Lloyd’s Chairman, John Nelson, said in an interview with the India Economic Times, that Lloyd’s would shift away from an India focus mostly surrounding reinsurance and expand into direct and specialist lines, after the first Lloyd’s syndicate, MS Amlin, joined the India platform.
Lloyd’s already writes $220 million in offshore Indian business reinsurance, but primary expansion in India is now regarded by the Lloyd’s chairman as a “huge opportunity” – in a country where insurance penetration levels are at just 0.7% and economic growth is ten times this figure at 7%.
The Indian insurance industry enjoys the further luxury of operating in an advantageous 6% interest rate environment – but this isn’t believed to be sustainable – and Nelson said sustainability is one element of re/insurance in India that would improve as the market liberalises: “I think when the domestic insurance industry embraces sophistication of risk adjusted pricing, they will see how they can make better results. At the moment, it is not there. Having more global players will mean they will end up in an industry that is more sustainable. “
But despite the attraction of glistening gems of new opportunity, the industry veteran is not naive about the realities; Lloyd’s will be operating in circumstances where regulatory favour is stacked against foreign re/insurers, with Indian firms being offered first picks for market options.
Nelson told the India economic times, the firm would be looking to negotiate with Indian regulators on matters of order of preference; “The best terms are offered to a domestic company and then it goes to other reinsurers. That will deter overseas investments in reinsurance. We understand that is a temporary measure. I think there is a move to getting it removed quickly. Probably, not in the next year. They would want to see this year. “
However, the chairman said that while hopes for a fast-moving business in India are high, he is well aware of the challenges ahead and prepared to build up business over the long-haul; “It will be a few years before we get a sizable business. Things will look to accelerate if order of preference is taken away quickly…At the moment, if you are a Lloyd’s managing agent, you would wonder if you want to be cherry picked.
“There are a number of members looking to join Lloyd’s. But we think they will come slowly and gradually. If you look at our other major platforms in the world, China and Singapore it has taken five-seven years to build up the platform. It is going to take a while.The market conditions are becoming extremely competitive. In a way, people aren’t rushing to us.But there is real interest. What we are seeing is healthy.
And “people aren’t rushing to us” may be an understatement, as over half a dozen of global reinsurance companies have set up direct branches of their own, indicating that even where harvest is ripe for underwriting, it’s business as usual for reinsurers who will be facing off stiff competition in the region: “Most of these companies are the biggest competitors worldwide. They always wanted to operate service. It is very unlikely that they will come on our platform. We have licence in China. As India liberalises further, what we will see is they will liberalise the direct insurance market as well.Lloyd’s platform is very attractive if you are not ginormous companies like Munich Re and Swiss Re,” said Nelson.
