Lloyd's reports first half profit fall, but China business does well

Lloyd's of London posted a fall in profits in the first half of 2015, down from 1.65 billion pounds (2.55 billion U.S. dollars) in the first half of 2014 to 1.19 billion pounds now.

The fall in profit at the specialist market for insurance and reinsurance was against the backdrop of difficult trading conditions, which have seen low interest rates reduce investment returns and increase competition on insurance premiums around the world.

John Nelson, chairman of Lloyd's, told Xinhua on Thursday morning as the results were unveiled, "We have got two things going on - one is there is enormous competition in the insurance and reinsurance market. In the first half we went through a period of extremely difficult investment conditions which accounts for the majority of the drop in profits for the market."

Last year and its better profits, was an exceptional year said Nelson, with a return on capital of 16 percent and in addition there were very low numbers of claims.

Nelson said he foresaw a continuation of the competitive conditions. However, he said that at some point investment returns and interest rates will improve, which "would tighten up capital and that means there will be more competition for capital away from insurance".

Lloyd's had made progress in the China market. Nelson said that the Shanghai hub was now well established with 22 managing agents on the platform out of the total of 57 operating at Lloyd's. In addition, Lloyd's gained a licence to open a Beijing office, which would allow it to get closer to the major carriers in the reinsurance business.

"We think that our business this year on a run-rate (performance extrapolated into the future) basis is going to double and that is admittedly from quite a low base but the rates are high."

He added, "This is a combination of circumstances. The Lloyd's platform is seen to be very attractive to our carriers because it is a domestic reinsurance platform mainly, in China. It is a very good platform to grow your business in China. It has become more popular partly because of regulatory reasons. We have seen a lot of regulations which mean carriers want to be domestic."

CHINESE DOMESTIC INSURANCE MARKET

Nelson said that the insurance penetration in China for major risks categories, for example disasters like the blast at Tianjin and natural disasters like earthquakes and floods, was low. but there was a realisation that it needed to be increased.

"There is a real understanding in the Chinese political establishment and the business community that is important to up the insurance penetration for economic stability and sustainability," said Nelson.

Lloyd's is a specialist insurance market and did not take part in the major part of the Chinese general insurance market, which was motors, said Nelson, and the company focus was on traditional business lines in casualty, marine, construction, and aviation.

Commenting on the state of the Chinese insurance market, Nelson said it was "very competitive but not well developed in the sense that there is a huge amount of risk that is uninsured."

Nelson said the market was developing and maturing rapidly.

"The Chinese financial services market is sophisticated and it is a good market to operate in and we like operating in sophisticated and intelligent markets. China is certainly one of them," said Nelson. (1 pound = 1.54 U.S. dollars) Endit