Lloyd’s chairman John Nelson pledged the market’s ongoing support for post-quake New Zealand at a broker breakfast in Auckland this morning.
Describing the New Zealand market as ‘an important market for Lloyd’s’, Nelson was keen to assure the audience that would not change.
“As chairman of Lloyd’s, I want to reiterate – in person – today, our total commitment to support they physical recovery in Christchurch following the two earthquakes and also restate too our promise to support, in whatever way we can, the wider impacts the earthquake has had on the New Zealand economy.”
Nelson went on to praise the New Zealand government’s ‘serious’ and ‘intelligent approach to insuring the assets adequately saying Lloyd’s had played its part.
“To date, for both the 2010 and 2011 earthquakes, Lloyd’s has paid a combined $4.2 billion in reinsurance and insurance claims so far.
“We expect the total cost of the events to the Lloyd’s market may reach $5.8 billion and of course we are a prominent reinsurance of the EQC.”
Nelson remarked that while New Zealand was a sophisticated buyer of insurance, it stood in stark contrast to other high growth parts of the world where underinsurance continued to be a problem.
However, he said Lloyd’s view of this was to see it as opportunity, rather than an obstacle.
“The emergence of new markets in the seriously underinsured economies, such as South East Asia, South America, China, Brazil and India, is changing the landscape. But what an opportunity that presents!
“These high growth economies represent a new market for Lloyd’s.”
To this end, he said Lloyd’s had invested significantly on behalf of its market participants to widen access to high growth countries.
Lloyd’s is due to open its Beijing branch after being granted a licence in September, their Dubai office will open next month, and they were granted permission to open an office in Mexico last month.
Discussions are taking place with governments and regulators in Turkey, Colombia, Malaysia and India too.
Nelson said as well as global expansion, Lloyd’s also wanted to diversify the nationality base of its underwriters.
“We need a market that reflects more closely the clients and customers that we serve,” he said.
Other future plans included speeding up modernisation, which he felt would gather momentum under new CEO Inga Beale, and innovation.
“Niche classes of business – cyber, supply chain, reputation – those less tangible of risks – are in high demand,” he said.
“The bespoke, imaginative and intellectual challenges they represent offset the commoditisation of more traditional coverage.
“Cyber insurance, terrorism insurance and specialist ebola travel insurance, are all examples where the Lloyd’s market has recently stepped in to solve major social and business problems.
“And we already know from client feedback that some of our most recent products are fast becoming our most valuable.”
He said Lloyd’s underwriters were reporting a huge increase in cyber submissions and enquiries over the recent years, with some reporting as much as a tenfold increase.
Nelson’s next word was on the subject of alternative capital.
Where the insurance industry had remained robust through the GFC, he said he could envisage capital structures developing which could undermine the insurance business model.
“We need good quality, long term, committed capital, closely attached to the risk it is underwriting,” he said.
“We must avoid the risk of inverted pyramidic structures in derivatives which would destabilise the very service we are providing to our customers.”
Nelson referred next to a recent Boston Consulting report that pitched Australasia in terms of market growth at 10% between 2010-13, second only to Asia’s growth of 11%.
However, he said the other challenges raised in the report were a preference by customers to buy insurance in their local market and the prolonged soft market cycle.
Brokers were now pausing at Changi and purchasing reinsurance rather than just transiting, he said.
He said Lloyd’s now had 18 service companies in Singapore and 360 staff, growing over 120% in the last five years.
But, he said: “Whether our underwriters are in Singapore, London or Dubai, they are carefully managing their way through the soft cycle.
“The confluence of abundant capacity and low interest rates is pushing us into the deepest and longest soft cycle in living memory which is putting pressure on you, the brokers, and the carriers alike.”
He said: “We think this capacity is here to stay and underlying economic growth is still fragile.
“This means we must adjust to the ‘new’ normal and look harder for the opportunities.”