Lloyd's gained a foothold in one of the world's fastest growing insurance markets yesterday after it was granted permission to establish a reinsurance company in China. The announcement was made by Hu Jintao, the Chinese premier, during his state visit to the UK. Lord Levene, chairman of Lloyd's, said the granting of the licence by the Chinese insurance regulator was "a vote of confidence in the strength and expertise of the Lloyd's market".
He did not put a figure on the amount of business that Lloyd's expected to win from China but said "the potential is huge". He admitted it would be several years before Lloyd's made money out of its Chinese investment, although Lloyd's would not invest large amounts initially. "I will be surprised if we make any significant money there for four or five years,'' he said. "But in 10, 15, 20 years, whoever will be running Lloyd's will talk about China as one of our biggest markets.''
Lloyd's will, over the next year, set up a reinsurance company in China, the first time that the market has established a company. This will be considered a local, domestic reinsurer and Chinese insurers will be able to acquire reinsurance cover from it in local currency. Chinese insurers are obliged to buy reinsurance from local companies in local currency. The Lloyd's-owned reinsurer will, in turn, acquire its own reinsurance from the Lloyd's market. Up until now, Chinese insurers have been able to acquire cover in the Lloyd's market but have been forced to do so using foreign currency.
Lloyd's, which has 12 months to set up the reinsurer, will also be able to take advantage of the ending next year of China Re's monopoly, whereby Chinese insurers must cede 20 per cent of all their business to China Re. Reinsurers Swiss Re and Munich Re already have a presence in the Chinese reinsurance market.
Lord Levene said that, although the initial licence was to write reinsurance, Lloyd's had not ruled out writing direct insurance at a later date. Geoff Miller, of Bridgewell Securities, said: "Over the long term, it (China) will probably be very important but on a one or two- year view, the impact on Lloyd's will be de minimis."
He did not put a figure on the amount of business that Lloyd's expected to win from China but said "the potential is huge". He admitted it would be several years before Lloyd's made money out of its Chinese investment, although Lloyd's would not invest large amounts initially. "I will be surprised if we make any significant money there for four or five years,'' he said. "But in 10, 15, 20 years, whoever will be running Lloyd's will talk about China as one of our biggest markets.''
Lloyd's will, over the next year, set up a reinsurance company in China, the first time that the market has established a company. This will be considered a local, domestic reinsurer and Chinese insurers will be able to acquire reinsurance cover from it in local currency. Chinese insurers are obliged to buy reinsurance from local companies in local currency. The Lloyd's-owned reinsurer will, in turn, acquire its own reinsurance from the Lloyd's market. Up until now, Chinese insurers have been able to acquire cover in the Lloyd's market but have been forced to do so using foreign currency.
Lloyd's, which has 12 months to set up the reinsurer, will also be able to take advantage of the ending next year of China Re's monopoly, whereby Chinese insurers must cede 20 per cent of all their business to China Re. Reinsurers Swiss Re and Munich Re already have a presence in the Chinese reinsurance market.
Lord Levene said that, although the initial licence was to write reinsurance, Lloyd's had not ruled out writing direct insurance at a later date. Geoff Miller, of Bridgewell Securities, said: "Over the long term, it (China) will probably be very important but on a one or two- year view, the impact on Lloyd's will be de minimis."
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