Lloyd’s of London chairman John Nelson told China Daily that China is the most important market for its long-term growth.
With dark clouds brewing on the insurance and reinsurance market horizon, in what Nelson describes as a ‘perfect storm’; low interest rates and excessive capital driving down investment returns and premiums for insurers, Lloyd’s is looking for a closer partnership with the growing industry in the East.
Lloyd’s is tackling growing market pressures with its robust strategy, known as Vision 2025, and has confirmed that China will remain at the heart of its international expansion.
Lloyd’s business in Shanghai and Beijing has grown substantially with 792 million yuan ($114 million) in gross written premiums in 2015 – a figure which Nelson says should have risen to surpass 2 billion in 2016.
In an interview with China Daily, Nelson talked about the opportunities and challenges of stronger ties with Chinese partners.
Nelson says all partners stand to benefit from increased collaboration as Lloyd’s searches for new markets to grow into and Chinese insurers look to expand into the international market.
As the world’s oldest market for specialist insurance and reinsurance, Lloyd’s of London is well prepared to offer support and protection to Chinese insurers looking to expand.
Nelson said Lloyd’s insurance would allow; “Chinese companies to offset risks and focus on growing their business. In particular, Lloyd’s has the specialist expertise for the sorts of large construction, energy, marine and transport projects that this country is investing in.”
In a race to reap the rewards of the countries’ economic boom, the Chinese are rushing to the cities; the rapid urbanisation is making economies more efficient, but also leaving them more vulnerable to shock.
“In another sense,” Nelson said, “it is concentrating risks and the consequences are obviously more relevant if you have greater urbanization.
“What we are seeing is that the risk from natural catastrophes is increasing, but also man-made risks such as cyber attacks.”
The breakneck speed of development in Chinese cities has opened up new opportunities for insurance, but effectively capitalising on the evolving market comes with its challenges.
Nelson highlights the lack of history in risk assessment and data collection in China as one of the biggest obstacles to Lloyd’s expansion: “In other countries, we have got good quality data which allow us to model risks more accurately.
“As time goes on, that will improve in China. But at the moment it is still somewhat difficult as it is at a fairly early stage of development.”
Despite the unique challenges, in 2017, Lloyds will be aiming to consolidate on progress made and further build on the established core market: “Now the challenge for the participants is to increase penetration in specialist lines.
“We are looking at new forms of distribution and are trying to get these specialist lines more into the veins and arteries of the Chinese economy.”, said Nelson.
After forming partnerships with two Chinese reinsurance firms, Nelson said in the coming 5 to 10 years more Chinese carriers will be coming onto the platform, but he also emphasised a protectionist approach, by outlining the importance of gradual growth: “There is no point for the Lloyd’s market in a carrier coming on just for capital. What we want is to make sure it is broadening our footprint and business.”
In addition, he said Lloyd’s was keen to increase expertise in the market with more Chinese people moving onto Lloyd’s platform.
With an ambitious China making moves to grow its own insurance and reinsurance market by expanding internationally and establishing an insurance exchange in Shanghai; through collaboration Lloyds is positioning itself to work alongside what will be future competitors.
Nelson commented; “Diversifying reinsurance risks outside the country can help the domestic economy.
“So in other words, having a liberal insurance market is very important.
“The Shanghai Insurance Exchange is in its early days. We are supportive of it and we have agreed to become a member of it. It will be very interesting to see how it develops.
“We are ready to partner with Chinese insurers to provide solutions to support and protect China’s economic growth and Chinese business interests abroad
Nelson says Lloyd’s shift to the East will deepen trade ties between China and Europe and has the power to; “reshape the economic landscape, just as the original Silk Road did before it.”