Foreign patients who are being treated at South Korean healthcare facilities will soon be able to receive guaranteed compensation from the government in the event of medical malpractice. Korean hospitals will also be allowed to sell pharmaceuticals directly to foreign patients, circumventing the previous referral process, and outside medical staff visiting South Korea for training purposes will become eligible to participate in clinical procedures and research. These are all part of the Korean Ministry of Health and Welfare’s updated medical tourism guidelines, announced earlier this month.
Since 2009, the Korean government was embarked on an aggressive marketing strategy to promote medical tourism overseas as a new reason for international travelers to come to South Korea. According to the Ministry of Health and Welfare, 81,789 tourists came to the country for medical reasons in 2010, with cosmetic procedures proving particularly popular. This represents a 36 percent increase on the previous year’s totals with total revenue from treatment on foreign patients nearly doubling as well. The Ministry recorded 7,901 foreign patients in 2007, 27,480 in 2008 and up to 60,201 in 2009.
Despite this continued growth, South Korea lags behind many of its Asia Pacific neighbors in the medical tourism field. Thailand, Singapore and India, for example, managed last year to attract 1.5 million, 720,000 and 730,000 foreign patients respectively. Although the Korean Medical Association claims the country can offer a high level quality of medical service at comparable prices to its continental rivals, the global awareness and brand image of Korean healthcare facilities remains low. Critics within the country’s medical tourism sector, point out that there has been no unified governance over this important industry and little regulatory support. This has led to a lack of standardization and little control over health outcomes for foreigners. Current national law has also been overtly restrictive, rationing a maximum 5 percent of total bed capacity to non-citizens and previously preventing domestic hospitals from operating on a for-profit basis.
By 2015, the South Korean government wants the total number of foreign patients receiving treatment in the country to surpass 300,000 annually. To do this they have initiated broad-based medical tourism reforms that aim to cut the red tape, becoming more foreigner-friendly, and all while guaranteeing patients’ rights.
Starting in 2012, foreign patients will be eligible to seek compensation if they become victims of medical malpractice in South Korea. At present, there are no proper compensation standards or systems set up for non-resident malpractice victims. Korean hospitals and clinics have been reluctant in the past to pay higher subscription rates for insurance and this had been a source of tension driving away potential foreign business. To implement these new initiatives, the government plan to establish a mutual aid association, comprised of participating Korean hospitals and clinics, which will collect a surcharge on the fees these medical facilities charge foreign patients. The association will then use the pooled funds to compensate foreign patients when claims arise. The Ministry of Health will head the heretofore unnamed association on a temporary basis until the full compensation and legal mechanisms for the body are completed.
Through this new united national body, the government hopes to further encourage the private healthcare sector to invest more in attracting overseas clients, and plans to support them further through necessary immigration policy adjustments. The Korean state agencies eventually plan to relax visa rules, enabling prospective foreign patients to skip complicated administrative procedures and gain entry to the country more easily. The multifaceted pharmaceutical system will also be streamlined for overseas clients. Foreign patients will be able and encouraged to purchase their medications directly through their hospital or clinic, without having to refer their prescriptions to a pharmacy instead.
Regulations involving the future construction of accommodation facilities at hospitals will also be amended to encourage development. While many Korean healthcare professionals recognize medical tourism as a vital growth industry, many hospitals in the country have not set up the medical care infrastructures expected by foreigners, and this needs to addressed quickly. Foreign healthcare professionals, staff and consultants, will also be allowed to treat patients and participate in research.
Other plans to keep improving the quality of medical tourism services available in South Korea involve broadening the country’s communications services. Compared to other international medical markets, the lack of foreign language capability among many Korean healthcare providers remains a primary concern. The government announced plans to tackle this problem by increasing training for medical translators and through expanding the services of the national health call center. In addition, foreign patients will be encouraged to interact and give feedback through a comprehensive annual survey that will aim to identify systemic problems within the Korean healthcare system earlier. The introduction of an easy-to-follow star ratings system for domestic clinics and hospitals, is also being discussed.
The forecast for the Asian medical tourism industry is bright, with an estimated total value of US$100 billion projected annually by 2012. The substantial development of the global economy coupled with the falling costs of travel and communication has enabled world class healthcare practices to establish themselves all around the world. International clients seeking alternative healthcare solutions to what is available in their home countries at competitive prices now are presented with many opportunities. If South Korea wants to become a major player in this lucrative industry these reforms represent a decent start.
Life insurance, health insurance, property insurance, and…no-show insurance? No-show insurance is just one of the plans being offered to celebrities today, as substance abuse and resulting medical conditions are increasingly preventing singers and actors from showing up to scheduled appearances.
Just a few days ago, five-time Grammy winner Amy Winehouse, whose 2006 song “Rehab” foreshadowed her steady downfall (“They try to make me go to rehab, I said no, no no”), stumbled onstage in Belgrade, Serbia, unable to sing or remember the lyrics to her own songs, and even appeared to not know where she was. While her “performance” is certainly tabloid fodder, one can’t help but to wonder who is going to pay the price for this disaster, as fees for tickets, venue, equipment, and payment of employees become very expensive.
Neil Warnock, Chief Executive of The Agency Group booking agency (which represents artists such as Paramore, who will be performing in Hong Kong later this summer), weighed in on the situation to explain a typical cancellation/non-appearance insurance policy. “If you fairly disclosed any pre-existing conditions, and what caused the cancellation is a new condition, then the artists and promoters would be covered. If it’s a pre-existing condition, then it wouldn’t be covered, or if it’s an undeclared condition that should’ve been declared, then that wouldn’t be covered.” Winehouse’s bouts with illegal substances and stints in rehab are no secret to the public; in 2008, her father disclosed that his daughter’s lungs were only operating at 70% capacity due to her smoking and cocaine habits. To put it simply: unless Winehouse’s performance issues were caused by something other than her highly publicized substance abuse problems, she’s going to have to pay.
Winehouse is not the first celebrity to deal with insurance policies related to personal issues . No-show contracts go as far back as Marilyn Monroe, whose own struggles with substance abuse led studios to purchase insurance on her, enabling the studios to be compensated for the financial losses caused by her absence.
Most recently, Michael Jackson’s insurers, Lloyd’s of London, and and his concert promoters, AEG, have been locked in a lawsuit over his canceled comeback tour. After Jackson’s death in 2009, Chief Executive of AEG Randy Phillips proclaimed that the cancellation and non-appearance insurance policy the company took out on Jackson would cover any costs should the late star die accidentally (but not because of natural causes), specifically US$17.5 million to AEG and Jackson’s estate. However, a couple of weeks ago, Lloyd’s revealed that they were not willing to pay the fees and were instead suing AEG and Jackson’s company for not disclosing his full medical history. Lloyd’s has requested a Los Angeles Superior Court judge nullify the policy, as they were not informed of “his apparent prescription drug use and/or drug addiction.” Howard Weitzman, lawyer for Jackson’s estate, contended that Lloyd’s “legal action is nothing more than an insurance company trying to avoid paying a legitimate claim by the insured.”
The costs of an actor not showing up to a set are just as exorbitant as a singer canceling a concert. Charlie Sheen, most recently known for his outlandish comments-such as those against former performers-“the run I was on made Sinatra, Flynn, Jagger, Richards, all of them look like droopy-eyed, armless children”-reportedly wants to return to work. Although it should be noted that despite substance abuse problems, The Rolling Stones were able to fulfill their contracts and perform as promised. Unfortunately for Sheen, not all of Hollywood is sure if he is worth it; a successful comeback may largely depend on who is willing to insure him. Morgan Creek Productions CEO James Robinson (who has previously worked with frequent absentee Lindsay Lohan), said that “when an actor doesn’t show up for work, you can lose half a million dollars a day paying the 250 other people there for the shoot and the costs for the set.” However, Lorrie McNaught, Vice President at leading entertainment insurance brokerage firm Aon/Albert G. Ruben disagrees, saying that it isn’t a question of whether or not to insure someone, but rather, how much they are worth. “Everyone and anything, or almost anything, is insurable. It just comes down to price.”
As some celebrities’ careers continue to spiral downwards due to personal issues, it remains to be seen whether the substance abuse and frequent absences are worth the price of insuring them.
Insurance Companies Mentioned:
Lloyd’s of London: With the motto “uberrimae fidei”, or good faith, Lloyd’s provides insurance and reinsurance services, covering some of the world’s greatest and most complex risks.
Aon/Albert G. Ruben: Covering production companies, performers, and more, Albert G. Ruben provides risk management and insurance services for the entertainment industry.
Aon Benfield, global reinsurance intermediary and capital advisor for Aon Corp., has released figures from a survey it conducted at its International Analytics conference that reveal 60 percent of all European insurers believe 2014 would be a better starting date for Solvency II. Europe’s foremost insurance underwriters, reinsurance managers and senior analytics experts have expressed doubt that EU regulators are ready to implement the new capital regime.
Solvency II is the European Union’s updated set of financial frameworks that will stress risk-based capitalization and require insurance and reinsurance companies based in Member States to set aside sufficient capital for investments that regulators deem risky. The rationale behind these solvency rules is to ultimately develop a singular market for insurance services in Europe and offer adequate protection for all policyholders within. However, many countries have been critical of the EU’s requirements and have instituted their own reforms, leading to a muddled patchwork of market regulations across the continent. Short term concerns persist that Solvency II could lead to insurers increasing their capital position at the expense of tackling new business ventures and damaging their overall competitiveness on the global insurance marketplace
The release of Aon Benfield’s survey results follow last week’s news that the Council of Europe, on which the EU member states sit, had agreed a proposal that would push the Solvency II start date to 1 January 2014. The new capital regime was due to be implemented in January 2013 but concerns over the preparedness of some countries, industry players and regulators have forced a rethink. The European Parliament has yet to put forth their own recommendations and it is unlikely the issue will be fully resolved until later this year. The ongoing economic crisis in Greece could further complicate matters as it undecided who could manage the additional capital requirements needed for bailing out more insurance companies.
A delay to the current Solvency II timetable has appeared likely as Omnibus II, approved modifications to the regime, have yet to be passed into legislation. The European Commission cannot formally adopt implementation measures and proper industry guidance until that is completed, as Aon Benfield notes on its website: “All of these components have to be passed into legislation following the required consultation periods, ahead of Solvency II’s inception.”
While a majority of Aon’s conference attendees would support this development, 31 percent of surveyed industry delegates felt the date should not be deferred and were working towards the original Jan. 1, 2013 implementation date. The remaining 9 percent of respondents thought “maybe” the date should be delayed.
Furthermore, insurance companies revealed doubts over the level of understanding their local regulator has of the modern insurance business. The poll found that 61 percent of European insurers surveyed thought that their industry regulator was not up to the mark with regards their internal capital models. A majority of those polled, 54 percent, also expressed doubt that their local regulator understood the latest underwriting risks and in particular catastrophe risks, which have been particularly relevant given the unprecedented string of natural disasters occurring earlier this year.
Aon Benfield is committed to working with insurance companies to ensure the entire industry is prepared for the eventual introduction of Solvency II. Mark Beckers, Head of Aon Benfield Analytics EMEA, recognized in a statement that “Insurers are juggling a plethora of pressures to comply with Solvency II. We are helping clients to prioritize their efforts by concentrating on the areas that really impact their capital charge. For example, the Cat Task Force has been forced to review the standard formula for non-life catastrophe risks as the results were deemed too volatile. However we have little hope for fundamental change before the start of Solvency II.”
Gareth Haslip, Aon Bedfield’s Head of Risk and Capital Strategy UK & EMEA, added that it would be vital for insurers press ahead with their current plans and timetable, concluding: “Insurers need to take strategic decisions and be prepared to change their business model in order to be ready in time. By meeting the 2013 deadline, companies that have a good grasp of Solvency II will have more time to focus on how best to operate their business for the benefit of their shareholders in this new environment. Being prepared will also bring a competitive advantage.”
The scope and ambition of Solvency II is considerable, as are the problems currently affecting many members of the EU. For the worldwide insurance industry, this new regulatory framework presents both a wide range of opportunities and ample considerations. Once initiated, Solvency II will pass fundamental changes in the way the European insurance industry evaluates risk and risk management practices. The EU’s new capital requirements will force a convergence of all aspects of risk quantification and decision making processes within the insurance trade. All businesses that have operations and affiliates in Europe, offer insurance products in Europe or do other business with European insurers, should now be preparing for these across-the-board changes.
Insurance Company Mentioned
Aon Benfield Analytics is an industry leader in actuarial, enterprise risk management, catastrophe management, and rating agency review. Aon’s track record of innovation and world-class position in analytics, modeling and client-facing technology helps companies to optimize their portfolios. Proprietary tools include ReMetrica, CatPortal, and ExposureView. Also, their Impact Forecasting team develops tools and models that help companies understand financial implications of natural and man-made catastrophes around the world. The company has an international network of over 80 offices in 50 countries.
June saw an E. coli outbreak in Europe and a fresh round of bird flu cases in Egypt, as well as the release of insightful research on both medical error and dengue fever. A key theme across health issues remains weighing the long-term benefits of preventative care (or systemic reform) against up-front costs. That the United States showed the highest error rate among seven developed nations does nothing to enhance the rep of its notoriously cost-inefficient health system – worth bearing in mind as the debate over health reform heats up once more.
Here are some of the top international health stories of the past 30 days:
E. coli ravages Europe
The top story in June was undoubtedly a deadly E. coli outbreak in Germany. Cases were initially reported in May but escalated sharply in June – as of June 28 around 4,000 people had been sickened and total fatalities stood near 50. German authorities identified bean and seed sprouts as the vehicle for the outbreak. While the number of new cases reported in Germany continues to decline (the total is still rising as a result of delayed reporting), late June brought the emergence of 8 cases in France. These too were linked to consumption of raw sprouts. French and German authorities are in the process of determining whether the bacteria had a common source.
For the latest on this story, click here.
USA and Australia show highest medical error rates
Patients who received poorly coordinated medical care or were unable to afford basic medical costs were much more likely to report errors in their medication or treatment, according to a study published in the International Journal of Medical Practice. Researchers from the USA and Australia used data from the Commonwealth Fund International Health Policy Survey to identify the key risk factors behind the errors reported by patients from Canada, USA, the Netherlands, UK, Germany, Australia and New Zealand. 11% of the 11,910 people surveyed said they had suffered a medication or medical error in the last two years. Patients in the USA and Australia reported the highest rates of medical/medication error: 13%. Germany and the UK reported the lowest at 9%.
For more on this story, click here.
WHO finds dengue fever costly as it is deadly
The World Health Organization (WHO) released its latest Dengue Bulletin (PDF Link), a special issue devoted to 10 studies on the cost of dengue fever and various prevention strategies. In an age where many diseases are on the decline dengue continues to pose a serious health threat all over the world. In Brazil, for example, the number of cases increased 6.2% and deaths 12% from 1999-2009. Dengue fever is a mosquito-borne virus common in tropical climates, including popular expat destinations such as India, Thailand and Malaysia. Studies estimate the annual cost of treating it to be in the hundreds of millions of dollars in the latter two countries. For India the figure is in the billions.
For more on this story, click here.
5 new cases of avian influenza in Egypt
WHO reported 5 new cases of avian influenza (or “bird flu”) in Egypt, 3 of which were fatal. The cases were scattered across the country, and are believed to have resulted from exposure to infected poultry. They were confirmed by the Egyptian Central Public Health Laboratory. To date the country has seen 149 cases and 51 deaths from the disease. While avian influenza poses little threat to tourists visiting Egypt on holiday, a spike in cases would do nothing for the country’s image. Revenues from tourism were down 46% in the first quarter of 2011 in the wake of the recent revolution.
For more on this story, click here.
Be sure to check back on this space for more updates in July.
ExpatHealth.org offers a one-stop source for international best practices in expatriate health care, expat trends and regulatory changes impacting the health industry. The site covers both global and regional health issues. http://expathealth.org
As the economies of Brazil, Russia, India and China continue to grow, increasing numbers of international insurance and reinsurance companies are seeking to enter into these burgeoning regional markets. As some of the most recent international insurers to tap new country markets have found out, not only must they balance short and long-term strategies, but also provide appropriate and appealing products to local populations, sometimes even in the middle of shifting regulatory environments.
Just last week, at the Insurance Day Conference in Bermuda, Joe Plumeri, CEO and Chairman of Willis Group Holdings, spoke about the importance of maintaining growth in the Indian health insurance market along with the markets of Brazil, Russia, and China, or the “BRIC” countries as they are sometimes called. He stated that due to these countries’ developing populations, “the wealth and insurable value that an exploding global middle class will create will be unprecedented in history. The resulting demand for insurance will dwarf the capital and capacity of today’s insurance market.” Plumeri emphasized that “the new middle class will need brokers that understand them and their industries. They’ll need carriers who are innovative, financially secure, and who are there when they need them-carriers with a reputation for paying legitimate claims quickly.” A report published by Standard and Poor’s this week reaffirmed his opinion, with S&P credit analyst Magarelli stating that India’s “non-life sector, which includes property/casualty and health insurance, has one of the lowest penetration rates in Asia.” Again asserting Plumeri’s opinion on what customers will need from carriers, Magarelli proclaimed that in order to maintain the growth of the Indian insurance market, insurers need to start focusing more on key factors such as customer service, innovation, and efficiency; currently, “the insurers’ persistently poor underwriting performance..could potentially stunt the industry’s growth if it remains unchanged.”
As the demand for insurance in Brazil grows, The Travelers Companies Inc has just purchased 43 percent of Brazilian insurance company J. Malucelli Participacoes em Seguros e Resseguros SA for US$410 million, with the opportunity to increase its stake in the company to 49.9 percent over the next 18 months. As J. Malucelli already commands 30% of Brazil’s largest market, it is no surprise that Vice Chairman and head of Traveler’s Financial, Professional, and International Insurance business segment Alan Schnitzer said that J. Malucelli’s “extensive customer base provides us [The Travelers Companies, Inc.] with an exceptional platform for expanding the joint venture beyond the surety business into the growing property and casualty market.”
In accordance with projections for growth in Malaysia’s insurance sector, Zurich Insurance Company Ltd has just purchased Malaysia’s Assurance Alliance Bhd, a subsidiary of MAA Holdings Bhd, in full. A financial holding company, MAA offers general and life insurance, reinsurance, property management, investment advising, and more; Zurich purchased the general and life insurance sectors of the company. The sale comes a few months after Dan Bardin, Zurich’s chief executive of Global Life Asia Pacific and the Middle East, disclosed that the company was interested in expanding in Malaysia, saying that now is a “great time” to focus on expansion in Asia, although it can be “an enormous task to integrate.” Unfortunately, the sale effectively removed the basis of MAA, resulting in the quick descent of MAA’s shares on the Bursa Malaysia Stock Exchange from 5 sen to 67.5 sen on a volume of 32.63 million shares. MAA is also suffering other monetary issues, as without adequate internal funding, the company may not be able to pay their final principal payment of RM140 million. Whether or not they are able to do so will depend on the profit made from the RM344 million (US$114 million) sale to Zurich.
Bardin has reported that the company is also interested in expanding to Singapore and Taiwan. Contrary to S&P credit analyst Magarelli’s opinion that India has “one of the lowest penetration rates in Asia”, Zurich Regional Chairman of Asia/Pacific and the Middle East Geoff Riddell has reported that the company is currently not looking at expanding to India due to the competing prices caused by large private life insurers entering the market already. In March, Warren Buffett’s Berkshire Hathaway entered the Indian insurance market to sell automobile policies for Bajaj Allianz General Insurance, while New Zealand/Australia insurance giant IAG currently owns a 26 percent share of the Indian sector of its business alongside the State Bank of India.
Managing Director of Swiss Reinsurance’s Corporate Solutions Division Ivan Gonzalez elaborated on Swiss Re’s goals for expansion in the future in an interview last week. With 80% ownership of Brazilian insurance company UBF Seguros, Swiss Re has already gotten a footing in the Latin American insurance market, but they hope to use this ownership to expand in and out of Brazil; to grow the company “as a business”. With an eye on the other three largest Latin American markets-Mexico, Chile, and Columbia, Swiss Re is also opening an office in Miami, in order to “be closer to the Latin America market”, Gonzalez said.
Locally, Hong Kong is also trying to maintain its global financial foothold, as the Hong Kong government has begun to talk about creating an independent insurance authority; its aim will be to enhance “regulation and development of the insurance industry”, the government said. Secretary of Financial Services and the Treasury KC Chan also stated that the authority will “reinforce Hong Kong’s position as an international financial center.”
It is clear that companies will continue expanding into Brazil, Russia, India, and China, but only time will tell if they will be able to provide customer service that will maintain a good relationship between these countries and their new insurers.
Insurance Companies Mentioned:
Zurich: Although its headquarters are in Switzerland, Zurich services customers in more than 180 countries, providing insurance for markets in North America, Europe, Latin America, and the Asia Pacific. In North America, Zurich is the second-largest provider of commercial general liability insurance and the fourth-largest commercial property-casualty insurer.
Swiss Reinsurance: As the second-largest re-insurer in the world, Swiss Re maintains a presence on all continents, providing reinsurance for Property and Casualty and Life and Health related issues, as well as risk management services for corporations.
Bajaj Allianz Insurance Company: A joint venture between global insurance giant Allianz SE and Bajaj Finserv Limited, one of the 2 and 3 wheeler manufacturers in the world, Bajaj Allianz offers health, child, and pension policies in more than 1,200 offices across India.
J. Malucelli Seguradora SA is a Brazilian insurance company that provides surety insurance.
Malaysian Assurance Alliance Holding’s Berhad (MAA Bhd) is a financial holding company that provides financial services and insurance in South Asia, dominating in Malaysia while also establishing a presence in Indonesia and Malaysia.
Berkshire Hathaway: Under CEO Warren Buffet, Berkshire Hathaway manages many subsidiary companies, including Geico Auto Insurance, and can also provide financial planning help.
UBF Seguros: is a small Brazilian insurance company that provides agricultural and surety insurance.
Willis Group Holdings: As one of the world’s leading insurance brokers, Willis provides professional insurance services, reinsurance, risk management, financial and human resource consulting, and more in almost 120 countries.
The Travelers Company: One of the largest American insurance companies and the largest writer of US property-casualty insurance, The Travelers Company provides personal, business, financial, professional, and international insurance and ranks 106 on the Fortune 500 list.
RFIB Group, the international Lloyd’s insurance and reinsurance broker, has been approved for an intermediary license by the Saudi Arabian Monetary Agency (SAMA) to commence its insurance and reinsurance operations in the Kingdom of Saudi Arabia.
RFIB had been active in the Saudi Arabia insurance market for nearly three decades, but renewed regulatory efforts initiated by SAMA last year have required all foreign brokers operating in the Kingdom to attain a license.
Upon the successful receipt of the license, RFIB has now established a branch office in the Saudi capitol city, Riyadh. SAMA also required RFIB Group to select a Saudi Arabian business partner to set up its Riyadh unit. The company has partnered with Bassam Al-Dhabaan, which now owns 40 percent of the local business.
This move follows RFIB’s entrance into the Russian market earlier this year, with the establishment of new Moscow-based retail broker Anglo Russian Insurance Broker (AnRu). AnRu operates as both an insurance broker and an agent targeting corporate retail business. AnRu already has several agency contracts signed with leading local insurance companies, and is expected to rapidly develop in 2011, according to RFIB.
At the outset, RFIB’s new Saudi office will handle reinsurance business, but after its first year of operation the company intends to explore further opportunities in more specialized retail insurance businesses. The Saudi subsidiary will be headed by Anthony Harris, a former British Ambassador to the UAE who been working for RFIB in the Middle East since February 2006.
On the establishment of the new RFIB unit, Anthony Harris said in a statement: “RFIB has been handling reinsurance risks from the Saudi market for nearly 30 years, but our new insurance and reinsurance broking license is the final stage in our establishing a domestic presence in this important and growing market and we would like to thank SAMA for their help in working with us to achieve this license.”
RFIB have also appointed Naji Tamimi, a Saudi national previously at local firm Malath Cooperative Insurance & Reinsurance Company, as the new office’s deputy general manager. Currently the RFIB offices have four full-time staff members and will soon look to ramp up recruitment efforts. The company eventually intends to have at least 50 percent of its staff be comprised of Saudi nationals.
Adrian Spooner, RFIB’s managing director in the Middle East, commented on the company’s expansion strategy: “Naji’s appointment as Deputy General Manager has been invaluable in establishing our new office in Riyadh. His long experience in the market and extensive contacts will be crucial in growing our business in the Kingdom. We now intend to seek further recruits from the local market, working closely with our international team in London to aid staff training and development.”
Saudi Arabia’s labor market has become a sensitive political matter in the Kingdom. In the midst of regional unrest and a considerable 10.5 percent unemployment rate, creating job opportunities for Saudi nationals has become a priority. Various schemes are being discussed by the government that will evaluate the employment of native Saudis by private companies and differentiate between those that have achieved high ‘Saudization’ rates, and others who have not; with stricter limits on foreign work-permits a real possibility going forward. Saudi Arabia employs around 8 million expatriate workers, 6 million of whom work in the private sector.
While foreign employees may not necessarily be in demand, outside capital certainly is becoming more welcome in the MENA region. Insurance House, a recently launched Abu Dhabi based insurance company, agreed at a shareholders meeting to raise the limit on foreign ownership of the business to 25 percent of the company’s paid up equity share capital. The move comes just days after Insurance House’s public listing on the Abu Dhabi Securities Exchange (ADX).
Insurance House provides insurance services to Gulf businesses and individuals from its headquarters in Abu Dhabi, and branch offices in Dubai and Sharjah. It has a listed paid-up capital of Dh120 million (US$32.7 million). Last month the insurer raised an additional Dh66 million (US$18 million) as it sold 55 percent of shares to the public. The share issue was available exclusively to UAE nationals at a minimum subscription of 25,000 shares per investor.
Mohammed Alqubaisi, chairman of Insurance House, spoke admirably of the company’s development. “[The IPO] is another milestone for Insurance House. We will always strive for excellence and will endeavor constantly to create value for our existing shareholders. Additionally, we will give an opportunity to foreign investors to participate in our promising venture by building a successful and established relation with them,” he said in a statement.
The Insurance House’s decision comes after a similar vote last week by First Gulf Bank, UAE’s second largest bank by market capitalization, to increase foreign ownership limits from 15 to 25 percent. UAE firms are seeking an upgrade to “emerging-market” status from “frontier market” by international index provider MSCI.
The MSCI cited the UAE’s tight limits on foreign ownership of listed companies as one of the key barriers currently preventing an upgrade to the market’s status. An upgrade to emerging-market status could drive an increase in international investment in companies throughout the Emirates. The limit for foreign ownership of listed companies in the UAE is 49 percent.
At present, non-Gulf foreigners ownership accounts for 8.5 percent of equities listed on the UAE markets, with holdings of Dh12.4 billion (US$3.37 billion). UAE citizens hold around 91 percent of all equities and the remainder is made up by other Gulf nationals.
Opening up further foreign investment opportunities in Gulf companies is expected to continue, according to market analysts. As more firms go public on local indexes they will need to amplify the visibility of their stock and increasing outside ownership limits is an effective way to get more attention.
RFIB Group is an international Lloyd’s insurance and reinsurance broker. The company provides insurance for a variety of risks associated with both facilities and personal casualty. In addition, RFIB offers an assortment of reinsurance products; and acts as broker and consultant to other direct and reinsurance brokers. The company’s clients include corporations, banks, insurance and reinsurance companies, captives, groups and individuals. RFIB was founded in 1980 and is based in London, the United Kingdom with branches worldwide.
Insurance House was launched in May 2011. The company provides a wide variety of insurance products and services to businesses, groups and individuals from its headquarters in Abu Dhabi, in addition to branches in Dubai and Sharjah.
Insurance Australia Group (IAG), New Zealand’s largest general insurer with over one million customers, is focusing on a renewed expansion effort throughout Australia despite the recent losses associated with the devastating Christchurch earthquake and consequential aftershocks.
Last week in a press release, IAG managing director and CEO, Mike Wilkins, announced potential cost contingency plans when he revealed that the company had plans to increase premiums by up to 5 percent in New Zealand. While financially struggling competitor AMI may have to turn to a government bail-out in order to fulfill the policies of its 50,000 Christchurch customers, IAG is indeed gaining financial ground with the recent purchase of HBF’s Nonlife Insurance Business by CGU Insurance, a part of IAG. As Western Australia’s general insurance sector has grown to include more overseas, Eastern-state based, and online insurance companies, HBF, an Australian, non-profit health fund company, was struggling as a small, local company opposite the larger insurance giants. Instead of manufacturing insurance products, HBF will now focus on distribution. It is believed that the sale will transition smoothly, as most of HBF’s general insurance employees have been promised jobs in CGU’s Perth offices.
In addition to its renewed expansion efforts in Australia, IAG has also proclaimed its interest in Asia with expected expansions into China and India, following on the heels of companies such as Cigna Incorporated, which was recently granted a license for business in the Singapore health insurance market. Already present in India, with a 26 percent share of the Indian sector of the business that it owns with the State Bank of India, IAG hopes to increase its Indian footprint further by setting their sights on the equivalent of US$1 billion of gross written premiums by 2016. IAG also announced that the company has made “substantial progress” in discussions with a possible joint venture partner in China. In a statement by CEO Wilkins, he said that the company hopes that their efforts in Asia will contribute to “10 percent of the Group’s gross written premium by 2016.”
Another New Zealand insurance company has revealed plans for a major expansion this week; the country’s top rural insurer, FMG, has taken over Quadrant Insurance Group, producers of equine and livestock related insurance. A few hours after the announcement, FMG chairman Greg Gent referenced China and India’s growing populations in a press conference, saying that he thought the company had “a lot to look forward to” as “those developing nations are getting wealthier quickly and they need feeding”. New Zealand will surely profit from the high commodity prices that are on the rise throughout the agricultural market.
California-based company EZ-Cap also announced international growth this week. EZ-Cap is the top producer of health plan administration software, has “a strategic approach that integrates and automates all healthcare business processes for optimal efficiency” and is used to “streamline data exchange and transaction processing.” EZ-Cap will be partnering with GM-Medicare Management Ltd, a medical insurance information management business based in China, which will begin using the EZ-Cap technology in Shanghai. James P. Mason, CEO of Syner-Med, the US-based, joint venture partner of China’s GM Medicare Management, said that together, they are “able to offer a combination of services and support that are imperative to establishing a high standard of healthcare management throughout China.” The company hopes to continue to expand into more areas in China and to “help the Chinese worker to access the system fairly and appropriately.”
Meanwhile, at the International Insurance Society’s Annual Seminar in Toronto, Canada yesterday, directors from major companies such as Goldman Sachs, Morgan Stanley, and Deloitte Consulting USA, debated over the importance of mergers and acquisitions in today’s economy, and the effects on the companies after the merger or acquisition. Greg Locraft, executive director of Morgan Stanley, believes that money for a merger or acquisition would be better spent elsewhere, such as “retooling for organic growth, retiring debt, or buying back shares.” While Locraft (using historical stock data as evidence) pronounced that the stock performance of acquiring companies after the purchase was “abysmal.” John O’Connor, President and CEO of Endurance Services USA, which has “US$8.4 billion in assets and US$2.4 billion in shareholders’ equity,” has grown greatly due to M&A, with the acquisitions XL Surety, LaSalle Re, and Hartford Re.<br /
Although acquisitions have been extremely advantageous to O'Connor's Endurance Services USA, he cautioned companies to first find their footing in that specific market before deciding which companies to target, and to also ascertain that they would be able to manage said targeted companies. Locraft and Stephen Packard of Deloitte Consulting USA agreed that the values of insurers in America are currently extremely low, with Locraft noting that business may perhaps not be willing to be sold due to their low values ensuing from the deal, saying that “the P&C industry as a whole trades at 80 percent of book value.” It seems as though cross border mergers and acquisitions are on the rise, instead of local consolidation. Indeed, Tom Vandever, managing director of Goldman Sachs, expects that we'll be seeing an increase in the numbers of Western firms and foreign companies entering developing markets. Perhaps then, we will also see these Western firms and foreign companies cross over more and more, as evidenced by IAG, FMG, and EZ-Cap's recent expansion.
Insurance Companies Mentioned
Insurance Australia Group
Insurance Australia Group (IAG) provides personal and corporate insurance policies under several different brands, including NRMA Insurance, CGU, SGIC, SGIO and Swann Insurance. In addition to being the largest general insurer for Australia and New Zealand, IAG is expanding out of its home markets and looking to Asia.
FMG is New Zealand’s leading rural insurer, providing not only insurance, but also advice for those partaking in a rural lifestyle, whether it be for business or pleasure. FMG offers rural insurance for dairy, beef, and sheep farming, as well as domestic insurance for vehicles, lifestyle insurance, and business insurance, along with helpful risk assessment strategies.
HBF is Western Australia’s largest general insurance company, offering vehicle, home, and travel insurance. A non-profit company, HBF also contributes greatly to its community with events such as the HBF Run for a Reason and the HBF Freeway Bike Hike for Asthma.
Quadrant Insurance is the top provider of equine and livestock related insurance in New Zealand, offering protective packages for business, income, and leisure.
CIGNA Health Insurance is a global health service company dedicated to helping people improve their health, well being and sense of security. CIGNA Corporation’s operating subsidiaries are committed to providing medical, dental, behavioral health, pharmacy and vision care benefits, as well as group life, accident and disability insurance, for 46 million people throughout the United States and in other communities around the world.
A new report published today by Standard & Poor’s (S&P), the foremost worldwide insurance rating and information agency, affirms the life insurance industry outlook in the Asia- Pacific region as generally stable, although it warns short-term investment risks may arise. S&P now assert that the pronounced economic development in the region combined with macro regulatory improvements regarding solvency requirements, risk management, and corporate governance, will lead to strong long-term growth potential for the life insurance sector in the Asia-Pacific.
In the study, Standard & Poor’s analyzed 11 life insurance markets in the Asia Pacific region, tabulating the insurance industry and economic risk scores, in addition to their market outlooks. The countries reviewed were Australia, China, Hong Kong, India, Japan, Korea, Malaysia, New Zealand, Singapore, Taiwan, and Thailand.
Few statistical changes were made as a result of this report. S&P upgraded Korea’s life insurance market outlook from stable to positive, due to increased profitability projections for life insurers in the country. Based on continued weak economic and investment forecasts for the market, Japan’s outlook maintained its negative status. S&P left the outlooks stable for all other markets examined.
Last month, S&P similarly assessed the performance of non-life insurance markets of Asia-Pacific. Japan and New Zealand’s non-life insurance market outlooks were revised to negative from stable, due to the expected impact the recent earthquakes there will have on reported earnings and capital margins. India’s market was criticized for questionable underwriting performances while China and Malaysia’s markets were upgraded from stable to positive to reflect their solid growth momentum.
Paul Clarkson, credit analyst for S&P, explained the agency’s appraisal of insurance development in the Asia Pacific: “We believe the region still has tremendous growth potential despite challenges. Risks to our outlooks include high inflation, withdrawal of reinsurance capacity, increased pricing and investment market volatility.”
S&P acknowledges that the Asia-Pacific region includes a diverse set of life insurance markets all across different stages of maturity. Despite these variances, the ratings agency has observed enough common positive economic, infrastructure and regulatory indicators to support the stable credit profiles of the region’s life insurance companies.
Despite the generally favorable conditions, the S&P analysis warns however that the current volatile investing environment poses a risk factor for the financial profiles of Asia insurers, as it does in other markets. A shallow investment market combined with a deficit in longer tenor assets to match liabilities will continue to challenge asset-liability management efforts in many Asian life markets, including Japan.
At Standard & Poor’s 27th Annual Insurance Conference 2011, industry analysts confirmed that life insurance has remained a sector facing undue pressure by the persistently low interest rate environment resulting from asset and liability durational disparity. These low rates have impacted the long-term returns and capitalization life insurers need to sustain their operations.
The level of volatility thankfully remains far below that occurring in the aftermath of the 2008-2009 global financial crisis, and S&P reports that multinational insurers have learned valuable fiscal lessons from the event. The further implementation of comprehensive risk management practices and oversight in the insurance industry should mitigate the lasting effects of financial market unpredictability.
Many central banks in the Asia-Pacific region have responded to rising inflationary pressures by raising interest rates. In S&P’s view, higher interest rates could have both positive and negative connotations on performance for the region’s life insurers. A rise in interest rates in mature life insurance markets, where ongoing negative interest spreads impact life insurer profitability such as in Japan, Korea and Taiwan, will result in narrowing the negative carry and improving company earnings. Meanwhile, higher rates could also lead to a spike in surrenders of fixed-interest policies and make liquidity management more complicated for insurers in Asian markets where such policies are popular.
S&P concludes that the solid operating fundamentals in both life and non-life insurance markets in the Asia Pacific can overshadow the challenges facing in the region. Economic development throughout the continent, coupled with positive investment performance and favorable overall operating performance has enabled insurers to strengthen their financial profiles and could rebuild balance sheets enough to weather the next market downturn. In addition to the above factors, S&P has given a stable outlook for most Asia-Pacific insurance markets because there is an expectation of continued strong premium growth due to low penetration rates within all emerging markets, and increased demand due to evolving customer needs in the mature insurance markets.
Standard & Poor’s
Standard & Poor’s (commonly referred to as S&P) is a business branch of publishing house McGraw-Hill. Operating out of 20 countries, S&P provides the investment community with independent credit ratings on important financial vehicles such as stocks, municipal bonds, corporate bonds and mutual funds. In addition to its risk management, investment research and credit rating services, Standard &Poor’s is known for its indexes, in particular the S&P 500 index.
Earlier this month, The International Finance Corporation (IFC), an integral member of the World Bank Group, announced a partnership with Archimedes Global to invest US$3 million in equity in health insurance ventures in Georgia and Kazakhstan, aiming to eventually increase access to sufficient healthcare services throughout other emerging markets in Eastern Europe and Central Asia.
Georgia inherited from the Soviet Union an obtuse, highly centralized, state healthcare system, which the government has since struggled to afford and maintain since its independence in 1991. Subsequent market-driven reforms have led to some improvements in care but, due to very limited national resources, the utilization rate of healthcare services has dropped and the vast majority of expenditures are financed through out-of-pocket payments at the point of service without insurance. The Georgian healthcare system has thus faced several obstacles: quality of health services has stagnated, the standard on medical facilities and equipment is poor, and access to any healthcare services is an issue in rural areas, with availability and affordability of even basic medicines remaining a significant problem. For visitors and expatriates in Georgia, it is recommended that international health insurance be taken out prior to your visit.
The IFC’s six figure direct investment makes the organization a minority shareholder in Archimedes Health Developments, a newly formed company founded by multinational investor group Archimedes Global Ltd (AGL). The IFC’s outlay will be combined with US$2 million in additional financing from AGL. This injection of fresh capital will enable the new joint venture company to construct vital medical clinics throughout Georgia and to incorporate both firms’ expertise in developing viable healthcare services and health insurance businesses.
Speaking at the signing ceremony the Chairman of Archimedes, Doron Inbar, explained that the IFC’s contribution would also pertain to AGL’s health insurance and healthcare services in nearby Kazakhstan, and other new markets in Eastern Europe and Central Asia that the company may enter later.
“This investment marks an important step in our expansion in Georgia and within Eastern Europe and Central Asia, especially in countries that have the greatest potential for high-quality health insurance,” Mr. Inbar said, adding: “The validation of our business model by the leading international finance institution focused on private sector development will be instrumental to our efforts to expand our activities in larger markets and raise additional funding.”
The Archimedes staff in Georgia has substantial operational experience in the local healthcare sector, together with the institution’s sound technical skills related to insurance and health services. The IFC’s involvement will help mitigate financial risk against people seeking treatment and will also promote transparency and better business practices in the local health sector.
Ed Strawderman, IFC’s Senior Manager of Financial Markets for Europe and Central Asia, told reporters that this deal was an important venture for the organization and could be of great benefit to the people of Georgia. “Private health insurance is one of the integral elements of a mature insurance market. It leads to better quality, transparent, and efficient healthcare. This will be IFC’s first investment in health insurance and we believe it will help to further promote top international standards and attract other investors to the insurance market,” Mr. Strawderman said.
IFC is the largest global development institution focused on the private sector in developing countries. Georgia has been a member of IFC since 1995, joining in the aftermath of an economic collapse and mounting civil unrest following independence. To date, The IFC has approved nearly US$500 million worth of investments in Georgia, funding 36 projects across a wide variety of enterprise sectors. IFC is currently working through its advisory services to reform Georgia’s tax system to better benefit small businesses, and is also helping improve food safety standards among Georgian companies, at the same time increasing their international competitiveness.
The IFC has also been active in Brazil this month, signing an agreement with Brazilian insurer American Life to develop life insurance products targeting low-income families in the large South American country.
IFC will use its consultancy services to help American Life on planning the business, followed by a pilot and testing phase and further refining the product. The finalized insurance scheme is scheduled to be ready for 2012. The targeted microinsurance market in Brazil represents some 128 million people whose families cumulatively earn less than US$800 a month. Despite the tremendous size of this market, development of appropriate coverage schemes have thus far has been limited and general awareness of insurance products has not penetrated low-income Brazilian populations.
Loy Pires, IFC’s Brazil Country Manager, said the project met the IFC’s mission statement on promoting access to finance for low-income segments of society. “We acknowledge the importance of insurance products for low-income families in managing risks, and through the partnership with American Life, we expect to provide relevant contribution to the Brazilian microinsurance space and to develop innovative ways to reach the base of the pyramid,” Pires stated.
IFC also has plans to increase private sector participation in Brazil to strengthen infrastructure and public services, particularly in health and education. Other priorities include improving the investment climate in Brazil, helping small business enter the formal economy and strengthening their private sector competitiveness, and promoting socially and environmentally sustainable business practices.
Pedro de Freitas, Head of American Life concluded that the challenges present in the Brazilian microsurance market would prove a daunting enough task, “American Life is a Brazilian insurance company that offers life insurance to niche segments not covered by most large insurance companies. Building a strong presence in the microinsurance space is now among our high priorities.”
The Brazilian insurance market is the largest in South America, and offers the potential to become a more prominent international insurance market across all disciplines. Recent economic stability, positive credit trends, and regulatory reforms that have stabilized the currency and promoted domestic savings, have all contributed to growth across the insurance industry in Brazil. In spite of continued regulatory obstacles, large multinational insurers cannot ignore the market’s size and growth potential and will be looking to invest themselves further in Brazil, and other emerging economies, to offset the continued static performance of the established North American and Western European markets.
The International Finance Corporation (IFC) is a member of the World Bank Group and is headquartered in Washington, DC. The IFC is the largest global development institution focused on promoting private sector investment in developing countries. Established in 1956, The IFC now has 182 member countries which collectively determine the organization’s policies and approve investments.
Archimedes Global Ltd
Archimedes Global was founded in 2007 as an investment vehicle targeting health insurance developments in emerging economies. Today Archimedes owns three separate insurance companies in Kazakhstan, Greece and Georgia with plans to expand further into Eastern Europe and South Asia. In addition, the company provides health services that complement insurance companies’ services.
American Life Companhia de Seguros is a life insurance company focused on offering niche insurance products to undeserved consumers in the Brazilian insurance market.
China’s National Social Security Fund has acquired an 11 percent stake in the People’s Insurance Co of China (PICC Group) for RMB10 billion (US$1.55 billion) to become the sole investor ahead of the insurer’s planned dual listing in Shanghai and Hong Kong.
In a statement issued on Tuesday by PICC Chairman Wu Yan, the nation’s second largest insurer heralded the involvement of the National Social Security Fund (NSSF), claiming that their RMB10 billion investment would buy about an 11 percent stake and had moved PICC a big step closer to their planned IPO. PICC is seeking a public listing in order to address their declining solvency ratio, restructure the company and to help generate the necessary capital required for the rapid expansion of its subsidiaries, including their life insurance and property & casualty divisions. Wu added that PICC will “prudently” time the initial public offering, which has met requirements for dual A-share and H-share listings, but still awaits approval by the China Insurance Regulatory Commission (CIRC).
In April, PICC Group posted their annual report, revealing a 37 percent year-on-year increase in revenues to RMB264.7 billion (US$40.9 billion), with premium income of RMB246.4 billion (US$38.1 billion). PICC and its subsidiaries reported a record net profit in 2010 of RMB5.2 billion (US$804 million), representing a noteworthy annual increase of RMB3.4 billion (US$525 million), 2.9 times that of 2009’s figures. As of 31 December 2010, the total assets of PICC and its subsidiaries totaled RMB201.7 billion (US$31.2 billon) with shareholders’ equity amounting to RMB24.8 billion (US$3.8 billion). The Group’s property & casualty subsidiary is the largest non-life insurer in China and is aiming to make underwriting profits again this year, after premium rates rebounded and improvements to the company’s claims management processes have been implemented. PICC’s life insurance business is the sixth largest in the Chinese market in terms of premiums written.
PICC’s fast growth has however diminished its solvency ratio, an insurance company’s available capital relative to their premiums written. The CIRC sets a 100 percent requirement by listing. Market observers assert that the NSSF’s injection of new capital will improve PICC’s solvency margins and enable them to remain stable prior to going public.
After the deal is signed off by the CIRC, PICC will present their listing plan to the China Securities Regulatory Commission. Analysts familiar with the deal predict that the Hong Kong and Shanghai listings will occur in the fourth quarter of 2011 at the soonest, as it will take time for PICC to go through all the necessary procedures.
The planned investment was first announced in a joint press conference on June 15 by the NSSF and the Ministry of Finance, the previous exclusive owner of PICC. At the time however, no details were disclosed regarding the timing or size of the stake the US$130 billion pension fund would hold.
The Chinese State Council initially approved the PICC restructuring and listing plans in 2009, the first year the integrated insurer turned a profit. Under Chinese law, domestic companies are required to have at least two shareholders before they may go public. PICC’s decision to select a national pension fund as a strategic investor should aid the listing process. The NSSF has close times with other government agencies and industry regulators and should enable the insurer to better address the regulatory obstacles on its way to going public.
New China Life Insurance, the nation’s third-largest life insurance firm with RMB93 billion (US$14.38 billion) in premium income for 2010, has also recently applied to the Hong Kong stock exchange for a dual listing. The insurer is aiming to raise up to HK$31.2 billion (US$4 billion) in fresh funds by the end of the year, according to industry reports.
The CIRC has also been active this week in granting approval for a wholly owned Chinese subsidiary of Liberty Mutual Insurance Co., permitting the American insurer to increase its registered capital in the country by US$17.5 million, its fourth such capital increase since 2007. Liberty Mutual, which first entered China in 1996, has around 72,000 automobile policyholders in the country. The company has expanded to four branches and needed to raise capital to meet the country’s regulatory solvency requirements.
Total written premiums in China’s insurance market reached RMB1,452.8 billion (US$221.4 billion) in 2010, a year on year increase of 30.4 percent. Increases in per capita income, further urbanization, an improved social security system, enhanced distribution reforms and service level optimization coupled with stronger insurance awareness in the population, are all positive factors contributing to the brisk development of the domestic Chinese insurance industry and a demand for its products. As interest rates rise, profitability for insurance companies will also see further improvement.
The Chinese insurance market has been seen as a lucrative investment opportunity for many large multinational insurance companies as well as investors from the financial-services sector. However, while the emerging superpower is technically open to foreign insurers participating in their market, they are faced with more restrictions and a more active regulatory authority than in many other countries. Foreign insurance companies have normally found success in China through investing and operating as joint venture partners alongside major local insurance and finance conglomerates.
Some major current multinational Chinese insurance company joint ventures include the Sun Life Everbright and the Aviva-Cofco partnerships. 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.
Earlier this month, Bermuda-based private insurance holding company, Starr International acquired a 20 percent stake in the Chinese property insurer Dazhong Insurance Co Ltd.
This followed Goldman Sachs successful purchase of a 12.02 percent stake in Taikang Life Insurance Co Ltd, China’s fifth-largest insurer by premiums, earlier in the year. The acquisition gave the US Investment bank a long-sought-after foothold in the world’s largest insurance market.
Merger and acquisition activity throughout the rest of Asia is set to continue at a fervent pace 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 India, Indonesia and China leading the way.
Insurance Companies Mentioned
People’s Insurance Company of China (PICC) is a state-owned holding company in the PRC, founded in 1949, that sponsors its subsidiaries: PICC Asset Management Company Limited and PICC Property and Casualty Company Limited (PICC P&C) among others. PICC P&C was established in 2002 and is now China’s largest non-life insurer. The insurer remains the designated agent within the People’s Republic of China for most major international insurance companies. In 2005, PICC announced a life-insurance joint venture with Sumitomo Life Insurance Co called PICC Life Insurance Co., which is now the sixth largest life insurer in the country.
New China Life
New China Life Insurance Co.,Ltd (NCI?has headquarters in Beijing and was established in 1996 It is a large national insurance company, with products including traditional protection products, bonus products as well as the products that have a strong financial management function. With sustained, healthy and harmonious development of the company, the brand value of NCI is a valuable asset.
Liberty Mutual Group
Liberty Mutual Group offers a wide range of insurance products and services, including personal automobile, homeowners, workers compensation, commercial multiple peril, commercial automobile, general liability, global specialty, group disability, assumed reinsurance, fire, and surety. Liberty Mutual Group employs over 45,000 people in more than 900 offices throughout the world.
In a move sure to reignite debate over upcoming US health system changes, The American Medical Association (AMA) on Monday publically reaffirmed its support for the individual mandate, the most contentious provision of the Obama Administration’s Healthcare Reform Law.
Under the Affordable Care Act (ACA) nearly all American citizens must carry health insurance starting in 2014 or else face a fine. These measures have been brought about to combat the rising number of US citizens who remain uninsured and the disparity of medical services and health outcomes in America that are widening along income lines. The federal law will require that the general public have insurance policies which meet certain minimum benchmarks, more sufficient than basic catastrophic coverage and preventive services. This individual mandate is currently facing legal challenges in 26 states which contend that the United States government cannot compel its citizens to engage in such commerce. Two federal courts have already ruled that the mandate violates the Constitution, and the US Supreme Court is ultimately expected to decide upon the issue soon.
At the AMA annual policy-making meeting in Chicago over the weekend, the nation’s largest doctors’ group held an extensive discussion on whether to continue its longstanding support for, in the association’s own parlance, ‘individual responsibility.’ The AMA has held an independent ‘individual responsibility’ position for almost a decade and has seen it become a source of division within the association. The AMA policy would require individuals or families earning over 5 times the federal poverty level to purchase insurance that covers, at a minimum, preventative healthcare and catastrophe coverage. US citizens who cannot afford insurance would get assistance in the form of tax credits.
The AMA’s House of Delegates spent all of Sunday debating the issue and on Monday voted 326 to 165, about a two-thirds majority, to uphold their commitment to individual responsibility health insurance policies. The House also reaffirmed its stance on AMA policy supporting health insurance tax credits, savings accounts, and direct subsidies towards the coverage of higher risk patients. While the AMA does not use the same language as the healthcare reform law, or use the term ‘individual mandate’ in its policy position, this decision will be interpreted as valuable support for the Obama Administration’s near-universal health insurance plan.
An alternative resolution, brought forth by several participating state and surgical societies, intended to overturn the AMA’s policy and replace it with increased tax breaks and other non-compulsory incentives to encourage health insurance spending, was rejected; as were measures that would have shifted more responsibility to individual states.
Opposing doctors have been adamant that mandates requiring everyone purchase insurance are unconstitutional, unnecessary, and represent unreasonable government intrusion in the healthcare industry. They also believe the mandate is in violation of AMA’s core principles: supporting freedom of choice, free-market economics, and preserving the physician-patient relationship.
In addition to ideologically opposing the reform, AMA members and delegates who have spoken out against the individual mandate argue that the association’s continued support of the healthcare reform law fractures the organization. Delegates have pointed to this “fracturing” as being a prime contributor to the abrupt decline in the group’s membership that has occurred since the ruling passed in 2010, with some 12,000 doctors reportedly leaving in the past year.
Those who have remained in favor of the individual mandate, and the AMA’s current position, assert that without the requirement to carry health insurance numerous Americans would not purchase it, and their medical costs would be passed on to others if they ever have to get substantial medical treatment, resulting in higher premiums for all. Furthermore, without the individual mandate the entire ACA law, which is expected to deliver many positive health outcomes for the US, will become toothless. Proponents argue that vital insurance market reforms, such as ending denials of coverage due pre-existing conditions, would only be made possible through increased participation in the health insurance market. Encouraging more US citizens to buy plans from private insurance companies (excluding those qualified for Medicaid or Medicare), in fact bolsters the AMA’s stance of free market competition in healthcare.
AMA President Cecil B Wilson, summarized the group’s deliberations: “The AMA has a strong policy in support of covering the uninsured, and we have renewed our commitment to achieving this through individual responsibility for health insurance, with assistance for those who need it,”
Dr. Wilson added that the AMA had extensively reviewed other policy options and ultimately concluded that without an “individual responsibility for health insurance” a realistic healthcare reform approach “cannot be fully successful in covering the uninsured.” He further believed that the “overwhelming nature” of the decision to uphold an individual mandate would keep the issue from resurfacing at AMA functions.
“I would be surprised if this comes up again in the near future,” Dr. Wilson concluded.
The American Medical Association
The American Medical Association (AMA) is the largest physician organization in the United States and plays a key role working on the most important professional, public health and health policy issues facing the world. The AMA was founded in 1847 to establish a code of medical ethics and today has some 228,000 members.
Over the weekend, Qatar Telecom (Qtel) signed a major insurance contract with SEIB Insurance Company for Directors and Officers Liability Insurance coverage. The deal will cover an estimated US$600 million in net liabilities and represents one of the largest insurance contracts ever agreed upon for a singular entity.
Speaking at the signing ceremony, Sheikh Saud Bin Nasser Al Thani, Chief Executive of Qtel, explained that the company had carefully selected a comprehensive insurance program and partnership with Qatar-based SEIB to ensure that they would be able to meet the needs of their executives during an important time in the company’s ambitious expansion strategy. Qtel is looking to build upon its position as Qatar’s leading provider of world class telecommunications services and develop a substantial presence in other competitive markets.
“Qtel is focused upon delivering sustainable growth and enhanced services for the people of Qatar, and achieving this goal requires us to build firm foundations for our operations. We are pleased and proud to have selected SEIB Insurance Company as our partner for this project, because they have tailored their services to underwrite our strategy for risk management,” Sheikh Al Thani told the press.
SEIB Insurance & Reinsurance Company CEO, Farid Chedid responded in kind, asserting that the liability insurance policies designed for Qtel would reflect the company’s growing international profile and provide ample support with the highest standards of service, value and integrity, across its operations.
“We are proud that Qtel has placed its trust in us for this key pillar in its risk management strategy. SEIB aims to deliver the highest standards of service, value and integrity, and it is a major step for us to work with a global giant like Qtel that shares our values so strongly,” Mr.Chedid said.
Directors and officers liability insurance (commonly referred to as D&O) has become an essential component of corporate insurance worldwide in recent years. Principally D&O will protect directors and officers from all liability arising from actions associated to their corporate positions. As the industry has matured and responded to market pressures and the development of case law, D&O insurance has developed beyond its original basic coverage options and become highly specialized. In high finance, for example, D&O is commonly used to settle all manners of securities fraud between dissatisfied investors and corporate officers. Qtel trust that the procurement of a wide-ranging D&O policy will provide greater peace of mind for all their company stockholders.
The agreement follows a busy restructuring period by Qatar’s top communications company that has seen a recent series of management changes necessary for driving growth both within the Emirates and internationally. This past week, The Qtel Group also held the first industry innovation symposium of its kind in the region, addressing key initiatives and the growth potential in the dynamic Middle Eastern, North African and South Asian markets, in which the company now operates. Deemed a success by all partners who attended, Qatar Telecom will be hosting a second conference in Indonesia later in 2011.
The size of this insurance deal between two promising Qatari entities demonstrates the increasing importance of the country’s businesses towards the region’s overall economic development. The continued financial progression of countries like the UAE, Qatar and Saudi Arabia is set to drive the insurance sector across the Middle Eastern region. This will lead to intensified competition, with global insurers eager to gain access to new and promising business opportunities.
In conjunction with ambitious business ventures, Qatar has unveiled a comprehensive healthcare reform strategy. The six year plan is designed to transform the country’s existing medical infrastructure into a comprehensive and integrated world-class healthcare system that will achieve the positive health outcomes set about in the Qatar National Vision 2030 development plan. Central to the health system overhaul will be the implementation of a compulsory national insurance scheme. 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. How this system will affect the local health insurance market is yet to be determined but many multi-national providers remain interested in the region and the emerging middle class customers who may demand their services regardless.
The general outlook for the insurance industry in the Middle East and Gulf regions remains 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 activities 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.
Qatar Telecom (Qtel) is a comprehensive telecommunications company operating throughout 17 countries and providing voice and data services for over 60 million customers. Qtel is the largest telecommunications company by number of operations in the MENA region (ten operations as of 2010) and are committed to expanding further
SEIB Insurance and Reinsurance Company (SEIB) is a national Qatari company, licensed in 2009 by the Qatar Financial Center Regulatory Authority. SEIB provides corporate and retail insurance products, specialized to meet the needs of each and every client.
Insurance adjusters have begun the difficult task of calculating damage estimates in the aftermath of one of Canada’s worst riots in decades. On Wednesday, fires, looting, rampant destruction and hundreds of arrests and injuries played out on the streets of downtown Vancouver, British Columbia as chaos erupted in the moments after the local team, the Canucks, lost the Stanley Cup final, ice hockey’s championship series, 4-0 to the Boston Bruins at Rogers Arena. Until the penultimate Game 7, the home team had won each game of the series.
Tens of thousands of people who had gathered downtown throughout the day in anticipation of the city’s first Stanley Cup victory were witness and participant to a four-hour rampage upon the disappointing result of the event. Jim Chu, the chief constable of the Vancouver Police Department, told the media that about 100 people had been arrested, and that number was expected to grow. Many of the rioters failed to mask their identities, and the police have asked the general public to send in videos and photo evidence to help identify perpetrators.
On the night of the riots, Vancouver Mayor Gregor Robertson issued a statement condemning those who participated in the riot as a fringe criminal element: “It is extremely disappointing to see the situation in downtown Vancouver turn violent after tonight’s Stanley Cup game. Vancouver is a world-class city and it is embarrassing and shameful to see the type of violence and disorder we’ve seen tonight.”
The widespread rioting and looting left dozens of cars burned, public property damaged and shopfront windows shattered over a 10 block radius surrounding Vancouver’s main commercial and entertainment district. The Downtown Vancouver Business Improvement Association has estimated that over 50 businesses have suffered some degree of damage during the riots. The association is not yet certain what the total cost of the damage and looting will be or whether their standard commercial insurance policies will provide ample coverage.
According to AllWest Insurance Services Ltd, business owners should be covered for losses related to fire, inventory theft and vandalism issues. The Vancouver-based insurance brokerage claimed however that damages related to disabled storefront windows may be more complicated as their contract is typically tied to the glass companies, which often exclude adverse events such as riots, crime and terrorism in their policies. Regardless of coverage issues, this was a very inconvenient situation for many Vancouver businesses. Kelly Dale, Vice President at AllWest, explained “All of these business owners are dealing with the shutdown today and clean-up, so they’re all affected even if they have insurance.”
Local insurance companies now have their hands full investigating the plethora of damages. After surveying a portion of their downtown Vancouver insured properties, James Clay, President of J.T. Insurance Services, remarked to the press “There is a substantial amount of damage…It is going to be in the millions.”
Adam Grossman, spokesman for The Insurance Corporation of British Columbia (ICBC), told reporters that they already had 25 claims filed due to the riots, with many more likely to come. The worst damage reported thus far has involved cars being set on fire or flipped over for a total loss. “Unfortunately, a lot of those vehicles are total loss vehicles now and typically, when a vehicle’s rolled onto its roof, just the sheer weight of the vehicle will come down on the roof and you know that in almost every case that vehicle won’t be repaired, it will be a total loss,” Grossman explained.
At least 17 vehicles were torched including two police vehicles. The influx of vehicle-damage reports has necessitated ICBC’s implementation of a temporary special claims office, which will work with police to both process auto claims and identify potential vandalism suspects.
ICBC will cover all policyholders who have taken out comprehensive insurance covering events such as vandalism and fire. Grossman concluded that it was still too early to get a figure on the total damage incurred.
Hockey riots are not unheard of in Canada. In 1994 after the Canucks lost the Stanley Cup to the New York Rangers, rioting occurred in Vancouver, resulting in 200 injuries and CAD 1.1 million (US$ 1.12 million) in damages. This week’s events are expected to eclipse those totals. The ultimate price of this lunacy is not just the insurance deductibles. The local real estate market and even Vancouver’s recent goodwill as a tourist destination may be effected. While we often associate such scenes of civil unrest with more politically tenuous areas of the world, the impact such events can have on the global insurance market remain just as significant.
At the end of May, The Office of the Commissioner of Insurance (OCI) released provisional statistics detailing the Hong Kong insurance industry’s positive market performance in the first quarter of 2011. One particularly notable development mentioned was the increasing proportion of business accounted for by visitors from mainland China.
Hong Kong – a special administrative region (SAR) of China – is the leading insurance center in Asia, attracting many of the world’s top insurance companies. Hong Kong has the largest number of authorized insurance companies in Asia at 167 and thousands of supplemental agents and brokers. In 2009, the insurance industry’s HK$184.6 billion income (US$23.68 billion), accounted for about 11.3 percent of the Hong Kong Gross Domestic Product.
The total gross written premiums of the Hong Kong insurance industry for the first quarter of 2011 was HK$56.3 billion (US$7.22 billion), which represented a 13.3 percent increase over the corresponding period in 2010. The gross and net premiums of general insurance business rose 11.2 percent to HK$10.3 billion (US$ 1.32 billion) and 8.4 percent to HK$7.0 billion (US$0.9 billion) during this period although underwriting profit reportedly declined from HK$559 million (US$71.7 million) to HK$482 million (US$61.84 million).
According to the OCI, ten percent of all insurance premiums collected were from policies issued to Mainland Chinese visitors. Mainland activity has been particularly apparent in new office premiums, amounting to HK 1.7 billion (US$218 million) in business during the first quarter.
Hong Kong Federation of Insurers (HKFI) reported that demand from Mainland customers would drive between a 20 to 30 percent annual growth rate in the country’s total premiums. Visitors from across the border have already purchased policies this year worth HK$168.3 million (US$21.59 million), or 9.9 percent of the SAR’s HK$1.7 billion (US$218 million) in total premiums. These figures already amount to more than half of what was paid in premiums by Mainland Chinese clients for the whole of last year. In 2010, The HKFI recorded insurance policies bought by mainland Chinese worth HK$330 million (US$42.34 million), representing 7.5 percent of last year’s overall premiums of HK$4.4 billion (US$564 million).
Thomas Lee Mun-nang, chairman of the HKFI Life Insurance Council, explained in a newspaper interview that Mainland Chinese were becoming an increasingly lucrative source of income for Hong Kong insurance companies.
“Mainlanders are attracted by the variety of insurance products in Hong Kong, but may need to pay a higher premium than local policyholders due to life expectancy and health factors,” the chairman said.
Most policies held by Mainland Chinese in Hong Kong have been in either US or HK dollars. Yuan-denominated policies have been mostly held by speculative locals and accounted for only 6 to7 percent of total premiums last year. This is due to limited investment opportunities with the Yuan. Yuan linked policies in Hong Kong have a short tenure of three to five years and have offered minimal returns of between 1 and 2 percent.
As China has become the second largest economy in the world, a middle class population with some capacity to spend outside its borders has grown to be a foundation of the remarkable economic dynamism lifting the country. This emerging investor class presents significant opportunities to financial markets like those in Hong Kong that are of close proximity and particularly convenient to them. In addition to the China’s gradual capital liberalization, Hong Kong’s insurance industry and professionals will benefit from the recent CEPA agreement to gain greater access to the mainland’s insurance market. HK-based insurance companies that can present innovative, cost-effective and fiscally secure insurance products and services not yet available on the mainland will be rewarded with a tremendous potential client base.
Earlier in the year however, we discussed some of the pitfalls involved in the relationship between the two regions. An influx of Mainland Chinese mothers seeking to give birth in Hong Kong in recent years has placed an undue burden on the SAR’s healthcare system. These women either arrive to escape the mainland’s notorious One Child Policy or to become early participants in Hong Kong’s more robust public services. This practice, known as Maternity Tourism, has Hong Kong authorities scrambling to control the number of pregnant Chinese nationals entering the city.
The Hong Kong Federation of Insurers
The Hong Kong Federation of Insurers (HKFI) was established on 8 August 1988 as a self-regulatory body of insurers, designed to further the development of the insurance business in Hong Kong. The HKFI is recognized by the Government of the Hong Kong Special Administrative Region as the principal representative body of their industry.
Insurance industry analysts have been anticipating a busy summer season of merger and acquisition activity amongst global insurers and reinsures, as a continued soft market in the wake of prolonged catastrophe losses prompts mid-sized companies to consolidate and gain scale to return sufficient capital for investors.
The US$3.2 billion merger of equals between international reinsurers Transatlantic Holdings Inc. and Allied World Assurance Co, discussed earlier this week, has been accompanied by spate of smaller deals affecting the insurance industry around the world.
Aetna Inc, the third-largest US health insurer, announced on Monday its plans to acquire Genworth Financial Inc’s Medicare-supplement business for about US$290 million, to increase its coverage of the American retiree population.
Medicare supplement insurance, sometimes referred to as ‘Medigap’ plans, offer coverage for deductibles, co-payments and other expenses not provided by Medicare, the universal US government health insurance system for elderly and disabled citizens. The market for supplementary Medicare coverage is expected to grow rapidly as the large ‘baby boomer’ generation of Americans approach age 65 and become eligible for Medicare. The demand for Medicare-supplement services offered by private insurers will increase as the burgeoning ranks of retirees have come to expect similar benefits to those they have enjoyed throughout their career.
Through the acquisition of Genworth’s subsidiary, Continental Life Insurance Co, Aetna will add an estimated 145,000 members to its existing base of Medicare supplement policyholders. The deal is expected to close in the fourth quarter this year with Genworth recording a gain of US$35 million tied to the sale.
This move comes on the back of Indianapolis-based WellPoint Inc’s similar acquisition of California Medicare Advantage plan provider CareMore for a reported US$800 million last week. Medicare Advantage plans offer a comprehensive private-run parallel version of Medicare. WellPoint also citied American demographic trends as a leading factor behind the deal, detailing that for every year until 2030, 1 million more baby boomers will become eligible for Medicare in states which Wellpoint operates its Blue Cross Blue Shield insurance schemes.
North of the border, Royal & Sun Alliance Insurance Group PLC is purchasing Expert Travel Financial Services Inc., one of Canada’s largest travel and health insurance distributors, in a strategic acquisition intended to create a better vertically integrated business model.
Mike Wallace, SVP of Personal Specialty Insurance & Reinsurance at RSA, described the move as a necessary step forward for the company “This is an opportunity to grow in travel insurance by integrating distribution,” he said, adding “This is part of our long-term strategy of consolidating the Canadian insurance industry, and I would say this is not the last one we’ll do.”
RSA is one of Canada’s largest property and casualty (p&c) insurers and in the top three among travel insurers, with US$1.9 billion in direct written premiums in 2010. The Canadian insurance industry has been subject to fervent trading activity, with recent moves including Intact Financial Corp’s US$2.6-billion acquisition of AXA Canada to cement its spot as the largest property and casualty insurer in the country.
Acquisitions have also enabled insurers to diversify their distribution platform and embrace new methods of interacting with clients. This week, Standard Life’s employee benefits consultancy and technology provider Vebnet formally announced a tie-up with Vielife, the online health solutions and wellbeing consultancy acquired by CIGNA in 2006.
Through this partnership, Vebnet declared that employers using the reward and flexible benefits platform could now provide their workforce with an additional service that lets employees measure and monitor their nutrition, stress, sleep and physical activity levels. The service is intended as a support mechanism for employees to maintain healthy lifestyle habits, decreasing potential sickness absences and keeping them engaged with their employer in a positive manner. Standard Life added that the deal would enable employers to identify specific health risks and would lead to more employees becoming engaged with the Vebnet platform.
More complicated industry transactions could encounter other substantial impediments. The previously mentioned merger between Transatlantic Holdings and Allied World Assurance may have already hit a snag. A shareholder in Transatlantic that owns 24 percent of the company, Davis Selected Adivers L.P., has objected to the proposal, filing a statement with the Securities and Exchange Commission stating “serious concerns about the proposed transaction,” and may encourage the company to explore more options before it commits to such an arrangement.
The two companies have thus far declined to comment on this development. Under the proposed US$3.2 billion deal, Transatlantic’s shareholders would wind up with around 58 percent of the new combined company and Allied World’s stockholders with the remaining 42 percent.
The main international credit rating and insurance information agencies have had a mixed response to the proposed merger, which would form a singular insurance and reinsurance entity with US$7 billion in shareholder equity.
Standard & Poor’s (S&P) put Allied World’s financial strength ratings on credit watch with positive implications, saying it expected to raise the ratings by one notch (up from ‘A’) if the merger goes through as is. S&P left Transatlantic’s financial strength ratings unchanged, because despite the noted strengths of the merger, S&P notes “it remains to be seen whether the combined entity will be able to outperform its peers.”
Moody’s responded to the proposed merger by placing Allied World under review for a possible upgrade and also affirming the ratings of Transatlantic Re. “The rating agency believes the merger will provide both franchises with strong benefits,” Moody’s reported.
AM Best left both companies ‘A’ financial strength ratings untouched but remained broadly positive on the deal. “The merged entity is expected to enjoy an enhanced business profile that will likely inure benefits in the form of an improved competitive position. The merged entity should also benefit from broader distribution channels, broader product diversity and the benefits of a significant global presence,” the agency said in a statement.
Allied World Assurance
Allied World Assurance is a global insurance and reinsurance business. The company operates through a worldwide network of offices in several major US cities, Hong Kong, London, Singapore and Zug, Switzerland. Allied World Assurance provide property, casualty, insurance and specialty reinsurance products.
Transatlantic Holdings Inc. is a leading international reinsurance company, headquartered in New York. Through it’s subsidiaries, Transatlantic offers reinsurance capacity and analysis for a wide array of property and casualty products, with a particular concentration on specialty risks.
Aetna international health insurance Aetna is a leading global diversified health care benefits company head-quartered in the U.S., serving approximately 35.8 million people with information and resources to help them make better informed decisions about their health care. Aetna offers a broad range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life and disability plans, and medical management capabilities and health care management services for Medicaid plans. Our customers include employer groups, individuals, college students, part-time and hourly workers, health plans, governmental units, government-sponsored plans, labour groups and expatriates.
WellPoint is the largest health benefits company in USA, with more than 33 million members in its affiliated health plans. As an independent licensee of the Blue Cross and Blue Shield Association, WellPoint serves members as the Blue Cross licensee for California; the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri, Nevada, New Hampshire, New York, Ohio, Virginia, and Wisconsin. In a majority of these service areas, WellPoint does business as Anthem Blue Cross, Anthem Blue Cross Blue Shield or Empire Blue Cross Blue Shield. WellPoint also serves customers throughout the country as UniCare.
RSA has a proud heritage dating back almost 300 years. The current company structure was created in 1996 following the merger of two of the largest insurance companies in the UK, Royal Insurance and Sun Alliance. In 2008 the company shortened their name to RSA and simplified and refreshed their corporate brand. RSA has over 20 million customers worldwide. The Group currently manages GBP 14.3 billion of investments. RSA is a member of the FTSE4Good Index.
A new report published by worldwide insurance rating and information agency A.M Best Co predicts substantial change will occur within the Vietnamese insurance industry as the country’s regulatory framework evolves, allowing the market to open up further for foreign companies to share their capital and technical expertise.
In the special report, titled “Vietnam’s Insurance Market Awakening to Further Change,” AM Best reveals that the country’s insurance market has been growing at a brisk pace in recent years, with total direct written premiums increasing 20 percent annually since moves were first made to liberalize the industry in 2008. However, when considering its’ true size, the insurance market remains underdeveloped and small in comparison to many of its Southeast Asian neighbors. According to the Association of Vietnamese Insurers, total premiums for 2010 amounted to VND 30.8 trillion (US$ 1.57 billion), a paltry figure for a country of almost 90 million people.
Vietnam’s continued demographic and economic development will fuel further demand for insurance. The country’s promising trade and industry sector has bolstered economic growth, with gross domestic product (GDP) rising 6.8 percent in 2010. The burgeoning economy, with an emerging middle class that is aware of insurance services, has already had a profound effect on the non-life insurance sector. As per capita wealth increases, AM Best notes that more people move from owning bicycles up to mopeds and cars. Similar to other Southeast Asian insurance markets, compulsory motor third-party liability coverage has been a critical growth component to the overall insurance market. Motor insurance represents the largest segment of Vietnam’s non-life sector, with motor insurance comprising 31 percent of Vietnam’s direct written premiums for 2010.
There are currently 29 insurance companies operating in Vietnam’s non-life market, with more expected to follow due to the potential for growth. The intense competition has however made profitable underwriting difficult to achieve in the current environment, especially in personal and small commercial lines. As the market has opened up, the 4 big, partially state-owned non-life insurers have been losing market share to smaller largely-foreign competitors who have implemented aggressive growth strategies at the expense of cost-effective underwriting. While local insurers have controlled the market in personal lines, most lack the sufficient capacity and expertise to establish a presence in commercial lines. AM Best notes that foreign firms will be better placed to provide both personal and commercial non-life insurance in Vietnam.
Speaking at the release for the study, Arina Tek, financial analyst for A.M. Best, further commented: “The operating environment is expected to remain competitive in the near term and stronger players are expected to emerge as a tougher regulatory framework is rolled out. Some insurers are expected to unveil plans to list on domestic stock exchanges and to become financial holding companies.”
In the report, AM Best explains that in addition to competition, underwriting losses in the non-life sector have been attributed to high operating costs, an increased frequency and severity of insured losses, difficulties policing fraudulent claims and in collecting sufficient data to price certain risks accordingly. Vietnam’s insurance companies have also suffered staffing challenges common to a rapidly emerging market (small existing talent pool, high turnover) and will need to bolster their recruitment efforts to ensure the industry can grow both larger and smarter.
Non-life insurers in Vietnam are expected to continue relying comprehensively on reinsurance services to meet regulatory demands and support their large-risk portfolios. Current rules stipulate that local insurers are not permitted to retain risks exceeding 10 percent of their paid-in capital. The pronounced potential catastrophe risks in Vietnam including threats of heavy typhoons and floods are also driving a need to purchase reinsurance.
Towards the end of the report, Vietnam’s evolving life insurance market is also examined. The life insurance industry in Vietnam is less crowded than the non-life sector, with only 12 registered insurers operating in the country and direct life premiums written amounting to VND 13.79 trillion in 2010 (US$ 673 million). Foreign insurers have dominated the market thus far, and have brought with them substantial capital, expertise and innovative distribution platforms to sell a largely unknown product to the Vietnamese people.
AM Best head of market analysis, Yvette Essen, felt that the impact of international insurers on the life insurance market had been positive. “The life market is evolving, with insurers offering more diverse products through a variety of distribution channels. Foreign insurers have built a presence in a relatively short space of time and are expected to continue to dominate the life market,” she said.
While, Vietnam’s life insurance market will continue attracting international companies, AM Best worries that existing stringent regulations that require overseas companies have US$ 2 billion in asset backing will mean that only international conglomerates are able to enter the market, with smaller insurers from Southeast Asia left untested.
The report concludes that while awareness of life insurance protection is improving gradually in Vietnam, the youth-leaning demographics of the population means many citizens are not actively seeking such coverage. AM Best advises insurers that: as the affordability of conventional insurance products for most of the populace remains the key impediment to the overall growth of the market, innovation in services such as microinsurance will be essential. This is a challenge insurers like Manulife Vietnam appear eager to respond to.
A.M Best Company was founded in 1899 and is a full-service credit rating organization dedicated to servicing the financial services industries, including the banking and insurance sectors.
Transatlantic Holdings Inc. and Allied World Assurance Company Holdings announced on Sunday the signing of a definitive merger agreement between the two firms that will create a top global specialty insurance and reinsurance company, aimed primarily at increasing business outside of North America.
The combined entity will function under a holding company structure, titled TransAllied Group Holdings AG, with invested assets of US$21 billion and total capital of US$8.5 billion, according to a joint statement issued by both companies. TransAllied will offer specialty insurance and reinsurance services that operate through two separate brands: Transatlantic Reinsurance and Allied World Insurance. The combined company will collectively inherit 39 offices located in 18 different countries worldwide.
The deal, unanimously approved by the boards of both companies, has been structured as a “merger of equals.” Allied World will exchange 0.88 of their own shares for each Transatlantic Holdings common share held in a US$3.2 billion stock for stock agreement. Upon completion of the transaction, Transatlantic shareholders will hold a 58 percent stake in the combined company, with Allied World investors owning the remaining 42 percent. According to Bloomberg analytics, the new company will have a market value of about US$5.1 billion.
Allied World Assurance is a Switzerland-based specialty insurance and reinsurance provider with total assets of US$10.67 billion, as of March 31, 2011. The company, alongside the rest of the global reinsurance industry, has suffered in their most recent earnings reports due to the unprecedented string of natural disasters that struck the Asia-Pacific region in the first half of this year.
Transatlantic offers reinsurance capacity and analysis for a range of property and casualty products for insurance and reinsurance companies. The company was previously controlled by American International Group Inc, which sold their stake as part of its efforts to repay its bailout package to the US government. The company posted a narrower-than-expected loss for the first quarter of 2011, despite the catastrophe losses from severe natural disasters.
Robert Orlich, President and CEO at Transatlantic, outlined the mergers’ objectives in his statement: “Transatlantic and Allied World make great merger partners in every sense of the term. For Transatlantic in particular, the transaction delivers strategic and financial benefits, including primary insurance operations, a Lloyd’s presence and a bigger capital base outside the U.S., allowing for greater capital allocation flexibility. I look forward to helping see this transaction through to completion, after which Scott and Mike are the right team to move this forward and capitalize on the great opportunity for the new company to create value for shareholders.” Mr. Olrich, will step down from his position once the deal is finalized, which is expected to happen during the fourth quarter this year after it receives shareholder and regulatory approval, among other customary closing conditions.
Allied World Chief Executive Scott Carmilani will become the CEO and president of TransAllied, tasked with oversight over the global organization. Mike Sapnar, the current Vice President and CEO of Transatlantic, will become the President and CEO of Global Reinsurance.
In the joint statement, Mr. Carmilani further expressed how Transatlantic and Allied World would make for great merger partners: “I have long admired Bob Orlich, Mike Sapnar and the management team at Transatlantic and the specialty reinsurance business they have built, which very much complements Allied World’s specialty insurance focus. This merger will only serve to strengthen the combined company’s market profile and competitive position, greatly enhancing our capabilities to post strong returns through all phases of the industry cycle. Both management teams have a strong track record of building value for their shareholders over the long run, and we are eager to continue doing just that as part of one organization.”
The joint company, its shareholders, clients, employees and trading partners will all benefit, according to the statement, from a larger capital base and greater business diversification, resulting from the additional growth opportunities and enhanced structural flexibility the expanded distribution and global platform capacity that the merger will provide.
Upon completion of the deal, Carmilani and Sapnar will serve on the combined company’s board of directors. The new company will have an 11 member board, six seats appointed by Transatlantic Holdings and five by Allied World. Both companies will host a joint conference call this week to further discuss the proposed merger with investors.
International credit rating and insurance information agency, Moody’s, has already responded to the proposed merger, placing Allied World under review for a possible upgrade and affirming the ratings of Transatlantic Re. “The rating agency believes the merger will provide both franchises with strong benefits,” Moody’s reported.
Market analysts have been expecting an increase in merger and acquisition activity amongst mid-sized global insurers and reinsurers, forecasting that a soft pricing environment would enable companies to combine to gain scale and return sufficient capital to investors. Last year’s notable activity include Max Capital Group’s merger with rival Harbor Point Ltd. to form Alterra Capital Holdings Ltd. This deal between Transatlantic and Allied World could be the first of many such mergers in an upcoming wave of market consolidation.
Insurance Companies Mentioned
Allied World Assurance
Allied World Assurance is a global insurance and reinsurance business. The company operates through a worldwide network of offices in several major US cities, Hong Kong, London, Singapore and Zug, Switzerland. Allied World Assurance provide property, casualty, insurance and specialty reinsurance products.
Transatlantic Holdings Inc. is a leading international reinsurance company, headquartered in New York. Through it’s subsidiaries, Transatlantic offers reinsurance capacity and analysis for a wide array of property and casualty products, with a particular concentration on specialty risks.
In a case that truly represents the duplicitous times we are living in, American life insurance firm Coventry First LLC has filed a lawsuit this week against an anonymous internet critic who periodically sent out fake Twitter messages which parody the insurer and make them appear to root for the death of its policy holders to boost profits amongst other fraudulent claims, Reuters reports.
The case, ‘Coventry First LLC v. Does 1-10,’ was filed on Tuesday in Philadelphia federal court. Coventry First filed the suit against an anonymous Twitter user known as @coventryfirst on allegations of trademark infringement and unfair competition. The insurer is seeking an order to take down the parody Twitter account as well as monetary damages. Coventry First argues that the online account violates its trademark and the numerous ‘tweets’ about the life settlement industry would cause further confusion in the marketplace. Twitter Inc. is not a party to the suit.
The Twitter account in question, @coventryfirst, has a picture of a dollar sign as its avatar and has published 14 posts so far with farcical messages such as “the faster people die the more coventry first profits! not even cig companies want their customers to die as fast. natural disasters are good for business!” and “horrible weekend … no plane crashes (they make a lot of money), no earthquakes.” The posts first began appearing on May 27, the account currently only has three followers.
Coventry First, which describes itself as the creator and leader of the secondary market for US life insurance, said the use of its trademark in such a fashion “tarnishes the reputation” of the entire company, “as it uses the mark in connection with language derogatory to plaintiff and to the life settlement industry generally, and is of a lesser quality than that which consumers expect from statements being made by plaintiff,” the complaint read. (available here)
In addition to scurrilous statements issued on its behalf, Coventry First maintains that the account’s use of its name and the phrase ‘Don’t miss any updates from Coventry First’ further infringes on its trademark, according to a Law360 article. The US insurer is also filing suit for unfair competition, false designation of origin, violations of the Anti-Cybersquatting Consumer Protection Act, trademark dilution and unjust enrichment. The company has also issued a subpoena towards Twitter, asking the social media firm to disclose the identity of the account holder.
“Consumers are likely to believe that the site is somehow related to plaintiff, when it is not,” Coventry First added, in reference to the Twitter account.
Parody accounts of companies and public figures have become commonplace on Twitter, and often act in opposition to the reputation of their representative at times of great controversy.
Coventry First’s chances of shutting down the offending Twitter account appears uncertain due to US courts’ obligations to balance the right of brand owners against overall free speech values offered in the First Amendment. The courts will require substantial evidence proving commercial use by @coventryfirst before they will be able to determine if an infringement has occurred. To further prove a trademark claim, Coventry will also have to show that the fake Twitter account is leading to actual confusion in the minds of consumers.
There are currently much greater threats to businesses who wish to operate and maintain a presence on the internet. On Thursday, Citigroup Inc., the third largest US bank, disclosed that computer hackers had acquired limited personal information on about 200,000 credit-card holders, the second announced breach they had suffered this week. The financial institution said it would mail new cards to affected customers.
The attack comes amidst a host of cyber intrusions into predominant multinational companies, including Google, Sony Corp, EMC, Lockeheed Martin and L-3.
Online hackers are fast becoming the greatest threat to business today. As commerce continues to move online, the gap between technological innovation and the ability to protect data offers criminals an opening to launch attacks and steal sensitive industry information.
Security experts revealed that the cyber-attack on Citigroup may be a watershed moment for the US banking industry, which until now had suffered fewer direct hacker attacks than other retailers. This event could ultimately drive momentum for a systemic overhaul of the industry’s existing data security measures.
“We’re getting to the tipping point in terms of the number of fraud cases,” said Gartner Research security analyst Avivah Litan. As industry regulators determine whether to require more spending on network security, “this could be the straw that breaks the camel’s back,” she added.
Insurance Company Mentioned
Coventry First LLC
Founded in 1999, Coventry First is a leading player in the secondary insurance market. The company offers investments in high-premium life insurance policies, written on elderly or wealthy executive individuals looking to sell. In a secondary life insurance transaction the policyholder gets a lump sum, Coventry pays remaining premiums, and when the policy is realized, Coventry receives the payout.
For many years it has been common knowledge that smoking is an extremely harmful habit, with smokers presenting an increased risk for a host of medical conditions including Cancer, Cardiovascular Disease, and infertility, to name but a few. However, a recent study published in Science has highlighted a potential positive effect in Nicotine, a key chemical contained in tobacco products.
It has long been known that smoking suppresses appetite, and that individuals who quit smoking are prone to significant weight gain. The research presented in Science has shown exactly why smoking, and consequently nicotine, is able to control hunger urges. This has lead the researchers involved in the study to become hopeful about some potential future uses of the Nicotine compound, and are also hoping to use the study in order to help individuals attempting to quit tobacco products control their weight after they have ceased smoking.
So how does this process of weight control actually work?
The easy version is that the human brain has a large number of nicotine receptors, spread throughout the tissue. While not all nicotine receptors have an impact on hunger researchers found that the ?3?4 nicotinic receptor, located in the hypothalamus, suppresses an individual’s appetite when activated by nicotine.
The news of nicotine’s ability to influence weight gain follows a study published in Science Daily during May 2010 which found that smokers have a decreased risk of developing Parkinson’s disease, a serious degenerative condition of the central nervous system. In this study researchers found that active smokers, who had smoked for more than 40 years, were up to 46 percent less likely to develop Parkinson’s disease than people who had never smoked. Individuals who had smoked for between 30 – 39 years were 35 percent less likely to develop the condition than their non smoking counterparts, while persons who had smoked between 1 and 9 years had reduced their risk of developing Parkinson’s by 8 percent.
However, researches noted that the decreased risk of developing Parkinson’s disease was due to the length of time that an individual had smoked, and that the risk did not change based on the number of cigarettes that were smoked in a single day. The study also noted that in the event that an individual had already developed Parkinson’s symptoms smoking would not retard the progression of the disease, and that treating Parkinson’s with nicotine was not a viable option.
Chemicals in the Tobacco plant are coming under more scrutiny as global health initiatives to encourage people to give up smoking become more prevalent. However, with the news that there are some potentially beneficial effects of this incredibly harmful activity it can be expected that scientists will continue to build on their knowledge of this substance.
One projected line of inquiry into the new knowledge of the nicotine compound is as a weight loss aid for individuals suffering from chronic obesity. Obesity is a rapidly growing issue in many developed nations, especially the USA, and a non-invasive method of controlling appetite outside of drastic stomach surgery or a complete overhaul in lifestyle choices could be a welcome sight for many individuals around the world.
However, there are some key concerns with using nicotine as a form of medical treatment, not in the least is that the substance is highly addictive and that most forms of tobacco use carry the previously mentioned, severe health risks. Using a pure form nicotine pill of some type, nicotine gum, or even the patch could be possible treatment methods but researchers have yet to come to a full understanding of how these options will impact conditions like obesity.
Additionally this could cause a range of issues with regards to medical insurance and life insurance coverage. Smokers and tobacco users will typically receive higher premiums than non-smokers when obtaining health insurance in many parts of the world. In fact, many life insurance policies will check for the presence of Cotinine, a byproduct of nicotine found in the blood of smokers, and impose higher premiums on those who test positive for the molecule. If scientists and doctors find a way to use nicotine as a legitimate treatment option for conditions such as obesity and Parkinson’s disease then a simple test to check for the presence of Cotinine may not be sufficient to calculate the risk presented by a specific individual. However, any development in this direction will be at least a few years off, giving insurers around the world time to prepare for new forms of treatment.
This week, top executives from the global insurance and reinsurance business are attending Standard & Poor’s 27th Annual Insurance Conference 2011 at the New York Marriott Marquis in New York City to discuss and evaluate the various earnings challenges currently facing the industry.
S&P’s series of seminars have thus far revealed some interesting insights on the state of international insurance today. A snap poll conducted at the beginning of the conference found that nearly half of insurance industry executives were more worried about the prospects of the life insurance and annuity sector than of any other product segment in the business. Around a quarter of respondents further revealed that they were most concerned about the reinsurance business, which has faced exceptional losses already this year from the unprecedented frequency of natural catastrophe losses, due in particular to the earthquake and tsunami in Japan and the heavy storms hitting in the United States. More than half of the attendees, 54 percent in total, further commented that the top focus for management now would need to be their company’s risk management strategy, proving much more important to respondents than other administrative issues such as retaining high-profile staff.
Life insurance has remained a sector facing undue pressure by the persistently low interest rate environment. These low rates have impacted the long-term returns life insurers need to sustain their operations. Thomas Marra, chief executive for life insurer Symetra Financial Corp, told conference attendees that the threat of the low-interest rate environment continuing further for a significant length of time was what keeps him up at night. If interest rates stay low, Marra argued, “my company will have a hard time meeting our hurdles,” and while Symetra Financial will work hard to improve its returns on equity, Marra admitted that “it’s going to be tough if interest rates stay in this range.”
Insurance executives representing the property and casualty market have also identified low interest rates and reduced investment returns as key challenges facing the industry. While underwriters are ready for significant price augmentation, a broad shift in the market remains implausible with so much excess capacity left outstanding in the marketplace,
Speaking at the Property/Casualty Sector seminar, David S. Cash, CEO of Endurance Specialty Holdings Ltd., described the current global P&C market as “reasonably disciplined” as individual insurers have begun to exit from business lines they are not seeing adequate rates in.
However, as Michael S. McGavick, CEO of XL Group, noted “the discipline in the market is uneven.” While some insurance segments are showing improvement and more appropriate pricing, McGavick remains concerned about others, such as directors & officers’ liability insurance, where pricing has remained overtly competitive as underwriters hold out for the recent generous reserve returns observed from other business lines.
The disparity in pricing discipline between different insurance markets, absent of macro re-evaluations, could be a long-term issue for the property and casualty industry. McGavick asserted to the seminar audience that in order to realize broad market hardening and raise rates, two significant dynamics must occur: “there must be a psychological change among underwriters [and] there must be a drain of capital.” According to McGavick, the first factor is already happening. Pricing is showing gradual improvement but this shift in underwriting behavior now needs to be matched by a real capacity drain, which has not yet happened.
Carl H. Linder III, co-CEO and co-president of American Financial Group Inc., confirmed that the P&C market is operating in a period of uncertainty. Insurance companies have continued to hold onto their capital reserves in fear they wouldn’t prove sufficient otherwise should market conditions worsen. However, as the American economy starts to recover, claim frequency may increase, Linder explained.
A major storm during the upcoming Atlantic hurricane season could drain capacity and change much of the market, but not all of it, McGavick said. Ultimately it is risks that companies prove not so attentive to that move markets substantially. Conversely, both McGavick and Linder agree that an earthquake similar to those that have rocked the Asia Pacific this year could prove to be such an event. The US earthquake insurance market, despite earthquakes being an infrequent occurrence in the country, is not effectively priced and a sizable event would more dramatically impact the pricing cycle than another summer windstorm.
New US government financial regulations issued in response to the 2008 global financial crisis have also had an adverse impact on the P&C sector. The increased capital requirements imposed on all private financial institutions have hampered insurers’ ability to evaluate risk in particular. McGavick complained that regulators had overreacted towards the insurance industry and that attempts to fix the banking sector could lead to to bad behavior in insurance. “Banking regulators should learn from insurance regulators, and not the other way around,” McGavick added.
Overall, the property and casualty insurance industry has adequate reserves today but, as Cash remarked, “right can turn wrong in a matter of 18 months.” Irregardless, underwriting will remain critical to individual insurer success, particularly in a Western market where economic activity, and as a result premium generation, is downcast and where interest rates remain low.
Other insurance executives at the conference, while recognizing the threat of persistent low interest rates, maintained that they were also concerned the uncertain political situation in the United States.
In another seminar, Craig Mense, chief financial officer for commercial insurer CNA Financial Corp, said “When you have more uncertainty, you are clearly more conservative,” adding “You have tax-policy uncertainty, you have accounting-regime uncertainty and you have regulatory uncertainty. All those things make us more cautious.” James Morris, CEO of life insurer Pacific Life, surmised “there are huge problems in our country and no immediate solutions.”
Standard & Poor’s
Standard & Poor’s (commonly referred to as S&P) is a business branch of publishing house McGraw-Hill. Operating out of 20 countries, S&P provides the investment community with independent credit ratings on important financial vehicles such as stocks, municipal bonds,corporate bonds and mutual funds. In addition to its risk management, investment research and credit rating services, Standard &Poor’s is known for its indexes, in particular the S&P 500 index.