Lloyd’s can support insurance penetration

General insurance penetrationWith the insurance market regulator IRDAI announcing new norms for Lloyd’s, the specialist insurance and reinsurance market is bullish on India and expects the business here to grow significantly as general insurance penetration improves.

It plans to start India operations early next year. In an interaction with the media, John Nelson, Chairman, Lloyd’s, spoke on the growth prospects and various other issues. Excerpts:

Your thoughts on GIC having first right of refusal for reinsurance in India

I believe the regulator has been a little bit cautious before opening completely. I see more liberalisation gradually. The regulation for Lloyd’s is positive.

They have allowed us to operate as a market. You still have first right of refusal by re-insurer GIC Re. The regulator has said they will review operations after 12 months and keep on reviewing.

What is your current business exposure to India?

We are the largest offshore re-insurer of India. Our premium business from India will be under $200 million. It is tiny, both for us and India.

In the developed world we like it to grow at the rate of GDP. In the developing world, including India, our aim is to grow ahead of GDP.

If we do not grow ahead of GDP in India, it is bad news not only for us but also India because insurance penetration is not happening. Currently, the $12.5-billion Indian non-life market is heavily state influenced, with 65 per cent of reinsured risks staying onshore.

In the US, international re-insurers pay around 60 per cent of the claims bill following major catastrophes, stabilising the domestic economy in the wake of disasters.

In India, the reverse is currently true, with around 65 per cent of reinsured risks staying onshore in the domestic economy. This concentration of risk leads to a concentration of losses.

How may syndicates are you looking at in India?

We tend to start with a few syndicates and do not want a flood of them to start with.

It will be in a low single-digit number in the first year of operations here and we will grow gradually. In China, we started in 2007 with two and have 30 syndicates now because their regulation supported more capital to flow in.

In India, it depends on how the regulation and economy supports. In 2013, the non-life penetration rate for India was 0.6 per cent, compared with an average of 1.4 per cent in Asia-Pacific and global average of 6.1 per cent.

Lloyd’s can help support the expansion of insurance penetration in India and limit the economic impact of catastrophes.

Your view on GIC’s plans to open a syndicate in London…

I read about it in the press, but they have not approached us. In the long term, like many international carriers, they would be there.

We believe it is important for us to have high-quality carriers to support our long-term strategy.

We have been successful in attracting major carriers from Latin America, West Asia and China. We are very tough, so as to ensure when these carriers come on the platform they bring business with them for Lloyd’s market. This will be true for GIC too.

Will the cost of insurance come down?

It will not change much. We will have more people and more capital coming in. It is unlikely interest rates will be as low as they are. It is close to zero per cent in the developed world.

According to forecasts, the addressable market for Lloyd’s worldwide is about $650 billion and by 2025 it will be $2 trillion. This will be driven by higher economic growth in the developing world. We would revolve the capital.

What about the impact of Brexit on Lloyd’s?

We have made our case to remain in the EU. We have three reasons for that. We have access to 27 member-states, which is a domestic market for us.

EU countries account for about 44 per cent UK exports; even in the case of Lloyd’s it is 15.5 per cent. Though it is not enormous, it is significant. The EU has negotiated free trade agreements with 34 countries which is an advantage for us.

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