The Greek national debt is never very far from the headlines, with reports of officials fiddling budget figures, youths rioting in the streets and what seems like a endless increase in the number of unemployed. While all this all seems like a shocking and unacceptable situation for a member of the European Union, a recently published open letter addressed to the Greek Government and written by Greek scholars and physicians, has drawn even more negative attention to the situation and highlighted the number of Greek people suffering due to the increasingly strict measures applied to the Greek Health Care service.
The 53 European nations of the World Health Organization (WHO) have pledged to combat the spread of measles across the continent and aim to achieve the total elimination of measles by 2015. Experts at the WHO, however, warn that new outbreaks of the disease, as well as too few inoculations across the continent, put this target under threat. The WHO insists that intensive catch-up vaccination campaigns across Europe are necessary to combat recent epidemics and curtail the spread of measles.
In many ways, Europe is more connected than ever: most countries use the same currency, visa-free travel is a breeze, and the presence of the European Union means that legislative decisions are made as a collective. However, when it comes to health care and insurance, every country maintains its own system. Indeed, a slew of recent news stories have served as an important reminder for expats and travelers alike that it is essential to understand the care and insurance situation outside of one’s own country. Read more
In December 2012, the new European Union Gender Directive, which will no longer allow European-based health insurers to base premium rates on gender, will officially be put into action.
One of the areas where this directive will have the greatest impact is in regards to maternity benefits. Despite maternity benefits only being applicable to females or couples, the new directive will result in the high costs associated with those benefits being distributed among all who are insured regardless if they can become, or plan to become pregnant.
From the 21st of December 2012 European insurers will no longer be able to use gender as criteria when assessing risk factors to price premium plans. The European Court of Justice ruled a decision in March 2011 determining that insurance policies reliant on gender factors were incompatible with the prohibition of discrimination under the European Union. The final Article prohibits:
“…any results whereby differences arise in individuals’ premiums and benefits due to the use of gender as a factor in the calculation of premiums and benefits.”
Initial plans for the Gender Directive began in 2004, with the goal to enforce equality for men and women when accessing goods and services. The Directive would dismiss the use of actuarial factors related to sex when insurance companies determined the provision of insurance to clients. Individual plans could no longer be calculated using gender as a factor. Despite the campaign, the court ruled that insurance companies could continue to identify sex as a determining factor when defining differences between premiums and benefits.
Last months’ 2012 Health Insurance Awards held in Glasglow, England, saw many companies recognized for their efforts in the health insurance industry both in the United Kingdom and internationally. Many of the health insurance companies that received awards and honors at the event, which is widely considered as one of the leading industry events in the UK that showcases professionalism and excellence in the medical insurance industry, work with Globalsurance.
In order to help develop growth and regulation of professional insurance services in South East Asia, The World Bank is looking to appoint Thailand as the new ASEAN insurance hub.
The Office of the Insurance Commission (OIC) made the decision in line with the formation of the Asean Economic Community (AEC) scheduled to be ready in 2015. With ‘regional economic integration’ as the ultimate goal for the AEC, the insurance industry will be keeping a close eye on the role Thailand will play in promoting insurance products throughout the region.
Read the rest of the Thailand to be ASEAN Insurance Centre article
Teetering on the brink of economic collapse is Greece, the land of ancient mythological deities, and like the Gods before them hopes and beliefs in a timely turnabout for the Greek economy are dwindling hastily. At hand is the issue of the Eurozone: does Greece stay within and keep the Euro, or will it revert back to the obsolete drachma, the original Grecian currency which existed prior to 2001?
If the Eurozone were to retract it’s inclusion of Greece, there could be drastic effects which affect not only Greece, but the entire Eurozone as well. Specifically, the once-Eurozone-greats of Spain, Italy, and Portugal, who similarly share severely weakened economies, are significantly at risk should the Greek make an exit. It is ironic that the four major players pulling down the system are Portugal, Italy, Greece, and Spain – bearing the acronym of PIGS.
What are some of the possible issues at hand? How will the lifestyle and welfare of the residents be affected? And something more topical, with the state of Greece’s public funding slashed, what will happen to healthcare and health insurance?
Should the Greek system withdraw its participation in the Eurozone, there will be widespread effects across economies not just in the Eurozone, but around the world as well. In preparation for the withdrawal, the Greek banks will probably limit the amount that a person can withdraw from their bank accounts to prevent a bank run and a collapse of Greek banks. Greeks will need to endure the changeover of their currency from Euros to drachma as well as the subsequent devaluation of the drachma. The Euro will most likely be converted to the drachma at a pre-defined rate which will remain fixed for the duration of the changeover. As it stands, the exchange rate, which was revised in April of 2012, stood at 1:340.75. There is a glimmer of hope: many sophisticated investors and those with significant savings have already shifted their funds out of their Greek banks into foreign banks. What this means is that if Greece were to recover, the money is ready to come back in, without experiencing a dismal devaluation.
Once Greece exits, there will be defaults on their debt, which still hold their face values in Euro dollars. Even with 95 billion euros of the debts face value wiped, it still represents almost 265 billion euros. But what kind of implications will that have on the other countries whose economies are also at risk? Spain, Portugal and Italy’s liquidity is affected significantly due to investor fears of economic collapse and worries about debt repayment. Since all three countries require debt financing and liquidity for day-to-day activities, the loss of foreign investments can cause serious liquidity issues. The financial health of these countries could be in considerable trouble, especially since Italy and Portugal carry a considerable amount of debt – with inabilities to pay off the interest payments on loans and bonds, both countries could default. Currently, both countries owe more than their annual GDP.
If it turns out that Greece needs to roll in the new currency, the drachma, the currency that most likely will replace the Greek Euro, will take time to officially come into place. Experts predict that it will take four months until the currency is printed and entered back into circulation. Until then, monies held in bank accounts will likely be changed immediately, while the physical Euro, or at least those denoted by a Y which is the Greek country code, will still be accepted with those.
After the drachma is returned to the Greeks, what will likely happen is inflation, or worse, hyperinflation – you may have seen those old photos of people carrying a wheel barrel of cash just to buy a loaf of bread, or starting a fire with the local currency. If hyperinflation takes place, and this may become a reality for the Greeks should the drachma drastically devalue after its introduction, a basket of goods does not. The relative value of a drachma compared to that basket of goods will widen, resulting in the price of goods soaring.
Moreover, as the drachma is worth less and less, imports become exponentially more expensive. This is not good news for Greece as it is a net import state – Greece imports more than it exports, including food. Conversely, exports will receive a great benefit from the devaluation as one of Greece’s biggest export, tourism, will surely rise due to inexpensive holidays and cheap money.
Inflation, or hyperinflation, will cause Greece to be highly unaffordable for many of those struggling amidst the grip of unemployment; stability in the region will be hard to attain until the government gets back on its feet and is able to borrow again. Residents of Greece may leave the country in a bid to reduce the effect of the devaluation, but measures may be put in place to restrict some of these movements, including provisions on bank account withdrawals.
Compounding the damage is the cut in public spending and governmental policies which affect the business community. Specifically, a lowered minimum wage will have negative effects on residents’ ability to afford goods, making daily necessities difficult to attain. Greece’s two-tiered wage cut, was disproportionately hard on the younger generation, with the minimum wage for those under 25 cut 32 percent, instead of 22 percent. The effects of this and other cuts are being felt more acutely as goods become more expensive. As there are proponents of a spending method to get out of a recession, it seems like this is almost an impossible option for Greece at the moment whose debt outpaces its GDP by over 170%.
Businesses may begin to fail – their ability to borrow money and to keep a sufficient flow of business will be seriously affected by the devaluation of drachma. Furthermore, as citizens concerns start to turn towards more essential goods, such as accommodation, food, and other necessities, relative luxury goods and services become less important in their lives. Businesses suffer due to the lack of demand for their goods and may be forced to close doors.
And what about the necessities of healthcare and the ability to receive healthcare? Already, hospitals all over Greece are feeling a financial asphyxiation which is being transferred to the patients. Supplies are low and resources are lower. As public benefits decline, people increasingly turn to the public hospitals to receive treatment where the waits are long but the prices are lower. Significant changes have been made to treatment policies, allowing only for serious cases to be treated in a timely manner, or at all. There have been numerous reports of supplies being stolen, especially syringes and gloves.
Citizens’ ability to receive healthcare will be negatively impacted and will continue to worsen as the burden on health services is driven by the declining health of citizens. Wait times will be compounded as hospitals are flooded with demand for healthcare and an increasing lack of personnel and resources to service them. Doctors and nurses may flee to private hospitals or other countries in the wake of cuts to benefits, increases to workload and the potential of frozen salaries.
The medical system is already beginning to collapse. Big Pharmaceutical companies are refusing to provide medication because of the inability of hospitals and clinics to pay. In some cases, doctors and nurses are providing healthcare and treatment with no pay and can endure such a lifestyle for only so long.
Medical insurance will be equally negatively impacted in the near future. As businesses feel the increasing effects of the slowdown, so will local health insurers as business functions are hampered by inabilities to borrow and inflation makes existing or collected premiums insufficient for providing coverage. Moreover, premiums collected before the collapse may be converted to the drachma from the Euro and may not be enough to cover the cost of providing healthcare once devaluation sets in. Premiums will probably need to rise in order to keep pace and many may cancel their plans and opt for basic health coverage through the government because they cannot afford to keep up with the increasing premiums. This is under the assumption that the Greek government will continue to provide subsidized health coverage – under austerity measures, subsidized health coverage could very well be one of the earlier things that a government will cut. This will likely result in the collapse of many local health insurers, leaving those previously insured with them without coverage.
As for international health insurance in Greece, premiums for new plans should increase. Since premiums are calculated based on a community rating, the risk profile for those in Greece is increasing alongside the cost of providing healthcare in Greece. Those who do not have health insurance should consider purchasing an international health insurance plan prior to any change in currency that may take place. The plan will be good for the year before the devaluation takes effect, resulting in confirmed coverage for the higher costs of healthcare. It will be a money saving route for the long run. As for existing international health insurance premiums, they too will probably increase in the coming years because it will be costlier to provide healthcare in the country given the lack of supplies or credit to purchase them, as well as the possible need for more people to travel abroad to seek treatment. Furthermore, the health of the residents may continue to decline, resulting in a riskier health profile to the insurance companies, especially since big pharmaceutical companies are wary of providing more supplies on credit.
This makes acquiring an international health insurance policy in Greece much more attractive now rather than later. Before the conditions are unfavorable for you to acquire insurance, acquiring now is a safe way to hedge your bets against both financial and healthcare problems in the future.
There is salvation in sight: with the devaluation of the drachma, many exports become significantly more inexpensive across the world. This makes Greeks exports attractive, helping the country get on its way to recover. However, if the country does not exit the Euro, recovery could be long and arduous.
With Greece controlling its own currency and fiscal policies, it can make provisions and decisions which can bring it out of its slump faster. For example, if Greece wanted to increase its exports, it could further devalue its currency by printing more of it. In addition, Greece has free reign to set its own interest rates, which could facilitate lending and financing throughout the region.
Argentina and Latvia are similar examples of the two options which Greece is faced with: stay with the old currency or move on to their own. Argentina was pegged to the US dollar and Latvia is part of the Eurozone. When faced with their financial meltdowns, Argentina opted to discard the pegging and Latvia decided to stay with the Euro.
What happened was Argentina’s peso devalued significantly and unemployment soared, as did inflation. But quickly after, Argentina crawled out of their depression and reached their peak output levels in just a few years. In contrast, Latvia struggled significantly while under the Euro and GDP growth plunged to the deep negatives. Living conditions continued to decrease and is projected to start recovering in the coming years.
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In this article we will first present our findings of the premium increases and premium inflation rates in each region and country we studied, with specific insurance findings to be presented at the end. Overall our findings were that International Private Medical Insurance (iPMI) premium inflation was very high, at roughly 10.8 percent per year over a 5 year average. While variations exist between countries, the reality is that iPMI inflation rates were extremely consistent throughout the world. However, it is important to note that this is medical insurance premium inflation at the high end of the sector, and not necessarily with regards to the mass market.
Even presenting the argument that premium increases are fairly consistent on a global basis, there are some immediate outliers – Hong Kong, for example, runs at an iPMI premium inflation rate of roughly 13 percent per year, while Kenya’s premium inflation rate is approximately 9 percent per year. Although there is a difference in premium inflation rates between Hong Kong and Kenya, the difference is not overly substantial – as will be seen inside this report.
Globalsurance is pleased to reveal the results of our latest study on the international health insurance industry and rates of international medical insurance inflation around the world as of August 1st 2012.
Using 7,916 data points from 8 different International Private Medical Insurance providers in 10 different countries, Globalsurance has been able to successfully identify a number of trends within Global Medical Inflation for individual International Private Medical Insurance (iPMI) plans during the time period from 2008 to 2012. iPMI is a subsector of the greater health insurance industry which services the global population of expatriates and international High Net-Worth individuals.
The companies sampled in the studies use Age and Geographical Area of Coverage as the main variables in their premium calculations. By selecting a sample which is community rated Globalsurance has been able to efficiently identify the actual rates for premium increases in different parts of the world. Our measure of inflation is based on a sample of policies, ages, and published rates for each insurer included in the study. Globalsurance selected the most common age groups and most common policy types for our data points to achieve realistic measurements in relation to medical insurance premium inflation around the world.
While individual insurance providers and underwriters may disagree with our findings, the figures represented in this report are based on our sample and present baseline figures for all of the regions and companies we chose to consider.
It is important to note that, unlike the recent Towers Watson Report on Medical Trends, the data contained in the Globalsurance insurance review is not survey based. Rather than looking at individual responses and feelings in reference to levels of health insurance premium inflation, which may have some inherent bias dependent on the respondent, Globalsurance is analyzing the actual premium data from insurance companies with exposure to the world at large, over locally based providers operating in a single country.
Additionally, we have analyzed premium data, and not healthcare pricing data. Consequently the figures represented in this report are indicative of the levels of healthcare cost inflation which insurance perceive to be in place in the locations we sampled; profit and operating costs of the individual insurers are assumed to be unchanged. While the increase or decrease in premium values may point to actual rates of medical inflation in the countries which were included in the study they do, in fact, represent the increased costs placed on policyholders.
However, it should be noted that, while the figures contained in this report are the actual rates of iPMI premium increases for the duration of the study, the removal of Age and Policy type means that the figures presented in this study of International Medical Insurance premium inflation can be used as a suitable proxy for rates of actual medical inflation in relation to healthcare costs around the world. It should be noted that the proxy does not represent medical inflation across the entire healthcare sector within a country or region; for example, NHS cost increases in the United Kingdom are not evident in our findings. The rates of iPMI premium inflation are only a proxy for healthcare costs in High-End, private medical facilities in the countries which we considered, due to the basic nature of the international medical insurance products we are studying.
So, without any further ado, here is the Globalsurance International Insurance Review:
There is to be a vigorous shake up of the Slovak private health insurance industry. So vigorous in fact, that it’s actually going to disappear altogether.
The Slovak government has reached a decision this week that it wants to bring all health insurance under a single state run system. A move the government feels will save the Slovak state some money by stopping the flow of precious state funds into private corporation’s profits and channeling them back into the system instead.
Prime Minister Robert Fico has charged the Slovak health care ministry to work out a plan of action by the end of September. The process is currently set to be completed by 2014, although Slovak officials do not expect the current insurers to go without a fight.
Slovakia can force a buyout of the two private health insurers, a move Fico said would have to be very carefully planned and executed to prevent any chances of backlash in the courts.
Fico has stated that, “”It would be ideal if we could reach an agreement on the buy-back.”
It appears that Fico is determined to see this measure implemented fully, regardless of opposition. “In case we will not reach an agreement, we will use the expropriation measure. This is a standard procedure written down in the constitution and known also elsewhere in Europe.” He added later that, “This (expropriation) is in the public interest.” However, the Prime Minister was not prepared to venture an estimate of the value of a buy-back or eventual nationalization, saying that the value would have to be determined by independent auditors.
The current health care system in Slovakia is a form of private-public partnership, where all Slovaks pay a healthcare tax of 14%, and can choose cover provided by one of the three providers, who provide cost-free treatment. The two private health insurers, Union, a unit of Dutch Achmea B.V., and Dovera, controlled by Slovak-Czech private equity group Penta Investments, provide cover for about 1.8 million of a total 5.4 million Slovakians. The state owned General Health Insurance Company, or VsZP, provides cover for the remaining 3.6 million citizens.
Katarina Kafkova, head of the Slovak Association of Health Insurers, said on Wednesday that, “We don’t consider re-installation of a single health insurer is the best possible option,” and made it clear that investors were not interested in ending their operations in Slovakia.
Martin Danke, a spokeman for Penta Investments, stated that, “We’re taking the plan into consideration. We don’t know any details of how the government wants to carry it out. It still holds that we want to be active in the sector of health insurance long term. There have been no talks with representatives of the government about its plans.”
Achmea was very direct in its reply: “If necessary, Achmea will take all steps necessary to protect the business interests of Union,” adding that it was not interested in selling Union or its portfolio to the state.
It is quite understandable that the private investors would fight this reform. Q1 profit for the entire health insurance sector in 2011 was almost EUR 13.5 million (USD 16.5 million), from a gross aggregated revenue during the quarter of EUR 871.1 million (USD 1.1 billion). Dovera’s share of the profits was EUR 6.6 million (USD 8.1 million), down from EUR 10.9 million (USD 13.35 million) for the same period the year before, Union only posted a profit of EUR 400,000 (USD 490,000), for Q1 2011, compared to a small loss for Q1 2010. At the same time, EUR 7 million (USD 8.6 million) can go quite a long way when channeled back into the health service especially in light of the current state of EU finances.
This is not the first time Prime Minister Fico has taken on the private healthcare industry in an attempt to save his country money. He banned private insurers from making a profit during his previous stint as Prime Minister between 2006-2010. This was later overruled by the Slovak Constitutional Court.
While the Prime Minister obviously has noble intentions, the Slovak Health Care Ministry will have its work cut out for it. Firstly to successfully evict Union and Dovera without prolonged legal battles, and then to build the national health insurance service in such a way that it has the capacity to offer cover to all Slovaks, while remaining profitable. Public healthcare systems are notorious for effectively draining blood out of the healthiest economy, Slovakia’s General Health Insurance Company is currently on the right track, let’s hope it will stay that way. This is definitely a story that will not be over soon.
In recent announcements, AXA, the Industrial and Commercial Bank of China Co Ltd (ICBC) and Minmetals declared the launch of their foray into the China insurance market for life insurance. Officially branded as ICBC-AXA Life, the company recently received official approval from China’s State Council and all other relevant governing bodies to do business in the country. This follows the acquisition of 60 percent of the equity stake in AXA-Minmetals by ICBC.
ICBC-AXA Life represents AXA’s long term commitment to the Chinese market, according to Henri de Castries, Chairman and CEO of AXA. By partnering with ICBC, AXA stands to gain significantly in terms of expertise and experience, bringing diversified and comprehensive insurance coverage for the Chinese market.
Prior to the partnership, AXA and Minmetals formed the venture known as AXA-Minmetals and was established in 1999. In October of 2010, ICBC acquired a 60 percent equity stake in AXA-Minmetals, resulting in an equity split of 60 percent ICBC, 27.5 percent AXA, and 12.5 percent Minmetals. The equity stake was purchased for 1.2 billion yuan by ICBC and prior to the acquisition, the equity split was 51 percent-50 percent AXA-Minmetals.
With headquarters in Shanghai and operations in over 20 major cities and provinces, ICBC-AXA intends to service a vast majority of China. Beijing, Shanghai, and Guangzhou will serve as major service hubs. Some of the products which ICBC-AXA will offer include education, family protection, wealth management, and retirement insurance advice and services.
ICBC-AXA will be leveraging ICBC’s 282 million clients and expertise in the Chinese financial industry. The strategic move on both parties should prove to set a new precedent as China’s power player teams up with Europe’s largest insurer. Ambitious plans are in place as ICBC-AXA strives to be the leading provider for insurance in China.
In recent statements, Mr. Castries was quoted as saying that Europe looks like Chernobyl before the explosion, indicating forecasts of tumultuous times ahead. The development of ICBC-AXA represents a diversified move for AXA and a new area of opportunity for ICBC. As financial woes continue to haunt the financial industry, the insurance industry represents a stable move despite the large gains that can be achieved through it.
The Chinese market is difficult to penetrate due to strict Chinese government oversight and regulation. As such, China represents a significant opportunity due to its sheer size of population. Previously, AXA utilized Minmetals’ network and Chinese state-controlled status to break into the Chinese market. However, as Minmetals is a mineral and metal company, AXA stands to gain much more through the help of ICBC’s broad reach within the relevant sector.
The Chinese market is expected to grow at an average rate of 12 percent per year between 2010 and 2020, according to analysts. Chinese national companies maintained a 95 percent market share on life insurance and 99 percent in damage products, while more than 50 foreign players were struggling to win more of the market for general lines. AXA aims to bypass regulatory brakes which have restricted the company’s ability to compete in the past. ICBC has agreed to distribute AXA’s product in over 16,000 branches. AXA remains dedicated to the Chinese market and is actively trying to withdraw from activities within Australia and New Zealand.
Appointed as the Chairman of the Board of ICBC-AXA Life is Mr. Sun Chiping and President Mr. Jamie McCarry will oversee the day-to-day business operations of the newly formed joint venture.
While AXA is attempting to significantly increase market share in China, ICBC is actively trying to increase their market share in Europe. It is understood that ICBC will leverage AXA’s connections and expertise within the European market to help ICBC expand.
ICBC is the world’s largest bank by market capitalization and is looking to diversify its holdings outside of banking. ICBC is one of China’s four state-owned commercial banks and was initially founded as a limited company in 1984. It entered two stock markets simultaneously, Hong Kong and Shanghai, in the world’s biggest initial public offering at the time, featuring $21.9 billion US in public funding.
As Europe’s second largest insurer, AXA Group is a worldwide leader in insurance and asset management. With over 101 million clients in 57 different countries, AXA boasts revenues of over 86 billion euro and earnings of over 3.9 billion.
Minmetals, officially China Minmetals Corp, is China’s largest metal trader. Minmetals specializes in the production and trading of metals and minerals, namely copper, aluminum, tungsten, tin, antimony, lead, zinc, and nickel. As a state-owned enterprise, Minmetals is under the jurisdiction and laws of China.
Insurance Companies Mentioned:
AXA the global insurance group in Paris
Low interest rates “an enormous stress”
The current European economic climate, created by efforts to try to stimulate economic growth and rescue an ailing banking sector, is placing the insurance industry under “enormous stress”. This according to Nikolaus von Bomhard, Chief Executive of Munich Re, one of the world’s largest investors with a portfolio of more than €200 billion (US$245 bn).
While the low interest rates in Europe are a boon for consumers and those looking for cheap credit, large investors are feeling the pinch as their ability to make money on large capital investments is being severely hampered.
The value of money over time is especially critical to insurers, since they receive most of their money up front, in the form of policy payments, and then are liable for servicing those policies later. In an environment where the interest rates are extremely low, it is very hard to remain profitable when many annuity and life insurance products guarantee returns significantly higher than the current interest rate.
The interest rate on 10 year German bonds is currently around the 1.24% mark, well below the 1.6% classified as “extreme” and “unsustainable” by Joerg Schneider, CFO at Munich Re, during an interview in May. The rate hit a record low of just 1.21% in June 2012.
von Bomhard also expressed his view that banks should be allowed to go bust and creditors be made to carry a share of the losses. This might be unavoidable, should economist Nouriel Roubini’s recent prediction prove true and the European debt crisis spirals out of control.
Fortunately, there is some good news to offset the the increased pressure resulting from low interest rates.
Global losses due to natural catastrophes have been moderate for the first six months of the year.
2012 is off to a good start as far as insuring natural disasters are concerned, with a total insured loss valued at around US$12 billion, well below the ten year average of US$19.2 billion. Worldwide, the total loss has also been well below the average of US$26 billion for the first 6 months, which is significantly lower than the ten year average of US$75.6 billion. This is according to a recent publication by Munich Re, a leading global reinsurer.
Deaths due to natural disasters in the first six months of the year are also well below the ten year average of 53000, at 3500.
2011 was marked by massive losses suffered during the disasters in Japan and New Zealand, with the total loss for the first half of 2011 stood at US$300 billion of which US$82 billion was insured.
Almost 85% of worldwide insured losses and 61% of total losses were incurred in the USA, mostly due to an earlier than usual tornado season and out of control wildfires. Since 1980, the USA has had an average of 65% and 40% respectively, but the first half of 2012 has seen near record levels of tornado activity.
The most severe single event was a line of thunderstorms that crossed several states, including Ohio and Tennessee, between the 2nd and 4th of March. More than 170 tornadoes were counted in this period, and the storm left 180,000 homes damaged, with total losses in the region of US$4 billion.
In Europe, natural disasters caused lower losses than usual, with only 10% of insured and 16% of overall global losses incurred on the continent. Winter storm Andrea, which brought heavy snowfall and winds gusting up to 200km/h caused the most damage, incurring US$700 million worth of losses, of which about US$400 million was insured. Earthquakes in the sparsely populated area of Modena in Italy caused damage to many historically important buildings.
Aside from some serious flooding in China in May, causing almost US$2.5 billion in overall losses, the Asia Pacific region has had no significant, major loss events to date.
While the mildness of 2012’s weather so far is certainly welcome news, Torsten Jeworrek, a board member at Munich Re, pointed out that, “It is in line with expectations that extreme and more moderate years will balance each other out in the course of time.”
Some success in efforts to deal with Somali piracy
There has been some significant progress made in the fight against piracy, especially off the Somali coast, with a decline of more than 50% in incidents involving Somali pirates. In the first half of 2012, there were 69 Somali-related piracy events, compared to 163 for the same period in 2011.
According to a recent report by the International Maritime Bureau (IMB), global incidents of piracy fell to 177 reported attacks in the first half of 2012, down from 266 for the same period last year. This improvement is mostly as a result of increased naval activity, including preemptive action, as well as improved security measures put in place by shipping operators and the hiring of private security contractors. “Naval actions play an essential role in frustrating the pirates. There is no alternative to their continued presence,” said IMB director Pottengal Mukundan.
While there is a marked improvement in the situation off the Horn of Africa, there were still 11 vessels and 218 crew being held by Somali pirates, some in unknown locations on the mainland.
The Gulf of Guinea, on the West coast of Africa, has seen an increase in piracy, with 32 incidents reported in the first half of the year, up from 25 in the same period in 2011.
Globally, a total of 20 vessels were hijacked worldwide, with 334 crew members taken hostage. Another 80 vessels were boarded, 25 fired upon and 52 vessels reported attempted attacks. Somali pirates still present the most serious threat and ships should continue to take measures to protect themselves.
Elsewhere in the world, attacks are mainly armed robberies, with almost 20% occurring in Indonesia, however, guns were only reported on one occasion.
German insurance company Talanx has recently scaled Poland’s insurer rankings to sit comfortably as the second largest German insurance company.
Within the past month, Talanx has made several core acquisitions that helped it expand in size and quality. After cooperating with Japanese insurer Meiji Yasuda to acquire Wroclaw-based Europa Group, Talanx went on to complete the acquisition of Belgium-based KBC Bank subsidiary, TUiR Warta, no more than a few weeks later, securing its position among Poland’s top insurers.
Talanx has a history of providing comprehensive insurance services in Poland with its two subsidiaries, HDI-Gerling Zycie and HDI-Asekuracja.
The Europa Group experienced a solid 2011 business year, with a a net profit of EURO42 million (USD51.5 million) from premiums totaling EURO173 million (USD212.2 million).
Also, the acquisition of Warta contributed an additional Zloty649 million (USD194.4 milion) of non-life premiums, and Zloty599 million (USD175.14 million) of life premiums to Talanx during quarter one 2012, amounting to an overall premium increase of 8% at EURO7.6 billion (USD9.32 billion). Meiji-Yasuda Life is set to by 30 percent of Warta’s shares from Talanx.
Compared to last year, Talanx almost tripled its first quarter results, earning a net profit of EURO211 million (USD268.3 million), as opposed to only EURO77 million (USD85.87 million) for the first quarter of 2011.
Currently, Talanx is the 11th largest insurance group in Europe. It is already moving several of its insurance lines and retail to the international market. Therefore, judging from the successful year Talanx has had so far, it should come as no surprise that the insurance group is close to having its initial public offering (IPO).
Originally, its IPO was unofficially due for June or at the latest, early July. Though this date has been postponed because of the European debt crisis and stock market developments, everything is in place for the big change.
Talanx has already confirmed Citigroup, JP Morgan Chase, and Deutsche Bank as bookrunners, switched to quarterly reporting, and formed an investor relations department.
The German insurance giant apparently worries about receving a low valuation at its IPO, as the majority of German insurance companies are currently being traded at 20 percent less than book value.
Although Talanx is fully owned by mutual HDI-V.a.G., which is intent on maintaining a majority of the firm, plans to go public will not change as the extra financing is crucial to the Talanx’s international expansion. During the past year, the group already made 5 global acquisitions.
Talanx plans to offer no more than 25 percent of its capital to the stock exchange at first, valuing roughly EURO1.4 billion. Meiji-Yasuda, which has partnered with Talanx before, already bought EURO300 million in convertible bonds for the German insurer.
In addition to its own IPO, one of Talanx’s subsidiaries, Hannover Re, had its IPO in 1994, which was the largest insurance IPO in Germany to date. At the moment,Talanx holds 50.2 percent of Hannover Re, and is also restructuring its entire reinsurance service.
By solely using HDI Reinsurance (Ireland) as a major internal reinsurer, Talanx is attempting to bring up its retention rates, a part of its new strategy to improve profitability. However, Hannover Re, Talanx’s largest reinsurer, will not supply retrocession to HDI Reinsurance (Ireland).
Overall, significantly improved results so far this year are partly because of the good claims development, which suffered greatly last year. Additionally, Talanx managed to increase its investment income to EURO961 million (USD1.18 billion), a 15 percent jump. This was largely due to sales of assets.
Herbert K. Haas, CEO of Talanx, said that the group was able to come out of the year 2011 in good health, and is only continuing the positive progress it began last year. Haas ended with confirmation that Talanx’s premium growth in the global market is a clear signal that their strategy is working well.
German Insurance Companies Mentioned
Meiji Yasuda Life
Established in 1881, Meiji Yasuda Life Insurance was the first life insurance company established in Japan. Headquartered in Tokyo, Meiji Yasuda Life now has over 40,000 employees in Japan, as well as 81 regional offices, 22 group marketing offices and over 1,000 agency offices. The company also has 8 subsidiaries or representative offices oveseas.
Europa Insurance Group
Based in Poland, the Europa Insurance Group is a leading provider of bancassurance and all finance related insurance products. For nearly 17 years, Europa has been actively influencing the Polish financial market, and creating innovative products to adapt to the needs of each customer.
Talanx Group and all of its subsidiaries are managed by the financial and management holding company Talanx AG, based in Hannover, Germany. Talanx Group is a multi-brand provider in many prominent lines of insurance and in the financial services industry. In the year 2011, Talanx Group earned over EUR23 billion in premium.
With history as far back as 1920, WARTA guarantees stability and experience in its services. WARTA Group provides motor, property, personal, and life insurance, and has been the recipient of many prestigious awards in theinsurance sector.
HDI-Gerling is one of the largest German property & casualty insurers, serving private customers to commercial and industrial clients. HDI-Gerling offers tailor-made insurance and retirement plans.
HDI-Asekuracja has operated in the Polish property & casualty market for over 20 years. HDI-Asekuracja TU SA, Poland is wholly owned by the management group Talanx AG based in Hannover, Germany.
Hannover Re is the third-largest reinsurer in the world, with a gross premium of EUR 12 billion. It has branches on all continents in the world, supporting roughly 2,200 staff. Hannover Re maintains very strong financial strength ratings (S&P “AA-” and A.M. Best “A”).
Insurance brokerages across Europe expressed frustration towards the European Commission’s (EC) latest revision of the Insurance Mediation Directive (IMD II), and specifically the component that makes remuneration disclosure in a transaction mandatory.
While not all of the regulations introduced were negative, broking organizations will not give up pressure on the EC to modify the rules until the IMD II is officially finalized and published sometime next year.
The European Federation of Insurance and Financial Intermediaries (BIPAR), and one of its members, the British Insurance Brokers Association (BIBA), were pleased to see their lobbying efforts recognized through the incorporation of other insurance distribution methods, such as travel agents or price-comparison websites.
However, BIPAR and BIBA along with various other European brokerages are not so happy with the EC’s plans to create a “level playing field”, by requiring all brokers in the general insurance line to disclose their commissions, before the end of a 5 year transition period. They claim that these rules ignore all of the advice and recommendations from the Financial Services Authority, HM Treasury, the European Insurance and Occupationla Pension Authority (EIOPA), and all leading insurance brokers in Europe.
The mass disappointment is supported by the fact that insurance companies selling directly to customers will not be subject to the same mandatory disclosure.
Head of Compliance and Training at BIBA, Steve White, expressed that his organization is happy with a number of areas of concern the EC addressed in the IMD II. Yet, the main concern lies with the rules mandating disclosure for brokers only, and the importance of establishing a “level playing field” when comparing to insurance companies selling direct.
David Strachan, Co-head of the Deloitte Centre for Regulatory Strategy, also shared White’s skepticism about the ability of IMD II to carry out its purpose. Strachan noted that the IMD II is meant to clear up any conflicts of interest among different sales modes. However, the difference between intermediated and direct insurance sales should be stressed to customers, because remuneration varies between the two services. Consumer clarity on the issue is vital to ensuring that the IMD II is a successful in its goal.
In the meantime, the Chief Executive of BIBA, Eric Galbraith, said that his association will cooperate with BIPAR to voice their perspectives as the Council of Ministers, European parliament, and European Union co-legislators, near the final publishing processes of the document.
On the other hand, other means of insurance distribution will also be affected, to many European brokers’ satisfication. After the implementation of the IMD II, sales channels such as price-comparison websites will also be under stricter regulation, in the EC’s attempt to provide greater transparency through all methods of purchasing insurance.
Currently, the IMD focuses on intermediaries, but the IMD II will incorporate a much wider scope.
Norton Rose LLP partner David Whear said that the most promising changes revolve around the kinds of groups and organizations that the new directive will regulate, such as loss adjusters, claims managers, and price-comparison websites. This ensures that much attention will be diverted from intermediaries, which may have been unfairly monitored before.
According to the EC, the revised directive will allow customers to receive complete transparency from the seller when purchasing insurance products. It claims that the purpose of the IMD II is to enhance customer rights and protection within the insurance sector, by implementing set standards and honest advice among insurance sales. In this way, business for intermediaries across borders will not be as much of a hassle, and therefore encourage an internal insurance services market to develop.
Although the revised IMD cannot be called a complete flop, European insurance brokers are about to enter a period of significant struggle, as the looming EC regulations threaten to hurt and complicate future business.
French insurance company Groupama recently endured a downgrade in ratings by S&P from a BBB to a BB-. Its new rating is considered sub-investment, and is commonly referred to as ‘junk’ status. Such a rating could potentially harm existing business relations with insurance brokers.
Groupama is a mutual insurance, banking and financial services group with over 38,000 employees and 16 million customers and members. It was founded over one century ago, and suffered some of the largest setbacks from Greek soverign debt and stock market investments, with a EURO1.8 billion (USD2.25 billion) net loss in 2011. These losses caused Groupama to lose its position as France’s 5th largest insurer and Europe’s 15th largest by premiums. As a whole, Groupama has EURO5.3 billion (USD 6.62 billion) in net assets, and EURO17.2 billion (USD21.5 billion) in revenues.
The French company maintains a leading presence in France within a number of insurance lines ranging from agriculture, personal health, and home, to motor. It also has a strong international footing in 14 countries in Europe and Asia, including: China, Vietnam, Greece, Turkey, Hungary, Romania, Slovakia, Bulgaria, Poland, Great Britain, Portugal, Italy, and Spain.
Currently, Groupama’s ratings are on on negative outlook, meaning that unless the company’s conditions improve in the coming year, further cuts to ratings are possible.
S&P stated that management actions taken towards asset sales were “unlikely to restore Groupama’s capital adequacy to levels supportive of an investment-grade rating over the coming year, in our view.”
Some of the actions taken include the sales its Spanish operations to Grupo Catalana Occidente for EURO405.5 million (USD 506.7 million). Groupama Espana generates 38 percent of it’s total premiums, EURO904 million (USD1.13 billion) annually, from motor insurance.
Groupama has also sold the property and casualty assets of its Gan Eurocourtage brokerage business to Allianz’s French unit, and is considering the sale of its UK assets. Though Groupama UK’s capital is separate from its parent company, with twice the recommended solvency margin at 218 percent, its rating is not. It’s UK assets include the insurance company, as well as insurance brokers Bollington, Lark, and Carol Nas.
Francois-Xavier Boisseau, the Groupama UK chief executive also added his opinion on the matter. Boisseau emphasized possible misconceptions that may arise from the UK subsidiary’s rating in association with it’s parent, Groupama.
“This is important to understand because based on our current performance, prospects and asset base, it is very clear that the Group’s rating does not offer an accurate reflcetion of our excellent trading position in the UK nor of the level of security we offer to our broker partners and their clients,” he said, “In 2011 we delivered record profits and despite fierce competition our 2012 reveneues remain broadly in line with expectations. Our profitability also remains very impressive. Profit before tax exceed EURO16 million (USD20 million) at the end of May and our combined ratio improved to 97.9 percent.”
On the other hand, Chief executive Ashwin Mistry of Brokerbility, a group of high quality independent brokers, said that Groupama’s downgrading will initiate a complete review of the “whole relationship” between the two.
Insurance broker Seventeen Group has also taken the matter very seriously, and for them, Groupama is already beyond reliability. Paul Anscombe, managing director of SG, said “If an insurer’s rating is below BBB+ from Standard & Poor’s we will not deal with them going forward.”
From a lighter perspective, Bluefin chief executive Stuart Reid said that “Groupama has been a good business to us and a good friend.” The drop in ratings is definitely an issue to look into and consider with utmost importance, but Reid affirmed that his firm will continue to support Groupama.
Overall reactions to Groupama’s predicament are mixed, but nevertheless, all groups affiliated with them are taking the necessary precautions to ensure that Groupama does not pose unnecessary risk in the near future.
Insurance Companies Mentioned
Groupama is a mutual insurance, banking, and financial services group. Over 100 years ago, Groupama began as an agricultural mutual insurer, and has grown and adapted to emerging economic challenges, as well as to the needs of its members.
European insurance markets are looking increasingly bleak amid news of UK health insurance premiums climbing by 10 percent, and fears of expat health insurance premiums doubling in Greece. The bad news in the Euro Zone’s health insurance market comes at the same time European life insurers are nervously awaiting the outcome of the Solvency II proposal’s passage through the European Parliament. The proposal, which has been ten years in the making, has been designed to ensure insurers have capital reserves proportional to the risks underwritten.
The unprecedented rise in health insurance premiums, specifically in the UK, has left both insurers and their customers worried. In an effort to stop the 10 percent price increases that have been seen in the past couple of years, international health insurers have been trying to reduce costs by pinpointing where they’ve been going wrong. William Russell, an international insurance firm based in the UK, has pointed the finger at surgeons who it claims have radically varying surgical prices.
The firm mentioned an example where a surgeon in Hong Kong requested US$42,000 to perform a knee replacement operation. According to Nichola Duncan, the company’s international claims manager, “We contacted three other well-known surgeons locally and the average fee was US$24,000.” In light of the hike in prices, a number of insurance firms, including William Russell have implored their customers to contact their insurer prior to treatment to ensure that the client will not have to personally foot the bill. Other reasons that have been stated for the increasing cost of premiums has been fraud, over diagnosis and unnecessary medical treatment.
The bad news in the UK comes at time where British nationals living in Spain and Greece are returning home due to the huge economic problems in both Euro Zone stragglers. One of the biggest potential problems that expats are facing is the prospect of their health insurance doubling if Greece decides to leave the Euro Zone. Their worries are centered around the possibility that if a Greek exit, or Grexit , occurs, hospitals may not reduce their prices. Despite their fears, prominent insurance firms such as AXA are confident that if Greece ditches the Euro for the Drachma, hospitals will reduce their costs. Kevin Melton, AXA international’s sales and marketing director admitted that “Premiums will be expensive” but “the cost of claims should be lower because hospitals services will be cheaper.” However, even if hospitals cut their prices, it is very likely that premium rates will still rise, as expats with international cover would rack up claims beyond the Greek border.
The economic problems in Greece are not only proving harmful to expatriates living in the country, but also to visitors holding the European Health Insurance Card (EHIC). The premise of the EHIC is that an individual holding the card has access to the same amount of public health care than a citizen of the EU country the person is visiting. In the past, many have used the EHIC as their main source of travel insurance while traveling in and around Europe. Due to the immense problems that the public hospitals are having in Greece, they no longer have the resources to deal with foreigners holding an EHIC. This means that even if one has an EHIC card, they are no longer guaranteed healthcare and may end up having to pay for expensive private care out of their own pocket. With the EHIC proving to be ineffective in many cases, the need for proper travel insurance has become greater.
The new ineffectiveness of the EHIC in Greece is part of a growing trend of European countries becoming increasingly cagey about other European nationals using their public health services for nothing. The first country that clamped down on this was France. In 2008, former President Nicholas Sarkozy enacted a law where by non-French non-working individuals under retirement age were made to buy private medical insurance and were no longer allowed to use France’s public health system for ‘free’.
As more and more European countries lose money it seems that they are becoming increasingly stingy about their own healthcare systems and following suit. Soon after France enacted their laws, Spain created similar ones, and while the Greeks didn’t exactly intend to cut expatriates out of their public healthcare system they too have effectively done the same. Those who support these moves argue that it was wrong that expats were getting the benefits of a system that they had not contributed to and that cards such as the EHIC were being abused.
The British have now caught on to the general trend and are pressing their government to make it compulsory for foreign nationals to have health insurance to ensure that the NHS doesn’t become a free treatment ticket and that Briton’s have first priority.
While the health and travel insurance markets ride waves of uncertainty, European life insurance firms are keeping their eyes firmly focused on the outcome of the Solvency II proposal. The proposal is intended to protect insurance companies in case of another crippling financial crisis. As the proposal progresses through the European Parliament in Brussels, German insurance companies such as Allianz and Munich Re, as well as many others, have all expressed an interest in implementing a phase-in process for Solvency II as it is claimed that 40 percent of German companies would have problems complying with the new regulations. They claim an immediate introduction of the Solvency II legislation would be detrimental as they would not have enough time to adjust to the stricter measures and a sudden hike in capital reserves.
Most companies use discount rates based on asset yield to calculate technical provision, and according to Karen van Hulle, the European Commission’s Head of Pension and Insurance, the phase in would allow companies to gradually move towards the risk free discount rate that Solvency II requires.
Insurance Companies Mentioned
British firm, William Russell, was founded in 1992 and is an international insurance provider that specializes in health, life and disability insurance.
AXA is a French insurance firm based in Paris, France. Ranking in as the ninth largest company in the world, AXA specializes in life, health and other forms of insurance.
German company, Allianz are the world’s 12th largest financial services group in the world. Formed in 1891 it specializes in insurance but also deals with other financial services.
As the Euro zone debt crisis continues to take its toll on economies and industries, some European insurers may be experiencing a decrease in their solvency ratios and recent credit ratings appear to be reflecting this as a result.
Low interest rates and unstable markets have impacted the means by which insurers generate their income, and whilst Europe’s top 20 insurers are currently maintaining stable overall financial health the current economic climate and the rocky Euro currency remain a constant threat.
A.M Best Company analyses the credit ratings of companies within the insurance industry and has been keeping a close eye on the effect of the debt crisis on European insurers in particular.
By stress-testing the balance sheets of insurers against factors such as their corporate bonds, equities and exposure to the debt crisis, A.M Best Co is able to evaluate investment risk exposure and assess financial strength and creditworthiness.
A.M Best performed such tests in 2011 and placed many insurers under review with a negative outlook. Since then, the company has continued to closely analyse European insurers and reviews have been re-examined but results still appear to reflect the current unstable climate.
Italy has been hit particularly hard by the debt crisis and Italian insurance giants Generali have been greatly exposed to the unstable markets as a result.
A.M Best has noted that whilst Generali (and other European insurers) are still showing strengths and are deserving of their current ratings, the instability of the European situation can still only allow for them to be placed with a negative outlook.
The solvency of the European banks offer significant risks to the insurance sector and with the now very real prospect of a Greek exit from the eurozone, which would in turn have a domino effect on the peripheral countries, the chances of the situation improving any time are slim, to say the least.
With such a bleak future for Europe, it is expected that further rating actions could take place in the upcoming months and it is unlikely that these will be moving upward in a positive direction any time soon.
Financial markets do not normally take a ‘wait and see’ approach and as a working solution to Europe’s debt crisis is still yet to surface, A.M Best expects to witness further instability in European markets and the financial institutions involved within them.
As the European debt crisis continues to take its toll on affected countries, numerous companies are revamping their businesses strategies to keep their heads above the waves.
Britain’s second-biggest insurer, Aviva, has increasingly felt the impact of Europe’s unstable economy and recently came under fire when its large exposure to the eurozone crisis contributed to a drop of 38 percent in share prices.
Aviva previously announced it would be reconsidering its investments in 45 businesses and cutting ties where they no longer predict sufficient growth.
Insurance companies holding stronger positions in the market, such as AIA and Prudential, are looking towards expanding in Asia to overcome Eurozone difficulties. However, due to recent incidents, Aviva needs to improve its shareholder value as quickly as possible and therefore seeks to exit non-core operations and focus on their home markets.
Aviva first teamed up with Malaysian CIMB in 2007 when it paid USD $119.4 million for a 49 percent stake in two of the company’s units. Sources with knowledge say the group is now in the process of exiting this joint venture and has hired Morgan Stanley to oversee the sales process.
In Sri Lanka, the acquisition of Eagle Insurance in 2010 resulted in the formation of Aviva NDB. Based on recent figures, the company has a market value of 36 percent which would value Aviva’s 51 percent stake at USD $18 million to prospective buyers. Sources predict AIA group, Manulife Financial and Prudential will be among potential bidders.
Aviva entered South Korean markets in 2008 when the company teamed up with Woori Financial and purchased LIG Insurance for USD $115.3 million. It has now been speculated that the two partners have informally discussed exploring the sale of Aviva’s 41 percent stake in LIG; but Woori declined further comment.
Other European financial institutions appear to be taking similar measures to secure their base markets with Royal Bank of Scotland selling a share in its investment banking operations to CIMB and ING Group N.V beginning the process of selling its Asian Life Insurance and asset management business.
While some companies are exiting Asian markets, others are re-considering their investments in Europe.
Insurance Australia Group feels that with the current UK economic conditions, now is a suitable time to reassess their UK business investments and strategies.
IAG CEO, Mr. Mike Wilkins, aims to prioritise returning the groups UK businesses to profitability. Positive progress has taken place so far this year so IAG is now discussing the most efficient way to maximize shareholder value given the UK’s current economic climate.
With equities in Red Star, the UK’s fifth largest motor insurer, one option for IAG is to refine their business strategy so as to solely focus on motor insurance. IAG also discussed continuing to improve the group’s performance within their current operating model or explore what options are available for a sale in part of or all of their UK business investments.
Continued instability within the European business climate will undoubtedly lead to additional companies undergoing strategic reviews such as these and as a result, interesting but unpredictable developments are sure to be in store for international insurance companies.
London based insurance company Aviva is now the sixth largest insurance group worldwide and the largest provider of life and general insurance in the United Kingdom.
Despite having a strong start to the year so far, Aviva will be undertaking a much needed strategic review of its businesses to aid the company in its recovery after the departure of Chief Executive Officer Andrew Moss.
Moss, having held his position since 2007 stepped down on the 8th of May after the shareholder’s unhappiness at his pay and performance was making it too difficult for him to continue in a successful manner.
Now in charge, executive deputy chairman John McFarlane has been set with a number of tasks with priority residing in acquiring a new CEO. McFarlane reports this could take the rest of the year as it is paramount that an excellent candidate is selected so as previous events are not repeated. However, with Aviva share prices already down 10% since the departure of Andrew Moss, it would seem McFarlane needs to act with greater urgency.
In addition, McFarlane has been developing strategies to improve Aviva’s current condition which he hopes will be put in motion by July. The acting CEO plans to have Aviva reconsider its investments in 45 business units so as to ensure the company can improve performance in businesses that offer sufficient promise for the future and rid themselves of those that do not. He hopes this will enable Aviva to strengthen its capital base and boost share prices, especially as recent reports are reflecting the increasingly tough conditions the euro crisis is bringing about for the company.
Continuing with the trend of the last 5 years, Aviva has underperformed rivals Prudential and L&G with stocks decreasing by 8% since the beginning of the year. The Euro zone crisis has of course taken its toll on their rival companies as well but as Aviva generated 40% of its operating profit last year in Europe alone, it appears to be feeling more of an impact and has already seen a 5% drop in its life insurance sales so far this year.
Spain and Italy in particular, have been hit hard by the recession where reports in Life and Pension sales reflected an overall 23% decrease.
Worldwide, Aviva’s total sales, which include general insurance premiums, were down 3% at a total of 15.3 billion US Dollars but on a positive note, the company’s asset management funds have seen a healthy inflow of 1.6 billion US dollars in the first quarter alone.
The recession is making life difficult for all European citizens, including Aviva’s own employees. Aviva Ireland mentioned last week that between 500 to 540 redundancies will unfortunately be enforced due to the current economic climate in the Euro Zone.
Like other companies involved with Europe, It appears that the Aviva group will continue to struggle in certain areas until the business landscape becomes more stable. In the mean time, it is clear the company requires a positive management situation to assist them in moving forward and overcoming whichever obstacles the recession will undoubtedly create.
A new report published by prominent international ratings agency Moody’s Investors Service this week urges European insurance companies to expand their business eastwards into Asia, as their collective presence in the region at present is too limited to affect their overall financials. This current situation, Moody’s explains, has a credit-neutral effect on insurer credit profiles, but if these same companies can expand profitably in the Asia Pacific region in the coming years, credit implications might turn positive over the longer-term.
Moody’s new special comment, titled ‘Most European Life Insurers Face a Long Road in Asian (ex-Japan) Markets,’ notes that despite their relatively strong position at home, most of Europe’s leading insurance groups have been slow to expand their operations into Asia. While this inability to leverage relatively strong capital positions and industry expertise into a greater advantage and presence across the world’s fastest growing insurance markets has not perhaps had any detrimental impact on European insurer finances so far, a failure to gain momentum at this juncture could prove to be an opportunity lost over the longer term. “For most European insurers, their current presence in Asia ex-Japan remains too small to affect their overall financials, and thus their credit profiles”, explains Antonello Aquino, Moody’s Senior Vice President and author of the special report. Moody’s expects this to soon change however, with European insurers looking eastwards to improve their credit profiles and offset the stagnant market forecasts in their home markets. A profitable strategic expansion plan for Asia will remain a particularly attractive option for European insurers, due to the added geographical diversification and profitability benefits it could bring to their portfolios going forward.
What has prevented these insurers from making the move until now? Moody’s report explains that restrictive national regimes, unexpected intra-market regulatory changes, and embedded (some would argue extortionate) insurance product guarantees have proven to be some the most daunting obstacles international insurance companies have faced when trying to expand their brand successfully in the Asia ex-Japan region so far. The report uses the example of Taiwan’s insurance market, which has seen a European insurer exodus in recent years due to the high level of product guarantees and the downward pressure this places on margins. Taiwan’s insurance trade has remained sluggish in the aftermath of the global economic crisis, with the market further restricted by previous business secured at interest rates which are no longer sustainable for firms. New accounting rules that raise capital requirements on insurers, together with strict local regulators and general market volatility, have led many international insurance groups to question their continued presence in the country.
More recent trouble for multinational insurers can be found in the Indian insurance market, where numerous legislation changes have lead to a protracted decline in life insurance sales, the country’s key growth driver. New regulations that restructured popular unit-linked insurance policies in the third quarter of 2010 have significantly impacted the life sector, resulting in a sharp drop in first-year premiums, and have forced life insurers to turn towards more conventional, lower-margin products. Additional rulings on charges and agent productivity have made underwriting profitability and distribution difficult and could pose additional challenges for life insurance companies in India down the line.
Moody’s points to these examples and more to demonstrate that success in Asia, perhaps moreso than elsewhere in the world, will be determined by the insurer’s ability to manage evolving regulatory environments, maintain insurance product and service innovation, and control their distribution networks going forward. These are “the hallmarks of successful insurers in Asia ex-Japan,” added Mr. Aquino. While the Asian insurance sector’s prospects for growth appear bright in the long term, the market’s unique idiosyncrasies need to be addressed in order to attract and sustain the necessary investment and innovation required to take business to the next level.
According to the Moody’s report, European insurers’ overall presence in the Asia life insurance market (excluding Japan) remains quite limited, with combined market share coming in just below 10 percent of total regional annual premium equivalent (APE) as of 2010. The rating agency further suggest that profit contribution from Asia has remained modest on most European insurer balance sheets, accounting for around 5 percent on average, with the noted exception of British insurance giant Prudential Plc, who have developed a substantial presence in most major markets in the region. Prudential are now even considering moving headquarters from London to Hong Kong to reflect how important Asia has now become for the company.
In the conclusion, Moody’s explains that Asia ex-Japan is by now means a monolithic, uniform insurance market, and that certain countries in the region will continue to present more attractive growth opportunities to European insurers than others in the short-to-medium term. While Asia collectively certainly is a large and fast-growing insurance market, international insurers are still likely to find large variations in business attractiveness and ease of access across the continent’s assorted economies. According to Moody’s analysis, Vietnam, Indonesia, Thailand and the Philippines offer the highest level of potential for foreign insurers in Asia at present, despite the notable risks often associated with emerging insurance market development and evolution.
The findings in Moody’s study reflect similar conclusions made by other agencies earlier this year. In Deloitte’s 2012 Global Insurance Outlook, the consulting firm agrees that the most attractive avenue for international insurers going forward could be emerging insurance markets, which offer faster-growing economies and rising incomes for more sustainable premium growth opportunities. With US and Western Europe economies unlikely to generate pronounced business prospects in the short-to-medium term, insurance companies should look to offset the anticipated shortfall in their home markets by entering potentially lucrative emerging markets, with China, India and Brazil being the most attractive destinations.
The Deloitte report recognized that while doing businesses in emerging markets often comes with it’s own considerable business challenges, including burdensome regulation, poor infrastructure, and cultural differences, the irresistible demand for greater insurance coverage and financial security amongst these countries’ expanding middle class populations will provide sufficient growth opportunities to international insurers with adequate resources to adapt and expand. According to Insurance Information Institute’s 2010 statistics, the ratio of general insurance premiums to GDP is just 1.5 percent in Brazil, 1.3 percent in China and around 0.7 percent in India. By comparison, the insurance penetration rate is 4.5 percent in the United States, 4.1 percent in Canada and between 3.1 to 3.7 percent in the major European economies. These differences translate into a trillion dollar coverage gap between West and BRIC nations, plenty of room for new insurance companies to come in and capitalize on these still largely untapped insurance markets.
Moody’s Investor Services provides credit ratings, research, credit risk management, and other services for more than a hundred thousand commercial and government entities around the world.
Deloitte is the world’s largest private professional services organization. The consulting firm, founded in 1845, now has over 170,000 staff, working out of 140 different countries. Deloitte provides audit, tax, consulting, enterprise risk and other financial advisory services through its many member firms.