Lloyd’s looks to emerg­ing economies

A fun­da­men­tal shift in global GDP over the next 20 years will cre­ate tremen­dous chal­lenge and op­por­tu­nity for in­sur­ers, de­mand­ing a shift in the pro­file of their pre­mium in­come.

RISKAFRICA Magazine - - • LLOYD’S - Hanna Barry

Lloyd’s of Lon­don is one in­sur­ance mar­ket that un­der­stands this well and CEO Dr Richard Ward was in South Africa in April to meet with the Lloyd’s part­ners in the coun­try and on the con­ti­nent.

Emerg­ing mar­kets at­tract in­sur­ers

In 2012, 30 per cent of global GDP came from de­vel­op­ing economies, com­pared with 70 per cent from de­vel­oped economies. In 2030, it is ex­pected that de­vel­op­ing economies, in a shift that econ­o­mists have called more sig­nif­i­cant than the in­dus­trial rev­o­lu­tion, will pro­duce 70 per cent of global GDP.

Al­though in 2012, 41 per cent of Lloyd’s pre­mium in­come came from North Amer­ica, 26 per cent from the UK and Europe and only 17 per cent from Asia and the rest of the world, the in­sur­ance mar­ket’s Vi­sion 2025, which was launched in May 2012, takes this global shift into ac­count and de­tails plans to ex­pand its growth in de­vel­op­ing economies. Pri­or­ity coun­tries in­clude China, Mex­ico, Turkey, Brazil and In­dia.

Ac­cord­ing to Dr Ward, sub-Sa­ha­ran Africa is an im­por­tant mar­ket for Lloyd’s. The in­sur­ance mar­ket writes $720 mil­lion worth of busi­ness in the re­gion, about 40 per cent of which, or $280 mil­lion, comes out of South Africa. “Africa is a small mar­ket for us but should be big­ger and we will be look­ing more closely at how we can sup­port busi­nesses here with the spe­cial­ist risk man­age­ment ex­per­tise that we have in Lon­don,” he says.

This short­fall was picked up by gov­ern­ments and there­fore by tax­pay­ers.

Ward notes that low pen­e­tra­tion lev­els are a ma­jor chal­lenge for in­sur­ers. This is ev­i­denced by the fact that in 2011, the costli­est year on record for in­sur­ers as a re­sult of nat­u­ral catas­tro­phe losses in­clud­ing the Lloyd’s mar­ket, there was a $328 bil­lion gap be­tween eco­nomic and in­sured losses. Eco­nomic losses were at $435 bil­lion, while in­sured losses sat at $107 bil­lion. “This short­fall was picked up by gov­ern­ments and there­fore by tax­pay­ers,” he re­marks, ques­tion­ing whether the in­sur­ance in­dus­try is of­fer­ing the right cov­er­age to mar­kets with sig­nif­i­cant nat­u­ral catas­tro­phe ex­po­sure if they are clearly not tak­ing out this cover.

“Th­ese are rea­son­ably so­phis­ti­cated mar­kets, such as Ja­pan and Thai­land. I’ve cer­tainly thrown down the chal­lenge to Lloyd’s to cre­ate the right prod­ucts for th­ese mar­kets. He em­pha­sises that Lloyd’s’ dif­fer­en­tia­tor is its un­der­writ­ing tal­ent and says that he looks for­ward to of­fer­ing African mar­kets more of th­ese spe­cial­ist un­der­writ­ing skills.

Lloyd’s less com­pet­i­tive

Ac­cord­ing to South African CEO of rein­sur­ance bro­ker Aon Ben­field, Si­mon Chikumbu, the Lloyd’s mar­ket has an 11 per cent share of the rein­sur­ance mar­ket in South Africa and a 2.5 per cent share of the di­rect in­sur­ance mar­ket. In his opin­ion, there is more space for Lloyd’s to grow in the di­rect mar­ket than there is in the rein­sur­ance space. It counts in Lloyd’s’ favour that it has an ad­mit­ted sta­tus in South Africa, which is ben­e­fi­cial for sol­vency pur­poses.

How­ever, Chikumbu says that Lloyd’s has be­come less com­pet­i­tive in re­cent years in the pric­ing of its catas­tro­phe rein­sur­ance pro­grammes. De­spite of­fer­ing world-class ser­vice, he says the Lloyd’s mar­ket has a low ap­petite for pro­por­tional rein­sur­ance, is very se­lec­tive with the risks it ac­cepts and has lost some mar­ket share.

Chikumbu notes that Aon Ben­field has had some queries from Chi­nese rein­sur­ance com­pa­nies about the po­ten­tial for writ­ing rein­sur­ance busi­ness on the con­ti­nent.

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