Lloyd's of London eyes on China growth

China's reinsurance market provides significant growth potential for Lloyd's of London, said chairman John Nelson on Thursday.

"We are obviously very small in China, growing from small percentages quickly, but I think over the medium to longer term we'd expect China to be a major market for Lloyd's. China's domestic carriers are very strong, and we are there to complement them with specialist risks,” Nelson said.

Nelson was speaking just after Lloyd's reported its 2014 annual pre-tax profit of 3.2 billion pounds ($4.76 billion), which is considered successful given the current challenging market conditions, characterized by an abundance of capital and the low interest rate environment globally.

In 2014, Lloyd's had 14.7 percent return on capital, and a combined ratio of 88.1 percent. Combined ratio measures an insurer's underwriting profitability, and a ratio less than 100 percent is an underwriting profit.

"The results are outstanding. To achieve that in the face of extremely competitive conditions is a real achievement. But on the other hand we had a benign catastrophe period, which is helpful,” Nelson said.

Home to the world's largest insurers, Lloyd's insurance market started operations in a coffee house in London where ship owners met to make insurance deals 300 years ago.

Lloyd's entry into China has been fairly recent. It established a representative office in Beijing in 2000, later an underwriting office in Shanghai in 2007 and earlier this month it opened an underwriting office in Beijing also.

Nelson said establishing the Beijing office is important because "Beijing is the corporate center of the insurance industry in China”.

He said having established the Beijing base it is then easier to liaise with the different companies in China's insurance market, as well as the regulator, China Insurance Regulatory Commission.

As a specialist reinsurance market, Lloyd's in China is focusing on reinsuring risks including marine, aviation, construction, energy, amongst others.

Nelson said China's degree of underinsurance is very high especially for specialist risks, which provides great expansion opportunities for Lloyd's.

"The Chinese government is keen to increase the penetration of specialist insurance and reinsurance, as it improves economic stability and improves growth,” he said.

Nelson said that he would encourage the Chinese government to take into account two factors when devising regulatory rules that drive forward the country's insurance sector.

"It is important that the rules still allow the internationalization of the Chinese insurance industry, as it will create better insurance penetration.

‘They should also allow reinsurance to be placed overseas because if you are a large country like China, being susceptible to catastrophe risks, it is extremely important that the risks are diversified outside of the country,” he said.

He used the US as an example of a country that has diversified much of its risks outside of the country, and said that China should be in a similar situation, "otherwise you have the population of China reinsuring itself”.

Meanwhile, Nelson said Lloyds is also making great progress in growing its global access. Alongside the new Beijing office, Lloyd's Dubai platform has also opened this month.

Lloyds is also opening its office in Mexico this year and the Indian government has now passed legislation to allow Lloyd's to operate onshore in India. "We are continuing to work hard to open up markets such as Turkey, Malaysia and Colombia,” Nelson said.

In 2014, the UK accounted for 18 percent of Lloyd's overall business. Lloyd's largest international markets are in the US and Canada, accounting for 44 percent of total business, followed by 15 percent in the rest of Europe, 11 percent in Central Asia, 8 percent in Other Americas and 4 percent in the rest of the world.