Hong Kong’s economic development over the last few decades has led to improved measures for dealing with natural disasters. With the installation of the Hong Kong Observatory in 1883, early storm warnings and procedures were gradually established to handle the region’s seasonal typhoons. The numbered Signal System, ‘T1, T3, T8 & T10’, promoted public awareness of typhoons and arranged a platform to notify residents of each storm’s potential severity. (When T8 is hoisted workers are released and encouraged to go home.) Now Hong Kong residents handle five or six typhoons annually, but there are growing concerns that many of them are severely underinsured for the long term effects of a natural catastrophe.
President Obama meets today with both Myanmar’s party leaders in Rangoon, the country’s commercial centre. It will be the first official visit for a sitting US President to Myanmar (also known as Burma) in an effort to support recent reforms undertaken by its President Thein Sein. Obama has revealed a strategy that ‘re-focuses on engaging fast-growing Asian nations’, choosing South East Asia as his first destination since his re-election as Head of State.
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.
Manulife Financial Corp plans to double insurance sales, quadruple wealth management sales and double wealth management funds under management in Asia in a move that exhibits their future confidence in the region.
Despite initial promises to hit the $4 billion (US$ 3.99bn) mark by 2015, the corporation now pledges to move forwards from the unstable earnings seen in their recent records. A loss of $227m was measured as the third quarter finished at the end of September.
A recent publication from the Singapore Department of Statistics has stated that the city state has continued to see a year-over-year increase in its population from 5.18 million in 2011 to 5.31 million in 2012. However, the reality of the situation is that annual population growth has slowed from 3.5% to 2.5% and officials and academics in Singapore have recognized that the city may eventually run into the same aging population issues that have begun to effect other developed countries.
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The insurance industry seems to be going through a lull. Things are quiet, with few major news events, no major catastrophes rocking the industry and a general sense of calm. How much of this is merely the swimming duck effect, with the appearance of calm on the surface, but energetic kicking happening under the water remains to be seen – but there is certainly a lot going on behind closed doors.
In Europe, the insurance industry is still working hard to effect amendments to Solvency II. As far as it is concerned, the proposed legislation is still far from the final draft, even after almost 10 years of planning and negotiating. Solvency II is going to force the industry to implement measures that will simply become an extra burden, with proposed capital requirements completely out of proportion to actual risks. One example often cited by opponents of the current version of the legislation, is that of Hurricane Katrina in 2005, which caused widespread damage resulting in US$40 billion of claims. While this was the most expensive mega-catastrophe in recent years, the insurance industry was able to absorb this hit and recover rather quickly.
Indeed, according to a recent report published by the Universities of Leeds and Edinburgh, the expected financial losses linked to natural catastrophes such as hurricanes and earthquakes are not of the magnitude to “justify substantially high capital holdings against catastrophe underwriting risk.” The report focused on U.S. insurers, but the findings apply to all those potentially affected by the regulations.
While negotiators and lobbyists in Europe and North America are working feverishly to keep the insurance industry as legally unfettered as possible, the sales and marketing departments also have their work cut out for them.
The current economic climate is putting a lot of pressure on insurance premiums, with many Europeans currently underinsured when it comes to life cover. One of the main reasons for underinsurance is that the products are seen to be expensive, and customers are looking much more closely at what they are spending their hard earned pennies on. This trend can safely be extrapolated to other types of insurance, as the economy is affecting individuals as well as businesses and organisations of all types and sizes. In the life cover market alone, Swiss Re calculated that the protection gap amounts to EUR10,000 billion across the 14 EU countries. This gap is basically the difference between projected amounts of money needed by dependents in the event of a person’s untimely death, and the financial provisions put in place to cover such an event.
In light of this, there is much work to be done to develop innovative products that offer clients an attractive deal. With such a stagnant economy, sales teams are going to have to work not only harder, but much more intelligently to improve their figures. There is certainly untapped potential in the European market, but without new products and bold strategies, only a small percentage of this potential will be realized. Insurers in the USA and EU are facing a lot of legislative uncertainty, especially so in America, as the government rolls out a raft of healthcare and health insurance changes, along with new taxes and regulation for insurers and re-insurers on the horizon. There is certainly a long uphill struggle ahead, but opportunity is often found in the midst of adversity. Although the demand for insurance will not be going away anytime soon, the nature of the business is changing somewhat, and insurers will need to adapt to stay in the game.
Emerging markets offer a whole lot of new opportunity, albeit with some risk and a lot of uncertainty. As the global shift eastward continues, money is flooding into Eastern Europe and Asia, which means access to a whole new set of customers, along with new cultures and completely different environments. Traditional insurance is doing very well in the developing world, and insurers are using strategies such as bancassurance very successfully to help them penetrate these new markets. However, because of the flexible and entrepreneurial nature of emerging markets, where many things are still in flux, traditional insurance companies are also having to face new challenges on a regular basis. Developing countries are not afraid to try something new, and have the luxury of being able to draw on the experience of more developed countries and businesses. For instance, there is a lot of interest being shown into using captive insurance as a solution to risk management and financing, especially based on the experience of large companies like BP in dealing with large scale disasters like the Deepwater Horizon spill in 2010.
Another area where there is a lot of upheaval and change in developing countries is in the area of healthcare. In 2011, the WHO’s 193 Member States committed themselves to reforming their health financing systems to move towards universal health coverage. The goal of universal health coverage is that all people can use the health services they need without being exposed to the financial hardship often associated with paying for them.
In the developing world, where a large majority of people live on a subsistence basis, very few can ever afford any kind of healthcare, yet these are precisely the people who need assistance and public provision of healthcare services.
Developing nations face this problem almost universally, and much work is being done to study possible ways to finance universal healthcare and to develop models that provide a better bang for their buck.
Currently, public healthcare is provided based on variations of two basic strategies.
In the first type, a country provides universal healthcare based on a single risk pool, of which all eligible people are members, and funds its system through general taxes. Usually, in this kind of system, healthcare is provided by publicly owned facilities. The NHS in the UK is a good example of this strategy.
In the second type of system, a government provides healthcare to its nationals via mostly private providers, and funds the system through payroll taxes. The government essentially pays for private healthcare on behalf of its citizens. There are usually a few different risk pools, which means that different classes of citizens pay differently and possibly also receive different treatment. The German system works according to these principles.
At the moment, a majority of developing countries have public health systems that use multiple risk pools, but the current trend is definitely towards broader and larger risk pools. Many feel that consolidating pools mean lower administrative costs and less fragmented and possibly unequal treatment. The general consensus is that bringing everyone into one pool can make healthcare more equitable because everyone is entitled to the same set of benefits.
The role of the private healthcare industry varies, but in a majority of developing nations, private services are incorporated into their systems, with the state buying private care for their citizens when the public services cannot provide the necessary treatment.
This would be the best system from the perspective of the patient, as excluding the private sector from a universal healthcare system generally produces double standards, where the poor go to publicly funded facilities and receive basic care, while the rich can afford the very best treatment in private hospitals and clinics.
Developing nations have a their work cut out for them, but at the same time they have a huge advantage with “greenfield” development opportunities – unhindered by archaic and inefficient systems, and generally, a public healthcare system which can only really improve.
Of course, the biggest concern when talking about health services anywhere in the world revolves around finances. Many countries remain uncertain as to how to finance universal health coverage. Medical services have an amazing capacity to consume budgets, and universal coverage seems to be simply unaffordable to many.
Pre-paid schemes such as health insurance, provide one solution to this problem. The WHO hold the view that health insurance and other prepaid health financing mechanisms, are a key route to universal coverage. Every year, out-of-pocket payments force millions of people into poverty. Larger risk pools, combined with a larger percentage of the population contributing to a healthcare fund, would make it affordable for most developing countries to extend a basic standard of care to all their citizens, and even provide subsidies for more advanced services at private facilities on a more limited basis. Increasing taxes or funneling revenue from national resources like oil or minerals for the specific purpose of providing improved healthcare is not a hard sell, as long as citizens eventually feel they get what they pay for. Not all countries will be able to start with a full range of medical services, but getting the ball rolling through pilot programs and incremental extension of public healthcare will mean that they can grow their systems in a controlled fashion, experimenting with new solutions and strategies as they go. Assuming that health ministers can keep their departments on course and free from the ubiquitous bureaucracy, the goals of universal health coverage might just be within their reach.
Reliance Life Insurance, India’s largest private insurance company, has announced that they will be going through with an expansionary move that will see over 55,000 staff added to their force. This move is in anticipation to its future plans to move into different marketing channels.
Reliance Life Insurance is a business unit of Reliance Capital and led by Anil Ambani. Despite being one of India’s larger life insurance companies, Reliance only controls a staggering 5 percent market share. The reason for this is due to the LIC – the Life Insurance Company of India. The LIC is a government-controlled corporation which dominates the market, consuming 70 percent of the market. Reliance’s aim is to become the main alternative to the LIC.
Currently, Reliance is recruiting over 55,000 agents to join its sales force. However, not all agents will be on a commission basis – roughly 5,500 agents will be admitted to full time status with a base salary, in addition to incentives for performance, such as commissions. The rest of the hiring, over 50,000 agents, will be on a purely commission basis.
Reliance is seeking to bolster its workforce to 150,000 by the end of the current financial year, up from 120,000 which it has now. The company experiences high turnover due to the nature of the business – it is vastly pure commission so the stability of income and performance of individuals forces them to leave the business. As such, Reliance sees high attrition rates, which it hopes will not be the case with the 5,500 that they are hiring full time.
This increase in agents is aimed at replacing the 30,000 agents that left the firm during the April – June 2012 quarter. In addition, it appears that the move is in anticipation for a strategic business move that it is making.
Reliance Life Insurance is in talks with many banks in both the public and private sectors, seeking to add its products into the banks offerings. They are looking to get into bancassurance, which is a form of distribution for insurance companies by way of distributing insurance products through banks (also known as a bank insurance model or BIM).
Alternatively, Reliance can distribute its insurance products via its own agents, which it has been doing so historically. This business model is known as a tradition insurance model (TIM) whereas Reliance’s new strategy is known as a Hybrid Insurance Model.
Reliance Life Insurance’s latest move is an attempt to gain more traction in the market space not taken up by the government-run LIC. Excluding the LIC, there are 20 firms competing for 30 percent of the market share and 5 percent belongs to Reliance. Competing with Reliance are companies such as SBI Life, Metlife, ICICI Prudential, Bajaj Allianz, Max New York, and Sahara Life. Much of Reliance’s business originates from the rural markets, including over 34 percent of its new business. Moreover, Malay Ghosh, President and Executive Director of Reliance Insurance, stated that only 15 percent of the company’s business is from Tier-1 cities. With that in mind, Reliance’s new approach via bancassurance channels should allow Reliance to gain more momentum and volume throughout Tier-1 cities.
However, with Reliance’s late entry into the bankassurance market, the availability of suitable and preferred partners is low due to existing contracts and relationships in place. Reliance is in talks with many different banks, including some banks in the public sector. Currently, the Insurance Regulatory and Development Authority has regulations whereby every bank can only represent one partner for selling insurance products. To negate this reality, Reliance may be offering a small equity stake of up to five percent for banks who choose to partner with them. This incentive represents a large investment as Reliance Life has over Rs. 18,700 crore ($3.36 billion USD) assets under management and the company itself has a valuation of Rs. 11,500 crore ($2.06 billion USD).
This move by Reliance represents a significant decision with regards to its long term strategy. To be offering up to 5 percent to incentivize a partnership, Reliance is willing to further dilute its current shareholder percentages through this new direction. This isn’t the first time that Reliance had given up equity for a significant partnership.
In addition to the expansion in to bancassurance, Reliance is looking to facilitate more market penetration by its business partner Nippon Life. Official since October 2011, Nippon had acquired a 26 percent stake in Reliance for Rs. 3062 crore (US$ 551 million) and this investment represents Nippon’s faith and commitment to the Indian market. Reliance Capital, the parent company of Reliance Life Insurance, wants Nippon to bring its AUM products to the Indian market. Nippon has over US$600 billion in its management but very few of those assets are in India. Reliance is aiming to bring their assets into India in order to gain a higher market share.
Over 60 percent of Reliance’s policies are sold through their strong workforce. Their distribution networks include brokers, corporate agents, and commission-based agents. With the inclusion of their bank network, it is unsure whether their commission force will suffer due to the introduction of the new channel. Since it represents such a large percentage of business and commitment from the company, Reliance will need to be careful in how it deploys its bancassurance in a way that it doesn’t cannibalize or encroach on the commissioned agent’s territory.
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.
As the European financial situation becomes more uncertain with each day passing, Vhi Healthcare, Ireland’s largest health insurance company must raise €300 million (US $368.55 million) which could affect the premiums of over 2.2 million Vhi policyholders.
Vhi, short for Voluntary Health Insurance, is generally referred to as “The VHI” by residents of Ireland and is traded under the brand Vhi Healthcare. With headquarters in Dublin, Ireland, VHI is a state-controlled corporation which has been accused of being given preferential treatment above its primary competitors. It is regulated by the Health Insurance Authority which is the private health insurance regulatory board, monitoring activities in Ireland.
The issue at hand is that Vhi Heathcare is guaranteed by the State, meaning that it is not required to keep specific reserve amounts on hand in the event there is a spike in the number of claims. In addition to the guarantee, it cannot be declared bankrupt.
Competition experts and analysts say that preferential treatment towards Vhi needs to end in order to restore balance to the private healthcare market.
The preferred status for Vhi has allowed to it borrow funds at advantageous rates, in addition to the lack of need to keep a reserve balance. Lenders are happy to oblige to Vhi’s requests as the loans were essentially risk free due to the fact that the government would pick up the bill if Vhi defaults. However, the likelihood of Vhi defaulting and going bankrupt is almost impossible as it is a statutory body.
The European Commission has called for an end to the preferred status of the company, and has proposed that the government end the guarantee by the end of 2013. Vhi Healthcare was receptive to the proposal; however it made note that a risk-equalization plan will need to be implemented.
Initially, there had been plans to privatize Vhi Healthcare back in 2010. However, the new coalition government decided to retain Vhi when it entered office, making it a pillar of the universal health insurance system which is scheduled to be rolled out in 2016. Under this plan, all citizens will be required to purchase health insurance from an insurance provider, not exclusively Vhi, and the government would provide a subsidy of some sort for those who meet the low income criteria.
Currently, Vhi is required to raise €300 million (US $368.55 million) in capitalization and one of their options to do so include raising the premiums of its 2.2 million clients. This €300 million (US $368.55 million) is to increase the solvency ratio of Vhi, ensuring the insurance company has enough money on hand to cover any unexpected spike in claims. Should Vhi decide this is the best way for it to raise capital, clients of Vhi can expect to see their premiums to be raised by up to €135 (US $165.85) this year. Moving forward, Vhi will have to retain 40 cents to the euro in income to safeguard itself as per regulations.
Meanwhile, competitors welcomed and encouraged the move to abolish the guarantees and preferential treatment for Vhi. Specifically, Aviva stated that the clients of Vhi should not be negatively affected by the increase in premiums due to an external cause from the government. Aviva called on the government to provide more details as to how it plans to handle the solvency requirements of Aviva.
In related news, the government of Ireland has recently hired a new CEO for Vhi. The coalition government, however, breached the salary limitations which are imposed on maximum salary limits for new CEO’s of Vhi. Vhi’s new chief is John O’Dwyer, and his annual income will be €238,727 (US $293,276.12); this represents almost €50,000 (US $61,425) more than the limit.
Despite the limits in place, Minister Brendan Howlin stated the need for exceptions in specific cases, especially in the case of Vhi due to some of the substantial changes that are about to take place.
This comes at a time full of volatility for the European financial industry. With Euro prices falling and shrinking, or failing, economies, Vhi’s deregulation will need to be handled with care. If safeguards are not in place, many individuals who hold policies may no longer be able to afford their current plans. If they choose to move away from their current plans, they may not receive adequate coverage as competitors may not want to offer the same plan for the same price, which could cause greater uncertainty into the lead up to the introduction of the universal health insurance system.
Insurance Companies Mentioned:
Bank Danamon Indonesia has announced that, in partnership with Asuransi Jiwa Manulife Indonesia, the bank will be offering new insurance and wealth management products.
The bancassurance deal, which is set to run for ten years, is a follow up of a partnership agreement between the two companies in October 2011. The agreement was to grow bancassurance in Indonesia, and has now come into effect a little under a year later.
Speaking about the new partnership, Alan Merten, the CEO and President of Manulife Indonesia was quoted as saying: “I am very pleased that the partnership between Danamon and Manulife is now officially launched! This is another significant step Manulife is taking towards realizing our vision to provide strong, reliable, trustworthy, and forward-thinking solutions to our customer’s most significant financial decisions.”Read the rest of the Bank Danamon Indonesia Partners Up With Asuransi Jiwa Manulife Indonesia article.
As part of a general wave of European institutions putting their Asian operations up for sale, five insurance firms have expressed an interest in purchasing British Firm, Aviva’s, 49 percent stake in its joint venture with Malay bank, CIMB. These sales come on the back of an increasingly unstable European economy which has affected both Aviva and Dutch company, ING, also currently looking to sell their Asian insurance business.
While some European companies are leaving APAC, the increasing number of potentially attractive acquisitions in Southeast Asia has paved the way for a number of large global insurance firms, including AXA and Manulife, to increase their exposure in the region’s relatively small but rapidly growing life insurance market.
According to Norton Rose, a law firm that specializes in insurance, Southeast Asia holds less than 0.25 percent of the world’s insurance market share. However, this year alone life insurance premiums are expected to grow by 9.6 percent, 5.9 percent greater than the world’s average. These positive predictions follow the Southeast Asian life insurance market growing 15.4 percent in the last ten years, a lot more than the 5.7 percent growth seen worldwide.
Aviva’s imminent exit comes only five years after the firm entered the Malaysian insurance market in June 2007. According to CIMB, the Malay bank that it entered into a joint venture with, Aviva paid 500 million ringgit ($164 million) to purchase the 49 percent stake that it is now looking to sell. Their decision to sell their Malaysian venture is part of larger plans to sell their underperforming businesses globally, including those in Sri Lanka and South Korea in an attempt to raise money to protect it against Euro Zone exposure.
Aviva has had problems with their insurance products in Asia, specifically their range of Global Lifecare plans which the company has since canceled.
Sources have indicated that the sale of Aviva’s stake could result in a new bancassurance (BIM) deal between CIMB and any potential buyer, who will also control the future of the venture. Furthermore, depending on the nature of the sale, competition between foreign and domestic companies could increase in the Malaysian life insurance market currently dominated by local life insurance company, Great Eastern Life.
According to sources with knowledge of the Aviva-CIMB auction being handled by Morgan Stanley, the five interested parties, AXA, AIA, Prudential, Manulife and Sun Life have all submitted non-binding bids that will be considered by Aviva and CIMB in “a week or so”. Of the five, Prudential boasts the strongest presence in Southeast Asia as it is currently an industry leader in Indonesia with 1.4 million policy holders.
Low life insurance penetration rates throughout Southeast Asia have been identified as one of the reasons for the huge amount of interest in securing slices of market share. In Indonesia for example, where Swiss, Japanese and Korean insurers have expressed an interest in investing in its insurance market, the life insurance penetration rate is a mere 1.3 percent. The attractive nature of the Southeast Asian markets has also been compounded by the relatively easy foreign ownership regulations. In Malaysia, foreign owners are allowed to buy up 70 percent of a domestic insurer, while in Indonesia they’re allowed to purchase 80 percent.
Insurance Companies Mentioned:
British firm Aviva is the sixth largest insurance firm in the world. Based in London, it has approximately 43 million customers in 21 countries. In the United Kingdom, Aviva leads the market in general, life and pension insurance in the UK.
Formed in 1991 Dutch institution ING is a group that specializes in a number of financial services including insurance. It currently has a presence in more than 45 countries with a client base of 85 million individuals.
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.
Malaysia, one of the world’s most populated Islamic Countries, is experiencing something of a renaissance on the insurance front. However, it’s not just any insurance products which are doing well in the country however, although the Malaysian insurance market is attracting large amounts of interest from some of the world’s largest insurance companies, but specifically Takaful Insurance which is thought to hold the key to the nation’s future development and expansion of the domestic insurance market.
According to Etiqa Insurance & Takaful, the insurance arm of Malaysia’s largest bank by assets, Malayan Banking Bhd, the Malaysian Takaful industry is expected to increase to a total value of RM 7.2 billion (US$ 2.2 billion) over the next three years. Malaysian Takaful insurance is currently valued at RM 4.2 Billion (US$ 1.3 Billion), having grown an approximate 27 percent from 2005 to 2010.
Etiqa’s Chief Commercial Officer Shahril Azuar Jimin, citing the low levels of insurance coverage and penetration rates across the Malaysian population, and specifically pointing to extremely low levels of uptake within the country’s Muslim community, was optimistic about the potential the country held for Takaful providers.
One of the key reasons why Mr. Jimin saw success for Malaysian Takaful Insurers over the next two to three years was due to ever increasingly sophisticated distribution methods. “Ten years ago, there were less than 100,000 agents for takaful, whereas conventional insurance had about 250,000,” he went on to state that Etiqa alone now has a distribution force of approximately 100,000 agents, vastly improving the company’s, and industry’s ability to improve on the currently low levels of coverage being purchased around the country.
At present, only 54 percent of Malaysians hold either a Life Insurance or Takaful Family Insurance product, with Takaful penetration standing at a slightly underwhelming 11 percent.
Mr. Jimin was speaking to reporters on the sidelines of the World Takaful Conference: Asia Leaders Summit (WTC:ALS), which opened on Wednesday June 13th in Kuala Lumpur. The conference has revealed that good times may be in store for Asian, and Global Takaful Insurers.
Global Takaful premium contributions in 2010 were up 19 percent from the previous year. While Malaysia and the rest of South East Asia may hold promise for Takaful Insurers down the road the region still lags behind the Middle East in terms of Takaful contributions, with the Gulf Cooperative Council member states holding the lion’s share of the market with premium contributions equal to US$ 5.68 billion; Asia, including Malaysia, saw total 2010 Takaful premium contributions valued at US$ 2 billion.
The largest single domestic market for Takaful products is, unsurprisingly, GCC country Saudi Arabia, with US$ 4.3 billion in Takaful contributions, the KSA represents more than 51.8 percent of the global Takaful industry.
With the ongoing emergence of previously under-developed and underserved markets in the forms of Indonesia, Bangladesh, and Pakistan, it is expected that the global Takaful Industry will post premium contributions in the region of US$ 12 billion by the end of 2012. There may, however, be a slight Takaful slowdown in some GCC nations – specifically the United Arab Emirates – where the market is mainly General Takaful Insurance products, with Family Takaful accounting for just five percent of the total volume in certain areas.
In fact, there was a general GCC Takaful slowdown in 2010 which went largely unnoticed. Growth in the GCC Takaful market was only 16 percent in 2010, significantly down from the annual growth rate of 41 percent recorded from 2005 – 2009. While this may be due to saturation of the market in certain GCC countries, and an already high uptake, some analysts have cited the installation of compulsory Takaful Medical Cover in Abu Dhabi and Dubai as possibly causing an artificial inflation in the GCC’s overall Takaful growth and are of the belief that current growth levels are more realistic; reflecting the actual market outside of government regulations and legislation.
However, even with the slowdown of growth in 2010, Takaful insurers remain optimistic but cautious. Mr. Jimin of Etiqa was bullish on the 5 year growth rate of Family Takaful products, expecting around 20 percent; which would see Family Takaful insurance outpace both General Takaful and Conventional life insurance in Malaysia. Mr. Jimin also highlighted the fact that there was a massive amount of expansion potential in the Malaysian Muslim Community stating that “The immediate market [for family Takaful], which is the Muslim community, is very much under-insured. We’re also seeing more acceptance from the non-Muslim market because of the equitable aspect that Takaful offers.” Non-Muslim uptake of General Takaful Insurance products was close to 40 percent in the country, with non-Muslim Family Takaful lagging at 25 percent uptake.
Although, it should be noted that it is not all roses and sunshine for Takaful. As is true in any industry, success breeds competition and it is this competition, in addition to a shortage of expertise in Takaful and ever evolving regulations for the industry which have been identified as the major risks for the market around the world. One WTC:ALS attendee was critical of new industry providers stating that the younger organizations attempting to crack the market and compete with more established organizations may not be making use of sustainable business strategies. Aggressive pricing is seen as a key factor putting pressure on overall Takaful profitability, and while there has been a shift towards tying down the tactics which will translate market potential into profitable growth, the fact that there is increasing competition on the back of the attractiveness of the product does mean that there are some minor doubts about the industry’s ability to continue on its current growth track.
Fortis Healthcare has received board approval for their plans to list their Religare Health Trust on the Singapore stock exchange. Meanwhile, the bidding process for the Asian insurance business of ING Groep has moved into the second stage, with a number of contenders making the short list.
As a business trust, the Religare Health Trust will contain assets from Fortis’ radiological testing and outpatient clinical services and will focus its investments in healthcare, medical-related services and assets around Asia, Australia, New Zealand and other emerging markets. The listing of Religare Health Trust has been approved by the Singapore Exchange on Friday and is expected by Fortis to raise approximately US$ 360 million.
The listing of Religare Health Trust on the Singapore Exchange will be the second by an Indian business after Indiabulls Properties Investment Fund did so in 2009. Fortis is waiting for appropriate market conditions to launch the IPO, however, once finished Fortis should hold 33 percent of the trust with the remaining shares going to international investors.
In the bid for some of the Asian assets of ING’s insurance business, at least four companies have made the shortlist for the second round of bids. Reports have indicated that Manulife Financial, AIA, Korea Life Insurance and KB Life Insurance have all been given the opportunity to make binding, second-round bids.
ING must sell off its global asset management and insurance businesses as part of their bailout agreement with the EU in 2008, in which they received US$7 billion from in government loans. However, given the regional issues in Europe, ING has decided to sell its Asian and European insurance and asset management divisions separately.
Reports indicate that ING is seeking between US$6 to 7 billion for their Asian insurance business, while one analyst from Rabobank International, Cor Kluis, has estimated that ING will garner close to €4.6 billion (US$5.8 billion) after paying down some of their debt.
ING’s sale of their Asset Management has also progressed to the second stage of bids. The asset management business has been valued at approximately US$500 million, and similarly to ING’s insurance business, has attracted the attention of Manulife and AIA among other companies. The procurements of ING’s Asian assets are seen as a great way for a number of companies to expand business into new countries or grow market share in locations where they may already have a foothold.
Founded in India in 1999, Fortis Healthcare is a healthcare provider that currently operates 46 hospitals in India, which are organized as a hub and spoke model around their specialty hospitals. They offer laboratory, wellness, information technology, travel and financial services through the wholly owned Religare Enterprises Limited
ING provides banking, investments, life insurance and retirement services and operates in more than 50 countries. It serves more than 85 million private, corporate and institutional customers in Europe, North and Latin America, Asia and Australia.
Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.
AIA is a Hong Kong-based life insurance company doing business across Asia that has been in business since 1919. They service over 20 million policies through 23,000 employees and 300,000 agents throughout markets in Asia, including: Vietnam, Thailand, Taiwan, South Korea, Singapore, Philippines, New Zealand, Malaysia, Macau, Indonesia, India, Hong Kong, Mainland China, Brunei and Australia.
Sun Life Assurance has formed a joint venture with PVI holdings in Vietnam, while Zurich Insurance Group is eyeing an entry into the highly profitable Saudi Arabia insurance market.
Zurich Insurance Group has had a stellar start to the year. The group has posted Q1 2012 net income at US$1.14 billion, significantly improved from the US$640 million that Zurich reported as net income in Q1 2011. Zurich’s business operating profit is also sharply up from the first quarter of 2011, where the organization reported US$854 million, reaching US$ 1.38 billion so far in 2012.
The company has attributed its accomplishments to the success which it has experienced in executing a globally based strategy; accessing developing economies and relatively underserved markets in order to capitalize on the opportunities these places represent. For example, Zurich has recently entered into a 10 year distribution partnership with HSBC in Gulf Cooperative Council (GCC) Countries, has obtained the relevant licenses for life insurance distribution and underwriting in Singapore, and acquired the life insurance arm of Latin American banking giant Santander.
However, keen to keep the momentum going, Zurich is also preparing to enter into talks with the Saudi Monetary Authority (SMA) in an attempt to enter the Kingdom’s life insurance sector.
The SMA, which approves licenses and takeovers for foreign companies to enter the Saudi insurance market, is not currently issuing licenses to new insurers. This means that Zurich would likely have to purchase an existing local provider and that provider’s existing Saudi insurance license. Whilst this may seem like a straight forward case of identifying, and then acquiring a company with the capability to significantly add value to the Zurich Group, a potential stumbling block exists in the fact that the SMA must approve all foreign company takeovers in the local market.
This is not deterring Zurich, which has been in talks for the last 18 months to identify a suitable candidate. Zurich’s interest in the country is understandable considering that the International Monetary Fund (IMF) expects the Saudi GDP to increase by an estimated 6 percent this year – primarily due to the rising prices of crude oil.
Geoff Riddell, Zurich Chairman for APAC and MENA, commented on the attractiveness of Saudi Arabia from the company’s perspective in the Gulf Times, stating “it’s wealthy, it’s got a huge population, there’s a massive planned infrastructure spend to try and create new cities and work for that large population… There’s zero penetration and there’s a huge upside.”
It seems as if the Middle East is going through something of a renaissance in the insurance market at the moment, with a number of GCC and MENA countries posting strong indications of growth for the coming year. In light of the uncertain economic conditions in the USA and Europe, the decision by Zurich to further attempt an entry into Saudi Arabia makes a large amount of sense.
On the other side of the world, Sun Life Financial Inc. subsidiary, Sun Life Assurance Co. of Canada, has signed a Joint Venture agreement with PVI Holdings in Vietnam to form PVI Sun Life Insurance Co. Ltd., or PVI Sun Life.
PVI Holdings is a Hanoi listed subsidiary of Petrovietnam, the state controlled Gas and Oil titan. PVI Holdings is the largest non-life insurer in Vietnam and generated a 25 percent increase in gross written premiums during 2011 for total premium revenues of US$ 202 million. The company currently holds 21.3 percent of the Vietnamese non-life market, positioning PVI to become a valuable partner to Sun Life in the country for many years down the road.
Because Sun Life deals with life insurance and PVI is a non-life insurer the decision by the two organizations to form a JV opens up significant avenues for both. In-line with PVI’s domestic development goals and expanding the Sun Life footprint in South East Asia, PVI Sun Life will be primarily focused on life insurance distribution in Vietnam.
Sun Life Assurance Co of Canada will own 49 percent of the new organization, with PVI Holdings owning a majority 51 percent. By utilizing PVI’s exceptional local knowledge and existing sales and distribution channels and leveraging Sun Life’s 150 year history of life insurance underwriting PVI Sun Life will be in a prime position to lead the market in one of Asia’s most undervalued yet vibrant economies; at present only 5 percent of the Vietnamese population holds some form of life insurance protection, a figure which PVI Sun Life will be keen to increase.
Sun Life has been present in the nearby Philippines since 1892, and will use its experience in that country to further the goals of the newly created organization. Similar to the Vietnamese market, Filipino Life Insurance products tend to be far more flexible than similar products available in countries like the USA or United Kingdom, and are priced to be more competitive in a region where the average monthly income is only US$ 185.
Sun Life Phillipines CEO, Rizalina Mantaring, was extremely bullish towards the partnership and the ability of the Filipino arm of Sun Life to have an impact on Vietnamese operations. Ms. Mantaring said “we are truly excited about this new partnership. The Philippine operations has been highly successful over its 117 years in the country, and we look forward to providing support to PVI Sun Life through the sharing of our experiences, capabilities, and know how with our counterparts.”
With both Zurich and Sun Life choosing to seek ever more countries in which to expand their respective operations this could be an indication that more major providers in the international market will follow close behind. With the levels of economic uncertainty currently being seen across the globe, specifically in “developed” countries, the less developed “developing” markets are starting to hold significant potential for insurers looking to boost their bottom line.
Hong Kong’s Office for the Commissioner of Insurance (OCI) has released provisional statistics of the city’s insurance sector for the first quarter of 2012.
Hong Kong, recently named the world’s most competitive economy in the IMD World Competitiveness Ranking report, has a vibrant financial services industry in which the insurance sector plays a major role. According to the report from the city’s OCI this role is still vitally important in contributing to the overall strength of the territory’s financial clout.
An indication of the relative health of the city’s insurance market can be seen in the top line numbers; total HKSAR insurance premiums for the first quarter of the year came in at a staggering HK$ 62.8 billion (US$ 8.9 billion). This figure is an increase of 11.7 percent over the same period in 2011.
General Insurance lines were the biggest contributors with net premiums increasing by 6.4 percent to HK$ 10.9 billion (US$ 1.4 billion) and gross premiums rising by 8.6 percent to HK$ 7.6 billion (US$ 929 million) over their Q1 2011 numbers. Total underwriting profit for general insurance lines rose by an almost unbelievable margin, climbing from HK$ 482 million (US$ 62 million) in Q1 2011 to HK$ 853 million (US$ 109 million) in Q1 2012.
Hong Kong has long been considered an oversaturated insurance market due to the city’s relatively small population of only 7 million people and the number of large, international brand name insurers present in the local industry. However, the numbers contained in the OCI’s report reveal that there are still, very real growth prospects present for insurance providers, agents and brokers within the domestic market.
In tandem with general insurance lines, direct insurance business also posted strong growth figures for the first part of 2012 with gross premiums in direct business increasing by 10.5 percent to HK$ 8.4 billion (US$ 1.1 billion) and net premiums gaining 11.1 percent to HK$ 6.3 billion (US$ 811 million) over the same reporting period in 2011.
According to the OCI, direct business is primarily being driven by General Liability lines, which includes Employee Compensation (EC) coverage, in addition to Accident and Health Business including Hong Kong Medical Insurance. Hong Kong based analysts have speculated that a rise in the uptake of locally available health insurance coverage is, in part, being spurred by constricting availability of healthcare services within Hong Kong’s public medical system and the system’s lowered levels of financing over the last 5 years – despite Hong Kong’s high ranking in the IMD ranking report the city still lags many other nations in terms of public healthcare expenditure.
Accident and Health product lines saw gross premiums increase to HK$ 3.2 billion (US$ 412 million) while net premiums rose to HK$ 2.7 billion (US$ 347 million).
The only insurance line which did not experience the same type of growth in 2012’s first quarter were Pecuniary Loss products, which actually fell 14.7 percent to HK$ 303 million (US$ 39 million) in gross premiums and dropped 39.5 percent to HK$ 126 million (US$ 16 million) for net premiums. Pecuniary Loss lines include Mortgage Guarantee products, which have been adversely affected by a major slowdown in the Hong Kong real estate market.
However, Pecuniary Loss lines represents one of the few dark spots in an otherwise gleaming report. Underneath overall premium increases across the majority of insurance businesses are indications that the city’s underwriters are in for a stellar year.
Direct Business underwriting saw a major profit for the first quarter, increasing from HK$ 370 million (US$ 47 million) in 2011 to HK$ 634 million (US$ 81 million) in 2012, and Marine and Ship insurance has bounced back from a disappointing 2011, where the product lines saw a loss of HK$ 121 million (US$ 15 million), to a strong HK$ 27 million (US$ 3.4 million) profit so far in 2012. The OCI indicates that improved claims procedures and customer claims experience was a key factor in the rejuvenation of Ships business.
It’s not just Ships business which is seeing the benefit of refined claims procedures; both Motor Vehicle and Accident and Health business lines have experienced the benefit of improving claims experiences, which has helped the underwriting profit for both these lines of coverage.
The underwriting profit for Accident and Health business lines increased from HK$ 85 million during Q1 2011 to HK$ 137 million (US$ 17 million) in Q1 2012, while Motor business saw underwriting profits increase from HK$ 2 million (US$ 257,706) to HK$ 45 million (US$ 5 million) over the same reporting period. Again, this is mainly due to a refinement in these lines’ claims handling, pointing to significant upside for all locally situated insurers, across all product types, should they choose to refine their claims methodology.
There is good news on the Long Term product front as well, premiums for Long-Term In-Force products rose by 12.9 percent over the first quarter in 2011, coming in at HK$ 51.9 billion (US$ 6.6 billion) in quarter 1 2012. Premium revenues for Life and Annuity Non-linked plans came in at HK$ 36.2 billion (US$ 4.6 billion), a 20.9 percent increase over Q1 2011, while Linked Life products (along with Pecuniary Loss devices) actually saw a contraction of 6.3 percent with premium revenues standing at only HK$ 11.5 billion (US$ 1.4 billion).
With the vibrancy of the Hong Kong economy, and the healthiness of the first Quarter figures, it is increasingly looking like the Hong Kong insurance industry is set to record a bumper year for growth. With business up, ever increasing foreign investment, and the fact that the city is now standing at the pinnacle of the economic system, the growth in the HK insurance sector represents the growth of Hong Kong as a whole; this Asian financial juggernaut is going to keep rolling on.
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.
ING Groep may see a flurry of activity in the near future as it has received multiple bids for their asset management operations in Asia, as well as seeing multiple parties squaring up to bid on their Asian life insurance assets.
ING must sell off their global insurance business in order to fulfill their agreement with the European Commission and repay the US$7 billion bailout it received in 2008. A growing number of companies are throwing their hats in the ring for ING’s Asian asset management and life insurance businesses.
The asset management business has so far attracted the attention of Nikko Asset Management, Macquarie Group, Principal Financial Group and Singapore’s United Overseas Bank to list but a few of the participants. The auction could see ING’s Asian asset management business valued at around US$500 million.
Also on the sale block is ING’s Asian life insurance business, and given the number of suitors cueing up to take over the operations it may turn into a bidding war that could net ING upwards of US$6 billion.
The U.S.’s two largest life insurance companies are preparing to put forwards bids for the life insurance business, with MetLife hiring Credit Suisse and Prudential Financial hiring Bank of America Merrill Lynch to advise their respective clients on potential bids. Manulife Financial is also considering a bid, having hired Citigroup to advise them, while Sun Life Financial from Canada is also contemplating a bid. Samsung Life Insurance has declined to participate in the initial bidding process although it has said that it may reconsider and place a bid if changes to the sales method were made.
ING’s life insurance business currently has operations that are either wholly owned or operated as joint-ventures in Japan, South Korea, China, Hong Kong, Singapore, India, Thailand and Malaysia. However, some operations may be more or less desirable for different companies, based on what markets the potential suitor wishes to expand in.
While the bidding process is just getting off to a start, it has the potential to turn into a serious windfall for ING, as the US$6 billion estimate is almost 20 percent higher than previous estimates.
The Allianz Group has a rich history dating back to 1890 and prides itself on being able to offer solutions in insurance, banking and asset management areas. Insurance wise, Allianz thrives in Europe and has especially excelled itself in the German market. 2012 has started off in a positive direction for the company and CEO Michael Diekmann sees this trend continuing for the rest of the year.
On May 15th, Allianz was able to confirm their total profit target of 11.1 billion US dollars (8.7 billion euros) for the end of the year, after results from their first quarter net income showed a profit increase of at least 53%.
Almost all regions have assisted Allianz in this growth but the Australian and Asian-pacific sectors in particular have performed significantly well so far. All three components that make up the Allianz group have contributed to this increase but it is in the insurance sector where such increases are most noticeable and are enabling the company to stay on track towards reaching their set target.
In terms of shares, since December 31st 2011, Shareholders’ equity reported a growth of 7.4% meaning an increase from 58.2 billion US (44.915 billion Euros) to 61.4 billion US dollars (48.245 billion Euros). Furthermore, as of last week, Allianz will now be welcomed to list their stock on the Chinese markets and thus continue their growth across Asia.
It appears Allianz are benefiting from the impact of the many natural disasters that occurred last year and have been able to push higher prices for coverage in property and casualty insurance – an area of high importance when profit is concerned. The company’s CFO Oliver Baete reported that as the impacts of natural catastrophes appear to be increasing in frequency and damage, Allianz has increased their budget for 2012 as a response.
Aon Benfield, the world’s biggest reinsurance broker has estimated that so far, natural disasters have cost insurers and reinsurers less than US$ 3 billion in losses, an almost insignificant figure when compared to the staggering US$ 53 billion the previous year.
2011 definitely deserves the title of most costly year on record with earthquakes, tsunamis, floods and tornadoes all making for a very difficult time for the entire insurance industry. This time last year, both the New Zealand and Japan earthquake with its tsunami aftermath had already struck massive blows to the insurance industry and contributed to a massive total of 60 billion US-dollars in losses.
By contrast, 2012 has experienced a lesser impact from natural catastrophes and as a result, Allianz has shown significant improvement in Property and Casualty as well as Life and Health insurance with a 50% increase in net income. This has enabled the company to reach their second-highest revenue level in history and brought in an impressive figure of 38.3 US dollars (30.1 billion euros) compared to 38 billion US dollars (29.9 billion) the same time last year.
Of course natural disasters are not the company’s only concern. Volatile Markets continue to decrease interest rates and the sovereign debt crisis remains an ongoing issue but Allianz prioritises the monitoring and analyzing of such challenges and believes they can continue to expect an operating profit of 8.2 billion euros to ensure a profitable growth.
Allianz has clearly managed to keep their head above water even when faced with disasters of huge proportions and their confident solutions in times of crisis are amongst the number of factors enabling them to stay ahead of their European competition.
Both Qatar and Dubai are well placed to become regional insurance hubs, reports have revealed, following the creation of a Governmental partnership with Samsung Life Insurance in Dubai and the implementation of a national health insurance law in Qatar.
According to a Financial Times report, the Investment Corporation of Dubai is set to agree to a memorandum of understanding with Korea’s largest Life Insurance underwriter, Samsung Life, to deliver high quality life protection products to the Middle Eastern and North African Regions. Historically both underserved markets for life products, the ICD and Samsung intend to grow the distribution of life insurance plans across the region with a view to entering the less developed markets located in Sub-Saharan Africa.
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Zurich Insurance Group, one of the world’s largest insurers, has worked to expand its presence in international insurance markets with the launch of two new offices in the Asia Pacific and Middle East, areas ripe for further business development, this past week.
On Wednesday the Swiss insurance group announced that it had successfully set up a new subsidiary in Singapore, Zurich Life Insurance (Singapore) Pte, after receiving the prerequisite license from the Monetary Authority of Singapore (MAS) to register and operate as a ‘direct insurer’ in the country. With its expansion plans for the city-state, Zurich Insurance aims to double its premiums generated in Singapore over the next three years
Zurich has been active in the Singaporean insurance market since 2006 but previously operated only under a defined market segment licence. This limited their business to only corporate and high net worth clients, who are able to invest more than US$5,000 a year for 10 years or more in Singapore. This market segment, comprised mainly of expatriates or high net-worth individuals, accounted for roughly 5 percent of the overall marketplace. Singapore’s life insurance industry is divided into companies with normal licenses and those with ‘defined market segment’ (DMS) insurance licenses. DMS insurers are specifically registered with the MAS to conduct only non CPF-related business (the country’s mandatory savings and retirement fund) and are required to stay within certain product lines and maintain minimum policy sizes. In addition to Zurich, several other multinational insurers currently hold a DMS license in Singapore, including Friends Provident, Generali, Royal Skandia and Transamerica. According to the Life Insurance Association of Singapore (LIA), these insurers contributed 5 percent of new insurance sales in 2011, while insurers holding normal licenses represented the other 95 percent last year.
Now that Zurich is registered as a direct insurer, the company can target the rest of the Singapore insurance market outside of the defined market segment with a wider range of savings, investment and protection products. As part of these expansion plans, Zurich said that they will expand their multi-channel distribution strategy to include partnerships with independent financial advisers, insurance brokers, banks, and other employee benefit consultants, in order to expose their products to a wider group of investors. These new services will compliment those being offered through their existing branch office business at Zurich International Life. As part of the launch of the new subsidiary, Zurich also confirmed their intentions to double their in-house agency force in Singapore, from around 50 at present to over 100 by the end of 2012.
Zurich is choosing to expand their presence in the Singapore life insurance market at the right time, as life insurance sales in the Asia Pacific city-state grew by a remarkable 22 percent last year. According to the LIA year-end fact sheet, four consecutive quarters of growth saw domestic insurers reap roughly S$2 billion (US$1.6 billion) in weighted new business premiums during the 2011 reporting period, up from the S$1,651.3 million (US$1.3 billion) recorded in 2010.A rising demand for protection and investment services amongst Singapore’s middle-class population should provide local insurers with enough momentum to achieve sustainable premium growth in their home market going forward. Added to this, of course, is the relatively high concentration of wealth and high net worth individuals in Singapore, a fact that makes the domestic insurance and financial services market particularly attractive. In their company statement, Zurich cites a 2008 Barclays Wealth report that predicted Singapore will have the greatest concentration of per-capita wealth in Asia by 2017. Singapore currently ranks second behind Hong Kong in terms of wealth concentration in the Asia Pacific region, with just under a quarter of the population having a net worth in excess of S$1million (US$800,000).
Graham Morrall, the recently-appointed head of Zurich’s new Singapore insurance subsidiary, confirmed that the company would continue to focus on the country’s affluent and emerging affluent customer segments, even though their new license gives them the ability to test the greater insurance market at large. This segment, comprised of clients with monthly incomes between S$6,000 (US$4800) and S$8,000 (US$6400), and S$200,000 (US$160,000) in assets, according to Morrall, offers the most considerable growth potential for Zurich going forward and is estimated to now be worth about S$800 million (US$640 million). Singapore’s mass market insurance industry is already quite crowded with several well establish companies and some 12,000 insurance agents vying for the business of an island nation with a 5 million population. Competing in this broader market segment would thus prove quite difficult for Zurich and because of this “The launch of the new subsidiary reaffirms our commitment to the Singapore market, and positions us for further profitable growth,” Morrall said, adding that “we aspire to be the best insurer for the affluent and emerging affluent customer segments, as measured by our customers, distributors and employees.”
Prior to his Singapore move, Morrall headed up Zurich International Life’s Middle East operations, out of Dubai, an office that has also seen changes in the past week. Zurich announced on Tuesday that it will relocate its MENA general insurance offices to Sama Tower, Dubai, in order to better accommodate their growing operations in the United Arab Emirates. The move will also increase service standards for Zurich customers and business partners as it will allow more clients to settle insurance needs and register claims with their frontline staff face to face. “The relocation of our offices in Dubai is a testament to Zurich’s ambitious plans for the UAE, and reflects our focus on enhancing customer convenience,” said Maround Mourad, CEO of Zurich’s general insurance business in the Middle East.
Many multinational insurers are now shifting their focus away from stagnant western economies to the growth markets in Asia and the Middle East in order to capitalize on the increasing affluence in the region. Zurich expects these emerging markets to account for about half of its new life insurance business by 2013, and the moves made this week surely work towards that ambition.
Insurance Company Mentioned
Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries and offices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world’s largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.