute a space from which to explore imaginaries of uncertainty as the sites from which to engage critically with forms of empiricism, as elaborated below (see also Chapter 1). In this respect, the political reaction to the surprise of the event cannot be understood in a prescriptive way. Every understanding of ‘uncertainty’ entails a relationship to something elevated to a category of ‘certitude’. Those certainties are not transcendental; they do not arise from unchallenged principles of formation (e.g. faith) which are usually found in religion. Determining the certainty against which the uncertain is to be rendered possible relates to centuries-long

Insurantial sovereignty and the international 129 discussions on the determination of what is from what is not, what is to become the matter of the empirical, the observable and thinkable phenomena. It is the problem of empiricism, never in the abstract, but in relation to the mind that thinks it or accepts it, and the politics employed in doing so. A modern politics premised on the possibility of rational prognosis would understand empiricism as a matter of contingency and not as anchored in historical experience. The moment matters, among other things, because it keeps open the possibility of thinking the alterity of politics (Nancy 2000), of the power relations enabled in the association of subjects which are not pre-constituted but are an outcome of the relationship (Deleuze 1991). The direct link between the problem of defining ‘the uncertain’ and the continuous need to ‘achieve’ security, evident in the problem of insurantial sovereignty studied in this book but also in every modern security strategy, can be found at the epistemological level. Its importance lies on the connection it operates between the time of the sovereign and the time of the insurantial, as will be elaborated later. Logics and rationalities are continuously devised and mobilised in an existential urge to secure the uncertain in order to master the ‘possibility’ of steering life courses, design and protect livelihoods and lifestyles, and develop a form of transcendence which does not necessarily rely on a divine form of salvation. Under such a context, securing the uncertain becomes the telos of the modern political, a telos that differs starkly with the economies of salvation instantiated by Christian traditions (see, e.g. Agamben 2005; Nancy 2008). Instead, this telos is revealed in the form of ‘economies of security’ which are not simply the commodification and trade of security assets and services, the creation of industrial security and military complexes, or what has been analysed recently in International Relations as the privatisation of security (e.g. Abrahamsen and Williams 2011; Leander 2010; Musah 2002). Economies of security encompass that phenomena as well, but relates to it from an epistemological problem on which those, and other practices of security such as insurance, rely. The epistemology at stake has been known since the second half of the twentieth century as risk management and it relies on the possibility of constituting economies of risk. It must be recalled here that ‘economy ‘is being used in this book not as the system that results from the transaction of things but, following Daston, as a system of interaction with characteristic features, both material and affective, that make interactions actionable. Insurantial sovereignty is an expression of those economies of security. Building on Koselleck’s idea mentioned before, that rational prognosis ‘produces an excess of potential controls on the world’ (Koselleck 2004: 19), prognosis became an art of formulating events which might never materialise but that would serve the purpose of instantiating contingency as the time of the political. This is where the surprise of the event noted by Nancy becomes particularly useful to understand the liberation of the political from a prophetic future and from a Newtonian linearity of infinite succession of events. Although, if explored from Koselleck’s perspective, contingency remains a matter of state – the examples used in exploring his thesis were precisely those of diplomacy and war – the cases of insurantial

130 Insurantial sovereignty and the international sovereignty explored in this book open up a different way of analysing the temporality of the political. It involves the spatial and political dimension of time traditionally assigned to the state and to security apparatuses such as diplomacy and defence, but also incorporates elements of a technology of security which is not necessarily and explicitly determined by a territory but that engages actively with the temporality of alternative ways of life, the time of insurance. The time of insurance is an outcome of the process through which insurance practices render uncertainty as risk and, in doing so, make it amenable to trade and exchange – i.e., fungible, (as noted in Lobo-Guerrero 2011). The time that derives from these practices exceeds the Newtonian linearity of infinite succession of events, although actuarial science employs particular readings of linear time to devise the tables on which premiums are to be calculated. Neither is it simply duration, although the event against which insurance is offered is determined by the term of the policy. The time involved in insurance relationships (the term of a policy) is the time of a continuous present. The effects of insurance are not experienced in a future but in real time. In the cases analysed in this book, the urgency of enabling the operation of maritime insurance in time of war was the strategic importance of maritime trade for the operation of the economy and for the war efforts. Although the liabilities resulting from government-backed maritime insurance policies mattered, what mattered most was to keep the merchant fleets in circulation. The time of maritime insurance transcends the duration of a voyage. It is a time of travel, of movement, the time of flow. Although it is traditionally considered as the time incurred by a vessel to travel from point A to point B, in reality, the time of insurance incorporates the time of the different places through which the vessels sails. This is not to say that the time of insurance is simply the time of the vessel as moving ‘container’. It is that in as much as the vessel becomes the referent of time within a system of longitude and latitude employed to determine location at a given time. It is also the time of the movement between places, a form of moving time that portrays the tempo of the political imaginary upon which the time of the state, which is aided through geographical information systems, relies. Geographical coordinates are an expression of the time of the state, they provide a territorial reference which is anchored on the political imaginary of statehood for which territorial boundaries is a defining condition. The time of insurance uses the geographical system of coordinates to determine location but in doing so extrapolates the territoriality of the state to locate Being in the form of events that take place within the encompassed ‘term’ or period of time. The time of insurance, in this respect is never universal. It refers to the circulation of things and the forms of life which are sought to be promoted and protected through insurance. Be it in the form of a life, as in life insurance, or a vessel and cargo, as in maritime contracts, the time of insurance is a travelling temporality whose referent remains anchored to the livelihoods and lifestyles referent of protection. Because those livelihoods and lifestyles, governed through political economies, are always under constant flux, the events constituted through the time of insurance are never the same. It follows that there is no such thing as

Insurantial sovereignty and the international 131 insurance in general nor in the abstract since insurance relations always require the performance of categories of an order of the real, of which temporality is one. The production of the time of insurance, however, is not an intellectual construct alone. It requires and depends on material elements. If the time of insurance of maritime contracts of the age of sail during the Napoleonic Wars is to be compared with those of World War I, it is evident that the propulsion of the vessel made a significant difference. Not only sailing with the wind differed from sailing with steam or coal in terms of speed and reliability. It also meant significant changes in the perception of time in logistical terms, finance and the administration of transport systems, coupled together with changes in the capacity to transport cargo. This meant as well transformations in the political economy of production and the efficiencies required to cope with the expectations of prompt production and delivery that came with it. Wind, steam, timber, steel and coal, to name a few, were all material elements that affected the way a term of insurance protection was to be determined under a rapidly changing global economy. The circulation of vessels and goods, together with the connectivity between nodes and terminals within an expanding global capitalist network has been enabled through a technology of security that produced a form of travelling temporality. In the cases analysed in previous chapters of this book, the form of international security enabled through the time of insurance gets disrupted. The commercial encounter with ‘the other’ in ‘the international’ is no longer mediated through the technology of protection provided through insurance but is disrupted by the threat of use of violence force and physical destruction of vessels, cargo and crew. Under those circumstances the rationality of risk upon which the security of insurance operates is habilitated through a rationality of force of the state tasked with providing a military shield to protect maritime circulation. In those cases the time of the state becomes an enabler of the time of insurance ever since the terms of a maritime insurance contract usually excludes armed conflict, and, in the best of cases, covers the ship until it reaches the protection of the nearest neutral or safe port. Under some regimes of insurantial sovereignty the interests that are to be promoted and protected through insurance are aligned with the national interest giving rise to a different political economy of security. Under others, the insurable interest at stake is that of uninterrupted circulation and flow of goods and services, which although related to the sovereignty of states, disrupts the territorial idea of interest and concentrates instead in what elsewhere has been analysed as the quasi-transcendentals of liberal life; circulation, connectivity and complexity (Dillon and Lobo-Guerrero 2009).

The insurantial and the continuation of war by other means The liberal rationality of risk that transforms uncertainty into an object of government has been central to what Foucault began to analyse as the problem of economic government, the challenge to govern as little as possible, from a distance, and in such a way that the conduct of individuals and collectives is regulated

132 Insurantial sovereignty and the international in an effective and efficient manner (e.g. Foucault 2003: 1–26). This has been achieved, to a great extent, by promoting and protecting the creation of markets of risk that derive from ways of imagining and governing uncertainty, more on which will be said later. A particular effect of this rationality of government has been to keep British populations at peace with its government, especially in time of war. Put differently, and in a variant of Foucault’s support of the historical argument of politics being the continuation of war by other means, the war partnerships in risk, risk schemes and risk security dispositifs analysed in this book, have helped advance a political project that has prevented the development of war within the realm while enabling war efforts abroad (e.g. the Brewer Paradox). Such a project blurs the distinction between the political and the economical blending it into a strategy for the management of uncertainty which involves entrepreneurial as well as political leadership. For example, during the late mercantilist period explored in Chapter 2, the livelihood of British populations depended on the capacity of the government to maintain external maritime trade links open as a means to guarantee the import of raw materials and the export of processed products on which the national economy depended. Making the credit required for overseas trade available and affordable to merchants and entrepreneurs constituted a remarkable challenge for a government whose political economy was undergoing a transition between a mercantilist and a liberal imaginary. This was evidenced in the apparently unintelligible fact that damage inflicted by the Royal Navy on enemy transport ships could be financially compensated for at the London insurance marketplace. As argued in the chapter, through a partnership in risk between the Board of Admiralty and the Committee of Lloyd’s of London, an apparatus of risk management was achieved with the effect of mobilizing apparently contradictory interests into a political economy of war. The result was a strategic partnership that articulated the different forms of knowledge and expertise of merchants and underwriters in creating and harvesting markets of risks, with the sovereign fiscal, military and diplomatic resources of the British state. In the war risks insurance scheme of the First World War analysed in Chapter 3, a central political economy challenge that followed the declaration of war with Germany was to ensure the security of food supply to support what was already a predominantly urban industrial population. Faced with the fact that the country had lost its self-sufficiency on food supplies and that the financial viability of Imperial trade depended on its capacity to protect and enhance overseas – mainly American – credit lines, a new apparatus for the concerted management of war risk was agreed with the insurance industry. The war risks insurance scheme where the government agreed to re-insure 80 per cent of hull risks and insure cargo, created and institutionalised a new political economy of risk in which maritime insurance became an instrument of strategy in time of war. While seeking to feed its population and prevent social and political unrest, the government became the reinsurer of last resort giving rise to a form of insurantial sovereignty explored in greater detail in the chapter.

Insurantial sovereignty and the international 133 In the inter-war period debates around the need to further develop a political economy of risk management in time of war gave rise to a national agreement on what is analysed in Chapter 4 as a sovereign-led war risks insurance scheme. In light of the military threat which brought war to the doorstep of the layperson and materialised the real possibility of annihilation by the enemy, a new understanding of economic power and of the national interest was made evident in the scheme. Under the partnership that resulted from the scheme the state became the underwriter of first and last resort blending together the sovereign with the insurantial into a form of insurantial sovereignty exercised as a means of national survival. Not only was the capacity of the British state to feed its population compromised by the war effort and its financial viability constrained by the safe circulation of the Empire’s merchant fleets. What was at stake was the political order that, for want of a better term, could be referred to as liberal democracy. Although the insurantial form of sovereignty analysed in Chapter 4 transcended the Second World War and parts of it are still operational under current British legislation, the post Cold War international security environment has brought along new challenges for which insurance-state relationships have also developed. The case analysed in Chapter 5 is that of the security of global maritime circulation in light of a heightened risk of piracy in international and domestic waters. The case in point was that of the strategy implemented by Western liberal states in coping with piracy in the Indian Ocean basin, an issue that involves the development of an emerging partnership between NATO and Lloyd’s of London, and that responds to the same problem of government that inspired previous state-insurance schemes. The political process behind the mechanisms through which piracy at sea is to be rendered governable as risk is creating an apparatus of security involving the coordination of knowledge and practices with the objective of managing uncertainty. Whereas in previous cases the stakes of protecting a national population and preventing it from revolting against the government were evident and explicit, in the case of Chapter 5 the welfare, lifestyles and livelihoods of western populations remain tacit. The situation, however, can be used to reveal the impact any serious and systematic disruption to global maritime circulation can have for a globalised capitalist economy. For example, at the time of writing, the 2011 crisis in Libya had evolved into a form of civil war in which NATO assumed the role of protecting the Libyan civilian population from the armed actions of Colonel Gaddafi’s forces. Western intervention and NATO’s assumption of leadership was justified as a way to prevent a humanitarian catastrophe. Yet, an aspect that worried Western powers was that the country would drift into a similar chaotic situation to that taking place in the waters and territory of Somalia. To prevent such a scenario, some form of pro-Western order should be fostered and supported. A fear was that Libya could become either a fundamentalist Muslim state fostering international terrorism or degenerate into a failed state where maritime pirate dens with the potential to destabilise global capitalist trade in the Mediterranean would flourish. Under both scenarios the livelihood and lifestyles of western populations would become potential direct or indirect targets. In the case of maritime piracy, continuous attacks could disrupt the connectivity of sea-lanes and the international port

134 Insurantial sovereignty and the international system as well as the circulation of global trade. If such obstacles were sufficient enough to cause a severe disruption of capitalist flows, evidenced for example in an unaffordable price of petroleum with consequences on the costs of western life, political pressure would be felt within the democratic systems of the West. It is yet to be known what enabled and promoted the war efforts of some Western governments in supporting the rebel forces in Libya during 2011. What is already evident is that the intervention took the form of a risk management strategy aimed at helping shape a scenario which would in principle bring the country, in one way or another, into the wider security community of western liberal democracies. Decisions to intervene were not subject to democratic scrutiny but were the result of direct government action. Perhaps the war in Libya will constitute a contemporary case of insurantial sovereignty in which, with the benefit of hindsight, it would be possible to examine the surprise of the event as the empirical site where the political performed an insurantial role as a way to enforce a liberal peace. After all, forms of insurantial sovereignty like the ones analysed in this book have recurrently emerged and developed to enable the exercise of politics as the continuation of war by other means.

Notes

Foreword 1 See Michael J. Shapiro, “The Fear Dispositif,” Theory & Event 14:1 (2011). 1 Introduction: Insurantial sovereignty 1 ‘For future events, the truth is indeterminate’ – classical quotation from Aristotle, quoted by Koselleck, R. in Futures Past: On the Semantics of Historical Time. New York Columbia University Press, 2004, p. 18. 2 The Bielefeld collective was a group of historians of ideas that convened in Bielefeld in the late 1980s to produce three collective publications on the Probabilistic Revolution: Krüger, L., Daston, L., Heidelberger, M., Gigerenzer, G. and Morgan, M. S. (eds.) 1987a. The Probabilistic Revolution: Ideas in History v. 1, Boston, Ma.: MIT Press; Krüger, L., Gigerenzer, G. and Morgan, M. S. (eds.) 1987b. The Probabilistic Revolution: Ideas in History v. 2, Boston, Ma.: MIT Press; Gigerenzer, G., Swijtink, Z., Porter, T., Daston, L., Beatty, J. and Kruger, L. (eds.) 1989. The Empire of Chance: How Probability Changed Science and Everyday Life. Cambridge: Cambridge University Press. See also Daston, L. 1988a. Classic Probability in the Enlightenment. Princeton, N.J.: Princeton University Press; Hald, A. 2003. History of Probability and Statistics and their Applications Before 1750. Hoboken, N.J.: John Wiley and Sons; and Hacking, I. 2006. The Emergence of Probability: A Philosophical Study of Early Ideas about Probability Induction and Statistical Inference, 2nd ed. Cambridge: Cambridge University Press. 3 Differentiating different modes of performativity in the financial markets, Donald MacKenzie identifies ‘effective performativity’ as the ‘use of a theory, a model, a concept, a dataset’ in such a way that ‘the use makes a difference’ to the outcome (2006: 18). In this way, and as is the case with maritime insurance instruments here analysed, performative utterances ‘actually perform the action’ itself (2006: 16). I am grateful to Louise Amoore for pointing this out to me. 2 Maritime insurance, the security of credit and the British state at war during the Napoleonic period 1 Bottomry agreements are contracts ‘whereby the owner of a ship borrows money to enable the vessel to complete the voyage and pledges the ship as security for the loan’. Dictionary.com 2011. bottomry. Collins English Dictionary – Complete & Unabridged 10th Edition. http://dictionary.reference.com/browse/bottomry (accessed: July 29, 2011): Harper Collins Publishers. 2 Correspondence sent by the Board of Admiralty to the Committee at Lloyd’s of London is mostly lost. Letters and documents sent by Lloyd’s to the Admiralty are kept at The National Archives at Kew Gardens, London under ADM 1/3992 to ADM 1/3996. (e.g. Lloyd’S ADM1/3992. Letters from Lloyd’s to the Board of Admiralty 1793–1804. The National Archives, Kew, London.)

136 Notes 3 The ‘payment of premiums less management costs’, as noted by Spooner, F. C. in Risk at Sea: Amsterdam Insurance and Maritime Europe, 1766–1780. Cambridge: Cambridge University Press, 1983, p. 6. 4 Figures offered by Martin (1876: 163–164) based on the official returns of the Customhouse authorities. 4 The war risks insurance regime of World War Two and the constitution of the ‘national interest’ 1 See Chapter 5 for a brief history on the origins of this clause. 5 Insurantial sovereignty beyond the state: Lloyd’s and maritime insurance at the start of the twenty-first century 1 Parts of this chapter were published by me in Lloyd’s and the moral economy of insuring against piracy: towards a politicisation of marine war risks insurance, in Journal of Cultural Economy, 2012, 5:1. Interviews conducted for the writing of this chapter were agreed on the basis of the Chatham House Rules that stipulate that the information received can be used without disclosing the affiliation or identity of the speaker.

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Index

accident insurance schemes 1 Admiralty Court 26 Adriatic trade 45–6 affect-saturated values 16–17 ‘Age of Empire’ 88 Allianz (insurance company) 2, 111, 113 Angerstein, John Julius 31, 42 Anglo-Dutch war (1665–1667) 8 Anglo-Dutch war (1794) 53–4, 55 appeasement policy 88, 95 Asquith, Herbert 57, 59, 60, 65, 73, 75–6 Assurances Act (1601) 27–8, 30 Austrian War of Succession 21, 37, 38 authorisation of events 10 Avanley, Lord 41 Bacon, Francis 27–8 balance of power 75, 88 Balfour, Arthur 59, 61 Bank of England 24, 59, 65 Baring Brothers (merchant house) 22 Bartelson, J. 20 Belgium 73–4 Bennett, H. 105 Bielefeld collective 6 biopower 10 Bismarck, Otto von 65 Board of Admiralty: and ‘bonds of exchange’ 52–3; and commemorative swords 47–8; and communication signals 50–1; correspondence with Lloyd’s of London 44–53; and impressment 51-2; partnership with Lloyd’s of London 4, 41–4, 54–5; and piracy in the Adriatic 22; and privateers 45–6; and risk management xvi; and security of trade 44–6, 55; and shipping intelligence 41–2, 46-7;

and shipping losses 48–50; and symmetric information 46; structure of 41 Boer War 61, 62 bomb damage protection 84–5 ‘bonds of exchange’ 52–3 Brewer Paradox 4, 23–4, 34–5, 44, 132 Brewer, J. 24, 35 Britain: appeasement policy 88, 95; and Belgium’s neutrality 73–4; as ‘Commercial Kingdom’ xv, 25, 34, 48, 50, 52; control of shipping 57–8, 67–70; declares war on Germany 57, 78; dependence on imports 61–2; dependence on security of credit 63–4; development as global actor 21; development of political economy 23–5; emergence as commercial empire 3–4; enters Second World War 87; and Fashoda Crisis 83–4, 105; financial revolution in 24–5; foreign investments of 88; import/export growth 42–3; importance of maritime insurance to 22–3; influence on global politics 125; international trade decline 87–9; loss of naval supremacy 75, 77, 88; and non-intervention in commerce 71–2; responses to piracy 104; taxation in 24; transformation of inter-war economy 99; and Venezuelan sovereignty 83; war with Spain 36–7; war with the Netherland 8, 53–4, 55 British Empire Economic Conference (1932) 89 British Guiana 83 broker mediation 120 Bubble Act (1720) 31

Index 149 Cadiz 46 ‘calls’ 93 Campbell, D. 15 cargos insurance 58, 66–8, 70–1 Carr, E. H. 99 Chamber of Assurances 26–8 Chamberlain, Austen 64 Chamberlain, Neville 88 Christian theology 7, 9, 127, 129 ‘civil commotion’ 85, 93 Clark, G. 36–7 Clayton, G. 26, 88 Cleveland, Grover 83 Cold War 6, 97 Colombia x–xi ‘Combating Somali Piracy’ (report) 104 commerce 26, 40, 97 commercial risks 81, 89, 90–1 Commercial Union Assurance Company 70 Committee for Imperial Defence (CID) 59, 64, 65–8, 74–5, 86, 89–95 Commodity Insurance Scheme 87 communication signals 50–1 communism 88 competition law 107 Congressional Research Service (US) 104 Copenhagen School 18 Corn Laws 59 corruption in insurance 25, 26, 28–30 Court of Assurance 27–8 Coward, M. 15 Crickhowell, Lord 107 Croom-Johnson, David 107–8, 109, 122 ‘cross risks’ 31 D’Avenant, C. 34–5 Daily Graphic (newspaper) 62 Daston, L. J. xvii, 14, 102 de Witt, Johan 8 ‘deadly quarrels’ xii Defert, D. 1 Deleuze, G. 13, 15, 17, 20 Diana (ship) 43 Dickson, P. G. M. 24 Doughty, M. 71–2, 75–6 Douglas, Mary xvi East Indies trade 44–5 Edkins, J. 20 empiricism 13, 128–9 ‘enemy’ 125-6 enemy property, insurance of 21–2, 34–41, 53

entrepreneurial initiative 59–60 epistemic communities 12, 102, 123 evental thinking 7–8, 20, 98, 127–8 Ewald, F. 1–2 expectation 7 fascism 81, 88 Fashoda Crisis (1898) 83–4, 105 Fayle, C. E. 22, 37–8, 42–3 Feldman, G. 2 financial revolution 24–5 financial security 54–5 flat rates 91 food supply security 57, 58–9, 60–5, 73, 76–7, 132 Foucault, Michel xv–xvi, 10, 11–13, 34, 126, 128, 131–2 France 8, 24, 38–40, 42, 83–4, 105 Franklin, Benjamin 42 free of capture and seizure (fc&s) clauses 84, 93, 96, 105 free trade 59–60, 73–5, 76–7, 79, 89 Freeden, M. 72 Fritz, M. 3 Gaddafi, Colonel 133 genealogy 12, 16 George V, King 59 Germany: and Belgium’s neutrality 73–4: Britain declares war on 57, 78: submarine warfare 69, 70–1, 75, 76, 90 Gibb, D. E. W. 83–5, 87 Glorious Revolution (1688) 24 gold standard 89 Great Depression 88 Gulf of Aden 101, 104, 106, 109, 112, 114–15 Haas, P. 102 Hacking, I. xvi, 9–10 Harvard Law Review (1920) 93–4 Haufler, V. 85 Hill, N. 59, 62, 63–4, 66, 68–71, 74–5, 86, 94–5 Hirschman, A. 11, 32, 88 Hobsbawm, E. 88–9 Holliday, J. 38–9 Hull and Machinery (H&M) risks 103, 105, 109, 115 hull insurance 58, 66–8, 70–1, 87, 90 Huth Jackson Committee 90–1, 94

150 Index Imhlah, A. H. 88 import security of 61–2 impressments 51–2 indemnity 109–11 indirect steering 118–19 industrialisation 1, 35, 72, 78 inflation 70 Institute of London Underwriters 105 insurance: and approaches to security 18; and broker mediation 120; corruption in 25, 26, 28–30; development of 25; as empirical science 27–8; of enemy property 21–2, 34–41, 53; and ‘eventalness’ 33–4; evolution of xiv–xv; and financial security 118; and funding war 2, 8, 54; as intelligence instrument 2–3; and international peace 18–19; and merchant’s consciousness 25; and morality 21–3, 26–34; outsourcing 116–17; and piracy risk 104–6, 111–15; of political risk 82–7; principle of 19, 55, 78; and private assurance 28; and public assurance 28; and public credit 23–5; relationship with government 76; relationship with sovereignty xiv–xv; ‘time of’ 130–1; and transformation of uncertainty xiii–xiv, 10, 33, 98; and underwriting practice 120–2; see also life insurance; maritime insurance Insurance Intelligence Section (US) 3 insurantial sovereignty: beyond state boundaries 102–3, 106, 117–22; emergence of xv, 1; forms of xvi, 17; and genealogy 12; and liberal security 17–20; and life insurance 2, 8; and moral economies 14; and national interest 5; and national security 82, 97; normalisation of 5; and ‘ordering’ of the world 11–12; as performative act 17; and political interaction 19–20; and political order 20; and power relations 16; and relationality 15–16; and risk management 99; and security environments 106–9, 129–34; and statehood 3; theorisation of 6; and welfarism 1 ‘interested subjects’ xiv, 11, 98 interests 11, 32 International Underwriting Association 107 ‘invisible’ authority xvii, 101

Jackson, Huth 59, 65, 86, 90–1, 94 Jamaica 48–50 Japan 3, 81 John, A. H. 37 JointWar Committee (JWC) 102, 106–9, 112–14, 122 Kidnap and Ransom Insurance xi, 122 king’s enemy risks 68, 81–2, 86, 89–99 Kingsley, D. 18–19 Koselleck, R. 8–9, 126–7, 129–30 Law of the Sea 103, 112, 128 Levene, Lord 110 liberalism: and commercial trade 90–2; development of economies xiii, 4–5; and insurantial sovereignty 17–20; ‘New’ 60, 72–5, 76, 79; and rationality of government 10–11; relationship with war 77–8, 81; and security 125 Libya 133–4 Life Assurance Act (1774) 34, 36 life insurance 18–19, 34, 36 Lloyd, Edward 41 Lloyd George, David 57–8, 73–4, 76 Lloyd’s List (newspaper) 41–2 Lloyd’s Maritime Intelligence Unit 101 Lloyd’s Market Association (LMA) 102, 103, 106–9, 123 Lloyd’s of London (insurance house): bomb damage protection 85; and ‘bonds of exchange’ 52–3; and ‘Commercial Kingdom’ of Britain 48, 50, 52; and commemorative swords 47–8; and communication signals 50–1; correspondence with Board of Admiralty 44–53; established 41; evolution of 109; and import/export growth 42–3; and impressment 51–2; influence of 43; and navigation provisions 102–3, 113; and network of trust 32; partnership with NATO 5–6, 110–11, 113–14, 122, 133; partnership with Board of Admiralty 4, 41–4, 54–5; Patriotic Fund of 47–8; and piracy 22, 101–2, 104; and political risk 82–3; and privateers 45–6; and regulation of insurance 30–1; and risk management xvi; and security of trade 44–6; security apparatus of 102, 109–11; separation of ‘war’ and ‘maritime’ risk 83–4; and

Index 151 shipping intelligence 41–2, 46–7; and shipping losses 48–50; and symmetric information 46; and war against France 23 London and Liverpool Shipowners Association 64–5 London and Liverpool War Risks Insurance Association 58, 68–9, 87 London Assurance Company 31, 37, 83 London Group of War Risks Associations 68, 87 Lords Commissioners of the Admiralty 41, 52 loss 98

Mines Royal Company 30–1 Molloy, C. 28 Monroe Doctrine 83 moral economies: definition of xiv; and maritime insurance 14–15; of marine war risks 122–3; and power relations 14, 101–2; and public credit 24, 25; and values 16–17, 25, 54; and War Risks Insurance Scheme 58 morality 21–3, 26–34 Murray, William 38 Mutual Associations 66–7, 84 mutuality 71, 78 MV Faina (ship) 101

‘Machiavellian Moment’ 25 Maersk Alabama (ship) 101, 113 managing uncertainty xi–xii, xvi, 15, 18, 20, 125–6, 133 Marine Insurance Act (1906) 104–5 marine risk 105–6 Maritime and Aviation Insurance Act (1952) 87 maritime blockades 63 maritime insurance: and British control of shipping 57–8, 67–70; as commercial instrument 54; and competition law 107; development of xiv, 26; emergence of 3–4; of enemy property 21–2, 34–41, 53; EU directive on 118; and financial security 54–5; importance to Britain 21–3; and indirect steering 118–19; influence on global shipping 107–9; as instrument of strategy 55; as instrument of war 3–4; and moral economies 14–15; and morality 21–3, 26–34; and national interest 97, 103; and piracy 101, 104, 111–15; and public credit 23–5; regulation of 26–8, 30–3; as security instrument 5; and security of food supply 62; two-tier system 28, 31; and ‘warlike operations’ policies 83 Maritime Insurance Act (1745) 32–4, 36, 38 Martin, F. 28, 42–3 Mediterranean shipping 69 mercantile uncertainty xii mercantilism 32–3, 35, 40 Mercers Hall Marine Company 30 Merchant Marine Act (1936) 87, 104 microphysics of power 17 middle-classes 35–6

Nancy, J.-L. 12, 15–16, 127, 129–30 National Archives (London) 44 National Debt 24–5 National Indemnity scheme 59, 63 national interest 5, 36–7, 82, 94, 96–9, 103 national security 5, 82, 97 ‘National Union’ 55 NATO 5–6, 110–11, 113–14, 122, 133 natural disasters 19 navigation provisions 102–3, 113 Navy bonds 4 Nazi Germany 2–3, 88 Nelson, Lord 22, 45 ‘net risk capital’ 35 Netherlands 8, 53–4, 55 neutral shipping 69, 70–1 ‘New Liberal’ government 60, 72–5, 76, 79 New York Life Insurance Company 18 Noel, Sir Gerard 65 North of England Protecting and Indemnity Association 64, 87 North of England War Risks Insurance Association 68 Notice of Cancellation 112–13 Nugent, Mr 21–2, 36, 38 Office of Strategic Services (OSS) 3 Operation Atalanta 114 outsourcing 116–17 ‘over-insurance’ practices 26 Owen, Douglas 65, 91–2 Panama Canal 3 panic 62–5, 77–8 Parliamentary Select Committee on Maritime Insurance (1810) 31, 42, 43, 53, 117–18 Peace of Westphalia 6

152 Index peace promotion 18–19 Pepys, Samuel 21, 28–9 Petty, William 8 Phillips, Captain Richard 101, 104 piracy: evolution of 106, 111–12; increase in 101, 104, 106; and indirect steering 119; and international law 103, 112, 128; and international trade 101; and Marine Insurance Act 104–5; and maritime insurance 104, 111–15; and war risk 5, 115–17 ‘Piracy off the Horn of Africa’ (report) 104 Pocock, J. G. A. 24, 25 ‘political arithmetic’ xii, 8, 35 political risk 6, 82–7 political technology 16–17 Post Office 42 power relations xv, 5, 13–14, 16, 101–2 Power, Michael xvi pragmatic rationality 6–7, 8 ‘precautionary periods’ 95 press gangs 51–2 private assurance 28 privateers 33, 45–6 privatization of war x Privy Council 26 Probabilistic Revolution 3, 6–10, 33–4 probability 7–8 property law 88, 89 protection of credit 36 protectionism 5, 40, 81, 88–9 Protections Against Impressment 51–2 Prussia 24 public assurance 28 public credit 23–5, 34–5 radical relationality 5 radical uncertainty xiv ransom xi, 101, 111, 113, 122 rational choice xiv rational prognosis 8–9, 10, 20, 127, 129 rationalities of power xvi–xvii rationality of force 131 rationality of risk 11, 77–8 reality 13–14 ‘reasonable calculus’ 7, 8, 10 ‘reasonable certainty’ 7, 8 ‘regular risks’ 31 reinsurance 3, 58, 67–8, 71, 95–6 relationality 15–17 Renaissance 9, 19 ‘reparational capital’ 66 Richardson, Lewis Frye xii

risk management: and approaches to security 18; emergence of xvi; and events 98; forms of xvi; and insurantial sovereignty 99; and political economies 132–3 Risky Business (film) x Roberts, Neil 108 Royal Commission on Supply of Food and Raw Material in Time of War (1905) 59, 61, 62–4, 65 Royal Exchange Assurance Company 30–1 Royal Exchange of London 26 Royal Navy: bombardment of Alexandria 83; command structure of 41; and financial compensation 132; and German submarine warfare 71, 75; and impressment 51; loss of supremacy 75, 77; and security of trade 55; success of 38–9; see also Board of Admiralty Royal United Services Institute (RUSI) 59, 65 Royce, J. 19 Russia 5, 88 Salisbury, Lord 60 Scheffer, Jaap de Hoop 110 Schmitt, C. 18, 125–6 Science (journal) xvi security approaches 17–18 security environments 104–9 security of credit 60, 63–4, 72–5 self-interest 36–7 Seton-Karr, H. 60–1 SG (Ships and Goods) policies 105–6 Shapiro, M. J. 15 shipowners’ associations xv singularities 12–13 Social Benefit versus Technological Risks (book) xvi socialising risk 1–2 Society Must Be Defended (lecture series) xv solidarity 71–2, 78 Somali Transitional Federal Government (STFG) 114 Somalia 101, 103, 104, 106, 114 South Sea Bubble 31 Southwell, Samuel 37 Sovereign Lives (book) 20 ‘sovereign statehood’ 20 sovereignty xv, xiv–xv, 15–16, 19–20, 97; see also insuratial sovereignty

Index 153 Soviet Union 88, 89 Spain 24, 36–7, 84–5 Spanish Civil War 5, 83, 85, 95 Starr, Chauncey xvi State Insurance Office 58, 67–8, 70 state monopolies 92 ‘state-backed mutuality’ 78 statehood 3, 26 ‘Stick to Free Trade’ (pamphlet) 73 Stone, L. 23–4 Strait of Malacca 101, 112, 116, 122 Sudan 83, 105 Suez Canal 58, 69, 114 surprises 12–13 terrorism 128 ‘The Moral Economy of Science’ (article) 14 Third Reich 2–3, 88 Thompson, E. P. 14 Thornton, Richard 22, 32 threat-based approaches to security 17–18 Thrift, N. 2 ‘time of insurance’ 130–1 tradable securities xiii Traitorous Correspondence Act (1793) 40–1, 53 transforming uncertainty xiii–xiv, 10, 33, 98 UN Security Council 114 uncertainty: and emergence of risk 9–10; and empiricism 128–9; managing xi–xii, xvi, 10, 15, 18, 20, 125–6, 133; and reasonable calculation 9; as tradable security xiii, 10; transformation of xiii–xiv, 10, 33, 98 USA (United States of America) 42, 83, 89, 104, 114 usury 33 utopias 18–19

variable rates 91–2 Venezuela 83 Vidal, Francisco xvii Wagner, B. 1 Wall Street Crash (1929) 5 War and Civil War Exclusion Agreement (1937) 85 War List 107–8, 109, 122 war on land risks 84–5 war risks: distinction from ‘king’s enemy risks’ 81–2, 86, 89; and H&M risks 105; as insurable entity 75; and ‘marine risks’ 105–6; and moral economies 122–3; and piracy 115–17; and piracy risk 5 rationalities underlying xiv; separation from ‘maritime’ risk 83–4 War Risks Insurance Clubs 68–9, 86–7, 90, 92–5 War Risks Insurance Scheme (1914): development of 60–1, 62–7, 86; introduced 4, 57–8; operation of 58–9, 67–72; rationalising 75–9; and security of credit 60, 72–5; and security of food supply 57, 58–9, 60–5, 73, 76–7, 132 War Risks Insurance Scheme (1939): development of 81–6; international context for 87–9; introduced 87; and king’s enemy risks 92–6; and national interest 97–9 ‘warlike operations’ policies 83 Waterborne Agreement 85, 95 welfarism 1, 43, 72, 77–8 Weskett, J. 26, 39–40 West Indies trade 44–5, 46 William of Orange 24 Williams, Lord 109 Wright, C. 22, 37–8, 42–3 X2 Department (US) 3

valuation 90–1, 93 values 16–17, 25, 54

zero-sum logic 18, 33, 54