John Nelson, chairman of Lloyd's of London, believes the global insurance market is facing a "perfect storm". In his view, unusually low interest rates and excess capital in the insurance industry are driving down both insurers' investment returns and premiums.

        Nelson also noted that rapid technological development is intensifying market competition by changing the relationship between insurers and their customers.

        Lloyd's is the world's oldest specialist insurance and reinsurance trading market. Nelson said Lloyd's is responding with its "Vision 2025" policy.

        One of the policy's emphases is international expansion, with China at its core. In the 17th century, Lloyd's started out in a London coffee house running marine insurance business and gradually grew into a global market where more than 200 underwriters gathered to take risks. As Lloyd's continues to develop, China will become one of its most important frontiers.

        Nelson recently spoke with China Daily about insurance market policy and his plans for China. Below are excerpts from the interview:

        Q: How do you see the growth potential of China's insurance industry, and what opportunities will there be for Lloyd's?

        A: Over the past few years, China has become an extremely important platform for the Lloyd's market. In Shanghai and Beijing, more than half of the managing agents at Lloyd's are now active on this platform - 31, to be precise.

        In 2015, we significantly expanded our business in China, and gross written premiums reached 792 million yuan. We believe that figure exceeded 2 billion yuan last year, and we will continue to regard China as the most important growth market in Lloyd's long-term development.

        Insurance can provide critical support and protection, allowing Chinese companies to offset risks and focus on developing their businesses. In particular, Lloyd's has considerable expertise in the large construction, energy, marine and transportation projects in which China is investing.

        As a platform for international expansion, Lloyd's offers a good springboard for Chinese insurers looking to develop international strategies.
For example, China Reinsurance Group has joined the Lloyd's platform. We also signed a memorandum of understanding with China Taiping Reinsurance Co., Ltd. in October 2015.

        I believe these things take time, and the number of Chinese companies joining the Lloyd's platform will gradually increase.

        Q: How do you plan to further expand your business in China?

        A: Our Shanghai office opened in 2007. Two years ago, we also opened a branch in Beijing, which brings us closer to the major reinsurance market.

        We have about nine managing agents on this platform, and I am very pleased with this progress. I think the main task for the next step is to consolidate what we have already done.

        We have the core of the market here. Now the challenge for participants is to achieve breakthroughs with specialist teams. We are looking for new ways of distribution and trying to bring these specialist teams deeper into the fabric of the Chinese economy.

        Q: As China undergoes urbanisation, how can Lloyd's expertise and services meet the demand for more sophisticated insurance products?

        A: Growing urbanisation in a sense makes the economy more efficient and more interconnected. But on the other hand, urbanisation also concentrates risk, and the greater the scale of urbanisation, the more pronounced the consequences.

        China is a typical example of sustained, rapid urbanisation. The migration of people from rural areas to cities makes the economy more efficient, but it also makes them more vulnerable to systemic shocks.

        What we see is that risks from natural disasters are increasing, but there are also man-made risks, such as cyber attacks.

        Q: What role can Lloyd's play in China's "Belt and Road" initiative?

        A: The initiative will deepen trade links between China and Europe and ensure future prosperity in developing regions. It has the capacity to reshape the economic landscape, just like the original Silk Road.

        It will also provide new development opportunities for Chinese insurers conducting international business and for global reinsurers, which in turn provide capacity and global expertise.

        Lloyd's underpinned the early innovations in seaborne trade and transportation that later changed the world, so we are prepared to work with Chinese insurers to provide solutions that support and protect China's economic growth and its commercial interests overseas.

        Q: After establishing partnerships with two Chinese reinsurers, how do you plan to attract more capital from Chinese insurers to the Lloyd's platform?

        A: I think over the next five to ten years you will see many other Chinese companies entering this platform.

        We want this process to be gradual and do not want to see people rushing to make commitments. For the Lloyd's market, companies that come only in pursuit of capital make no sense. What we want is to ensure it expands our reach and increases business.

        We are also very keen to have people from different countries join the Lloyd's platform. So if a company wants to enter the Lloyd's platform, we very much hope they will commit their best people to the Lloyd's business. We believe having Chinese people on the Lloyd's platform will greatly add to the market's expertise.

        Q: China has established an insurance exchange in Shanghai to develop its own insurance market. What does this mean for Lloyd's?

        A: This is also where I think Lloyd's can help. We can provide expertise for new products, through reinsurance and by supporting domestic insurers.

        In addition, diversifying reinsurance risk abroad can help the domestic economy develop.

        In other words, having a free insurance market is very important. The Shanghai Insurance Exchange is still in its early stages. We support it and have agreed to become a member. Watching its development will be very interesting.

        Q: What is Lloyd's biggest challenge in the Chinese insurance market?

        A: I think one of the biggest challenges is assessing risk in China. As the economy develops and changes, we lack data and historical accumulation.

        In other countries, we have high-quality data that enables us to model risk more accurately. Over time, this will also improve in China.

        But it is still somewhat difficult at present, because Lloyd's is at a fairly early stage of development in China. As time goes by, we will be able to collect data, and modelling risk will become easier for us.

        Q: How do you define your management philosophy?

        A: If you think of managing Lloyd's as a football match, we prepare the pitch, mow the grass and paint the lines, making it as good a football pitch as possible. That is our philosophy.

        Q: What do you do in your spare time?

        A: I love my family. I also enjoy sailing, which I have done since I was 15. I like art too, and I am a trustee of the National Gallery in London.

Source: China Daily 2017-11-23