John Nelson, who was named chairman of Lloyd's of London last year, brings an outsider's perspective to the market. After spending a career in banking and asset management, Mr. Nelson joined Lloyd's after several tumultuous years for the market. In his first year at Lloyd's, the market has focused its efforts on reducing costs and expanding its business in international markets. Mr. Nelson spoke last week with Business Insurance Editor Gavin Souter about the challenges and opportunities ahead for Lloyd's.

Q: As someone who came to Lloyd's from outside the insurance industry, what do you see as the key challenges that are still ahead for Lloyd's?

There are three roles we have: regulator, enabler, promoter.

Regulator is absolutely crucial and that's No. 1. If we don't have good underwriting discipline, we don't have a business. As we saw in the 1980s and 1990s and, indeed, more recently in the early 2000s, Lloyd's future was very much in jeopardy; and I think that since the franchise system has been introduced, there is much more discipline and a great deal more professionalism in terms of underwriting. And we need to keep that up.

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The second area, which any market has to do, is its processing has to be really efficient. We have lowered the costs. In my first year, we've taken the costs down by about 8%, which is, I think, very important. We've been a bit behind in terms of technology and processing of claims, premiums and policies. On claims, I think we've made good progress. We've got times down on our claims in some areas by about 40%, which, I think, is quite an achievement. We've got Project Darwin going on at the moment, which is in its early stages, which is the basic processing model, and I think the market has got behind it.

The third area is what I call, loosely, promotion, which is really making sure that Lloyd's has got the opportunity of being the global hub for specialist insurance and reinsurance, and I think we're in a pretty good place. In the growing, emerging territories, we've got to make sure we're there. My predecessors pushed Lloyd's out into some of those markets, like China and so on, but I think when you look at Lloyd's, 80% of the capital is coming from the U.S., Bermuda and the U.K.; and a very high percentage of the gene pool in the underwriting market in London is people like you and me. If we're going to be the global hub, we've got to diversify the capital, and the people, and the franchise.

I would love to see over the next 10 (to) 20 years Lloyd's becoming much more international with Brazilians, Mexicans, Indians, Chinese actually operating in the underwriting market in London — a bit like what happened in the banking industry in London in the 1980s.

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Q: One of the areas that Lloyd's has tried to grow in the past, but not necessarily that successfully, has been on continental Europe. How do you see that playing out?

No, I agree. If you take France and Germany as the two bigger economies of continental Europe, they have major players who, by and large, have integrated or tied agent distribution. Bearing in mind that Lloyd's is a fully brokered market, where distribution is effectively subcontracted to brokers, structurally it makes it more difficult, and that's why the penetration of Lloyd's in those markets isn't as great as in some others. Having said that, there are signs that we are getting a bit more traction in some of those countries, and the insureds are beginning to see the merits of Lloyd's. For example, in France last year, I think our premium income group grew by about 8%, which is well ahead of (gross domestic product). I would like to see us grow there.

Q: You mentioned emerging markets such as China and other areas. Are there any particular ones where you have a focus?

Basically, the new countries that we're focused on would be Mexico, which is our biggest one; in South America, Brazil; and in the long-term, obviously, Africa. If you go up Eastern Europe, I would probably single out Turkey and Poland. Turkey is potentially a very important market for us; and then if you go further east, India absolutely lends itself to Lloyd's. The problem with India is that the economy is a very protected economy. So unless they liberalize the regulations there for foreign insurance companies coming in, it's going to be difficult, but we talk to them all the time.

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And then ... we are throughout Southeast Asia. Our biggest hub, by far, is in Singapore. We have our onshore license in China ... we have a hub in Shanghai; and in Tokyo, where we are and where we've been for many years. So those would be the countries that we're probably focused on.

Q: The U.S. is a very mature market for Lloyd's, and you have a lot of business there. How do you see that market growing?

Well, most of our businesses there is excess and surplus lines and it's a very strong business. It does continue to develop. It is a mature market; on the other hand, all the time we are developing our cadre of coverholders. The broker community seems to be more and more enthusiastic about Lloyd's. So I think that there are special lines that we would like to develop. I think there's still the opportunity to grow.

Q: And it's been going on over the past few years now, but Solvency II is still hanging out there.

I think this is where Lloyd's can actually bang a bit of its own drum. We are Solvency II-compliant more or less now. We will be introducing the Solvency II process into the market, right across the market for capital-setting purposes from the first of January. It was a huge effort by the team and by the market.

Luke Savage, our CFO, did an absolutely brilliant job over the last few years. It's cost a fortune. It's been unnecessarily expensive and complicated to execute. The regulators know our views on this. I think the results, in the sense of what Solvency II does, are good. Obviously, the big conundrum is that the Europeans having forced us to spend, whatever it is, two and a half billion pounds in the U.K. insurance industry, and then say, “Well, we're not sure when we're going to introduce it,” which is obviously frustrating.