Lloyd’s Chairman John Nelson says the injection of third-party capital to the insurance market is more of an opportunity than a threat.

The increase, sparked by low interest rates and moves to diversify investment portfolios, was a recurring theme at the Reinsurance Rendezvous in Monte Carlo earlier this month.

Mr Nelson says the insurance industry will need greater capital as economies grow and insurance penetration increases, particularly in emerging markets. Growth in traditional markets may come through developing products to meet new business risks.

“Deployed in this way, the capital will be of enormous benefit to the industry. The issue here might be about timing, with capital arriving too soon – ahead of the market growth.”

He says insurance has proved itself during recent financial crises.

“A good example is New Zealand, when international insurance capital paid claims arising from the earthquakes in 2010 and 2011, which helped keep the New Zealand economy on its feet. It is a good example of how international capital flows can stabilise economies.”

However, the industry must remain vigilant, Mr Nelson says.

“My background is in banking, so I remember very vividly what happened to that industry when it detached capital from underlying risk selection and underlying risk transfer.

“The important thing now is to make sure the new capital arriving in the industry is deployed in a careful way, using structures which keep the underlying risk – and the need to pay claims – at their heart.”