Lloyd’s prepares for shift in capacity
The Lloyd’s Market expects a growing portion of its business to come from emerging markets in the future due to a dramatic shift in where insurance capacity is needed in the world.
Speaking of its 2025 strategy at the release of its 2013 results, Luke Savage, finance director at Lloyd’s, said: “If you believe that the shift in GDP will go 70-30 developing to developed, then over the next decade you’re going to expect insurance premium capacity to shift with it, which is why Vision 2025 is so important.”
The market has already made several moves in anticipation of this shift. Savage said that China is anticipated to become the world’s biggest economy in the future and noted that Lloyd’s has applied for a branch licence in Beijing. The market is also set to open a Dubai office.
“We are laying the foundations for expansion of our global network to respond to the changing insurance industry over the next decade and the Dubai office is a work in progress,” he said. While he couldn't give any specifics about plans for the office, he said things were “on track”.
Turning to regulation, Savage said that he expected Solvency II to drive the formation of more consortiums within Lloyd’s. “I think a consortium option will become more attractive; if a broker can go to one syndicate to bring a 20 percent line behind them, we’re no less attractive than anyone else. We talk about niche areas, but these niche players are specialists, so big is not always beautiful,” he said.
He also warned that 2014 would be a challenging year. Investment income is likely to remain low, he said, he warned that the industry should not expect another year with so few catastrophe losses.
Speaking of the market’s annual results, which saw the specialist insurance and reinsurance market reach a profit of £3.2 billion for 2013, Savage said that despite investment return hitting the lowest level in decades, Lloyd’s “prefers that people stay disciplined rather than chase growth”.
He said that the market’s recent repurchase of £180 million of subordinated debt made sense as the central fund was more than strong enough to support it.
“From an economic perspective, that re-purchase will save us £8 or 9 million, from an accounting perspective it crystallises a £15 million loss in the accounts as an anomaly of rates accounted for,” he said.
Reserve releases reached their eighth year which Savage said was a testament to the discipline of the market, while the lack of claims in 2013 allowed MGAs to “put money away for a rainy day”.
Speaking of the upcoming April renewals, Savage said that he expected trends to follow January 1, with whole accounts being down two to three percent, varying by class.