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Bahrain National Holding (BNH), the parent company of both Bahrain National Insurance and Bahrain National Life Assurance, held its annual shareholder meeting at BNH Tower this past Tuesday, March 29th 2011. Despite the general political tension occurring in the region, BNH’s progress has remained undeterred and the firm plans on continuing the expansion of its operations throughout the Gulf.

BNH announced a net profit of BD 3.814 million (US$ 10.1 million) for 2010, which resulted in a 5 percent increase of the company’ total net assets, now up to BD 42.157 million (US$ 112 million). There was also an increase in BNH’s Net Earned Premium income which rose to BD 13.587 million (US$ 36 million) over the BD 13.395 million (US$ 35.5 million) registered in 2009. Given the positive results, a 20 percent dividend at 20 fils (US$ 0.50) per share was agreed upon and paid to shareholders from company earnings.

Mahmood Al Soufi , chief executive of BNH, has said of the Group’s performance: “We are content with our business strategies which have provided rewarding results in 2010. We will continue with these initiatives to ensure the stability of our business, to provide value for our clients and business partners and to grow our shareholders value,” he later dismissed any possible spillover impact from events occurring in the Middle East or Japan having effect on the company’s business “We are not revising our budgets and there has been no change in our investment plans regionally or our continued investment in our core insurance business.”

Given the stable forecast, BNH is looking to invest more on top of the BD 8 million (US$ 21.22 million) allotted in 2009 for regional expansion in an attempt at enhancing the scale of business available to the company. BNH is particularly keen on establishing a presence in the UAE and Qatari insurance markets. Mahmood Al Soufi explains the current status of BNH’s regional development strategy: “We are in the final phases of establishing a company in Abu Dhabi with major shareholding from the UAE and also the company is positive to get nod from the Qatari authorities to open a branch in Doha.”

In October 2010, BNH established Bahrain Emirates Insurance Company (BEI), their first joint-venture branch in Abu Dhabi. BNH holds a 30 percent stake in the business with an initial paid-up capital investment of BD 10.5 million (US$ 27.9 million). BEI was successfully granted a license to operate in the country and business in Abu Dhabi is expected to progress quickly given the industry expertise available from its investors. The insurance market in the UAE, which incorporates compulsory private health insurance scheme, has significant growth potential for insurers. BEI is expected to expand its operations further throughout the UAE and other Gulf countries.

BNH is presently waiting on the Qatar Financial Centre Regulatory Authority to grant them a license to operate a subdivision in Doha. Qatar is currently developing a national health insurance scheme as part of substantial reforms planned for the healthcare sector in their National Development Strategy 2011-2016. The system would establish a public-private mix whereby a new federal authority would negotiate closely with private insurers over provision of services. A complimentary basic health service package would be introduced but all those able to pay (including expatriates) would be expected to enter the private insurance market. While the full ramifications of these new national regulations can not yet be evaluated, early entrance into the Qatari insurance market for BNH would be an advantage.

Takaful, or Sharia-compliant, insurance has emerged as a powerful niche securities market in the region. Takaful products are mutually beneficial coverage policies that cater specifically to Middle Eastern and Asian Islamic communities. The takaful insurance industry is projected by industry analysts to grow at 15 percent annually over the next 5 years and generate more than US$7 billion in premium income. Major foreign insurers have taken note of the huge growth potential from this brand of products. In 2010, Standard Chartered and Allianz Takaful in Qatar entered into a 5 year agreement to distribute Alliaz Takaful’s insurance services through Standard Chartered Bank. The two insurers partnered again to allow Standard Chartered SME insurance products to be sold through Allianz Takaful in Bahrain. Zurich established a joint venture operation with Abu Dhabi National Takaful and is looking to involve itself further in the region. BNH are likewise interested at getting into the takaful market and predicted they would be involved with acquisitions involving the Islamic insurance industry within the year.

Farouk Almoayyed, Chairman of the BNH, summarized the firm’s situation and predicted upward trajectory for the company: “The proactive approach the Group implemented previously has manifested itself in the positive financials achieved for this year. We strongly believe in our experienced team and effective strategies and are confident to say that today we are well positioned to sustain our growth organically, regionally and internationally.”

The general outlook for the insurance industry in the Middle East and Gulf regions is currently difficult to determine. Prior to the civil unrest and political revolutions in Tunisia, Egypt and Libya, the forecast was very positive throughout. The preexisting low insurance penetration levels, high growth rate in population and emerging economies were all conducive to growth. The degree of increased risk now varies much more from country to country. The three most lucrative markets in the region, UAE, Qatar, and Saudi Arabia, have remained strong with renewed commitment to health infrastructure encouraging further demand for insurance services. Areas under more duress are more likely to suffer from disruption to business activity as well as liquidity issues. The degree to which the current political turmoil will spill over into the economy and become a more substantial long term issue in many Middle Eastern countries is still evolving.

Insurance Companies Mentioned

Bahrain National Holding

BNH, with its subsidiaries, offers a wide range of insurance and risk management solutions in Bahrain. The Company was established in 1998 and is based in Manama, Bahrain.

Allianz Takaful

A fully owned subsidiary of the Allianz Group, Allianz Takaful was established in March 2009 and is headquartered in Bahrain. Allianz Takaful is the Allianz group’s first foray into the Gulf Cooperation Council or GCC, and offers Shariah-compliant products and services.

Standard Chartered Bank Qatar

Standard Chartered Bank first opened a branch office in Qatar in 1950, making it the oldest foreign bank in Qatar. It operates 3 branches and 6 ATM machines in the country, employing 167 employees from 30 different countries. Their two core divisions of Wholesale and Consumer Banking have given them a 27% market share in Qatar.

Zurich

Headquartered in Zurich, Switzerland, Zurich Financial Services Group is an insurance-based financial services provider with a network of subsidiaries andoffices 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.

Hong Kong, this week, has again raised the issue of so-called “maternity tourists,” and is questioning how to best fix the strain that an influx of Chinese mothers seeking to give birth in the city is placing on the SAR’s healthcare system. Following hot on the heels of the announced closure of a Maternity House in San Gabriel California, Hong Kong authorities are looking for options which would allow them to further control the flow of pregnant PRC nationals into the city.

Recent figures from the Hong Kong Hospital Authority and Department of Health have revealed that mainland mothers accounted for approximately 40,000 births in Hong Kong during 2010; roughly 46% of the city’s 88,000 total. This is a massive increase from the “few hundred” births from 2004 – 2005, and is set to rise even further in 2011 and again in 2012, with healthcare officials projecting the numbers at 92,000 and 100,000 respectively.

In 2007 the Hong Kong government introduced legislation which prevents women past the 28^th week of pregnancy from entering the city without providing proof of a booking at a local hospital. In addition to this, the government later introduced mandatory pricing for non-resident mothers seeking to give birth in one of the city’s public hospitals; and while these initiatives were initially successful at stemming the tide, China’s recent, and explosive, economic success has again seen the numbers move upwards.

For Chinese nationals there are a number of reasons for giving birth outside of the People’s Republic, not in the least of which is the country’s notorious “One Child Policy.” The legislation severely penalizes families who have more than one child, and in the case of Guangzhou the fines associated with having a second baby can be as much as RMB 180,000 (US$ 27,450). In order to avoid the fines, while still being able to have a second, or even third child, many mainland parents are simply choosing to travel abroad to give birth.

However, while laying the blame at the feet of the “One Child Policy” may be conveniently easy, there are a number of more in-depth social factors which may be playing a role in the rapid development of the Chinese Maternity Tourism trend. One of these is to do with the way that the PRC’s education system is structured.

In China, as elsewhere around the world, there is high concern from many parents regarding their child’s education. Due to the way in which the PRC’s school system is set up, if the child has a Chinese passport and/or residency in certain districts or states, the standards they need to reach in order to access the top schools is prohibitively high – they will need to score extremely well on both the middle and high school entrance exams. It is important to bear in mind the fact that China has a population of approximately 1.3 billion people, and as such competition for the best schools in the country is extremely stiff.

However, one of the major loopholes to this system is through the child possessing a foreign passport, or official residency outside of China, in this case Hong Kong. If the child is not a Chinese passport holder, and does not have official residency in China, then the standards of entry into the country’s most prestigious educational facilities are dramatically lowered. In this case the child is treated as an “international” student, rather than a local one; although the family must pay the high fees associated with this status. In fact, some Chinese families have gone on record saying that they will raise their infant in China until the child reaches high school age, and then send them to Hong Kong to continue their education.

Outside of the Hong Kong healthcare system, the potential strain on the city’s educational services is highly concerning. As with healthcare, Hong Kong has a public education system through which the children all permanent residents are allowed to receive their schooling. While competition for places at Hong Kong schools may be less stiff than across the border, the city has been experiencing severe issues with increasing class sizes and a lack of spaces for secondary students.

One option then is that the Chinese maternity tourists will send their children to private educational institutions within the city, and when looking at the costs involved with a non-resident mother giving birth within Hong Kong, this may not present as much of a significant financial challenge as one may think.

According to one recent interviewee, the Chinese husband of a PRC Maternity Tourist, he paid HK$ 80,000 (US$ 10,272) for a C-Section maternity package at a private hospital in Hong Kong. The package included antenatal medical checkups in the city. The source is quoted as saying that, even were the HKSAR government to impose further restrictions on public hospitals within the city, this would not pose a problem at private maternity hospitals, such as the Matilda, Sanatorium, or Baptist; primarily due to the fact that local Hong Kong mothers vastly prefer the services offered through the low-cost public system.

The increased preference of Maternity Tourists for the city’s exceptional private medical facilities has highlighted an alarming issue with the Hong Kong medical community. Currently the Hong Kong Public Healthcare system is experiencing an alarming shortfall of qualified medical professionals, with many moving from public facilities to private institutions. This has left the city’s public medical community severely short staffed, to such an extent that there have been calls to allow overseas medical practitioners, who have not passed the Hong Kong medical exam, to practice within Hong Kong public hospitals.

Additionally, the flood of doctors away from the public system has emphasized a serious supply concern; as private medical facilities receive more bookings, and expand ever further, the costs associated with treatment are likely to increase. This does not bode well for a city whose private medical costs are tied with Israel for being the second highest, on average, in the world; the USA is, of course, the most expensive place to receive healthcare treatment on earth.

Outside of medical pricing, there are additional problems posed by the Hong Kong public medical sector’s “brain drain;” namely that, public hospitals within the city are vastly more prepared to handle any complications arising from a pregnancy. For example, Prince of Wales hospital, one of the city’s most well regarded public healthcare facilities, in the last two years lost more than 10 senior doctors (including obstetricians) to the private sector. Prince of Wales hospital is also one of the few hospitals in the city which is able to offer comprehensive intensive care to newborns in the event of a complication of pregnancy, which will occur in roughly 2 out of every 100 births in Hong Kong.

The move of qualified medical practitioners away from the hospital means that, given enough time, such facilities may simply not be able to handle the treatment associated with complications of pregnancy, and will not be able to offer local mothers the treatment which has long been promised to them.

Hong Kong’s close proximity to China has seen the city bear the brunt of the Birth, or Maternity Tourism trend for most of the phenomenon’s existence. However, as recent events, such as the closure of the San Gabriel “Maternity House,” show, mere proximity is not the underlying cause, and distance will not ensure protection. While local policy makers are stating that a flat ban on maternity tourists would be unacceptable, they are asking how the situation can be resolved.

Dr York Chow, Hong Kong’s Secretary for Food and Health, has said that he is keen to liaise with both the public and private sectors to improve the outlook for healthcare in Hong Kong. However, the Private Hospitals Association president, Dr Alan Lau, has said of any potential legislation or reforms, “we are willing to discuss the matter and strive for good quality of care … but any drastic measures contradicting the free market would be regrettable. The government would need good justification to limit our maternity beds.”

As such, it is highly likely that yet another mandatory rate increase on non-resident mothers giving birth in Hong Kong public hospitals is on the cards. Local mothers can expect the government to act in their interests and protect public healthcare services, and the accessibility of those services to pregnant residents. While any legislation would potentially avoid instituting stringent requirements on Hong Kong private hospitals, due to the city’s commitment to free-market principals and standing as the world’s freest economy, simple supply vs. demand suggests that medical inflation within HKSAR is not set to decrease any time soon. With the growing demand for private hospitals and private medical services, the sector could see a record pay day and increased costs at the expense of HK residents, in favor of mainland mothers who are prepared to pay for the best services available.

Chinatrust Financial Co. Ltd, Taiwan’s third-largest financial services provider by assets, has agreed to purchase US-based MetLife Inc’s Taiwanese life insurance unit for US$180 million. With the acquisition of MetLife Taiwan, Chinatrust will finally be able to enter the life insurance market it has long coveted.

The ownership transfer deal, which is pending approval of the Insurance Bureau under Taiwan’s Financial Supervisory Commission, will be wholly financed by Chinatrust Financial. The company has been attempting to both internationalize, and diversify its financial products, and build a strong platform in the insurance sector. Chinatrust Financial had competed for every foreign life insurance unit put up for sale in recent years, pursuing every opportunity to enter the local market. The company’s most recent bid attempt resulted in a failure to buy Nan Shan Life Insurance, the Taiwanese branch of AIG, in January.

Chinatrust Financial has already experienced success in the bank insurance sector in Taiwan, becoming a domestic industry leader through its subsidiary Chinatrust Commercial Bank. The bank generated premium revenue of over NT$100 billion (US$3.4 billion) for two consecutive years through its bancassurance business platform; with profits exceeding NT$16 billion (US$ 542 million) for 2010. The addition of MetLife will expand Chinatrust’s capacity to sell insurance, and diversify their revenue sources.

Speaking at an evening press conference, Chinatrust Financial company president ,Daniel Wu, said of the upcoming purchase of MetLife Taiwan: “This will not just be a simple financial investment, but a strategic investment,” he added “the group wanted to purchase a life insurance unit so it could tap into the local market and use it as springboard into the Chinese market.”

Chinatrust Financial has promised to retain MetLife Taiwan’s 624 domestic employees, and fully guarantee the rights of the company’s 307,000 preexisting policy holders. Chinatrust are prepared to pool resources from the company’s other financial services subsidiaries to help make inroads into the lucrative mainland China insurance market. President Wu said he planned to increase Metlife Taiwan’s assets up to NT$500 billion (US$ 16.7 billion) from less than the NT$100 billion (US$3.4 billion) at present.

MetLife Taiwan, founded in 1989, is the fourth largest foreign life insurance company in Taiwan by gross premium, totaling NT$14billion (US$ 480 million) in gross premiums for 2010. MetLife management, however, has been looking to divest itself from its Taiwanese branch due to limited growth prospects, and an unprofitable local investment environment. MetLife’s regional managing director, Peter Smyth, explained: “The scope of business prospects for MetLife Taiwan is limited due to the absence of its own distribution channel,” adding, “that is not a concern with a domestic financial group, however.”

This was Metlife’s second attempt at offloading their Taiwan unit. In April 2010, the company had agreed a deal with Waterland Financial Holdings Co, a smaller financial conglomerate, to purchase Metlife Taiwan for about US$ 112 million. The move was struck down by Taiwanese financial regulators in October, citing concerns over Waterland’s financial and management capacity to run the life insurer after the acquisition.

Metlife has become the latest major multinational investment company to sell its stake, or a significant share of its assets, in Taiwan’s US$ 52 billion insurance market. The forecast for Taiwanese business has remained slow-moving in the aftermath of the global economic crisis, and the market has been inhibited by historic business secured at base interest rates which are no longer sustainable. New international accounting rules that increase capital requirements for insurers, coupled with strict local regulators and general market volatility, have led many international firms to question their continued presence in the country. All of this is occurring at a time when profits, and business opportunity, return in regional neighbors such as, Japan, Thailand and particularly China.

Prudential, Aegon and the ING Group all have retreated from Taiwan, usually selling to local financial services companies who are looking to diversify into insurance. Following the 2008 economic crisis, ING agreed to sell its life insurance business to Fubon Financial Holdings for US$ 600 million, Aegon followed suit for only $65 million a year later. China Life acquired Prudential’s Taiwanese branch in 2009. In addition, MassMutual International Holdings Inc. sold its 39 percent stake in joint venture MassMutual Mercuries Life Insurance Co and even more recently AIG, after a protracted bidding war, sold Nan Shan Life Insurance to Taiwan-based Ruen Chen Investment Holdings Co. Both New York Life Insurance and Aviva PLC are thought to be considering their exits from the island country as well.

Merger and acquisition activity throughout the rest of Asia is set to maintain significant growth in 2011 due to stronger investor confidence in the market. Insurance business growth in Asia is expected to outperform that of other more mature markets, with Vietnam, Indonesia and China leading the way.

Insurance Companies Mentioned:

Chinatrust Financial

Chinatrust Financial Holding Co Ltd. Is a financial holding company based in Taiwan. The firm operates business through commercial banking, financial market services, trading, investment consulting, insurance business and many other services. The company presently has operations in Taiwan, Hong Kong, Vietnam, USA and China.

MetLife

Metlife Insurance: Possessing over 140 years of insurance expertise, MetLife aims to be an innovator in the field of international Life insurance. Globally, MetLife is able to offer its clients accident and health insurance, life insurance, disability income protection, and retirement and savings products.

AIG

The American International Group is a leading international insurance organization with operations in more than 130 countries and jurisdictions globally.

Nan Shan

Nan Shan Life Insurance Company, Ltd. was established in July 1963. After its restructuring in January 1970, Mr. K.K. Tse, the then Chairman of American International Underwriters, became the first Chairman of the company. In forty years, Nan Shan has become a super insurance company with the most professional management, the best operational performance, and a solid financial foundation. Its agency force has been recognized as the best in Taiwan’s life insurance industry.

Prudential

Prudential life Insurance has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.

ING

ING provides banking, investments, life insurance and retirement services and operates in more than 50 countries. It serves over 85 million private, corporate and institutional customers throughout Europe, North and Latin America, Asia and Australia.

Fubon Life

Fubon Life was founded in 1993 and is based in Taipei, Taiwan. Fubon Life provides life insurance and health insurance services. Fubon Life Insurance Co. Ltd. was formerly known as Fubon Life Assurance Co., Ltd. and change its name to Fubon Life Insurance Co. Ltd. in June 2009. Fubon Life operates as a subsidiary of Fubon Financial Holding Co. Ltd.

American authorities have announced the closure of a “Maternity House” in the Californian city of San Gabriel, according to a New York Times report published March 29^th, 2011. Neighborhood residents had complained repeatedly about the excessive noise coming from a local building, and the large number of pregnant women seen entering and exiting the area. Police officers and building inspectors discovered that the building was a center for Chinese medical tourists, who were using the home as a means to deliver their babies in the USA, thereby granting the child American citizenship. This situation is by no means unique to the USA as Hong Kong, for many years, has experienced a massive influx of mainland mothers looking to give birth within the city.

There are a number of reasons which can be used to explain the increase in Chinese mothers traveling abroad to give birth. One of these is with regards to the People’s Republic’s notorious “One Child Policy,” stating that Chinese nationals, within China, are only allowed to conceive, and give birth to, one Child. By going overseas to deliver, the mother is able to escape the bounds of Chinese legislation, and potentially have an additional baby upon return to her home nation.

The second reason for going overseas to give birth is more to do with having a form of “insurance” against untoward changes within the People’s Republic of China. In the case of the USA, any child born within the bounds of America’s borders automatically becomes a Citizen of the USA under the 14^th amendment. Once the child is 21 years of age, they are then a full citizen of the country, and are able to petition the government to allow their parents to join them as residents of the US.

In Hong Kong this situation is paralleled, mainland mothers giving birth within the HKSAR gain their child “Right of Abode,” and consequently Permanent Residency; in addition to being granted the privilege of living in one of China’s most prosperous cities as their child’s guardian. While technically a part of China, Hong Kong operates under the “One Country, Two Systems” principal, and immigration of PRC nationals to the city is tightly controlled. By having a child in Hong Kong, the families of these children are able to ensure that they will not be deported for illegal immigration or visa over-stay infringements.

However, Hong Kong, unlike the USA, has healthcare system which is predominately public in nature. While private healthcare services and hospitals do exist in the city, the majority of residents receive their medical treatment through low cost, government run healthcare facilities. With a large number of pregnant mainland mothers using the maternity facilities at public hospitals within Hong Kong there was a serious strain placed on the city’s healthcare services. In some cases Chinese mothers accounted for more than 30 per cent of all deliveries at certain hospitals within Hong Kong.

In fact, this situation progressed to such an extent in Hong Kong that in 2008 the city’s government passed legislation introducing mandatory pricing for non-resident mothers wishing to give birth in Hong Kong public hospitals. Non-resident mothers who have booked their delivery in a Hong Kong public hospital are now required to pay a minimum booking fee of HK$ 39,000 (US$ 5,005.82) for a three day, two night maternity package. Non-resident mothers who have not booked a hospital bed, in other words, walk-ins, are charged HK$ 48,000 (US$ 6,161.06). The costs here do not include any complications of pregnancy, but are only for a routine delivery, and even then represent the minimum amount that a non-resident mother can be expected to pay; for Chinese nationals this no mean sum, as the nation’s average annual income is a paltry US$4,520.

Further to this, the Hong Kong government has not made any specific legislation with regards to the city’s private maternity hospitals, where the average maternity costs for a routine delivery are in the US$ 8,500 range; a cesarean section, or c-section, at the same hospitals will typically be priced at US$ 12,838. In comparison, the USA federal average for a routine child delivery comes in at roughly US$ 7,600.

As can be seen from the costs involved, the women undertaking this Medical Maternity Tourism phenomenon are clearly not from the lowest strata of Chinese society. With Chinese companies offering one-stop maternity tourism services from between CNY 50,000 – 90,000 (US$ 7,623 – 13,721), it is evident that these women, and their families must be, at least, slightly well off.

This then poses the question of why, exactly, the rate at which Chinese mothers are traveling overseas to give birth is increasing.

In recent years the PRC’s Central Government has made extraordinary strides towards improving the standards of the nation’s healthcare system and services; going so far as to introduce a comprehensive private China health insurance system, and stepping up much needed overhauls of the country’s top hospitals.  In many cases China is able to offer private medical services which are on-par with, if not exceeding, those of their western counterparts. Hospitals like Parkway Shanghai are able to deliver some of the highest standards of medical treatment within the People’s Republic of China, and while they mainly serve foreign national expatriates, do cater services to Chinese residents.

The reason for this development then cannot be the quality of care, or even the cost of treatment, as these are both adequately covered within the People’s Republic. Additionally, unlike the furor over “Anchor Babies” within the USA, the Chinese mothers in question often return home after giving birth, and are usually in possession of above average financial means.

The issue of Chinese mothers giving birth in the USA is baffling American immigration experts, who say that the women are not acting in violation of current American laws. However, as in Hong Kong, there is apparent anger towards the trend. From the New York Times story:

“These people aren’t doing anything in violation of our laws,” said Mark Krikorian, the executive director of the Center for Immigration Studies, which advocates tougher immigration controls. “But if anything, it is worse than illegal immigrants delivering a baby here. Those kids are socialized as Americans. This phenomenon of coming to the U.S. and then leaving with people who have unlimited access to come back is just ridiculous.”

While there are many women from Asian nations participating in similar activities, such as South Korea, the Philippines, and India, it is Chinese mothers who are driving the trend. Not only are these mothers driving the trend, but their actions imply long term forethought towards the question of; where is it best to deliver my child overseas?

When looking at the American medical system the first thing which is immediately apparent is the need for some form of health insurance. Medical services within the USA can be prohibitively expensive, a much publicized and debated issue, necessitating some form of comprehensive health insurance coverage. However, it is important to realize that many insurers will impose a significant waiting periods on policy benefits such as maternity coverage. In some cases, the waiting period associated with maternity can be as long as 24 months from the start of a plan, although the norm would be closer to 12.

As such, it is obvious that these “Maternity Tourists” will have been planning their delivery trip for quite some time prior to departure. However, looking at the overall situation, it becomes much more complex than it can first seem.

Of those Chinese nationals and residents who do possess a health insurance policy, the type of policy prevalent within the population is “local health insurance.” These are medical insurance plans which are designed to work solely within a specific country, in this case China. These plans will not cover the policyholder overseas; while Hong Kong is considered to be a part of China, it is technically a separate national entity, so local China health insurance will not provide cover in the city, never mind the USA.  However, in the case of Hong Kong, these maternity tourists tend to cover the costs related with the birth out-of-pocket.

American health insurance would then seem like an option; however, obtaining domestic USA health insurance to cover the costs associated with the birth is also a difficult proposition for foreign nationals, as an American residential address is typically required to access a plan. Looking at the waiting periods which will be involved, the logistics here would mean that the Chinese mother would have to be “resident” in the USA for a period which far exceeds the length of stay granted by her visa. As American immigration experts have cited the legality of this type of action, this is most likely not the case.

The last proposition for insurance coverage of the birth is with regards to international health insurance plans, which provide medical protection on a global basis. However, Chinese regulations, and the restrictions put in place by many of the major insurance providers operating on the mainland, mean that unless the Chinese citizen is an expatriate residing outside of their home country, they will be unable to obtain this type of policy. Due to the fact that American immigration experts cite the fact that many, if not all, of these mothers return to China after giving birth, having been abroad on temporary tourist visas, this is most likely not the case.

At the end of the day, it is extremely difficult for these mothers to fund their maternity tourism via insurance, which lends strong weight to the fact that they are paying for their maternity services out-of-pocket. If the USA is seeking options to resolve this potentially concerning issue, a price increase, or mandatory down payment such as that in place in Hong Kong may be a solution. In 2008, the year that “maternity tourism” began making headlines in Hong Kong, there were 7,462 babies born in the USA to foreign parents. Since then, the number of maternity tourists has only increased, and as China continues to generate more wealth, is likely to continue doing so.

China Pacific Insurance Group (CPIC Group), mainland China’s third-largest life insurer, has posted a 16.3 percent increase in net profit for last year, up to 8.557 billion yuan (US$1.3 billion) from 7.356 billion yuan (US$1.1 billion) in 2009, as premiums expanded.

CPIC Group’s Announcement of Audited Annual Results reported income from the insurance business in 2010 at 139.56 billion yuan (US$21.27 billion), an increase of 44.9% over the previous year, with earnings per share of one yuan. At year’s end 2010, CPIC Group’s share of the Chinese insurance market was 9.9%, a rise of 0.8 points since 2009. The company’s total investable assets are 433.4 billion yuan (US$66 billion), having risen 18.4% since last year. Shareholders received a cash dividend of 0.35 yuan (US$ 0.054) for each share held.

In 2010, CPIC prioritized underwriting profitability, the expansion and development of life insurance products and a renewed focus on standard premium businesses. Net investment income increased 33 percent to 16.95 billion yuan. This was attributable to a significant rise from both interest and dividend income. Premium income was boosted at a rate of 10 share points greater than industry average to consolidate the company’s existing market share.

Gross written premium revenue from life insurance, as a result, rose 41.7 % to 87.9 billion yuan (US$13.4 billion) and CPIC held a market share of 8.8% this past year. CPIC expects a more modest growth level of over 15% in the upcoming year. It is also possible that market demand for similar insurance products is gradually approaching a saturation point. The increased competition for customer resources within the industry fosters price wars and the high?cost channel inputs are made increasingly more difficult to sustain due to the profitability pressure.

With that said, the effective demand for insurance business in China is still expected to increase rapidly. Total written premiums in China’s insurance market reached 1,452.8 billion yuan (US$221.4 billion) in 2010, a year on year increase of 30.4%.The acceleration of urbanization, increases in per capita income, an improved social security system, enhanced distribution reforms and service level optimization coupled with stronger insurance awareness, are all positive factors contributing to the brisk development of the domestic Chinese insurance industry. As interest rates rise, profitability for insurance companies will also be further improved.

2011 is the first year of the Chinese government’s twelfth Five?Year Plan and the country has significant decisions to make with regard it’s future economic development. In the aftermath of the global financial crisis, China will continue to implement pragmatic fiscal and monetary policies in an attempt to accentuate steady and fast paced economic growth in the country. The insurance sector is looking to match the projected trend of social and economic development in China, with increased comprehensive insurance service capabilities. The Chinese market is pivotal for global insurers to gain access to, not just for its absolute size and growth potential but also the high savings rate of its citizenry coupled with a financial environment in which life insurance remains a particularly attractive investment opportunity.

The leaders in the Chinese life insurance industry are China Life, Ping An Life and China Pacific, with market shares of 29, 13 and 8 percent respectively. These established companies have extensive strength in terms of branding and infrastructure and operate on a tremendous scale even by the standards of multinational insurance companies originating from developed countries. There has been increased competition in recent years as local and multinational insurers attempt to strengthen their reach in the country. While China is technically open to foreign insurers, they are faced with more restrictions and a more active regulatory authority than in many other countries. Multinationals normally exist as joint venture partners with another Chinese organization and are often confined by their license to a particular territory or line of business.

Some major current multinational Chinese insurance company joint ventures include the Sun Life Everbright and the Aviva-Cofco partnership. Other notable foreign insurers with partnering agreements in China include Zurich and Generali, with associations involving both New China Life Insurance and China National Petroleum Corporation respectively.

Insurance Company Mentioned

China Pacific

China Pacific Insurance (Group) Co., Ltd. (CPIC) is a insurance company providing, through its subsidiaries, a range of life and property and insurance services and pension products to individual and corporate customers throughout the country. CPIC was founded on May 13, 1991, and is headquartered in Shanghai. The company was listed in Shanghai Stock Exchange on Dec. 25, 2007, with the stock code of 601601 and the stock name of “China Pacific”. The Company was listed in the Stock Exchange of Hong Kong Limited on Dec. 23, 2009, with the stock code “02601” and the stock name of “CPIC”.

Patients seeking private medical treatment in India will no longer be faced with an upcoming 5 percent service charge. India’s federal government last week announced the rollback of the planned tax on health-care services after encountering substantial pressure from opposition political parties, the healthcare industry as well as the general public.

Giving his general budget speech before Parliament, Finance Minister Pranab Mukherjee stated: “The proposed levy on healthcare has raised considerable anxiety in the House and outside. We have decided to exempt the new levy in its entirety; both in respect of services provided by hospitals as well as by way of diagnostic tests until the Goods and Services Tax comes into force.” The bill was later passed by the House.

The original proposal, prepared by Mukherjee on February 28th for the 2011 budget, introduced a tax on all medical services, including diagnoses, provided by air-conditioned hospitals with a capacity exceeding 25 beds. The move instantly evoked a strong reaction from the medical community with several distinguished doctors dubbing the scheme a ‘misery tax’. The proposal was in fact projected to increase the real cost of medical treatment for Indians by around 7 to 12 percent.

The move to withdraw the service tax has been welcomed by the healthcare industry in India. Shivinder Singh, Managing Director for Fortis Healthcare (India) said: “We welcome the finance minister’s decision to roll back the service tax proposed for the healthcare delivery sector. This positive step will benefit the common man, while providing a boost to the industry.”

Apollo Hospitals’ Executive Chairman Dr. Prathap C. Reddy explained the present situation: “Inflation in healthcare sector has been over 300 per cent in past decade. The industry has still tried to contain prices. Now, with the government relenting by taking back the proposed burden on the sector, it is good news not just for the industry but also for the people,” he added “I appreciate the rollback by the government. This new levy was like stretching pockets of over 85 per cent Indian patients.”

Ameera Patel, CEO and Executive Director of Metropolis Health Services, concurred that this was a positive development: “The new tax was a big drain on the pockets of patients, especially old people. It would have been a complete disaster,” she said.

The private healthcare sector is determined to support this initiative. Efforts to reduce their own costs will be given renewed impetus to boost the number of patients seeking preventative care and early diagnosis, helping to curb the rising prevalence of chronic diseases in India. During the past weeks budget discussions, almost all political parties had pressed the finance minister to remove the healthcare service duty. The announcement that the 5% service tax had been withdrawn was met with applause by members of Parliament.

The medical tourism industry in India is also relieved that the healthcare service tax has been waived by the Finance Minister. Concerns arose that making private treatment in India more expensive would put their healthcare facilities at a competitive disadvantage against other Asian markets that also cater to international clients.

A growing number of people from Western Europe, North America and Africa are visiting India every year for the sole purpose of receiving medical treatment. Patients are attracted by the lower costs and a high standard of private healthcare that remains comparable with the best in their home countries. The Indian medical tourism industry has been growing substantially and is projected to generate over $US2 billion a year in revenue by 2012. However, other Asian countries are also committed to taking advantage of this lucrative global market and are invested in building their own internationally-renowned healthcare facilities.

Companies Mentioned

Fortis Healthcare

Fortis Healthcare Limited, founded in 1999, is a leading healthcare provider with a network of 46 hospitals, satellite centers and heart command centers in India. The company also offers diagnostic, travel, IT and financial services through it’s’ wholly owned operation Religare Enterprises Limited.

Apollo Hospitals Group

Apollo Hospitals is the largest healthcare provider in Asia, third largest in the world. The company operates 53 hospitals, a total capacity of 8500 beds, across Asia. The company also offers medical consultancy and pharmacy services. Apollo Hospitals was founded in 1983 and is based in Chennai, India

Metropolis Health Services

Metropolis Health Services operate a chain of medical diagnostic and research facilities. The company has a worldwide network of operations. Metropolis was founded in 1981 and is based in Mumbai, India.

Industry analysts are expecting the increase in merger and acquisition activity in Thailand’s healthcare sector to continue. Thai healthcare providers are determined to integrate more with one another to give them a national competitive advantage over the large foreign multinationals now entering the market.

Under the ASEAN Economic Community (AEC) agreements, by 2015 many industries will be increasingly liberalized across the continent, including the private healthcare sector. Regional market integration will theoretically expand the local healthcare market to over 580 million people.

Read the rest of the Mergers Expected in Thailand Healthcare Sector article

South Korea currently boasts one of the ten largest insurance markets in the world with a particularly high-penetration rate in regards to life insurance. While the country’s insurance sector is made available to foreign multinationals, both the life and non-life segments continue to be dominated by large domestic companies.

In order to maintain their growth, Korean insurance firms are now looking to expand into international markets. Domestic analysts fear that the alarmingly low birth rate and rapidly aging populace will curtail momentum in the local insurance sector. At present, one in 10 Koreans is aged 65 or older, but the ratio is expected to rise to over 14 percent by 2018.

Korea Life Insurance, established in 1946 as the country’s first insurance company, has had to continue to innovate in order to maintain its market position amongst the local industry heavyweights. In March last year, it became the first Korean insurance company to go public. Now Korea Life is looking to strengthen its presence in global markets. The company is determined to maintain itself at the forefront of Korean insurance firms as they expand internationally.

Korea Life CEO and Vice Chairman Shin Eun-Chul emphasized this sentiment: “The local insurance market is becoming saturated, so advancement overseas is a must.”

Korea Life Insurance has already demonstrated it has the capacity to handle international operations. The company was the first Korean life-insurance firm to enter the Vietnamese insurance market in April 2009, and they have already achieved desirable results. In their first year of operating abroad, Korea Life took 1.8 percent of the Vietnamese market in terms of new sales. The total number of new sales in the first year amounted to 10,000 policyholders, and the insurance premium income was $3.3 million, a rise of 67 percent on the previous year.

Korea Life has enjoyed its success in Vietnam and is looking to further grow its business in the country. Operations began in the Southeast Asian country with a staff of 450 financial planners working out of three separate branches, one in Hanoi and two in Ho Chi Minh City. Today there are over 3500 employee,s and 10 local offices that include Dak Lak, Khanh Hoa and Dong Nai.

“The insurance industry in Vietnam is growing at an annual average of 10 percent. And 60 percent of the population is under 30, so the potential for growth is very large,” a Korea Life official said.

Korea Life hopes to match this projected growth in Vietnam through further expansion of their network to a workforce of 9,000 with 22 branches by 2013. The company is targeting a 7 percent market share for new life-insurance sales in Vietnam.

“Just as we have led the life insurance industry in Korea for the past 65 years, we will continue to write the history of the Great Challenge in Vietnam by offering the best products and customer services and helping the local insurance industry grow,” a Korea Life spokesman said.

After investing and officially starting operations in the Vietnamese market, the next destination for Korea Life Insurance will be China.

In December 2009, Korea Life Insurance signed a cooperation agreement with China-based Zhejiang International Business Group to partner together and invest 45 billion Korean won (about $40 million) in establishing a joint venture operation. The new Chinese venture would be headquartered in Hangzhou. It is seen as an important step in establishing a presence in Zhejiang Province, one of the higher-income regions of China.

Korea Life Insurance has become South Korea’s first insurer to establish a successful subsidiary in a foreign country. The relative ease to which they’ve transitioned into the Chinese and Vietnamese markets has enabled the company to consider further inroads into other emerging markets in the Asia Pacific region.

Meanwhile, in South Korea, the devastating aftermath of the record-setting earthquake and tsunami on Japan has led to calls from Korean analysts and companies in the insurance industry for the government to help development of an insurance system that covers damage dealt by earthquakes.

In the wake of Japan’s disaster, many Koreans are wondering whether they are, in fact, protected from a similar catastrophic occurrence. At present, local non-life insurers do not provide stand-alone insurance products covering earthquakes. , However, companies offering insurance policies against other natural disasters such as heavy rainfall, floods, typhoons and hurricanes do share compensation with the state.

Some industry officials want to extend a similar cost-sharing arrangement for earthquakes: “After the Japanese earthquake, the non-life insurance sector has naturally turned its attention to earthquake insurance, and there has been talk in some quarters of suggesting state-supported earthquake insurance to the administration” an executive from the Korea Non-life Insurance Association said.

Japan’s disaster insurance scheme is seen as a potential model to emulate. Through their system the national government shares over 90 percent of the payouts, and the private market deal with the remainder using reinsurance and retrocession. One industry officer concurred, “Korea needs to introduce insurance policies that compensate for losses, as Japan did.”

The insurance companies want the government to share the burden of compensation for these new policies given the significant unpredictability of natural disasters. There is also a proposal to place earthquake coverage under the state-regulated natural disaster insurance scheme.

“When potential volcanic activity of Mt. Baekdu became a sensitive issue in Korea, the government started to push for earthquakes to be included in insurance policies amid growing concerns that a volcano eruption-sparked quake could hit the nation hard,” said a representative from the National Emergency Management Agency.

Criticism has been levied at the proposed scheme, maintaining that an earthquake insurance policy will not be marketable due to the generally-held public belief that the Korean Peninsula is safe from a sizeable seismic threat.

“With low recognition of earthquakes in Korea, it is questionable if local consumers will sign up for the insurance,” observed one market analyst. “It appears to be premature to launch earthquake insurance although it needs to be considered over the medium or long term.”

According to a recent report issued by the Korea Insurance Research Institute, local awareness about the risks posed by earthquakes has remained low despite a rising frequency of earthquakes occurring in Korea.

The report goes on: “Although the number of earthquakes in Korea has continually increased, all economic units have underestimated the risk of earthquakes and do not consider them a subject for risk management because no large disasters have been caused by earthquakes.”
The Korea Insurance Development Institute offers supporting evidence; out of 1.57 million active fire insurance policies in 2008, less than half a percent were then registered for optional earthquake coverage. In housing statistics, only 266 out of 122,737 homes with a fire insurance policy were also covered against earthquakes.

Insurance Companies Mentioned:

Korea Life Insurance Co Ltd: Korea Life Insurance is an insurance company specialized in providing life insurance business. The company offers a wide range of insurance products including whole life/term insurance, survival insurance, death insurance, group insurance, annuity insurance and many other services for both individual and corporate customers. Substantial loan services, credit options, fund products and risk management services are also offered. Korea Life Insurance was founded as Daehan Life Insurance in 1946. The company is headquartered in Seoul, South Korea with additional offices in Ho Chi Minh City and Hanoi, Vietnam.

A senior advisor from Qatar’s top health advisory body, the Supreme Council of Health, has announced that a broad national health insurance system with universal access for both citizens and visitors will be operable within the next 3 to 4 years.

Qatar’s Supreme Council of Health (SCH) was established by an Emir decree in 2005. The Council replaced both the former National Health Authority and Ministry of Public Health of Qatar. Although the state of healthcare provision in Qatar is currently very good, there are substantial problems on the horizon. The continued evolution of hi-tech medical technology and pharmaceutical innovations coupled with increasing expectations from patients for new treatments all coupled with a growing population are putting serious stress on the financial resources and infrastructure capacity of the state’s health care sector. Currently bed occupancy rates are above average and many patients surveyed complain about waiting lines for treatment.

Read the rest of the Qatar to introduce National Insurance Scheme in 3 years article

A series of new reports issued by both the UK Border Authority and the Department of Health outline plans the British government will take to ban foreigners from entry to Britain if they have previously amassed debts of £1,000 or more with NHS run hospitals.

The measures are designed to reduce the £10 million in revenue thought to be lost each year through deliberate temporary migration to and access of another state’s subsidized medical services without payment, also known as ‘health tourism.’

NHS healthcare is currently free at point of access for residents of the United Kingdom as well as members of other EU nations who qualify through reciprocal agreements. British GPs may elect to register any person as an NHS patient, leading many visitors to receive free primary care including licensed prescriptions. Access to secondary and more advanced care is supposedly subject to more screening and rules of entry, but in practice few are denied care or charged. Overall the NHS is seen as a more accommodating health service than many other countries, including accident & emergency treatment and full healthcare exemptions for overseas students and employees. The new health report concurs: “entitlement to free healthcare is considerably more generous to visitors and short-term residents than is reciprocated for UK citizens seeking treatment in other countries.”

While the Department of Health acknowledges the humanitarian duties the NHS must uphold in meeting the immediate medical needs of any person, they acknowledge that “there is also an obligation to the public purse to protect the NHS’s finite resources.” As a result of the current system only £40 million a year is recovered from “visitors”, with “at least a further 25 per cent (over £10m) of charges raised are not recovered and written off each year.”

To close this funding gap, The Department of Health and UK Border Authority have both carried out separate consultations and now agree that tougher rules for foreigners seeking medical treatment in the United Kingdom must be implemented.

As a result of these consultations, the UK Border Agency has decided to implement a change to immigration rules. Starting in October 2011, those who fail to settle debts to the NHS of £1,000 or more will “normally be refused permission to enter or remain in the UK.” Non payments above £1000 currently represent 94% of all outstanding costs to the NHS.

The Department of Health has stipulated that failed asylum seekers (who comply with Home Office support schemes), unaccompanied non-resident children and persons involved in the 2012 London Olympics and Paralympics will not be subject to charge for healthcare.

In order to implement this new health care cost-recovery policy, NHS Trusts will record details about patients from outside Europe and communicate more closely with immigration services to identify debtors when they make their application to return or stay in the UK. Personal medical records, however, will not be shared.

Immigration Minister Damian Green pledged: “The NHS is a national health service not an international one. If someone does not pay for their treatment we will not let them back into the country.”

A further comprehensive review of the current health system will analyze whether treatment costs could be covered through extending user fees to primary care services or whether to introduce a health insurance requirement for non-EU visitors. Additional reforms considered include an increase in time UK residents can spend abroad without losing their free healthcare entitlement, up from three to six months.

The Department of Health concludes that: “while the immediate actions to introduce immigration sanctions for debtors seeking to return to the UK will help to reduce levels of unrecovered debt, wider ranging actions are needed.”

While the NHS looks to cut down on abusive foreign patients, the growth of a global network of high quality medical services is legitimate. The substantial development of the global economy coupled with the falling costs of travel and communication has enabled world class medical practices to establish themselves all around the world. International clients seeking alternative healthcare solutions to their home countries at competitive prices now are presented with many opportunities.

Popular locations for medical travel include countries in South East Asia and Latin America, where many surgery procedures, including transplants, cost a fraction of the price they would do in North America or Western Europe and usually offer shorter waiting lists for treatment. The convenience and efficiency of pursuing international healthcare options is something to be considered for patients seeking to fully evaluate their future health procedures.

Swiss based insurer, the Baloise Group, has announced that it is taking over Belgium insurance company Ethias, which trades the insurance brands Nateus and Nateus Life.

Subject to regulatory approval, the acquisition will see the Swiss insurer rapidly expand its presence in the Belgian life and non-life insurance sectors; the transaction is expected to be completed in the second quarter 2011.

Nateus and Nateus Life operate in Belgium under the combined brand name Nateus.

In 2009, Nateus reported a combined premium volume of €342 million (US$478 million), with life insurance products under the Nateus Life segment being responsible for 53 percent of the group’s total income. Nateus is based in the city of Antwerp in Belgium and has approximately 450 employees.

Martin Strobel, the Baloise Group’s Chief Executive Officer, said “By acquiring Nateus we expand significantly our position in Belgium. Nateus is an important building block to further increase growth and earning power of Baloise.”

Beloise currently sells insurances products in Belgium through its subsidiaries Mercator Verzekeringen and Avero Schadeverzekering – operating as Mercator NZ – via brokers who have exclusive rights; the clients being mainly private individuals or small to medium sized companies.

Beloise operates on a similar basis to Nateus and is already successful in the Belgium insurance market; in 2009 it generated business totaling €543 million (US$760 million), with its non-life channel contributing €384 million (US$537 million) of this activity; earnings before interest and taxation (EBIT) amounted to €36 million (US$54 million) in 2009. Beloise currently holds approximately 7 percent of the non-life market in Belgium and is one of the top five insurance companies in the country.

Baloise acquired Avéro Schadeverzekering in 2010 from the Dutch firm the Eureko Group for €75 million (US$105 million). When Baloise made the acquisition, Avero held a 13 percent market share in the transport insurance sector in Belgium.

Belgium is a well developed country and plays a key role in the European community, with a population exceeding 10 million people. Although the financial sector in Belgium was badly affected by the worldwide economic turmoil in 2008, with several key banks requiring a government bailout, it is slowly recovering its stability with resurgence in demand for saving and protection products.

“I look forward to continuing the success story in Belgium. With this second acquisition within a year, we consequently continue on our growth course in the international business.” said Baloise, Jan De Meulder, Member of the Corporate Executive Committee and Head of the International Division.

Insurance Companies Mentioned:

Baloise

Baloise Holding Ltd was founded in Basel Switzerland in 1962 and offers insurance, banking and pension products and services. Baloise non-life insurance products include accident, health, general liability, motor, fire and other property, marine, and miscellaneous insurance. Baloise also provides life insurance products. The group’s network currently operates in Switzerland, Germany, Austria, Belgium, Luxembourg, Croatia, Serbia, and Liechtenstein.

Nateus

The Nateus Group is based in Antwerp, Belgium and offers motor vehicle, driver, home and family insurance in the non-life market and a range of products in the life insurance sector.

The major British based insurer Legal & General (L&G) has unveiled a rise in pre-tax profits to reach £1.09 billion (US$1.74 billion) in 2010 – up from £1.07 billion (US$1.71 billion) delivered in 2009. Plans also identify opportunities for future growth in both the domestic UK and overseas insurance markets.

L&G total sales worldwide grew by 28 percent – £1.8 billion (US$2.88 billion) – which was the key driver in delivering the UK insurer’s profits in 2010, including new business in the emerging insurance markets in Asia especially India; India and China are pinpointed for future growth.

The life insurer was able to surpass its £600 million (US$960 million) target for cash generation in the year ending 31 December 2010 – making a total of £728 million (US$1.16 billion) available. L&G’s savings arm was the catalyst for the improvement in the company’s results, with operating profits up by 130 percent over the year to total £1.15 billion (US$1.84 billion).

L&G is predicting that the UK’s savings and life market will continue to offer strong returns in the future, reflecting the need to redress underfunding which occurred in previous years. The life insurers said that it is well positioned in the market with its business model and product mix making it ready to capitalize on the potential for growth in demand.

However, L&G will continue to exploit demands in its international insurance operations, especially emerging markets in India and China, which are currently enjoying an economic boom. This will provide a safeguard to offset any slowdown in demands in western hemisphere countries as the impact of austerity measures are implemented to overcome national debt problems.

L&G aims to expand international operations within the two Asian powerhouses China and India by employing opportunities through bancassurance deals in order to create platforms for distribution of L&G insurance products.

In the burgeoning Indian insurance industry, L&G has enjoyed success with more than 130,000 policies sold during 2010 through its bancassurance joint venture – India First. This joint venture is expected to continue to enjoy product growth. Additionally, L&G has recently received approval by the Chinese regulatory authority – the China Insurance Regulatory Commission (CIRC) – to open an office in China providing scope for a possible future Chinese bancassurance venture.

India First is L&G’s bancassurance Indian insurance venture with local banks Bank of Baroda and Andhra Bank in which the British insurer holds a 26 percent stake. India First was established in March 2010 and has a network of over 4,800 branches across India and provides life and health insurance along with financial, retirement, savings and investment planning products and services.

The insurance industries in China and India have become essential markets for insurers in order to capitalise on the increasing wealth of an expanding middle class population seeking savings and protection products.

L&G has operations in Egypt and the Gulf states, a region also experiencing economic prosperity, although on a smaller scale than Asia. The region offers scope for expansion because of the relative fledgling status of the insurance sector in these countries.

Meanwhile, the UK insurance sector has seen insurers consolidate market positions since the 2007-2008 global financial crises with L&G competing with other major insurance companies such as Prudential, Standard Life and Aviva. Opportunities for growth in the savings and pension sectors in the UK – and other Western European countries – have been assessed as substantial in order to close a gap of some £2 trillion (US$3.3 trillion) annually in the funding for corporate and individual contributions. This is compounded by the diminishing value of state provided pensions, with the possible imposition of legislation in the UK for all workers in the UK to contribute to personal pension plans.

L&G has been able to turn-round its shortfall in profitability immediately following the 2007- 2008 worldwide financial crises, although unlike some multinational insurers it did not require a government bailout loan to avoid collapse, and is now confident that its market position will deliver future growth opportunities. The company is also satisfied that it has built up sufficient cash reserves – with the target of adding a further £700 million (US$1.1 billion) in 2011 – to provide a total capital reserves of £3.7 billion (US$5.92 billion), which will be more than adequate to meet the new European legislation on solvency – to be introduced in 2012.

Insurance Companies Mentioned:

Legal & General

Legal & General was founded in 1836 and is based in the United Kingdom and offers a variety of risk, savings and investment management products. L&G saving products includes unit trusts, individual savings accounts, investment bonds and pensions. In the risk market the insurer offers individual and group protection, individual and bulk purchase annuities and general insurance. The investment management business includes index funds, fixed income, risk management solutions, property and private equity. L&G’s International segment includes term insurance, group protection, wealth management and unit-linked saving.

Prudential

Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, US and Asia offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.

Aviva

Europe’s fourth largest insurance company, with more than 300 years of experience in the global insurance industry, Aviva is committed to the safety and satisfaction of its customers. They sell a broad range of insurance products including motor and property insurance, protection and health insurance, business insurance, life insurance and pensions.

Standard Life plc.

Standard Life was established in 1825 and headquartered in Edinburgh, Scotland. Since its beginnings, Standard Life has expanded into a financial services company offering pensions, life assurance, and investment management to over 6.5 million customers around the globe.

Projections foresee growth in 2011 topping 12% across the Malaysian insurance industry. The Malaysian government has unveiled stimulus plans and other legislative initiatives which together with an historically low interest rate environment have lead to very favorable conditions for growth in the insurance sector. All forecasts however need to be tempered by an awareness of uncertainties about the outlook for a number of western economies and the possible resulting downward pressures on overall performance of the global insurance industry.

Malaysia’s economy grew 7.2 percent last year, the highest rate experienced since the year 2000. The Malaysian government has aggressively pursued substantial investment programs with the explicit goals of doubling GDP per-capita and turning Malaysia into a high income country by 2020. New parliamentary initiatives such as the New Economic Model (NEM), Economic Transformation Program (ETP) and the Tenth Malaysian Plan will, according to industry analysts, lead to a growth in demand for insurance products and services.

The Life Insurance Association of Malaysia (LIAM) held that in addition to these numerous initiatives announced in the Economic Transformation Program, including the private pension plan and worker insurance scheme, economic conditions in the country are ripe for further life insurance development. Consumer confidence in Malaysia has shown marked improvement, rising to 107 points on the latest Nielsen Global Consumer Confidence Index, its highest score since the third quarter of 2006. Around 41 percent of the Malaysian population is currently insured, according to the LIAM. This level of life-insurance penetration is low by a developed economy’s standards and will be an important factor in the further growth of the sector. The current low interest rate environment will act as an impetus to consumers seeking high-yielding products like insurance in Malaysia.

The LIAM reported that new business sales for life insurance rose 19 percent on a weighted premium basis during the first three quarters of 2010. This growth was accredited to strong performances in regular premium sales which were up 21 percent compared with the identical period in 2009. Single premium business, however, registered a small 1 point decline.

The LIAM’s views were supported by the General Insurance Association of Malaysia (PIAM), the Malaysian Takaful Association (MTA) and Allianz Malaysia Bhd (AMB).

The General Insurance Association of Malaysia (PIAM) executive director Mr. Lim Chia Fook reported that, in absence of any further adverse impacts on the world economy, the insurance association foresees the outlook for the general insurance industry this year to be very positive with an increased demand for insurance in all areas expected. The general insurance industry recorded that for the third quarter of 2010, gross direct premium estimates were 3.16B$, demonstrating a growth of nine percent over the same three quarter period during the previous year.

The Malaysian medical and health insurance sector (MHI) is likewise expected to sustain powerful development, driven by upward trends in consumer awareness coupled with an increasing want for cover against escalating healthcare costs. Mr. Lim added that the introduction of the health insurance plan designated for foreign workers would further drive growth in the MHI sector. PIAM anticipated new areas of industry growth through micro-insurance products, especially considering the rapidly developing small and medium enterprise and biotechnology sector in Malaysia.

The Malaysian Takaful Association (MTA) expects the Islamic insurance industry to continue to improve on its 10% market penetration, particularly by expanding into rural areas. The Islamic insurance market has grown due to more interest in shariah-compliant investments. The industry has experienced substantial growth after the Malaysian central bank issued takaful licenses to four established consortiums in 2006, which included HSBC, Malaysia’s Hong Leong Bank and Prudential Holdings. Malaysia currently has eight takaful operators and trusts that the inclusion of new insurance players would increase industry competition, pushing players not only to capture new market share but also to develop fresh takaful products. Similar to general insurers, the islamic insurance sector operates through correlation with macro economic performance; hence the positive outlook for the Malaysian domestic economy will affect the development of both sectors.

MTA chairman Datuk Syed Moheeb Syed Kamarulzaman reported: “The significant growth in retail credit financing, especially in relation to home financing in 2010, may be curbed to some extent in 2011 and this should encourage takaful operators to diversify their business focus away from financing protection products to agency driven products.”

Allianz Malaysia CEO Jens Reisch remarked that apart from the initial low insurance penetration rate in the country, increase in consumer knowledge, greater demand for retirement savings, together with growing Bancassurance and takaful businesses from a more liberalized insurance industry, are some of the other factors that would advance the insurance sector. Mr. Reisch added that Allianz: “is undertaking numerous initiatives to improve its distribution capabilities and we hope to continue to strengthen the top line and sustain profitability.”

Mr. Reisch highlighted that the major challenges facing the insurance trade would be the provision of long-term assets for packaging insurance products, the low interest environment for insurers failing to manifest attractive guaranteed return products and the requirement to offer high guaranteed products into the long term future.

The LIAM assert that global economic uncertainty could restrain the growth potential of the industry: “While it is an external factor, the quagmire prevailing in the established economies of the United States, Japan, Europe and the reaction of the local share market towards such sentiments may have an indirect impact on the industry. It can cause a slowdown on external demand that will eventually influence consumers in terms of decision-making, thus making sales more difficult.”

The association’s president, Md Adnan Md Zain, believes the best actions to take to overcome these peripheral obstacles would be through prudent domestic policies, active oversight, working closely with regulators and better integrating as an industry. The Life Insurance Association doesn’t discount the potential for inclusion of new foreign insurance players that could invigorate the market as well as the continued implementation of the financial inclusiveness programs undertaken by both the authorities and financial institutions.

Insurance Companies Mentioned:

Allianz: Allianz Group is one of the leading global services providers in insurance and asset management. With a worldwide network of 153,000 employees, the Allianz Group serves approximately seventy five million customers in about seventy countries. Allianz offers a wide variety of insurance products to both private and corporate customers, including motor, accident, general liability, fire and property, legal expenses, credit and travel insurance. Allianz provides life and health insurance products on individual and group basis. Allianz is the market leader in the German market and has a strong international presence in insurance.

The major German reinsurer, Munich Reinsurance, announced a 3.9 percent fall in net profits for business in 2010 at US$3.36 billion, compared to US$3.5 billion in 2009. There was a big 39 percent decline in profits in the fourth quarter of 2010, reaching US$649.3 million; this was due to the payment of large claims for major floods in Australia and the September 2010 earthquake in New Zealand during this financial period.

Munich Re, one the world’s largest reinsurers, said profits also suffered from lower returns on investments during 2010, with year-on-year operating profit declining by 16 percent in 2010 to total US$5.53 billion – down from US$6.56 billion.

Munich Re stated that it was aiming to reach after tax profits of US$3.3 billion in 2011, but the reinsurer said that this target was already under threat from the extent of high catastrophe claim payouts from events which have already happened in the first three months of 2011.

Munich Re is believed to be one of the reinsurance companies hardest hit by the Japanese catastrophe on the 11th March 2011, with the devastating earthquake and tsunami, which struck the northeast coast of Japan, likely to cause the insurance industry to have to pay out multi-billion dollars worth of corporate and personal claims. The international financial markets fear that Munich Re – along with other major reinsurers – have extensive exposure to claims arising from this major natural disaster, but not from the emerging issues associated with the meltdown in the Fukushima nuclear plant.

Even before the catastrophic events in Japan, Munich Re had highlighted that claims likely to arise from major natural disasters in the first quarter of 2011 would exceed the group’s budgetary provision for claims for such events in 2011. This was mainly due to the Christchurch earthquake in New Zealand in February and the extensive flooding in the Australian state of Queensland following Cyclone Yasi.

The 6.3 magnitude earthquake in New Zealand, which destroyed large parts of Christchurch, is estimated to cost Munich Re roughly US$1 billion, with the damage caused by the floods in Australia at the beginning of 2011 expected to result in a claims bill of US$1.5 billion for the reinsurer.

Rival insurers have also estimated the level of costs expected to follow from the Christchurch earthquake, with Swiss Re predicting costs of US$800 million, Hannover Re US$200 million and the Ace group US$115 million.

Reinsurers have been quick to attempt to assure investors and global financial markets over the exposure to these catastrophes – particularly Japan – as billions have been wiped off the value of insurance companies worldwide.

The insurance industry was also heavily impacted in 2010 due to the high volume of claims payouts resulting from natural catastrophes, with last year being the one worst on record for these sorts of events. The total insurance bill for 2010 totalled approximately US$37 billion, with earthquakes in Chile, China, New Zealand and Haiti, floods in Pakistan and the prolonged heat wave and subsequent fires in Russia being the most expensive natural disasters in 2010.

Summarizing Munich Re’s 2010 results, Nikolaus von Bomhard Chairman of the Board of Management said: “It was not an easy year given the high burdens from major losses, but we were nevertheless able to bring it to a successful close. With a profit of €2.43 billion, we even slightly surpassed the target we had set ourselves. The year was good in particular because, despite very low interest rates, our 13.5% return on risk-adjusted capital came very close to our target of 15%.”

In 2010 losses incurred from natural catastrophes by Munich Re totaled US$2.1 billion with the largest pay out being US$1 billion for the Chilean earthquake which struck the South American country in February 2010.

Munich Re is not the only multinational reinsurer to feel the financial burden of large scale payouts in 2010. Companies across the reinsurance sector have reported mixed results arising from substantial payouts for catastrophic events in 2010. Members of the Lloyd’s of London syndicate, such as Beazley, Omega Insurance and Brit Insurance all had exposure to the high level of catastrophes in 2010, in addition to Swiss Re, Hannover Re and Scor.

As a result of the high number of major catastrophes in 2010, the reinsurance industry reviewed risk management techniques in an attempt to improve financial performance in 2011. However, the emerging scale of natural disasters so early in 2011 will undoubtedly place tremendous pressure on profitability this year and create more emphasis on achieving improvements in returns from investment portfolios.

In addition to Munich Re’s reinsurance business, its primary insurance brand, Ergo, performed strongly with operating profits totaling US$1.7 billion in 2010 the group’s net earnings after tax generating US$494 million. The Ergo brand has developed a strong reputation in the domestic insurance market in Germany and is rapidly expanding its international operations in the life, health, travel, property and casualty insurance together with its legal expenses insurance. There was robust growth in Ergo’s health insurance activities, with business jumping by 6.3 percent to reach US$7.6 billion, contributing to overall premium growth in all insurance sectors to reach US$26 billion.

Insurance Companies Mentioned:

Munich Re

Munich Re focuses on providing financial stability, and consistent risk management based on its extensive solution-based expertise. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.

Ergo

Ergo is a subsidiary of Munich Re and offers a wide spectrum of insurance provision and services across 30 countries; it currently has more than 40 million customers. Ergo has a strategic focus in Central and Eastern Europe and certain Asian markets. The German insurer has become one of the leading health and legal expenses insurance companies within Europe. Additionally Ergo provides property and personal accident insurance in India.

Ace

The ACE Group was founded in Switzerland in 1985 and is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited, a component of the S&P 500 stock index, the ACE Group conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries and commercial and individual customers in more than 170 countries. The company operates through four segments: Insurance–North American, Insurance–Overseas General, Global Reinsurance, and Life.

Hannover Re

Hannover Re is the third-largest reinsurer in the world, with a gross premium of around EUR 10 billion. It transacts all lines of non-life and life and health reinsurance and maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 2,100.

Swiss Re

Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines – such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.

Scor

Scor is currently organized around two main businesses – SCOR Global P&C and SCOR Global Life – which are leading underwriting and reinsurance providers. In addition, the Scor group as an asset management arm – SCOR Global Investment. The group writes business in Europe, Latin America, Asia, the Middle East and the USA.

The Ace Group has released preliminary net after-tax loss figures for the first quarter of 2011 totaling US$450 million from its insurance and reinsurance businesses. This reflects the company’s exposure to written business related to major natural catastrophes, which have already occurred in 2011.

Ace, the Zurich-based insurer, has released the estimates for losses expected to arise from the well publicized natural disasters in 2011 in order to settle investors’ concerns about the global insurer’s exposure to the devastating earthquake and tsunami which struck North East Japan on the 11th March 2011 and other earlier catastrophic events.

In addition to the Japanese catastrophe, 2011 has already seen a 6.3 magnitude earthquake in the city of Christchurch in New Zealand, Cyclone Yasi which struck Australia and lead to widespread flooding primarily in Queensland and exceptional winter storms across the USA.

The written business from Ace’s commercial insurance and reinsurance lines is absorbing the claims arising from these catastrophes, with the earthquake in New Zealand, the floods in Australia and other damage caused by Cyclone Yasi, plus the storms in the US are forecast to cost Ace US$210 million; this estimate includes reinstatement costs. In a breakdown of Ace’s estimated costs for the individual events, the earthquake in New Zealand accounts for the largest proportion at US$115 million, the catastrophic events in Australia US$80 million with the winter storms in the USA costing Ace US$15 million.

In a separate estimate provided by Ace, the company is expected to pay out between US$200 million and US$250 million as a result of the 9.0 magnitude earthquake and subsequent tsunami which struck Japan on the 11th March 2011.

The disaster in Japan has quickly emerged as one of the worst natural catastrophes the world has experienced, which prompted Ace to release its preliminary estimate of its share of potential payouts for the damage caused in order allay the fears of investors and limit the impact on its share price.

Although the full extent of the Japanese catastrophe is still unknown as it continues to unfold, insurers are attempting to settle investor’s confidence after the world’s financial markets experienced their biggest fall in value since the collapse of Lehman Brothers in 2008 leading to the worldwide financial crises.

Last year – 2010 – was one of the worst years on record for insurance claim payouts as a result of catastrophic events; the insurance industry’s bill for 2010 totaling some US$37 billion. The natural disasters in 2010 included major events in Chile, Haiti, Russia, Pakistan, New Zealand and China, which largely contributed to the massive claim payments incurred by insurance companies. Despite the costs incurred by insurers and reinsurance companies, many companies were able to post satisfactory financial results in 2010 and, following a tightening of risk assessment techniques, were hoping to improve returns in 2011.

According to AIR Worldwide – a catastrophe modeling expert – the insured damages arising from the Japan’s earthquake and tsunami could cost the global insurance industry as much as US$35 billion. AIR also forecast that the 2011 earthquake in New Zealand will cost the insurance sector between $3.5 billion and $8 billion.

When global markets opened for trading on Monday 14th March, share prices around the world suffered substantial declines with the values of insurance companies being particularly hit; the value of shares in Munich Re, Swiss Re, Hannover Re, AIG and Chaucer were among the major names to realize double digit percentage declines in the share prices reflecting the stock markets assessment of insurance companies exposure to costs from the Japanese catastrophe.

However, it is recognized that the Japanese government self-funded a significant proportion of insurance costs because of the historical risks associated with earthquakes in the country.

The Ace Group is a leading global insurer specializing in commercial property and casualty lines. Ace also offers automobile, life, personal, accident and health insurance products. Ace’s 2010 net income totaled US$3.1 billion – a 22 percent year-on-year increase. The group reported catastrophe losses – including reinstatement premiums – amounting to US$401 million, compared to US$136 incurred in 2009.

Insurance Companies Mentioned:

Ace

The ACE Group was founded in Switzerland in 1985 and is a global leader in insurance and reinsurance serving a diverse group of clients. Headed by ACE Limited, a component of the S&P 500 stock index, the ACE Group conducts its business on a worldwide basis with operating subsidiaries in more than 50 countries and commercial and individual customers in more than 170 countries. The company operates through four segments: Insurance–North American, Insurance–Overseas General, Global Reinsurance, and Life.

Munich Re

Munich Re stands for exceptional solution-based expertise, consistent risk management, financial stability and client proximity. This is how Munich Re creates value for clients, shareholders and staff. It operates in all lines of insurance, with around 47,000 employees throughout the world. Especially when clients require solutions for complex risks, Munich Re is a much sought-after risk carrier. The primary insurance operations are mainly concentrated in the ERGO Insurance Group. ERGO is one of the largest insurance groups in Europe and Germany and 40 million clients in over 30 countries place their trust in the services and security it provides. In international healthcare business, Munich Re pools its insurance and reinsurance operations, as well as related services, under the Munich Health brand.

Hannover Re

Hannover Re is the third-largest reinsurer in the world, with a gross premium of around EUR 10 billion. It transacts all lines of non-life and life and health reinsurance and maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 2,100.

Swiss Re

Swiss Reinsurance Company Ltd was established in 1863 and is present in more than 20 countries. Swiss Re provides reinsurance products and financial service solutions. It offers various reinsurance products covering property, casualty, life, health and special lines – such as agricultural, aviation, space, engineering, HMO reinsurance, marine, nuclear energy, and special risks.

Chaucer

Chaucer is a member of the Lloyd’s of London syndicate and underwrites in over 28 major insurance and reinsurance lines. Classes of business include: balancing global marine, energy, non-marine and aviation and in the UK motor and nuclear insurance.

The French multinational insurer AXA has announced that it has been given regulatory approval from the China Insurance Regulatory Commission (“CIRC”) to sell its 15.6 percent share in China’s Taikang Life.

AXA is offloading its share in China’s fourth largest life insurer for US$1.2 billion, which means that it exits the Taikang Life venture completely. AXA’s 15.6 percent stake in Taikang will be absorbed by existing and new shareholders on finalisation of the deal.

AXA is one of the largest global insurers, and is required to sell its minority share in Taikang Life due to local regulation policy restricting foreign investor’s interests in multiple insurance ventures in China. The CIRC introduced the new multiple insurance venture guidelines to ensure the Chinese insurance market remains competitive and to encourage domestic Chinese insurers to maintain a presence in the insurance market.

Taikang Life was originally acquired by AXA in 2006 through the Winterthur Life investment management vehicle – which has subsequently been re-branded to AXA Wealth Management.

AXA will maintain a presence in the Chinese insurance market through its 27.5 percent share in the AXA-Minmetals venture, with local banking group Industrial & Commercial Bank of China (ICBC) – one of the world’s largest financial institutions.

AXA-Minmetals has become a prime international venture for AXA, primarily due to its position in one of the most important insurance markets in the world. The Chinese insurance industry has become increasingly important for global insurers aiming to generate new premiums, due to the huge market potential reflecting in the growing Chinese life and non-life insurance sectors.

ICBC acquired a 60 percent share of AXA-Minmetals in 2010 for US$180 million in a deal which added to the banks portfolio. The move allowed ICBC to gain access to the Chinese domestic insurance sector and capitalize of AXA’s expertise in the insurance market. The Chinese-French insurance venture is a major player in the insurance market in China, with new partners ICBC creating a massive distribution platform for AXA-Minmetals to broaden its reach and maximize its potential.

AXA is also progressing the acquisition of AXA Asia Pacific Holdings in a joint bid with Australia’s AMP in a deal worth approximately US$10 billion. The deal is set to be finalized later in 2011 and will involve AXA taking control of AXA Asia Pacific Holdings Asian asset base and distribution channels – while AMP will acquire AXA Asia Pacific Holding’s Australian and New Zealand business; this development will result in AXA rapidly increasing its platform across the lucrative Asian insurance protection and savings market.

AXA reported a steep decline in profitability from global operations in 2010, with net income falling from US$4.9 billion achieved in 2009 to US$3.7 billion in 2010 – representing a 24 percent fall in earnings. The large fall in profits was predominantly caused by the restructuring of AXA’s international operations as the insurer implemented its strategic plan to streamline its business to meet the changing needs of emerging global insurance environment. This included a major disposal, with the sale of its UK life insurance business to Resolution.

The news of the change in AXA’s position in China comes after the devastating earthquake and tsunami which struck Japan on 11th of March 2011, where AXA write a significant amount of Japanese life insurance.

Insurance Companies Mentioned:

AXA

AXA Group is a worldwide leader in Financial Services. Headquartered in Paris, the AXA Group companies are engaged in life insurance, health insurance and asset management services among others. AXA’s operations are diverse geographically, with major operations in Europe, North America and the Asia/Pacific area.

Taikang Life

Taikang Life Insurance was founded in Beijing in 1996 and offers life, annuity and health insurance through 120 offices throughout China,

AXA-Minmetals

AXA-Minmetals is the first Sino-French insurance company in China and also the first life insurer approved by China Insurance Regulatory Commission. Established in Shanghai in May 1999, the company has boasted stable and sustainable development with its ambition of Becoming the Preferred Company. In September 2010, AXA-Minmetals has achieved a total premium income of RMB 830 million, increased by 54% compared to the same period of last year and its new business volumes have also increased by 75%.

AAP

AXA Asia Pacific Holdings Ltd. (AAP) is responsible for the Global AXA Group’s life insurance and wealth management businesses in the Asia-Pacific region. We have operations in Hong Kong SAR, China, Singapore, Indonesia, Philippines, Thailand, India, Malaysia, Australia and New Zealand. Established as National Mutual in Australia in 1869, AXA Asia Pacific has grown significantly over time. In 1995, the company demutualised and AXA SA acquired 51% of the company. National Mutual listed on the Australian and New Zealand stock exchanges in October 1996 and adopted the AXA brand in 1999.

ICBC

By the end of 2008, ICBC had altogether 385,609 employees and 16,386 domestic and overseas branches, providing extensive and high-quality financial products and services to 190 million personal clients and 3.1 million corporate clients.

Japan’s Nippon Life Insurance Company has announced that it has entered into an agreement with Reliance Life Insurance of India to acquire a 26 percent stake in the company for an outlay of US$680 million.

Nippon Life – one of Japan’s largest life insurers – will invest the maximum amount permitted under the foreign direct investment guidelines by a foreign insurer in a local Indian insurance venture.

The deal reflects Reliance Life Insurance’s valuation of US$2.6 billion, with shares in its parent company, Reliance Capital, rising on the Bombay Stock Exchange’s on release of the news. Reliance Life’s new life insurance partner, Nippon Life, is one the largest life insurance companies in Japan – by asset value. Nippon Life already has a presence in life markets in Europe, the Americas, the Middle East and Asia.

Like other Japanese Life insurers, Nippon Life, has been looking to bolster its overseas presence, with the new Indian venture enabling access to be gained to one of the world’s fastest growing life insurance industries.

The Indian life market already has a number of Indian-foreign life insurance partnerships including ICIC Prudential Life Insurance, Metlife India Life Insurance, Bajaj Allianz Life, HDFC Standard Life and Aegon Religare Life Insurance; these companies being some of the main players in the Indian life insurance sector.

Although Nippon Life is entering a competitive Indian life insurance market, there is still tremendous scope for growth in the sector. It is estimated that only 10 percent of the 1.2 billion population in India holds life insurance cover. Together with the general economic prosperity and rapidly expanding middle class sector in India, the Indian life insurance market is forecast to expand as personal wealth improves.

The life insurance market in India is largely underdeveloped, with potential for life insurers to use their expertise to create new life insurance products designed to meet the growing demand in a fledgling sector.

Nippon Life’s investment in the Indian life sector comes at a time when Japanese life insurers have been looking to expand their international platform due to declining levels of new business in the life sector in Japan; this reflects a slowdown in birth rates in the country experienced over a number of years.

The dwindling birth rate in Japan and tough economic conditions applicable in the country has meant that life insurers operating there have needed to shift focus to overseas markets in a bid to generate new premium income.

Foreign insurers entering the Indian life insurance market are faced with relatively high start-up costs and strict scrutiny from insurance regulators. However, the potential for profitable returns from new premiums from a burgeoning life sector in India more than counteract the potential pitfalls present in the country for overseas investors.

The Indian government is considering allowing foreign insurers to invest up to 49 percent in partnerships with a domestic Indian insurer; if this change comes to fruition it will allow overseas investors to expand their presence in an insurance sector which is becoming increasingly important for international insurers seeking growth opportunities. The attraction of the Indian insurance market for multinational insurers is important in offsetting stagnating business levels in traditional markets in Japan, the USA and Western Europe.

Nippon Life’s Japanese rivals, Dai-ichi Life Insurance, recently acquired a controlling stake in Tower Australian for US$1.2 billion in a move to gain access to the Australian life insurance market which also offers better growth opportunities than the domestic Japanese life market. The Nippon Life – Reliance Life deal is still subject to regulatory approval by the Insurance Regulatory and Development Authority (IRAB) in India.

India, and Asian powerhouse rivals China, are becoming increasingly critical markets for the insurance industries as growth in demand for the full range of insurance products continues. This is especially important for Japanese specialist life insurers needing to find alternative markets to replace the loss of growth in domestic markets.

Nippon Life will also be competing for new clients with Japanese rival Daiichi, which has a presence in India through its local venture with state controlled Bank of India and Union Bank of India – the joint venture operating as Star Union Dai-ichi Life Insurance.

Reliance Life is a relativity young insurer having been established in 2005; it has managed to accumulate approximately US$3.7 billion in net assets. New partners, Nippon Life, was founded in 1889 in Osaka, Japan and has created a range of life product lines, including whole life insurance, term life insurance, medical insurance, endowment insurance and insurance linked to annuities.

Insurance Companies Mentioned:

Nippon Life Insurance

Nippon Life Insurance Company was established in 1889 in Japan and through its subsidiaries offers various life and non life insurance products and services. Nippon Life operates in North America, Europe, Oceania, Asia, Central and South America, and the Middle East.

Reliance Life Insurance

Indian life insurance company, Reliance Life Insurance, is an associate company of Reliance Capital. Reliance Capital is one of India’s top 3 financial services companies by net worth. Both Reliance Life Insurance and Reliance Capital are part of the Reliance – Anil Dhirubhai Ambani Group.

Star Union Dai-ichi Life Insurance

Star Union Dai-ichi Life Insurance is a joint venture between the Dai-ichi Mutual Life Insurance Company of Japan and local Indian partners Bank of India and Union Bank of India. Star Union Dai-ichi Life Insurance was set up in order to trade in India’s life insurance sector.

Dai-Ichi Life Insurance

Dai-Ichi Life Insurance Company was founded in Tokyo in 1902 and operates in the life insurance market in Japan and overseas. Dai-Ichi Life offers whole life, term insurance, annuities and endowment products. The insurer has operations in Asia, Europe and North America offering saving and protection products for individuals and groups.

The massive 8.9 magnitude earthquake which struck North Eastern Japan on 11th March 2011, triggering a tsunami, is clearly becoming one the world’s worst natural disasters.

The earthquake which hit the Pacific Ocean just off Japan and initiated the huge tsunami, with the full force subsequently striking the country’s northeast townships, has lead to potentially tens of thousands of deaths, left untold thousands homeless and a potential nuclear disaster. This is sparking a huge rescue operation and will undoubtedly wreak havoc on the Japanese economy. The force of the earthquake was felt hundreds of miles away shaking buildings in Tokyo.

When the earthquake struck at 14.46 pm local time (JST), tsunami warnings were released covering a wide area of the Pacific Ocean. The full force hit Japan’s Northeast shoreline leading to widespread damage to property, power blackouts and resulted in the nuclear reactor at the Fukushima plant, in Okuma, in the Fukushima Prefecture to discharge nuclear radiation; this has lead to the evacuation of thousands of residents within a 10 kilometre radius.

One of the hardest hit areas is the city of Sendai, with a population of more than a million people, it is the commercial hub of the Tohoku region in northern Honshu.

Insurers and reinsurers write a lot of business in developed countries such as Japan, reflecting the demand for cover, the ability to pay for insurance and the scope for assessing risks.

Japan has infrastructure designed to withstand earthquakes, with domestic and residential properties built to standards to absorb the tremendous pressures unleashed by an earthquakes. However, it was the subsequent tsunami, following the earthquake, which caused the majority of damage. The huge volume of water, traveling at tremendous speed, engulfed the hinterlands of the Northeast coast, with the city of Sendai feeling the full impact of the force delivered by the unstoppable pressure from the ocean.

While the financial markets are absorbing the impact of the disaster, the value of insurers and reinsurers shares on stock markets worldwide tumbled, pending an evaluation of the full impact of the financial cost of the disaster. The event is likely to lead to uncertainty in financial markets for some time, including the possibility of the effects of after-shocks.

As Japan’s Northeast region waits for the waters to recede and the massive clearance process to begin, the rest of Japan is fully functional, including the capital Tokyo and key ports and rail link elsewhere in the country. While Japan is relatively prepared for disasters of this nature, however, it comes at a time when the economy is still struggling to regain standing, with high unemployment levels and static exports.

Meanwhile, as the full extent of the disaster unfolds, early indications suggest the total bill will be between US$30 billion to US$50 billion. While the scale of the crisis is still unclear, the impact on the insurance industry is clearly going to be enormous, with reinsurance companies expected to bear the majority of the cost.

Although the high risk of earthquakes in Japan would have been factored into insurance companies’ premiums, because of the history of these incidents and known geological fault lines, the scale of this incident is virtually unprecedented. The shares in the world’s largest reinsurers such as Munich Re, Swiss Re and Hannover Re have already been under pressure, with concerns about the ultimate cost of claims and the impact on net income in 2011.

Swiss Re has estimated that the earthquake which struck the city of Christchurch in New Zealand in February this year (2011) will cost them approximately US$800 million in claims. It is forecast that the Christchurch quake, which measured 6.3 in magnitude on the Richter scale will cost the insurance industry between US$6 billion to US$ 12 billion.

The unprecedented floods in the Australian states of Victoria and Queensland, which occurred in early 2011, had already hit the insurance industry hard hit this year. The cost of these natural disasters follow the large scale level of claims in 2010 – recorded as one the worst years for natural catastrophes – totaling US$37 billion in insured losses.

The extent of the latest disaster in Japan has led to some of Japan’s biggest firms halting production, with Toyota, Honda and Nissan among the business closing until factories can be inspected to ensure they are safe. Along with industry closures, transport links in the hardest hit area of Northeast Japan have been brought to a virtual standstill.

Needless to say, the international community has been quick to provide aid in the recovery process.

When the Asian financial markets opened on Monday 14th March, the Bank of Japan injected US$182 billion into the economy in a move to provide liquidity for financial markets and prevent a collapse of the Japanese economy. Oil prices have fallen in anticipation of a slowdown in world economies resulting from the disaster.

There are concerns that the Japanese economy will fall into recession, which could potentially cause a knock-on effect across world markets – many already grappling with difficult trading conditions.

Although the scale of disaster has caused extensive damage to parts of the east coast of Japan, the vast majority of the country, including Tokyo and Osaka, remain functional and open for business.

Japan had established a mechanism to minimize risks for insurers providing property and casualty insurance cover in the country against claims resulting from earthquakes. The insurance claim mechanism allows for indemnity liability to be shared, with a reinsurance system limiting exposure for a single insurer. Also the government of Japan has kept an earthquake relief fund, with reserves to help the insurance industry meet cost obligations.

In recent years, other major catastrophic events which caused major impacts include Hurricane Katrina which devastated the New Orleans area, and the 2004 tsunami, which struck Thailand and Southeast Asia.

The last major earthquake to hit Japan occurred in 1995, known as the Kobe earthquake. This stuck the Hyogo Prefecture region on the country. The quake registered 6.8 magnitude on the Richter scale and led to approximately ten trillion yen worth of damage to the region.

When Japan’s Tokyo Stock Exchange opened for trading on its first full day after the earthquake on the 14th March, among the major fallers were shares in Tokio Marine Holdings – one of the Japanese leading insurers. Until the full extent of the impact on the Japanese economy can be assessed, it is likely that the Japanese financial markets will be turbulent.

In the latest developments in the People’s Republic of China, the government has pledged to invest in improving the standards of public hospitals as part of its continuing reform programme of the state healthcare system.

The overhaul of the healthcare system is being overseen by the National Development and Reform Mission of China and the State Council Medical System Reform Office who have outlined plans to increase the number of public hospitals and the quality of healthcare services.

A key part of the reforms will see Chinese hospitals reduce dependency on sales of medications, which has been a major issue in creating exorbitant healthcare costs. The sale of prescription drugs within China’s state hospitals has been a fundamental problem, making public healthcare unaffordable for the poorer element of Chinese society.

In the latest announcement by Chinese government ministers, the state has said it will extend measures to reform the current system with the objective of ensuring public healthcare services are accessible to the nation’s population of 1.3 billion people.

Under the current public healthcare system, China operates on a ‘fee-for-service’ policy which has reached a point where spiraling healthcare costs for medication, doctors appointments and medical procedures are becoming unaffordable increasing inaccessibility for millions of people in the country.

At present the cost of running the state funded Chinese healthcare system is impacted by the high proportion of expenditure on the procurement of medicines. Calls are being made for this aspect to be tackled before the Chinese government pumps significant sums of money into the public healthcare system, with the target of bringing the overall costs of running public hospitals and general healthcare more in line comparative systems in other major countries.

In a key initiative, the Chinese government is embarking on a national reform of the public healthcare system, which will target the pricing of medications and an increase in the coverage of the state health insurance scheme. A major aim of the planned reforms is to increase the number of citizens covered by the government run China health insurance scheme, which will enable up to 90 percent of healthcare costs to be recovered.

In addition to the reforms covering the structure of the national health insurance scheme and imposition of better cost controls, the Chinese government plans to fund the building of 300 public hospitals in the country.

The flaws within the Chinese healthcare system have persisted for years resulting from basic underfunding of services and high out-of-pocket costs putting access to adequate care out of reach for a substantial number of people.

As the Chinese economy has grown stronger, the government is able to take the significant steps proposed to drastically increase funding to improve the state healthcare system. China put forward plans in 2010 for US$124 billion to be invested in the healthcare reform programme over a three year period until 2012 in its bid to ensure basic medical coverage was accessible for the 1.3 billion people living in the country.

The overhaul of the healthcare system is expected to have general economic benefits by promoting domestic consumption within China. The rationale is that people will become more confident with the state provision of healthcare and consequently will not have to save so much money in order to provide for potentially exorbitant medical costs. The long term goal for the Chinese government is that increase domestic spending will boost the local economy thus placing less reliance on exports.

As China has become the second largest economy in the world – over taking Japan in early 2011 – the middle class population has rapidly grown and is the foundation of the economic success of the country. However, the concern is that the poorer element of society is being left behind; the healthcare reforms are, therefore, focused on ensuring access to affordable healthcare services is available to all including the more vulnerable elements of society.

The government has increased the level of funding for the insurance scheme for urban workers to US$30 and the rural co-operative to US$18 per person in 2011.

The improvement in healthcare funding, with better procedures and infrastructure, will include investment in modern medical equipment and the education of medical professionals as part of the government’s complete overhaul of the Chinese healthcare system.

The augmenting of the network of public hospitals and the expansion of the state insurance scheme is fundamental to the overall improvements to the Chinese healthcare system, which is planned to be fully implemented by 2020. The key task of the healthcare reforms in China is to ensure funds earmarked achieve value for money improvements to a system, which has been severely underfunded for many years, in order to meet the health needs of the vast population including those people living in remote areas of this massive country.

In addition to the state provided healthcare facilities, the economic success and emerging wealth creation has increased the demand for private healthcare services. This has led the Chinese government to ease previous restrictions on privately run foreign hospitals in the country. By opening the door for foreign investment in the private health market, the Chinese authorities are optimistic that the growing middle class population will seek medical care from private hospitals in China, thus easing the burden on the public healthcare system.

Hannover Re, one of the world’s leading reinsurers, has announced stronger than expect financial results for 2010, with net income after tax totaling €748.9 million (US$1.05 billion); this beat the Company’s previous record level of profitability achieved in 2009 with €734 million (US$1.03 billion).

Hannover’s operational business was adversely affected by losses recorded during 2010 as a result of claims from natural disasters offset by strong investment returns and a one-off rebate of €112 million (US$157 million) relating to a tax issue.

The German reinsurer saw premiums grow by 11.2 percent during 2010 to reach €11.4 billion (US$15.7 billion), combined with investment income rising to €1.3 billion (US$1.8 billion). An improvement in the financial return from property and casualty reinsurance over-shadowed weaker results from Hannover’s life and health reinsurance operations.

The income generated from Hannover’s investments more than compensated for losses incurred from the payments arising from catastrophe claims during 2010; the expenditure on claims amounting to €661.9 million (US$913.4) for the year, compared to €239.7 million (US$330.7 million) in 2009.

The significant costs incurred by Frankfurt based Hannover Re in 2010 included the company’s share of claims arising from the impact of natural disasters; primarily the floods in Australia, and the damage caused by the earthquakes in Chile and New Zealand. There were also costs relating to the man-made disaster in the Gulf of Mexico, with the sinking of Deepwater Horizon.

Hannover is confidently forecasting net profits of at least €650 million (US$897 million) for 2011, despite the large scale catastrophes which have already struck early in 2011. It is estimated that the insurer could face a maximum payout claim of €150 million (US$205 million) as a result of the devastating earthquake which struck Christchurch, New Zealand in February plus a substantial payout as a result of the floods in Australia in early 2011.

Although 2011 has started precariously for reinsurers, Hannover is predicting that premium growth will be around 3 percent with strong profits created by concentration on business lines which represent the best opportunities for future growth. There is also scope for Hannover to benefit from the implementation of Solvency II requirements, whereby insurers will need to hold increased financial reserves while operating within the European Union; the potential opportunities for reinsurers being driven by insurers seeking to transfer some associated risks to reinsurance companies.

Regarding other lines of business, Ulrich Wallin Hanover’s Chief Executive Officer said “We again accomplished our growth targets in 2010.This was assisted by the very positive development of our business in the United Kingdom, most notably in the area of longevity risks. Particularly vigorous growth was also recorded in China, where Hannover Re was the first reinsurer to write liquidity-affecting financing contracts.”

Reinsurers have been counting the cost of over exposure to natural catastrophes in 2010, with the upshot being the attention to apply better risk management techniques for business being unwritten in 2011. Although Hannover Re was able to grow profits in 2010, when other reinsurer specialists have been hit by reductions in net income, the fine balance between achieving a satisfactory risk-reward ratio is clearly understood.

Hannover’s competitors – such as multinational rivals Munich Re, Swiss Re, General Re and members of the Lloyd’s of London syndicate such as Brit Insurance, Hardy, Omega Insurance and Beazley – have experienced mixed results in 2010. In recent years, reinsurers have been adversely affected by some strange and difficult to predict environmental events which have taken their toll on the reinsurers bottom line. However, reinsurer’s should be able to benefit from these events by factoring in the profile of the latest disasters in achieving an appropriate risk-reward business model.

Insurance Company Mentioned:

Hannover Re

Hannover Re is the third-largest reinsurer in the world, with a gross premium of around EUR 10 billion. It transacts all lines of non-life and life and health reinsurance and maintains business relations with more than 5,000 insurance companies in about 150 countries. Its worldwide network consists of more than 100 subsidiaries, branch and representative offices on all five continents with a total staff of roughly 2,100.

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