Posted on Sep 15, 2011 by Sergio Ulloa
Lloyd's of London, the world's leading specialist insurance market, has now begun writing direct insurance policies in China through its fully owned subsidiary Lloyd's Insurance Co. (China) Ltd, according to a press statement released by the insurer on Wednesday.
A more open China, now presiding over the world's second largest economy, has proved to be a tempting opportunity for international insurers looking for sustained premium growth due to favorable economic conditions and an under-penetrated market. Total written premiums in China's insurance market reached US$221.4 billion in 2010, a 30.4 percent annual increase. This momentum has continued into 2011 despite persistent international market turmoil and record catastrophe losses
. According to the latest China Insurance Regulatory Commission (CIRC
) figures, the total premium income reported by Chinese insurance companies' surpassed US$123.95 billion in the first half of the year, a 13 percent rise on last year's figures. China is currently ranked as the sixth largest insurance market in the world and the second biggest in Asia. Many industry observes are expecting China's insurance market to overtake the United States to become the number one market, possibly as early as 2020.
Lloyd's decided to establish a presence in China in March 2007, opening Lloyd's Reinsurance Company in Shanghai, which enabled the market to begin developing non-life reinsurance business in the country. Other Lloyd's insurers have followed suit, attracted to the Asian nation's ongoing economic success. The CIRC's decision last October to extend overseas licenses to include the option to underwrite for non-life direct business in China also encouraged foreign players XL and Guy Carpenter to apply for and begin operating in the country in the past year.
In May 2010, the CIRC broadened Lloyd's China's existing local reinsurance license
to include writing general insurance, short-term accident and health insurance business. In addition, Lloyd's Chinese branch is now permitted to write policies covering large commercial risks (including international marine, aviation and cargo transportation insurance) outside of Shanghai under certain circumstances. Obtaining this direct insurance license in China had been a priority for Lloyd's, with increased product diversification and further international growth
both key pars of its three-year strategic roadmap. The new license has allowed Lloyd's to expand beyond their current business of providing product solutions and increased business capacity through their reinsurance products in China, and marks the next step in its plan to become a major provider of specialist insurance and reinsurance services in the Asia Pacific region.
Lloyd's extended insurance license in China became operational as of September 2011, with the market now equipped to broaden its product portfolio. This year long process of preparation has involved converting Lloyd's Reinsurance Company (China) Ltd into a direct insurance company as well as the corresponding development of all associated infrastructure required by the CIRC. Initially, Lloyd's four managing agents in China (Travelers, Starr, Sportscover and Navigators) will be underwriting policies covering directors and officers, marine cargo and sports contingency insurance. Depending on performance, the insurer has plans to add more managing agents and products to their operation in China in the near future.
Lloyd's chairman Lord Levene commented in the statement that the new direct license would prove to be a significant development for both Lloyd's and the Chinese insurance market. "We are delighted to be taking the next step on our journey into China and marking another historic milestone for Lloyd's. We see Asia as crucial to our development this century and hope it will mirror the success of our venture into America last century."
Eric Gao, Chairman and CEO for Lloyd's China, confirmed that although this step was a small one, it would be important for the continued success of Lloyd's in China. "This is a small but important step for Lloyd's China. Reinsurance will continue to be our main source of business for some time, but there is huge potential for our insurance business," Gao wrote, adding that "Lloyd's expertise and capacity can support the growth of financial centers such as Shanghai as we allow companies to offset their risks as they grow their business."
While China's insurance sector is indeed poised for growth
, it is not the only emerging market with a promising future. In fact, in terms of business written by Lloyd's, China has remained behind rival developing countries like Brazil, India and Russia. The Asian nation still presents many challenges to foreign investors. The International Finance Corporation has ranked China as the 79th easiest country to conduct business in, with state regulators restricting the percentage stake an overseas company can hold in a joint venture operation as well as the lines and provinces in which foreign insurers are allowed to operate. Despite these noted obstacles however, China will continue to be seen as a lucrative investment opportunity for many large multinational insurance companies as well as investors from the financial-services sector. Lloyd's ability to sell their more diverse product portfolio will go a long way to establishing themselves as the premier provider of specialist insurance and reinsurance in Asia.
Insurance Companies Mentioned
Lloyd's is the world's leading specialist insurance market and occupies fifth place in terms of global reinsurance premium income, and is the second largest surplus lines insurer in the US. In 2009, 74 syndicates are underwriting insurance at Lloyd's, covering all classes of business from more than 200 countries and territories worldwide. Lloyd's is regulated by the Financial Service Authority.