Lloyd’s: following the Vision

In its Vision 2025, Lloyd’s has stated that it wants to be the global centre for specialist insurance and reinsurance focused on specialist property and casualty business, which requires bespoke underwriting and broking. The market aims at being able to access all major international insurance markets, including emerging markets, through its global licence network.

According to the plan, the increase in premium income in the largest 10 developed economies will track or slightly exceed increases in non-life premium. In the largest 10 developing economies, Lloyd’s would at times expect growth to exceed non-life premium as the specialist risk sector develops and insurance penetration increases. Managing agents will actively attract business to Lloyd’s through brokers.

Lloyd’s will have a local presence, in some cases a local establishment, in international markets, where this is a commercial or regulatory requirement for business access.

“Since we launched our Vision 2025 five years ago, we have made substantial progress in our international expansion plan,” says John Nelson, chairman of Lloyd’s. “We are well ahead of where we anticipated being today,” he notes.

In 2015 Lloyd’s opened an office in Dubai to give the market an underwriting base in the Middle East and North Africa (MENA) region.

“It has had a very good start,” Nelson says. Lloyd’s service companies and coverholders in Dubai, which include Markel, XL Catlin, Beazley and Munich Re, are regulated directly by the Dubai Financial Services Authority to underwrite a wide variety of risks. Underwriters on the Lloyd’s platform can work with brokers and cedants across regional markets with no access restrictions in place.

In November 2015 Lloyd’s opened its expanded specialist underwriting platform in Singapore to provide tailored risk solutions across the Asia-Pacific.

“Singapore is our biggest platform outside London,” Nelson says. “That’s going very well and it has improved our footprint in the whole of South East Asia,” he adds.

Lloyd’s is in the middle of negotiations to get a licence to go onshore in Malaysia, Nelson notes, part of its Vision 2025 strategy to increase Lloyd’s support to the world’s fastest growing economies.

Lloyd’s already operates as an insurer and reinsurer in Malaysia, writing Malaysian business from London, Singapore and an offshore office in Labuan. The onshore licence will allow Lloyd’s to develop its marine, energy, construction, engineering and liability business, as well as to introduce new products to the market, according to a press release.

More recently, in June, Lloyd’s opened an office in Bogota supporting the business expansion of Advent and Brit and building the market’s trading relationships in what Lloyd’s calls “a fast growing Latin American market”.

INDIAN ADVENTURE

“India been a big issue for a long time, as it has for many people,” Nelson says. After many years of discussions and negotiations, the Indian parliament approved Lloyd’s and the market to operate onshore in India for reinsurance.

“We are currently going through a pre-application process with the regulator. We are hoping to open up a hub there in 2017,” he says.

An onshore branch will provide Indian reinsurance brokers with local access to Lloyd’s underwriting expertise and innovative reinsurance solutions for complex and specialist risks, including agriculture, infrastructure and disaster management, according to a statement.

Under the present licensing structure, Lloyd’s underwriters are not licensed to write insurance in or from India and are authorised to write reinsurance originating from India only on a cross-border basis.

With a GDP growth of 7.6 percent in 2015, according to World Bank data, “India’s economy is growing at an extraordinary rate,” Nelson says. “The reforms that are being put through by the current government are making the Indian economy a lot more vibrant. In the long term we take a very favourable view on India,” he notes.

More difficult to assess may be the potential Turkey could offer to the Lloyd’s market. Discussions with the Turkish government to establish a locally based operation have been slowed up by the political situation there, Nelson says.

An attempted coup in July caused at least 240 deaths and prompted President Recep Tayyip Erdogan to launch a state of emergency and a crackdown on opponents of his governing Justice and Development (AK) party.

While Nelson does not regard Lloyd’s international expansion as complete, he notes that outside places such as Turkey Lloyd’s has made very good progress.

“If you were colouring in the world map we still have some gaps, but we have filled in most of them,” he adds.

More may need to be done in Africa, as presence on the continent outside South Africa remains limited for Lloyd’s. “We are beginning to look at it from a planning point of view,” he says.

NEED FOR DATA

Lloyd’s expansion efforts in emerging markets is generally driven by low re/insurance penetration rates and expected higher growth rates than in the rest of the world.

“The prospect for specialist insurance growth in these territories is very high,” Nelson says. Growth will, however, materialise in the long-term rather than in the short term, he explains. “There is a long way to go,” he adds.

One issue that will need to be addressed while expanding business in underinsured markets is the lack of data on which re/insurance products rely.

“It is an issue when expanding internationally and it will come down to pricing to the extent that we feel comfortable underwriting risks,” Nelson says.

“It’s only by starting and getting on to the ground and getting into it that you begin to build up the data,” he notes.

He points to China as an example of progress. “We have been building up data on catastrophe risk and the data quality is much greater now than it was a few years ago. That is important.”

Lloyd’s international network is what makes it attractive for re/insurers to be part of the society, says Iain Bremner, managing director of Barbican Managing Agency.

“If we were looking at a far Eastern potential partner, the fact that Lloyd’s has a registered reinsurance business in Shanghai is potentially hugely attractive to any given opportunity,” he notes.

“I am not sure that they are ever going want to put a flag in every territory, but I do think that what they are doing in Mexico is interesting,” Bremner notes.

Lloyd’s received approval for opening a representative office in Mexico in 2014 which followed in October 2015 and is registered as a foreign reinsurer to write reinsurance in or from Mexico. Key classes of business to Lloyd’s are property, marine, aviation and energy.

In the opening speech for the office in Mexico, Nelson said that Lloyd’s is in the country to support the domestic direct insurance industry in increasing capacity, as well as developing new specialist products in partnership with domestic insurers. This means that for large and complex risks in areas such as energy, aviation, large government property accounts, and more specialised covers for emerging risks such as cyber, there will be more capacity available and more products available.

“The network and Lloyd’s reach are a big plus,” Bremner says. However, becoming part of it is not always easy.

“Creating a syndicate is necessarily challenging because Lloyd’s wants to make sure that you are joining for a generation, for a lifetime and not for an opportunistic underwriting opportunity over the next 12 months,” Bremner says. The long-term strategy is actually what has underpinned the society over almost 400 years, he explains.

FAMILIAR MARKETS

While several Lloyd’s initiatives may offer opportunities for syndicates to grow in emerging markets, traditional ones such as Canada, New Zealand, Australia and particularly the US are likely to remain in the centre for some time at Lloyd’s.

“I wouldn’t want to underestimate the importance of our traditional markets. The US has, despite of all our efforts, been outperforming for Lloyd’s the rest of the world—our market share is very high there and our market positioning is strengthening,” Nelson says.

Almost 40 percent of Lloyd’s global annual premium comes from the US, with business consisting primarily of surplus lines insurance and reinsurance, according to latest available data.

Mainland Europe, on the other hand, is not such a big market for Lloyd’s so that a radical Brexit deal would not have a large effect on the market’s business.

“Europe is not actually a very big market from an insurance perspective,” Bremner says, adding that he is pretty neutral on Brexit.

Lloyd’s has revealed that 4 percent of its £26.6 billion ($34.6 billion) global gross written premium would likely be affected by a UK withdrawal from the EU’s single market.

The European Economic Area (EEA) accounts for 11 percent of Lloyd’s gross written premium, or £2.9 billion ($3.7 billion), according to a Lloyd’s statement describing the market’s post-EU referendum plan. Of this amount, £1.1 billion ($1.7 billion) is reinsurance, which Lloyd’s expects to be largely unaffected, and £557 million ($724.5 million) is marine, aviation and transport (MAT). Non-MAT amounts to £1.2 billion ($1.6 billion), of which £800 million ($1.04 billion) is written cross-border and is the part of the business most likely to be affected by the UK’s withdrawal from the single market.

“We are not relaxed about it, but equally we are not stressed about the implications of Brexit and we think that Lloyd’s are doing all the right things,” Bremner says.

Despite the low risk Brexit may be posing for Lloyd’s, the society is considering negotiating a deal to secure access to the EEA directly with the EU.

“It is possible we could eventually negotiate directly with the EU, but now is the wrong time to try to start that process,” Inga Beale, chief executive of Lloyd’s, said during the Monte Carlo Rendez-Vous.