Having global reinsurance companies in India willlead to a sustainable insurance market in the country, said Lloyd’s chairman John Nelson. In an interview with Shilpy Sinha, after the specialist insurance and reinsurance market announced MS Amlin as the first Lloyd’s syndicate tojoin its India platform, Nelson said underwriting prudence will be driven by capital market discipline. Edited excerpts:
You are signing your first managing agent. How do you look at the opportunity?
It has taken 15 years for Lloyd’s to set up onshore operations in India. We are up and running. We write $220 million (Indian business) offshore in reinsurance lines. Coming onshore will increase the capacity of direct insurance company in India, particularly inspecialist lines where he does not have the expertise. We still have a hugeopportunity. In terms of insurance penetration, India is at 0.7%, Asia Pacific is at 1.4% and developed counties on an average are at 6.1%. If you look at the financial stability and impact on macroeconomic terms, India does not have huge culture of insurance. Economy is growing at 7% and creating more risks. In terms of concentration of risks, the international reinsurance will stimulate better growth.
Is the order of preference to state run GIC a big deterrent to reinsurers joining Lloyd’s platform in India? What sense do you get from the government on this?
The government and regulator are very supportive. One issue we are looking to deal with is Indian regulations about order of preference. The best terms are offered to a domestic company and then it goes to other reinsurers. That will deter overseas investments in reinsurance. We understand that is a temporary measure. I think there is a move to getting it removed quickly. Probably, not in the next year. They would want to see this year.
How long will it take for Lloyd’s to expand business in India?
It will be a few years before we get a sizable business. Things will look to accelerate if order of preference is taken away quickly…At the moment, if you are a Lloyd’s managing agent, you would wonder if you want to be cherry picked. We are in business and we aregoing to sign the first managing agent today (Wednesday). There are a number of members looking to join Lloyd’s. But we think they will come slowly and gradually. If you look at our other major platforms in the world, China andSingapore, it has taken five-seven years to build up the platform. It is going to take a while. The market conditions are becoming extremely competitive. In a way, people aren’t rushing to us. But there is real interest. What we are seeing is healthy.
Over half a dozen global reinsurance companies are setting up direct branches in India and not coming on your platform. Why?
Most of these companies are the biggest competitors worldwide. They always wanted to operate service. It isvery unlikely that they will come on our platform. We have a licence in China. As India liberalises further, what we will see is they will liberalise the direct insurance market as well. Lloyd’s platform is very attractive if you are not ginormous companies like Munich Re and Swiss Re.
What is the impact of Brexit on your business?
Lloyd’s was in favour of remaining in the EU but democracy decided the other way. We set operation in onshore EU so that we can write business seamlessly. What we have been able to structure with the help of regulators is very attractive for certain players to do business in the EU.
Today, combined ratios are above 100% for most companies. What kind of discipline is Lloyd’s going to bring to India?
The discipline of capital market is actually a very important driver. You are more likely to have a healthy market if you have capital market investors worried about return. In India, insurance industry has advantage because interest rates are 6%. But as you will see, analysts will say it is not sustainable.
Do you expect premium rates to correct?
Capital market discipline is beginning to come in. For example, GIC doing an IPO is a good thing because that means proper competitive market discipline coming to players so that they operate in a way to provide return to shareholders. I think when the domestic insurance industry embraces sophistication of risk adjusted pricing, they will see how they can make better results. At the moment, it is not there. Having more global players will mean they will end up in an industry that is more sustainable.
Source: Economic Times
Date: 6th April 2017