Lloyd’s in talks to set up reinsurance biz in India

The 327-year-old Lloyd’s of London -the birthplace of modern insurance -has started talks with the Insurance Regulatory and Development Authority for setting up reinsurance operations in India. Lloyd’s, which isdistinguished for its ability to underwrite specialized risks, expects the niche specialty insurance market to more than treble in ten years from the present level of $850 billion driven by growth in property insurance in emerging markets such as China and India.

In an interview with TOI, John Nelson, chairman, Lloyd’s, said that India is a very important part of the institution’s international strategy and it has been working with the Indian government to bring the Lloyd’s platform onshore. “Fundamentally what this will do is provide the full reinsurance market facilities onshore in India. This will encourage growth of specialty insurance business in India by encouraging domestic insurers to underwrite more such risks.“

Unlike conventional global reinsurance companies, where risks are underwritten in one company’s balance sheet, the reinsurance cover in Lloyd’s is provided by its individual members who are specialists in different lines such as property , marine, energy , cyber risks and political risks. This reduces the utility of a conventional branch, which is why the government has created a special provision for the entry of Lloyd’s in the insurance act amendment.

“We are very pleased that the insurance bill with Lloyd’s chapter has been passed by Indian Parliament, which will increase insurance penetration. It will aid growth of economy and help diversify some of the major risks out of the country ,“ said Nelson. He added that he expected several members of Lloyd’s to set up base in India over time to meet the demand from Indian insurance companies.

The group, which for centuries did most of its business from London, is now moving toward a more decentralized model where it will have regional platforms. According to Nelson, capital has been pouring into the business because of the high returns and the opportunity to diversify . Lloyds on Thursday announced pretax profits of $4.9 billion “Low interest rate (regime) is attracting non-insurance financial investors into the market, particularly specialist markets like Lloyd’s which provided a return of capital close to 15%. There are two reasons why they like this business -returns and the fact that performance is unrelated to other classes of business,“ said Nelson. Although returns on fixed investments have fallen, Lloyd’s has seen a big jump in underwriting margins due to the absence of catastrophic claims in the last three years.

“Last big year (in catastrophic claims) was 2011 -when we had Thailand floods, the Christchurch earthquake, tsunami in Japan and US winter storms. Compared tothat, 2012 to 2014 have been benign,“ said Nelson.

Insurance companies say that presence of global reinsurers on the ground will enable them to better understand the risks in India. This will lead to improved pricing and availability of insurance cover.

Source: Times of India

Date: 27/03/2015

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