The growth of countries such as China, Brazil and India will inevitably lead to more business being written, and that will need new capital to support it, and more insurers, according to Lloyd’s of London Chairman John Nelson. “The challenge we have is to grow the Lloyd’s footprint into the emerging growth countries,” he said in a statement on the company’s website. “There’s an opportunity for Lloyd’s and for the United States, in the high-growth economies. What I hope to see is a situation where brokers are extending their networks, picking up new business across the world and placing it at Lloyd’s.”
As a result, Lloyd’s of London’s bottom line could be positively impacted by emerging market growth, according to Max Rudolph, a fellow with the Society of Actuaries and founder of Rudolph Financial Consulting. “Revenue will grow with bottom line results increasing if proper underwriting is performed,” he said. “Depending on the risks insured, there should be some benefits of diversification due to geographic variation and uncorrelated markets.”
With 34 offices around the world and more than half located in Europe, Lloyd's said it expects its members' income from premiums in developed markets to track or slightly exceed increases in GDP by region.
“Over time, insurance growth will be driven by GDP growth and the emerging markets are where future growth is expected to be,” Rudolph told Insurance Networking News. “Relative to developed markets, emerging markets are not yet saturated with insurance products so there is a catch-up phase of growth that exceeds changes in GDP.”
Stricter regulation may be in order, according to Lloyd's Chairman John Nelson who launched the new strategy last week.
Lloyd's has asked the British government to do away with its so-called light touch approach to regulation in favor of stricter regulation for the financial services industry.
“Regulation is necessary to keep sanity in the market and to encourage established reinsurers with real expertise to participate. Getting a cheap price seems like a good deal until claims aren’t paid,” said Rudolph. Light touch regulation relies on the insurer to be transparent and to understand the risks on their balance sheet. “Unfortunately, the move to this style happened so close to the financial crisis that regulators did not have a chance to evolve and improve their initial process. A better plan includes a mix of analysts and experts like actuaries and investment professionals who understand the risks taken and can ask the tough questions of management.”
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