Nov
30
China Insurance IPO On the Horizon
Filed Under China, China insurance | Leave a Comment
New China Life Insurance, the state-backed insurer part owned by Zurich Financial Services, yesterday embarked on its international road show, which is seeking up to US$2.3 billion for their upcoming initial public offering. While the deal size is below the US$3-4 billion the Chinese insurer was initially hoping to raise this year, the IPO range remains at the top end of expectations given current market conditions.
Last week, New China Life, Mainland China’s third largest life insurer by premium volume, obtained the final securities approval needed for their dual-listing in Hong Kong and Shanghai, with the Hong Kong portion expected to account for around 70 percent of the combined offering.
Citing their most recent IPO term sheet, New China Life plan to sell as many as 158.5 million shares in Shanghai (A-share offering) at an indicative price range of CNY23-28 (US$3.60 to US$4.39) each, and a further 358.4 million in Hong Kong (H-share) at a price ranging from HK$28.20 to HK$34.33 (US$3.62 to US$4.40), with an option to expand it by another 15 percent. According to industry analysts, the A-share market has proven to be more sensitive to New China Life’s IPO, accounting for only 5 percent of the company’s total shares, and is in part why the company has allocated a smaller share to the Shanghai bourse. The insurance company is scheduled to first list in Hong Kong on December 15th, where it aims to raise between HK$10.11 billion and HK$12.3 billion (US$1.3 billion to US$1.58 billion). The Shanghai Stock Exchange listing, is scheduled to occur a day later and could fetch CNY4.5 billion (US$698 million), based on the same pricing as the Hong Kong sale.
As the year-end approaches, many Chinese companies are attempting to sell shares in the Asia-Pacific to fund future business ambitions, braving the mounting concerns over volatile global equity markets. Indeed, China’s two largest insurance companies, Ping An Insurance and China Life Insurance, have already been listed on both overseas and domestic bourses. The Beijing-headquartered New China Life’s dual listing could push the rest of China’s insurers to market sooner that expected. According to market analysts, there may be over US$10 billion worth of new dual share offerings in Hong Kong and Shanghai coming to the market over the next few months from Mainland insurance companies alone. State-backed property insurer PICC said on Tuesday that it planned to raise about CNY5 billion (US$786.5 million) via a rights issue to strengthen its capital base and improve its solvency margin. Taikang Life Insurance, China fifth-largest insurer by premiums, is also looking to list in Hong Kong, with plans to raise between US$3 billion and US$4 billion through an IPO in the next couple years.
New China Life has already secured commitments from four cornerstone investors for a reported US$780 million worth of shares, equivalent to roughly 60 percent of the Hong Kong portion of the initial public offering. Singapore-listed insurer Great Eastern Holdings Ltd will be the biggest investors after agreeing to purchase US$380 worth of New China Life’s shares. Hedge fund DE Shaw & Co and Malaysian sovereign wealth fund Khazanah are each committing US$150 million, while South Korean private equity firm MBK Partners will buy up US$100 million worth of H-shares. Each of the four investors has been guaranteed large allotments in exchange for agreeing to hold onto their shares for at least six months. The fact that New China Life has already received backing from a list of big-name global investors, including existing shareholders Zurich and Standard Chartered Bank, should make other potential buyers more comfortable to commit money to the stock. According to the company term sheet, 95 percent of the remaining shares to be offered will be sold to institutional investors, while 5 percent will go to Hong Kong retail investors.
New China Life will use the proceeds from the dual-listing to bolster its capital position, improving margins in order to better keep pace with the firm’s rapid business growth while adhering to stricter regulatory requirements on adequacy ratios. Indeed, addressing these declining solvency ratios has become a critical issue for the Chinese insurance industry. Shares in China Life Insurance and Ping An Insurance, New China Life’s main rivals, have fallen by about 38 percent in Hong Kong trading this year, on general concerns over a slowdown in profits and whether the continued decline in equity markets will increase mark-to-market losses on insurer balance sheets going forward. Insurance companies tend to invest a large part of their income back into financial markets.
Although share prices of listed Chinese insurers have been suffering through the tough market conditions this year, New China Life expects to benefit overall from the further expansion and development of the country’s insurance market. Last year, the Beijing-based life insurer earned CNY93.6 billion (US$14.3 billion) in premium income, equating to 9 percent share of the country’s insurance market, according to the China Insurance Regulatory Commission (CIRC). New China Life, 15 percent owned by Zurich Financial Services, has been largely successful in adapting to China’s surging demand for insurance and investment products, reporting a compound annual premium growth rate of 40 percent over the past 5 years. The insurer has been able to earn itself a competitive advantage in institutional sales and has fostered a particularly robust presence in the big cities of Beijing, Shanghai, and Guangzhou. Today, New China Life has 1,400 offices in China and serves over 24 million policyholders.
While New China Life’s dual IPO will test shareholder confidence during this time of pronounced market volatility, the Chinese life insurance industry is one of the fastest growing in the world and will continue to target investment going forward. According to the CIRC, gross premium income received by China’s life insurers has increased at a 24.9 percent compound annual growth rate over the past 10 years. The country is undergoing a series of economic and demographic transformations, including widespread healthcare reform and a quickly aging population, and this will present significant growth opportunities for insurance companies.
In order to further capitalize on this considerable market potential, China’s insurers will need to build greater reserves and continue to evolve their business and risk management practices to succeed, a view now shared by not only industry analysts but the country’s top insurance regulator as well. This week CIRC launched a crackdown on rogue insurance agents in the midst of rising complaints of fraud and cheating from policy holders. According to the regulator, around CNY 80.66 million (US$12.66 million) has been taken illegally by insurers or agents from policyholder premiums so far this year, and the misdeed involved over 50 insurance companies and agents. “The main problem is the false, and non-transparent relationship between insurance institutions and agents,” the CIRC said in a statement. Going forward these problems will need to be addressed.
Insurance Companies Mentioned
New China Life
New China Life Insurance Co (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.
Nov
29
Arab Spring Could Affect Regional Insurance Markets
Filed Under Middle East, UAE Insurance | 1 Comment
The ongoing civil strife and revolutions occurring throughout the Middle East and North Africa could have a negative impact on the further development of insurance markets in the region, according to a new special report published this week by AM Best.
2011 will forever be known as a year of mass social unrest and political turmoil in the Middle East and North Africa (MENA) region, where revolutions in certain countries have not only taken a considerable human toll on local populations but have also affected the region’s financial risk systems and overall business environments for potentially years to come. In ‘Protests Alter Forecasts for Premium Growth in MENA,’ worldwide insurance information and credit ratings agency AM Best examines the financial impact of the Arab Spring protest movement, country by country, and how it has altered the international insurance industry’s prospects in the region.
In general, periods of sociopolitical unrest and upheaval will pose considerable problems to a nation’s insurance industry, disrupting business patterns and affecting liquidity, according to AM Best. For the insurers themselves, premium levels can often stagnate due to business days lost due to unrest and other prolonged inabilities to collect on policies. In addition, while claims directly resulting from revolution and civil war are typically excluded, the incidence rates of claims overall can be higher in the aftermath and firms will have to find ways to absorb these losses. Moreover, if wide scale changes to a country’s government occur, insurance regulations could follow suit and the performance of previously prominent state-backed companies could be affected. Alternatively, the rating agency noted, certain business lines can in fact benefit from these tumultuous times, with premium levels for cargo and marine cover due to rise in tow with expected oil prices, as well as reinsurance opportunities arising from reconstruction efforts and government infrastructure spending.
Overall, AM Best reiterates that premium growth will continue to be closely linked to economic activity. “Specifically, a country’s growth in inflation-adjusted insurance premiums is determined, at least partially, by the overall level of real economic activity in that country. Nominal gross domestic product growth historically is highly correlated with insurance premium growth,” the ratings agency noted. Thus political turbulence which fosters business uncertainty could affect the development of the region’s insurance markets going forward.
Although the political situations in several MENA countries are still far from resolved, AM Best was able to use the most recently revised economic growth data provided by the International Monetary Fund (IMF) to forecast how the region’s insurers may expect to perform in the near future. In September, the IMF downgraded the economic growth projections of 8 MENA region countries, including Algeria, Bahrain, Egypt, Syria and Tunisia, and raised the forecast for 7 others. Although Syria is the only country expected to slip into a formal recession, the IMF noted that the unrest is expected to negatively impact the economies of many MENA nations in 2011, with growth rates generally returning to their original pre-crisis path by around 2013 or 2014. The IMF held the potential long-term disruptions in key business sectors of MENA economies, chiefly, tourism, private financing (particularly foreign direct investment) and the oil industry, accountable for the reductions in GDP projections. Tourism and investment activity, in particular, are highly dependent on consumer and investor confidence, and have been shaken by the pervasive turbulence of the Arab Spring. Equity markets across the MENA region have been down 16 percent on average since the start of 2011, ranging from the full rebound in the Qatar exchange to a massive 41 percent drop on the Egyptian exchange.
Using the IMF’s updated forecast, AM Best found that the Arab Spring protests will affect the insurance industries of each country in different ways, although the projected impact on premiums overall in the region is not expected to be too severe, owing primarily to the relative immaturity of the MENA insurance sector in general. According to AM Best’s calculations, the impact the widespread unrest will have on markets ranges from Syria’s projected insurance premiums in 2015 being around 14 percent lower than they would have been before the protests, up to Turkey’s projected premiums in 2015 being in fact 1 percent higher. Of the 16 countries surveyed in the MENA region, 10 are expected to post lower premium growth in the aftermath of the Arab Spring, namely, Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Syria and Tunisia, with Egypt and Syria experiencing the largest expected declines in growth due to unrest. Relative to country risk metrics, with the exception of Tunisia, all of these markets where the impact from the Arab Spring is judged greatest were already classified in AM Best’s highest country risk tier. Meanwhile, 5 MENA countries are projected to remain unaffected or experience modest gains, with more than US$2 billion in projected premiums in 2015. These countries are Israel, Morocco, Saudi Arabia, Turkey, and the UAE.
While these findings could indicate a significant shift in the MENA insurance industry, premium levels for the whole region are projected to only be 0.7 percent lower in 2015 than they otherwise would have been without the protests. “Thus, while the overall effect of the protests in the short-to-medium run is negative, it will be relatively minor on the regional insurance industry,” AM Best noted. The rating agency’s findings leave us with two profound conclusions, one is that political upheaval does not necessarily destroy a domestic insurance industry, and the other is that there is still considerable opportunity for foreign investors to build the insurance trade in the MENA region.
Rating Agency Mentioned
A.M Best
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.
Nov
28
China, India Insurers’ Involvement in Capital Markets Has Potential
Filed Under Uncategorized | 4 Comments
The further expansion of insurance and pensions sectors in populous Asian countries like China and India will be both integral to the development of their own capital markets as well as offering huge potential for rapid growth for overseas investment, according to a new report published this month by the City of London Corporation.
In ‘Insurance companies and pension funds as institutional investors: global investment patterns,’ Trusted Sources, a top emerging markets research group, study how pension funds and insurance companies have historically helped to shape the financial systems of developed countries, gradually increasing liquidity in their established capital markets through the introduction of long-term and stable funding mechanisms to market. By contrast, the contribution of such institutions towards China and India’s development has been limited so far due to the evolving nature of their insurance and pension sectors as well as tighter government restrictions placed on their investments and business decisions. If these two emerging Asian superpowers want to increase the depth and diversity of their respective financial markets, greater liberalization of investment mandates for insurance companies and pension funds may be needed going forward to match their rapid growth potential.
The report first observes the role insurance companies and pension funds have played in developed markets and what experiences can be garnered for emerging economies now. Generally speaking, as a country grows richer, they develop more active insurance sectors and the markets benefit overall. This has been especially true in the United Kingdom and United States, where the pension and insurance industries have grown rapidly in tow with their more sophisticated financial systems and with more people demanding protection and retirement planning services as they grew richer. The report cites that in the past 30 years, insurance company assets in the UK have increased from 20 percent of GDP in 1980 to 100 percent in 2009, with pension assets growing four-fold as well. In the US meanwhile similar growth was occurring, with pension funds and insurance companies investing more in equities and corporate bonds.
As a result of these developments, huge sums of stable, long-term funds have been pumped into the UK and US’s respective capital markets over the past three decades. This deep and stable pool of capital provided by the insurance companies and pension funds has worked to reduce market volatility and fund other ventures. In the UK, this influx of capital has been behind the development of the country’s stock market, helping it turn into one of the most efficient and sophisticated financial centres in the world. Before foreign investors became major shareholders on the FTSE, UK pension funds and insurance companies held the majority of issued shares. Insurance company and pension fund investors in the US meanwhile have contributed both significantly to equity markets as well as the growth of the corporate bond market, which is now the world’s largest at 140 percent of GDP.
Trusted Sources’ report also examined the approach other Western markets have taken. Continental Europe has used a more bank-based financial system, where the role insurance companies and pension funds have played in the markets has historically been much smaller. Furthermore, investments remained much more focused on government bonds, partly due to regulations that are stricter than in the UK and the US. As a result, the financial system remained centred on bank lending and growth has been more limited. However more recently these same European institutional investors have grown and have diversified their investments into equities and corporate bonds considerably. This has facilitated a move towards market-based financing through stocks and bonds, following the likes of the US and UK. While in the US, the insurance sector has stabilised at around 40 per cent of GDP, in Germany it is at 60 percent, and France near 100.
Insurance companies and pension funds in Asia have much to do to match the overall contribution made by their Western counterparts toward their respective economies but time is on their side. The report notes that while the insurance and pension sectors in India are underdeveloped now, with assets at 7 percent and 16 percent of GDP respectively and limited investment activity in equities and bonds, there is considerable potential for growth going forward.
The county’s insurance sector in particular has progressed rapidly over the past decade, driven by an expansion of life products, which dominate the market. Since the insurance sector in India was first opened up to the private sector with the passage of the Insurance Regulatory and Development Authority Act in 1999, total insurance penetration has doubled with the domestic protection industry overtaking several developed markets in output. According to the report, the market share of state-run firms has decreased to 65 percent for life insurance and 60 percent for non-life insurance during this period. Foreign multinational insurers have been integral to the sector’s overall development so far. Despite a 26 percent cap on foreign ownership, 20 out of the 22 life and 16 of the 18 general insurance firms that have been set up since 2000 have been joint venture operations with foreign partners. One of the first recommendations Trusted Sources makes is to of course lift these restrictions to increase overseas stimulus.
India’s pension funds and insurance companies are expected to grow as the overall economy matures, as has happened of course in the UK, US and other developed markets. Regulation permitting, there is of course considerable room for insurers and pension funds to shift their assets from government bonds into equities and corporate bonds. The country’s expansive, high-inflation market environments make equity investment attractive and this, according to Trusted Sources, will drive the popularity of index-linked insurance products (ULIPs) for the foreseeable future. Despite this considerable potential however there are several restrictions holding India back. Insurance companies are, in general, barred from investing more in equities, and have been blocked moving into corporate bonds and derivatives as well. Pension funds face even more obstruction. Trusted Sources notes that the Employees’ Provident Fund Organisation (EPFO), which accounts for around two-thirds of India’s pension fund market, is prevented from investing its sizeable reserves into equities at all.
These restrictions are obviously limiting the overall contribution pension funds and insurance companies could make towards growing India’s capital markets. To improve upon this situation, Trusted Sources made several policy recommendations including: lifting restrictions on equity investments, corporate debt and derivatives, allowing the EPFO to invest in equities and removing burdensome tax and regulatory constraints which would increasing incentives for institutional investors to buy Indian corporate bonds.
In China, like India, the insurance and pension sectors have traditionally had a small presence in the domestic stock market, each holding only around 2 percent of issued shares at present. According to Trusted Sources however, that will soon change with both institutions likely to start playing a larger role in both equity and corporate bonds in the near future. China’s insurance industry has grown dramatically over the past few years and currently ranks as the sixth largest protection market in the world with assets under management now worth CNY4.6 trillion (US$720 billion) at the end of 2010, up from CNY1.4 trillion (US$171 billion) in 2005. Despite increased competition as of late, the Chinese insurance market is dominated by four state-backed insurers, China Life, Ping An, China Pacific Insurance Corporation (CPIC) and People’s Insurance Corporation of China (PICC). The market share for foreign insurance companies (who operate principally through joint ventures) remains at around 5 percent. More than 70 per cent of total premium income of China’s insurance industry currently comes from life insurance companies. As the country grows richer, demand for more sophisticated savings products will likely rise in tow, driving further expansion.
In spite of this pronounced industrial growth, institutional investment in China’s capital markets from insurance companies has been perhaps overly risk averse. Chinese Insurance companies invest only around 11 percent of their holdings into equities, with the rest held in bank deposits and bonds. According to Trusted Sources, this is occurring due to several factors. The first is that most insurance activity in China still involves conventional insurance products, which offer returns of only around 4 and 2.5 percent respectively. These returns are backed by government bonds and negotiated-term deposits with limited downside risk, and provide little incentive for insurers to diversify their investment portfolios at present. Trusted Sources inferred however that this could soon change “ULIPs occupy only a marginal position. If they increase in popularity, as happened in the UK and the US when competition increased, a shift into equities is expected.”
Chinese insurance companies, in general, are finding the stock market too volatile to invest in at the moment, with dividend guarantees effusive. The report claims furthermore that strict regulatory control over corporate bond issuance is affecting supply, and is thus restricting overall investment growth. To encourage greater participation from Chinese pension funds and insurers in capital markets, Trusted Sources listed several policy recommendations including increasing competition amongst local insurance companies, tax incentives for ULIPs, clearer dividend-payout rules for listed companies, and the relaxation of qualification rules for private companies allowed to issue bonds.
Overall, the report believes that, in China and India, increased liberalization of local insurance and pension markets could foster greater liquidity and depth in their domestic capital markets, which will of course be needed to support the effective growth of businesses in each country going forward.
Nov
25
Korea Life to Start Joint Venture in China
Filed Under China | Leave a Comment
A statement released this month by Korea Life Insurance Ltd confirms that South Korea’s second largest life insurance company has now received the appropriate regulatory approval from the Chinese authorities to establish a joint venture business in China with a local partner, and begin providing it’s insurance services and expertise in the world’s second largest economy.
The China Insurance Regulatory Commission (CIRC) has now signed off on a 50-50 joint venture life insurance business between Korea Life and Zehjiang International Business Group, a state government-owned asset management company, with operations scheduled to begin in 2012, according to the Seoul-based insurer. The new life insurance joint venture will have a total paid-up capital of CNY500 million (US$79 million), equally financed by Korea Life and Zheijang International, and will be headquartered in Hangzhou, the capitol city of Zhejiang province in eastern China. “With the insurance market potential and domestic economic growth in China, the joint venture is expected to begin its business in the Yangtze Delta region,” Korea Life said in the statement.
Korea Life will assume the overall business management responsibilities of the new joint venture, and will work to gradually localize their operations for the Chinese market with help from Zheijang International’s robust business network.
Korea Life has been looking for a way to enter into China’s fast-growing insurance market for a number of years. The Seoul-based life insurer first set up its representative office in Beijing back in August 2003. Then, in December 2009, Korea Life Insurance signed a memorandum of understanding agreement with Zhejiang International Business Group, which outlined their preliminary plans to partner together through an initial 45 billion Korean won (US$40 million) investment for establishing a joint venture life insurance operation in China. Now that the proper regulatory licenses have all been granted, Korea Life and their domestic partner can begin establishing their business presence in Zheijian province’s insurance market, one of China’s higher-income areas.
Expanding outside of their saturated home market has become increasingly important for Korean insurers. South Korea remains one of the world’s largest insurance markets by per capita premium levels, with a particularly high insurance-penetration rate in regards to life insurance products and services. In the aftermath of the 1998 Asian financial crisis, South Korea’s insurance industry has rapidly expanded on the back of regulatory developments, government support, economic growth and rising per capita income levels, to now become the seventh largest market globally in terms of market share. While the domestic insurance market has been open to multinational insurers since 1987, both the life and general insurance sectors are dominated by large domestic financial conglomerates, namely Samsung Life, Korea Life and Kyobo Life, which control over 60 percent of the life-insurance assets between them.
Despite this success at home however, in order to sustain their margins, South Korea’s most prominent insurance companies must now look towards expanding into other international markets. Local market analysts have long expressed concerns over the country’s alarmingly low birth rate and rapidly aging populace, and the effect this all has the insurance sector’s growth prospects if the prospective customer base continues to decline. At present, one in 10 Koreans is aged 65 or older, but the ratio is expected to rise to over 14 percent by 2018. These concerns are of course not unique to Korea. An OECD report issued earlier this year claimed that aging populations will cause global spending on long-term care to double or even triple by 2050, and this will have a considerable effect on insurance markets in tow, as the demand for health-care and retirement-related products continues to rise.
Founded in 1946, Korea Life Insurance is the Southeast Asian country’s first standalone insurance company. According to the Korea Life Insurance Association, the company reported over KRW 6.54 trillion (US$5.79 billion) in gross written premiums in 2010, and a 12 percent share of the life market. Korea Life has had to innovate in order to protect its position in the competitive local market. In March 2010, the Seoul-based company became the first Korean insurer to go public on the South Korea Stock Exchange. While that move has successfully raised capital for further development in their domestic life insurance operation, Korea Life is now looking to expand it’s footprint into more international markets. Currently the insurer’s global network feature offices in Tokyo, London and New York but more work needs to be done to develop a presence in emerging markets with real guarantees of sustainable premium growth. This was a sentiment shared by the company CEO and Vice Chairman, Shun Eun-Chul in an interim report filed earlier this year, saying “The local insurance market is becoming saturated, so advancement overseas is a must.” Overall, the company is putting itself on the forefront of Korea’s insurance industry as they all expand internationally.
Korea Life Insurance has already had some success in moving its operations into an overseas market. In April 2009, the company became the first Korean life insurer to enter Vietnam’s budding protection market, initially providing endowment policies and educated savings plans through a 2,000 strong agency force. In their first year, Korea Life took a 1.8 percent share of all new insurance sales in Vietnam, with over 10,000 new policyholders and premium income of US$3.3 million.
The company has now set an ambitious target to triple its manpower to 9,000 employees working across 22 branches in Vietnam, with projected annual premium income exceeding US$35 million by 2015. Korea Life is confident they can achieve these objectives due to the favorable market conditions in Vietnam versus Korea. The Vietnamese insurance industry is growing at average of 10 percent annually. When you combine these economic indicators with favorable demographics, as over 60 percent of the population is under 30, the potential for further insurance development becomes significant. After investing in and starting their operations in both Vietnam and now China, Korea Life Insurance is now considering making inroads into other emerging markets in the Asia Pacific region.
Insurance Company Mentioned
Korea Life Insurance
Korea Life Insurance is an insurance company specialized in providing life insurance business. The company offers a wide range of insurance products including whole life/term insurance, survival insurance, death insurance, group insurance, annuity insurance and many other services for both individual and corporate customers. Substantial loan services, credit options, fund products and risk management services are also offered. Korea Life Insurance was founded as Daehan Life Insurance in 1946. The company is headquartered in Seoul, South Korea with additional offices in Ho Chi Minh City and Hanoi, Vietnam.
Nov
24
Japan’s insurance industry has faced unprecedented natural catastrophe conditions throughout 2011, including earthquakes, tsunamis, typhoons, and now the ongoing Thailand floods, which have badly affected major Japanese manufacturers. Due to these considerable disaster losses, many Japanese insurers have begun turning their focus to risk management and are actively seeking alternative catastrophe reinsurance arrangements.
The March 11, 2011 earthquake and tsunami that struck off the coast of northeast Japan, and the widespread devastation that followed, has had a significant impact on the previously under-utilized catastrophe insurance market in Japan. The catastrophic event is now reported to have destroyed or damaged over 500,000 Japanese buildings, many due to the accompanying tsunami. According to the latest figures released this month by the General Insurance Association of Japan (GIAJ), the country’s non-life insurance sector has incurred total insured losses of ￥1.3 trillion (US$16.9 billion) from the March 11 earthquake and tsunami and the two sizeable typhoons that have occurred since then in September.
The GIAJ furthermore reported that the country’s top 25 non-life insurance companies had received 831,130 claims inquiries related to earthquake insurance on housing risks, with 718,484 claims already settled. These same non-life insurers have, as of November 9th, paid out ￥763.2 billion (US$9.86 billion) on insured properties in the north-eastern Tohoku region, settling 393,895 claims in the area closest to the original catastrophic event. In the eastern region of Japan including Tokyo, insurers have paid out ￥413.6 billion (US$5.35 billion) in claims with 422,455 settled cases. The Hokkaido region and the other remaining prefectures meanwhile reported ￥283.9 million (US$3.67 million) in insurance claims, according to the general insurance association. In total, the March earthquake and tsunami has lead to ￥1.18 trillion in insurance claims for dwelling risks across the country.
In the second half of the year, Typhoon Talas caused ￥33.18 billion (US$ 430 million) in insurance claims according to the GIAJ. The biggest claims came from fire insurance, accounting for ￥25.8 billion (US$33 million) in insured losses. Another typhoon in September, Roke, resulted in a further ￥88.8 billion (US$1.15 billion) worth of insurance claims.
The life insurance industry in Japan meanwhile has paid out ￥185 billion (US$2.4 billion) in claims from catastrophe losses this year, including ￥141 billion (US$1.8 billion) in claims for death benefits and a further ￥44.3 billion (US$570 million) in accident-related insurance benefits from settling 18,391 claims. Usually these accident benefits would have excluded cover for earthquake-related damages, but the 47 members of the Life Insurance Association of Japan all agreed to pay out benefits without applying de jure policy restrictions, a previously unheard of conceit in Japan’s insurance market.
Despite these pervasive catastrophe events, the balance sheets for these Japanese insurers in general have not been badly affected by these losses, a reflection on the importance conservative risk management strategies currently play in the country. Since the earthquake in fact, Japanese general insurers have managed to successfully recover more than two-thirds of their gross insured losses via their pre-existing reinsurance coverage agreements. Most of Japan’s insurance companies are big conglomerates and remain financially strong, well reserved, with solid risk management practices designed to counter these adverse market conditions.
Japan’s national earthquake reinsurance scheme has also proven particularly effective. The system at present is a private-public mixed scheme, in which domestic insurance companies retain most of their costs locally by reinsuring each other, with the national government providing backstop support. The insurance claim mechanism allows for indemnity liability to be shared, with a reinsurance system limiting exposure for any single insurance company. The Japanese government also keeps a residential earthquake relief fund, expanded in May to ￥4.8 trillion from ￥4.3 trillion, which is reserved to help the non-life insurance industry meet cost obligations. For the country’s general insurers, the government reinsurance system has been important in maintaining stability in the aftermath of this recent string of natural disasters. Furthermore, the Japanese government, Ministry of Finance, and GIAJ members are now starting to promote residential earthquake insurance to fill in the funding gap, as market penetration was under 25 percent as of March 2011.
However, while Japans’s insurance industry has been able to largely absorb natural catastrophe losses so far, a new report by Fitch Ratings suggests more will need to done to preserve the sector’s solvency under adverse conditions going forward. In ‘Japan Earthquake Insurance: The Great Tohoku’s Effects,’ the ratings agency forecasts that the sharp rise in global reinsurance premium pricing, driven by the greater frequency of catastrophic events across Asia and the United States, will prove particularly costly to Japanese insurers and will necessitate greater involvement in catastrophe bonds and other mechanisms designed to offset rising coverage costs.
Japan’s general insurance companies have historically had no problem affording reinsurance cover due their massive buying power in the international reinsurance market. However, with reinsurance rates already hiked between 30 and 70 percent for 2012, and more increases likely once risk modelling firms update their Japanese catastrophe models, insurers may have to further diversify their risk portfolio options. Fitch Ratings explain that catastrophe bonds could offer a solution, instead of just passing higher reinsurance coverage rates onto the consumers themselves, “As the accuracy of the Japan’s earthquake loss model are further improved, with wider acceptance among specialised investors of participating in Japanese earthquake risk as a proxy for portfolio risk diversification strategy, catastrophe bonds could potentially become more important as an alternative to traditional earthquake reinsurance.,” Fitch wrote, adding that these solutions are only available through Japan’s increased involvement in the international reinsurance markets, “Risk sharing via reinsurance or catastrophe bonds will become more important in the market place given their important role in managing this high frequency and high magnitude risk in Japan and throughout the globe.”
Outside of catastrophe losses, growth prospects for the Japanese general insurance industry have remained low due to a stagnant economy, and a mature, saturated and overtly competitive market. Overall the industry’s profitability has been on the decline, with the automobile insurance market under particular duress due to the increase in traffic accidents, injury claims, and skyrocketing prices for auto parts. This consequently has kept underwriting results for these businesses at a level and often below the break-even point. Despite these concerns however, Fitch Ratings affirmed all of the five Japanese non-life insurers it observes by June.
Companies Mentioned
Fitch Ratings
Fitch Ratings is a global rating agency and provides ratings and analytical services for thousands of banks, financial institutions, insurance companies, corporations, and national governments. Fitch was founded in 1913 and now features dual headquarters in New York and London with over 50 offices worldwide,
Nov
23
MetLife Inc, the United States’ largest life insurance group, has decided to reorganize their business infrastructure in order to better represent the increased role international insurance markets have come to play in contributing towards the company’s overall growth and development over the past few years.
On Tuesday, New York-based MetLife announced that they would be splitting their business structure from the previous two sub-divisions, with one branch representing only their home US market and another focused on the entire international insurance sector, into three new regional divisions, each tasked with managing distinct geographic areas in which the life insurer is now serving an wider number of customers. According to the company statement, MetLife’s three new regional business divisions will be the Americas, EMEA (Europe, the Middle East and Africa) and Asia. The change will enable MetLife’s business to more closely match those of its international rivals like AIG and AXA.
MetLife also outlined a raft of high-end personnel changes that will accompany this structural overhaul. Each of the company’s new regional divisions will have its own president and executive team and this has necessitated considerable movement within the firm. MetLife has appointed William J. Wheeler, who had been their chief financial officer since 2003, to be president of the newly combined Americas division, with Executive Vice President Eric Steigerwalt serving as interim CFO while the company searches for a successor. Michel Khalaf meanwhile was named president of the new EMEA division, stepping up from his previous position as chief executive of MetLife’s Middle East, Africa and South Asia region. The company is still searching for a president to run the new Asia division. In the meantime, that region will report directly to MetLife President and CEO Steven A Kandarian, who threw his support behind these new moves. “To reach its full potential, MetLife needs an organizational structure that leverages the best of both MetLife and Alico,” CEO Kandarian said in the company statement, adding that “this structure will lay the foundation for a global company. Each of our new regions have both mature and developing markets, both of which are critical to shareholder-value creation. At the same time, they will be able to draw on strengths from across each region to drive collaboration and efficiencies.”
MetLife’s reconfiguration eliminates some of the company’s previous executive positions. MetLife will no longer have a president solely representing their U.S. business, with the previous head, William J. Mullaney, now moving on to other opportunities. Meanwhile the man who served previously as president of the company’s international business sector and was integral to the Alico acquisition, William Toppeta, has plans to retire. Toppeta will remain with MetLife as the vice chair and advisor for the EMEA and Asia regions through May 31, 2012. In addition to these moves, MetLife plans to move executive vice president Maria R Morris to head the global employee benefits business unit, while Marty Lippert will lead global technology and operations division.
All of these moves are following a productive year for MetLife, one which has seen the company expand their global footprint and operating scale significantly to offset the tepid performance of their home US market. The New York based insurer reported in October that net income for the third quarter reporting period had grown by more than tenfold year-on-year, beating market analyst estimations on the back of substantial derivative gains, increased investment income and the continued expansion of its international sales division from its purchase of Alico from AIG last year. Cumulatively, for the three months ending September 30, MetLife earned US$3.55 billion, a significant improvement on the US$286 million earned for the same quarter in 2010. Total third quarter revenues meanwhile were US$20.5 billion, up from US$12.3 billion in the corresponding period a year ago. In the past 12 months MetLife has earned roughly US$5.6 billion.
MetLife has credited much of their success so far this year to their Alico acquisition and expect the new assets to contribute significantly to their bottom line going forward. MetLife’s investment portfolio had risen from US$383.2 billion to US$493.2 billion by the end of the third quarter 2011. The US life insurance giant had long been looking to develop its global reach and distribution platform, and in 2010 the company was able to purchase American Life Insurance Company (ALICO) from a struggling AIG for US$16.4 billion to accomplish this. The acquisition of Alico, who operates out of more than 50 countries, has provided MetLife with meaningful new sources of diversified earnings through their access to new Asia Pacific, European, Middle Eastern and Latin American insurance markets. In the most recent quarterly statement, MetLife’s international segment noted that operating earnings had already risen to US$578 million from the US$189 million reported last year.
MetLife’s international business has expanded in concurrence with a waning performance in the US, gradually overall approaching earnings parity between the two segments, and this has necessitated the firm’s global restructuring effort, which will target all the markets where sustainable premium growth is feasible more equally. Through the third quarter 2011, operating earnings in Metlife’s home US market fell by 23 percent, to US$655 million, due to increased insurance reserves, persistently low interest rates and overall flagging consumer confidence. According to some industry observers, MetLife’s business in the US could in fact improve through this reorganization. By bundling US insurance business together with Latin America’s, an under-penetrated and populous region targeted for growth, MetLife may find itself able to equalize mature market weaknesses in the short-to-medium term and maintain it’s margins effectively until the global economy recovers. Overall, multinational insurers such as AIG, AXA and MetLife need to find value in re-positioning their activities to ensure that they have access to the emerging protection markets that are now providing all insurers with the most profound earnings growth opportunities.
Insurance Company Mentioned
MetLife
MetLife is the largest life insurance company in the United States, with total assets of US$785 billion and over US$4.2 trillion of life insurance in force. Possessing over 140 years of insurance expertise, MetLife aims to be an innovator in the field of international Life insurance. Globally, MetLife is able to offer its clients accident and health insurance, life insurance, disability income protection, and retirement and savings products.
Nov
22
A new special report released this month by Standard & Poor’s (S&P), the world’s foremost insurance rating and information agency, has examined how recent financial developments, including the slumping share and bond prices resulting from the ongoing eurozone sovereign debt crisis, have negatively affected the balance sheets of Western European insurers through the third quarter 2011 and how this has placed further pressure on the international insurance industry at large.
In S&P’s report, released November 4 and titled ‘European Insurance Credit Trends: Third-Quarter 2011 Market Movements Take Their Toll On Insurers’ Capital Adequacy,’ the ratings agency describes how the ongoing recession conditions, volatile financial markets and the eurozone sovereign debt crisis have all affected the performance of Europe’s insurance industry. While many of the continent’s largest insurance players had been able to largely rebuild their balance sheets from their previous low in the aftermath of the 2008-9 financial crisis by the middle of 2011, in light of recent events S&P expects greater financial oversight from company executives to be required going forward in order to better navigate the difficult market conditions sure to come as a result of European bailouts.
“In our opinion, the European insurance industry’s nervousness has grown,” S&P surmised in the report, adding that insurance company losses on bonds issued by the largest eurozone debtor nations would not pose direct threat to their financial positions but will likely be a damper on profitability for the foreseeable future. “In the past quarter, we have seen the credit quality of certain sovereigns and banks decline, and the economic outlook deteriorate. The effect has been amplified by a sharp fall in interest rates, depressed equity markets, and increased volatility. All these factors helped weaken insurers’ third-quarter economic earnings and balance sheets,” S&P said.
In general, Europe’s insurance companies should be better able to deal with systemic failures like the eurozone debt crisis than banks, as they would be able to share losses mutually with policyholders without necessarily turning to shareholders or even governments for fresh capital. However, as S&P noted, the insurance industry has developed closer ties with the banking sector over the past few decades through derivate contracts and bond portfolios, and this in turn has left them more deeply exposed to the ongoing eurozone sovereign debt crisis than need be. These ties could also adversely affect their bancassurance distribution network, as many insurers now depend on banks to sell their life and general insurance products through their associated branch networks.
This is all occurring while a soft pricing market and stubbornly low interest rates persist, and this keeps rates low, putting downward pressure on insurer profitability going forward. Attempts to increase premiums levels are met with resistance in a weak economic climate, as consumers are unwilling to pay higher rates, if in fact they can afford insurance at all. Stagnant economic growth in Europe’s principal markets have both increased the possibility of a double-dip recession and exacerbated the sovereign debt crisis in a number of peripheral eurozone countries, including Portugal, Italy, Ireland, Greece and Spain. According to S&P, European insurers now cumulatively hold roughly €60 billion (US$83 billion) in sovereign debt issued by the most risky nations (Greece, Ireland, Portugal), with a further €190 billion (US$255.7 billion) in bonds held for the larger debtor countries of Italy and Spain, both of whom have replaced their respective governments within the past few weeks.
In addition to persistent widespread economic and political uncertainty, Western European insurance companies are also finding themselves stretched in order to meet the changing solvency and industry-wide accounting rules, which are coming into force relatively soon across the continent. S&P noted that the uncertainly surrounding the introduction and execution of Solvency II’s updated risk-based financial frameworks and enlarged capital requirements has proven to be a particular impediment for many European insurers. Short term concerns persist for analysts that Solvency II could lead to insurers increasing their capital position at the expense of tackling new business ventures, and thus damaging their competitiveness in the overall global insurance marketplace. The slow-moving implementation of Solvency II, now delayed to 2014, has already proven costly and could also further strain insurers with potentially stricter risk-based capital requirements.
The overall cost of introducing Solvency II across Europe is already thought to have exceeded the European Union’s estimated EUR 3 billion. In addition to this expense, there remain significant implementation details that still need to be figured out, including premium provision and risk margin. At the same time that these updated capital requirements kick in, a new International Financial Reporting Standard (IFRS) for insurance practices will also occur and this could cost companies valued staff time and resources when they can least afford it. “These trends are compounded, in our view, by the potential impact of industry-wide projects, such as implementing the EU’s Solvency II directive on insurance supervision, the International Accounting Standards Board’s Phase 2 insurance accounting project, and the Financial Stability Board’s designation of globally systemically important financial institutions, now expected in 2012,” S&P said.
Despite all these industry-wide concerns however, S&P has kept the ratings for the 125 individual European insurers it monitors unchanged, with an average long-term issuer credit classification of ‘A’ negative. Overall, the ratings agency indicated that while it has a pessimistic outlook on the European insurance sector in general, it of course remains strong in comparison to the other rated businesses active in the Eurozone marketplace. Fortunately for those outside of Europe, there remains considerable business potential for those interested in closing the trillion dollar gap in coverage between the West and the emerging Eastern economies, and this could present sufficient business opportunity for multinational insurers looking to re-capitalize and offset any further calamitous developments occurring in their mature home markets.
Ratings Company Mentioned
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.
Nov
21
Singapore’s resurgent life insurance sector may finally be showing signs of slowing down, according to a new report.
In their third quarter briefing released this month, the Life Insurance Association of Singapore (LIA) revealed that sales of new insurance products in Singapore slowed to a more ‘moderate’ 18 percent annual growth rate for the three months ending in September, down considerably from the 38 percent growth in sales reported during the first half of the year. The LIA is a non-profit trade body licensed by the Monetary Authority of Singapore (MAS), and represents the interests of 16 major life insurers and 3 life reinsurers who operate in the Southeast Asian country.
According to the LIA, Singapore’s life insurance industry accounted for a total of S$523 million (US$404 million) in ‘weighted’ new business premiums for the third quarter 2011 reporting period. The LIA calculates the weighted new business premium figure by adding 10 percent of the Single Premium Index (SPI) to 100 percent of the Annual Premium Index (API), with an adjustment for premium payment terms of less than 10 years. Overall sales growth has been tempered by cautious market sentiment as investors all over the world continue to worry about the pervasive debt contagion issues affecting the Eurozone and United States. The MAS expect the Singaporean economy to be sluggish in the first half of 2012, but could pick up later in the year if global markets stabilize.
During the period under review, the LIA attributed the life sector’s continued development largely to the performance of the bancassurance distribution channel, with savings-oriented products remaining particularly popular through the second half of the year. From August to September 2011, sales of weighted regular premium products in Singapore reached S$345.7 million (US$266.8 million) , marking a 19 percent quarterly increase over the same period last year. Single premium business meanwhile rose by 16 percent to S$177.3 million (US$136.8 million). Of this amount, the LIA noted that 16 percent of sales were accounted for by the Central Provident Fund (CPF), Singapore’s mandatory pension savings and retirement fund mechanism.
The Singaporean life insurance market is divided between players holding ‘normal’ licenses and those defined as market segment insurers (DMS). DMS insurance companies, currently comprised of the following multinational insurers Friends Provident International, Generali, Royal Skandia, Transamerica and Zurich International, are registered with the MAS to operate in only non CPF-related business and with certain minimum policy size restriction. In 2011, the LIA noted that normal license holders represented 95 percent of new sales, while DMS insurers accounted for the remaining 5 percent.
Singapore’s active life insurance companies have cumulatively paid out a total of S$3.69 billion (US$2.85 billion) to associated policyholders and beneficiaries so far this year. Of these payouts, the LIA detailed that only S$342 million (US$263.9 million) came as a result of death, critical illness or other disability claims, while the remaining S$3.34 billion (US$2.58 billion)came about from maturing policies. The association also noted that, as of second quarter 2011, Singapore life insurers were managing assets worth S$120.7 billion (US$93.15 billion), a 9 percent annual increase, with non-linked business accounting for S$96.4 billion (US$74.4 billion) and investment-linked policies making up the remaining $24.3 billion (US$18.75 billion) in assets. In terms of overall manpower, LIA member companies in the Singaporean life insurance industry now cumulatively employ a total of 5,108 office staff and 12,976 sales representatives.
Explaining the results in the LIA statement, Mr. Tan Hak Leh, the Life Insurance Association President, acknowledged that while the performance of Singapore’s insurance industry could be impacted going forward by ongoing global economic uncertainty, the emerging protection needs of Singaporean consumers should provide insurers active in the market with enough impetus to achieve sustainable premium growth. “Against the backdrop of intensified global economic uncertainties in the third quarter, the life insurance industry achieved a growth in new business of 18 per cent. It is critical that life insurance companies remain vigilant and proactively manage our business to safeguard the long term financial soundness of the industry,” Mr Tan Hak Leh commented.
In addition to gross life insurance sales figures, the LIA interim report also highlighted several other insurance industry trends occurring in Singapore this year. Through the first three quarters of 2011, sales of new health insurance policies in the small Asia Pacific island nation amounted to S$123 million (US$94.9 million), up 7 percent on the corresponding period last year. Of these new health insurance sales, the vast majority, 87 percent, went towards Integrated Shield Plans and associated riders, Singapore’s quasi-equivalent of private Medicare insurance. The growth in new health insurance coverage is driven by a wide-spread recognition of increasing medical costs, which have driven consumers to obtain Singaporean health insurance in greater numbers recently. The LIA was pleased to report that as of 30 September 2011, over 2.45 million lives are covered by health insurance in Singapore, well over half the population, with paid up premiums now totalling over S$842 million (US$650 million).
As for insurance distribution channel trends through to the third quarter, the LIA found that the 12,000-strong tied agency force had contributed almost half of all the new business written by Singaporean insurers for the year, bringing in 48 percent of all weighted new business sales in 2011 so far. This performance was accompanied by an uptrend in insurance products and services sold through banks, also termed bancassurance. Indeed, bancassurance now accounts for 35 percent of all new insurance sales in Singapore, up 8 percent from last year. Financial advisers meanwhile have contributed 13 percent of new insurance sales this year and other channels, including direct sales, have made up the remaining 4 percentage points.
The LIA also noted that consumer preferences for different types of insurance products in Singapore have remained fairly consistent over the past few years. Participating (par) whole-life insurance products have remained the most popular, accounting for 54 percent of new sales, while non-participating annuities and investment-linked products split the remaining business between them. Singaporeans clearly favour the dividend options mutual life insurance companies can provide them with.
In his concluding remarks, LIA president Tan Hak Leh reiterated that while Singapore’s double-digit growth rate in life insurance product sales may not likely continue unabated into the future, robust long term planning and savings options would become more important than ever in this time of global financial market uncertainty. “While we may not face a financial meltdown similar to that in 2008, we can see consumers exercising more caution in taking on additional financial commitments,” said Mr Tan, adding that “Nonetheless we strongly advise that consumers do not shelve plans for life insurance, as it becomes particularly essential in times of uncertainty.”
Nov
18
New China Life Insurance, the country’s third largest life insurer by premium volume, received approval from the China Securities Regulatory Commission this week for its planned Shanghai initial public offering, kicking off the company’s Shanghai-Hong Kong dual listing that has targeted up to US$4 billion in fresh fundraising before the end of the year. This dual listing could be the first in a series of IPOs by prominent Mainland insurance companies, as firms seek out capital to boost margins and fund expansion plans in the world’s second largest economy.
In their IPO prospectus, New China Life have outlined how they plan to sell as many as 158.5 million shares in Shanghai (A-share offering) and up to 358.4 million in Hong Kong (H-share), with an option to expand it further by another 15 percent. According to industry analysts, the A-share market has proven to be more sensitive to New China Life’s IPO, accounting for only 5 percent of the company’s total shares, and is in part why the company has allocated a smaller share to Shanghai’s bourse. While overall fundraising targets have not been officially set, market forecasts estimate that around CNY6 billion (US$945.4 million) and CNY10 billion could come in from Shanghai from Hong Kong respectively.
Many companies from Mainland China are now attempting to brave volatile global financial market conditions and sell shares in initial public offerings to fund future business ambitions. Indeed, the two largest Chinese insurance companies and New China Life’s chief rivals, Ping An Insurance and China Life Insurance, are already listed on both overseas and domestic bourses. Beijing-headquartered New China Life’s IPO could even lead the rest of Greater China’s insurers to market sooner that expected. According to industry observers, there could be over US$10 billion worth of new dual share offerings in Hong Kong and Shanghai coming to the market over the next few quarters from domestic insurance companies alone. State-backed China Reinsurance and People’s Insurance Company (PICC) announced plans to raise between US$5 billion and US$6 billion through a dual IPO back in July this year. Taikang Life Insurance, the Asian nation’s fifth-largest insurer by premiums, have meanwhile also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years.
New China Life will use the IPO proceeds to replenish capital reserves and improve solvency margins and overall profitability in order to better keep pace with the firm’s rapid business growth. The Beijing-based fine insurer earned CNY93.6 billion (US$14.3 billion) in premium income last year, translating to around a 9 percent share of the country’s insurance market, according to the China Insurance Regulatory Commission (CIRC). The company, 15 percent owned by Zurich Financial Services, has been largely successful in adapting to China’s surging insurance market demand, reporting a compound annual premium growth rate of 40 percent over the past 5 years, from 2005 and 2010. New China Life has fostered a competitive advantage in institutional sales and now has a particularly robust presence in the big cities of Beijing, Shanghai, and Guangzhou. Today, New China Life has 1,400 offices in China and serves over 24 million policyholders.
Over the past few years however, the performance of some of China’s most prominent insurers has begun to slow down due to rising competition and unstable stock markets. Indeed New China Life posted a 15 percent decline in net profit last year and has not been able been able to regularly meet regulatory requirements on adequacy ratios. Ahead of their planned dual IPO the company has had to restructure themselves slightly in a bid to meet CIRC minimum solvency requirements, which have restricted dividends and further business development. In March, the life insurer moved CNY 14 billion (US$2.2 billion) worth of shares to twelve existing shareholders through a rights issue. The transaction increased New China Life’s registered capital base, up to CNY 2.6 billion (US$405 million) from CNY 1.2 billion (US$187 million), which in turn raised its solvency margin to above the required minimum 100 percent for listing. After the IPO, the company’s solvency ratio is expected to be above 150 percent.
New China Life’s dual IPO will surely test investor confidence as international financial markets continue to struggle with a potential US recession, Asia Pacific catastrophe losses, as well as the deepening debt crisis in Europe. American and European markets have been in a prolonged slump as concerns mount over Western policymakers’ ability to adapt and revitalize the flagging global economy. This is turn has affected the regional markets in Asia. The Heng Seng Index is down by 15 percent so far this year, while The Shanghai Composite has fallen over 8 percent. This market downturn has impacted Hong Kong’s prominent IPO market, with delays and cancellations worth US$19 billion in share sales from prominent companies already witnessed this year.
Outside of these macroeconomic concerns though, China’s insurance industry remains an attractive investor opportunity due to the country’s huge middle class population, favorable economic indicators and a largely under-penetrated protection market. Market observes will be watching closely to see if New China Life can dual list in Hong Kong and Shanghai successfully this year.
Insurance Company Mentioned
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.
Zurich
Zurich Financial Services Group is an insurance and financial services provider with a network of subsidiaries and offices in North America and Europe and also in Asia-Pacific, Latin America and other markets. Zurich is one of the world’s largest insurance groups, and one of the few to operate on a truly global basis. With 60,000 employees serving customers in more than 170 countries, our business is concentrated in three business segments: General Insurance, Global Life, and Farmers.
Nov
17
Government health ministers, academics and healthcare industry consultants from over 20 African countries are attending the first annual Pan-African Health Congress on Universal Coverage in Accra, Ghana this week to discuss the best ways to implement and sustain successful long term social insurance systems across the continent, and improve on the overall healthcare standards for their citizens.
The Congress, now underway between the 15th and 17th November 2011, is hosted by Ghana’s Centre for Health & Social Services with principal support by the Rockefeller Foundation and World Health Organization (WHO). The three day event has been planned to foster a recurring dialogue between healthcare industry analysts, company stakeholders and government officials, to address the current state of national health insurance schemes across Africa and to help craft policies which could expand and improve the service quality of these coverage networks. The keynote speaker is WHO Deputy Director General Dr Anarfi Asamoa-Baah. Representatives from each country and organization will present papers that analyze the effectiveness and feasibility of their respective social health insurance system, both pro universal coverage and con, and these insights in turn will be reviewed by Congress attendees to provide additional prospective on what to do going forward.
In the commencement address, Dr. James Nyoro, Africa Managing Director for the Rockefeller Foundation, outlined the necessity of building and maintaining a strong political will in order to achieve greater health coverage results in Africa. “A great deal of work has already been done in health insurance, but there is a need to draw available material together, focus on the neglected issues and integrate insights on these areas into the overall health insurance policy framework,” he said. It is hoped that by the end of the event a consensus framework for action will be drawn up that includes a platform for intra-party support and a sustainable economic plan addressing the issue of universal coverage in both sub-Saharan Africa and the developing world at large.
Over the past twenty years, health insurance has been promoted as a valuable development tool across Africa, one which can improve access to vital healthcare services because it avoids direct payment of expensive medical fees by low-income patients and pools the financial risk among all those insured. Many mutual health insurance organizations have sprung up in sub-Saharan Africa since then and, most recently, the national governments themselves are getting involved, experimenting with state-backed social insurance systems to reduce barriers to medical care and hopefully limit the contagion of communicable diseases. Because of the lack of adequate healthcare infrastructure and coverage options, developing countries have suffered disproportionately from diseases and other public health problems in the past.
Different African governments have instituted different national health insurance mechanisms, including those based on donor contributions, tax-based systems, and pension funds, all to varying effect. In several countries like Senegal, Namibia and Rwanda, local authorities, public sector employers, and third party mutuals are supposed to provide third party support for low-income constituents, resources permitting. The two countries that have made the most progress in universal healthcare coverage so far have been the United Republic of Tanzania and Ghana, which is why they are hosting the conference. Both countries offer quite comprehensive outpatient and inpatient services to policyholders, and they are eligible for treatment in both public sector and accredited non-government facilities. Tanzania was the first to introduce a compulsory coverage plan in 1999, with the National Health Insurance fund for civil servants and now covers about 10 percent of the population. Ghana’s NHI system, introduced in 2003, has proven the most successful thus far with 38 percent of the populace covered.
More prominent nations are now looking to develop their own health insurance systems. Looking at the progress made in neighbouring West African countries, the Nigerian government recently approved a compulsory national health insurance scheme for their public sector workers, to be run through private employers, with the ambitious goal of eventually covering their entire population; Africa’s largest. In Kenya, the government has also started rolling out a similar scheme to engage with lower income clientele. The most pertinent recent development though is perhaps occurring in South Africa, the continent’s largest private insurance market. In April, the South African government began testing their compulsory medical insurance scheme in 10 districts, and will expand the program out across the rest of the country over the next 14 years. South Africa have estimated that the scheme will cost R255 billion (US$31.3 billion) once completed in 2025, and could in fact be much more due to the shortage of skilled staff, limited tax-returns and failing infrastructure.
Indeed, it has been these persistent infrastructure and funding shortfalls that continue to hamper insurance sector development in most sub-Saharan African countries. A considerable majority of the region’s populace still resides in rural and largely informal economies that remain difficult to tax, monitor and fund a robust health network with effectively. When these citizens do need medical care they are forced to pay out of pocket, and this, according to the World Bank, is the number two cause of impoverishment in region, behind job losses. This lack of resources thus creates problems both when it comes time for a consumer to pay a premium, and when the insured need to use decent quality health care services. Thus, because the taxable base in Africa is low, various methods have been used by government to mobilize resources for healthcare, including now the international insurance industry.
Luckily, these multinational insurers are gladly shifting their focus to up-and-coming insurance industries in emerging markets anyway. According to The International Finance Corporation (IFC), public insurance schemes are expected to represent a US$1.4–US$2.5 billion investment opportunity in Sub-Saharan Africa over the next ten years. These low-penetration markets offer better opportunities for growth in premium returns, and could work to offset the more static performance in mature European and North American markets. While much of the international focus has thus far been on the lucrative Asia Pacific and Gulf regions, Africa should present a reasonably attractive business opportunity for multinational insurers as well. Overall market penetration for insurance products in the region is low and many standard coverage services remain untapped on the market, including most life, health, property and savings-related insurance options. The insurance premiums collected in Africa currently represent only two percent of total world premiums, and the contribution of the domestic insurance sector towards the GDP of the region remains small by international standards. This demonstrates that insurance policies are not yet being used effectively as a vehicle for protection and savings these countries.
As Africa’s economies grow, urbanize, develop and further open their markets, demand for healthcare and insurance services will increase in tow. As Ghanaian Minister of Health, Joseph Yieleh Chireh, explained at the conference, the government and insurance industry must be there and work together to meet these mounting needs. “Universal health insurance is very important to Africa’s development. It is crucial to offer all, regardless of economic standing, quality health care at an affordable cost. It is important to engage in the dialogue on ways to make universal health care work in Africa.”
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