Lloyd’s China’s four managing agents – Travelers, Starr, Sportscover and Navigators – will begin underwriting directors & officers, marine cargo and sports contingency insurance, with more managing agents and products expected to follow.
Why has Lloyd’s entered the direct insurance market in China?
China is the fastest-growing economy in the world. It’s currently the world’s sixth largest insurance market and is forecast to become second only to the US in the next 10 years.
Premium-wise, China’s total market grew by 26.2% – while global insurance premiums grew by 2.7%. These figures alone make a compelling case for further development of Lloyd’s operations in China as its importance as a market continues to grow. The potential is immense and cannot be ignored.
The Lloyd’s vision for China has always been a long-term one, but it became clear from a survey of Managing Agents at the end of 2009 that the majority supported the further development of Lloyd’s China operations to include direct business. We’re extremely proud of the achievements of the Lloyd’s China platform to date and look forward to the next steps we are taking in the Chinese market with the direct licence.
As one of the fastest-growing markets in the world, what do you think Lloyd’s will bring to China?
Lloyd’s has been offering reinsurance capacity to the Chinese market since China began opening up in the late 1970s. As business developed, Lloyd’s opened a Representative Office in Beijing in 2000 – and in 2007, Lloyd’s China started to write on-shore reinsurance business from Shanghai.
So Lloyd’s has already brought a great deal to the Chinese market over the years, and the Lloyd’s China operation has enabled participating syndicates to bring specialist product knowledge and underwriting expertise to the local market.
The direct licence will offer further penetration into this rapidly developing market and ensure the Lloyd’s story enters a new and exciting chapter in China.
Would you consider China to be a competitive insurance market?
China is a very competitive market which makes profitability a challenge in certain sectors.
However, we have seen good opportunities in specialist risks and other products that are not readily available in the local market. This allows us to maintain focus on disciplined underwriting – a key priority for Lloyd’s all around the world.
I am happy to see the Lloyd’s China underwriters participating on the platform are maintaining these strict underwriting standards, focussing on the type of business that could generate profit.
What insurance products will be available and which Managing Agents are participating? Do you expect this number to grow?
Due to local underwriting regulations, the direct licence is available only to those syndicates who have seconded underwriters to Shanghai, which are referred to as Represented Syndicates.
We currently have six Represented Syndicates acting as Underwriting Divisions of Lloyd’s China. Of those, four will be using the direct licence to offer products such as Marine Cargo, D&O and some liability coverage for sports-related risks from the start of direct operations.
We expect the range of products to grow as the business develops.
Has Lloyd’s made any forecast for its anticipated premium growth from China?
While growth is an obvious and important indicator, the ultimate aim of Lloyd’s China is to create value not volume. That is key to our vision for the medium- to long-term. Since operations began in 2007, reinsurance premium has grown steadily and the platform finished 2010 with Gross Written Premiums (GWP) of about USD46m. We expect that reinsurance will continue to be the majority of business written in the medium term.
With regards to direct business for the future, it is expected that growth will be modest in the first few years. Having spoken to Managing Agents, it seems that syndicates are likely to take a prudent approach in the direct market at first, as they strengthen their intermediary network and accumulate experience of direct business in China.
It is very difficult, however, to predict growth in such a rapidly developing market.
How can policyholders access the Lloyd’s market in China?
Although the broker and intermediary market is relatively undeveloped here in China compared to other major markets – handling only 20% of non-motor business – we very much hope to support the continued development of brokers and intermediaries as their businesses grow.
While some business may be introduced directly by cedants or policyholders, we hope that brokers will continue to come to Lloyd’s for underwriting expertise for specialist risks and other products that are not readily available in the local market.
Is there a team already established there?
Of course. As well as the underwriters and assistants working for their respective Represented Syndicates in Shanghai, there are 25 Corporation staff in the key departments required to allow Lloyd’s China to function properly. These include Legal and Compliance, Finance, Operations, Market Development, and, most recently, a Performance Management role to supervise all underwriting on the platform.
Altogether we have about 40 staff now based in the Lloyd’s China office in Shanghai and another two in the Lloyd’s Representative Office in Beijing.
Lloyd’s has a very unique structure and history. Is there a high awareness of Lloyd’s in China?
Lloyd’s has very strong brand recognition in China. Lloyd’s is known as the birthplace of insurance and students studying insurance and risk management at university learn that it all started in a coffee shop in London.
We have several of these students undertaking internships with Lloyd’s China every year, so they are lucky enough to have first-hand knowledge to take back to the classroom.
In addition, Richard Ward gave a presentation to more than 100 graduate and post-graduate students when he visited in November last year, adding real weight behind the Lloyd’s brand.
As Lloyd’s has such a unique structure, this does sometimes need further explanation in the local market, despite Lloyd’s being active in China for more than 30 years. The fact that Lloyd’s China has become an active player in the local market is undoubtedly raising Lloyd’s profile and allowing brokers and cedants alike to become better accustomed to how the Lloyd’s market operates.
China has experienced numerous natural disasters in recent history. Will Lloyd’s be able to extend insurance and reinsurance cover to mitigate the effects of future events?
The introduction of an effective natural hazards protection scheme has been discussed at the highest levels of Chinese government for some time. Lloyd’s will support those efforts both through Lloyd’s China and through the off-shore reinsurance business written in London.
What are your priorities for next year?
To ensure the platform continues to operate as a successful and established means for brokers, cedants and policyholders to access the Lloyd’s market for specialist insurance and reinsurance solutions. And to enjoy another exciting year of Lloyd’s journey in China.
