China's president is on a three-day state visit to Britain

It is believed to be the first time a Western reinsurer has gained entry to China's rapidly expanding market.

Other commercial contracts worth �1.3bn (�783m) were also signed during Mr Hu's state visit.

They included orders for Rolls-Royce and Airbus, and a contract for Arup to develop plans for new cities in China.

The contract signings came as the Prime Minister, Tony Blair, met Mr Hu to discuss trade, global security and climate change.

The talks took place amid continued protests by human rights and pro-democracy campaigners.

Under the deal with China, Lloyd's will be able to reinsure local currency business, which currently comprises nearly 90% of the total Chinese market.

It will also provide Chinese insurers with full access to the Lloyd's market.

As valuable as the US

The insurance giant hopes to develop and implement an operating structure within the next year, it said.

China is forecast to become the world's second biggest economy and will develop into one of the world's largest and most important insurance markets Lord Levene, Lloyd's chairman Economic links between the UK and China

But the agreement has been a long time coming, complicated by Lloyd's status as a market rather than a company. This has left negotiations dragging on for seven years.

The solution will be the establishment of a firm in China that will be a subsidiary of Lloyd's.

It said China had the potential to become as valuable as the US where Lloyd's conducts $9bn-worth of business a year.

Lloyd's chairman Lord Levene said: "China is forecast to become the world's second biggest economy and will develop into one of the world's largest and most important insurance markets."

He said he would be surprised if Lloyd's made significant money in China in the next four or five years.