Year: 2013

Kenya’s economy appears to be on the cusp of remarkable growth, yet its insurance is still just a fledgling industry. Stephen Wandera, Regional Director with the British-American Insurance Company, talks about what is needed to boost the industry to a level where it can compete with other rapidly growing sectors, and how he expects demand for insurance against terrorism policies to increase, following the Westgate seige.

For the last 10 years, Eurasia Insurance has hosted an international risk management conference. Nazym Tulchinsky, Deputy Chairman of Eurasia Insurance, explains how Eurasia’s good risk management has helped the company through the turmoil of the financial crisis, and describes the current trends and future prospects for insurance and reinsurance in Kazakhstan.

World Finance: How has your risk management helped you through the turmoil of the financial crisis?

Nazym Tulchinsky: The conference has brought together leading economists, politicians and businessmen, from over 40 countries to develop solutions for the significant challenges to the global business community.

Our exceptional risk management programme has contributed to the development of Eurasia’s profitability and capital levels to date. Eurasia was able to foresee the consequences of the financial turmoil, and fortunately its project management was able to secure its investments while at the same time increasing its returns. And the process with which we accept risks, allows us to master the global financial crisis, and the rush of catastrophe events well. We’re confident that we are able to cope with any predictable losses, because we have the trust of our underwriters. If the insured sustains a loss, Eurasia is always prepared to foot the bill. It’s as simple as that.

“Our main clients include Egypt Shell, ArcelorMittal, and reinsurance for HSBC”

World Finance: Who are your clients in Kazakhstan, and how do you invest?

Nazym Tulchinsky: We have a unique market position. Being the largest insurance company in Kazakhstan, Eurasia supports other insurance providers by selling them our reinsurance capacity.

As for direct insurance, our main clients include oil and mining companies, such as Egypt Shell, ArcelorMittal and HSBC. Of course, we’re doing some reinsurance for major Kazakh banks: HSBC, for example. We prefer to write classical risks.

As for the investment issue, Eurasia invests in its clients with a first-class service.

World Finance: A third of your business is from international reinsurance. How important is this?

Nazym Tulchinsky: The change in Eurasia’s international business strategy came about in 2006, when Eurasia was the only company in Kazakhstan which received a rating from AM Best Rating Agency of B++. Since first writing inwards reinsurance business in 2004, from mainly Russia and member countries of the CIS, Eurasia now provides its reinsurance support on the risk allocated over the 130 countries worldwide. Eurasia is becoming a truly diversified global reinsurer.

However, in balancing Eurasia’s worldwide portfolio, we still remain cautious about the risks. Our goal is to build a profitable portfolio. Eurasia recognises that a company does not grow because it is writing big volumes of sub-standard business. Profitability for Eurasia comes before income. Eurasia strives to continue operating with economic autonomy. This means that Eurasia is able to finance its further growth, solely with this self-generated profits. And it is dedicated to avoiding any financial imbalances which might lead to contributions from shareholders.

“In balancing Eurasia’s worldwide portfolio, we still remain cautious about the risks”

World Finance: What are the trends and challenges that you’re currently facing within this sector?

Nazym Tulchinsky: Eurasia’s building its inwards reinsurance portfolio based on a strong relationship with major brokers. Through the practice of not running away from risk, if and when it proves to be unprofitable. We will sit down with the brokers and tell them to offer underwriting guidance. Eurasia’s always aware of the fact that a few local and overseas sinners are acting as a distributor of poorly priced business. It is ready to price this market properly, by either declining their insurance, or by proposing more realistic terms for the risk involved.

It’s imperative that Eurasia’s underwriters are able to add value through leadership, and so help to create a meaningful product. We are well aware of the new capital flowing into the reinsurance market, and the effects of overcapacity. This increased capacity will drop when the first major natural catastrophes occur. This has been borne out in previous reinsurance cycles.

World Finance: And back to Kazakhstan. What are the current trends you’re seeing in the market?

Nazym Tulchinsky: The non-life insurance segment in Kazakhstan achieved growth of around 20 percent in comparison with 2012. This was attributed to the growth of the Kazakh economy, the existence of various compulsory insurances, and of course increased volumes of bank lending.

The life segment is growing well too. However, I can say that this is organic growth, because its main driver is compulsory employers’ liability.

Having said that, in general, the insurance market is steadily growing in Kazakhstan, although I have to admit that insurance penetration is still low. In 2012 it was below one percent, so there is a potential of an untapped market for Kazakh insurance.

“In 21 years we changed from a soviet republic to a market economy ranked as one of the 10 fastest-growing in the world”

World Finance: And finally, what is the future for Kazakhstan on the world stage?

Nazym Tulchinsky: Kazakhstan’s strategic aspiration is to become a model diversified economy, with a high valued-added and a high-tech component, well integrated into the global economy.

In 21 years, we have moved from a soviet republic, with no private sector, to a sovereign state with a market economy ranked as one of the 10 fastest-growing in the world. Our country’s geographical and geopolitical positions have played a vital role in promoting the country’s development.

Located in the centre of Eurasia, Kazakhstan is at the crossroads of the world’s most ancient civilisations and trade routes. the development of Kazakhstan’s economy is closely connected with integration into international relationships. It has unique reserves of energy and mineral resources, the vast possibilities of exporting industrial and agricultural products, optimum employment of the country’s transit potential, and the viability of highly qualified specialists. Kazakhstan is important to the alternative energy markets because it has significant oil and natural gas reserves. With sufficient expert options, Kazakhstan could become one of the world’s largest oil producers and exporters, within the next decade.

World Finance: Nazym, thank you very much.

Nazym Tulchinsky: Thank you very much.

As of mid-2013, it has become clear that Thailand’s floods of 2011 had a profound impact on the country’s non-life insurance segment. Natdhanai Mankosol, Assistant Department Manager, Marketing Department from Viriyah Insurance, talks about how motor insurance is growing off the back of the Thai government’s First Car Buyer scheme, as well as how Viriyah expanded its product range to better serve those affected by the 2011 floods.

World Finance: Thailand’s insurance market has been undergoing a transition. Tell us more.

Natdhanai Mankosol: The insurance market in the last year was growing tremendously, because of our two segments in motor insurance and non-motor insurance. In motor insurance, the industry is being affected by the government’s First Car Buyer project. The First Car Buyer project is the project the government is trying to stimulate the market, by boosting our sales in the car industry. And the motor insurance industry is growing along with the growth of the car sales.

The other reason is, after the flood, a lot of people realised how important insurance is in helping with their losses. So they’re looking for more insurance, because they realised the risks they face, and their insurance needs. So we could tailor our products to fit the customer needs in different areas in Thailand.

“After the flood, a lot of people realised how important insurance is”

World Finance: So tell me more about what happened after the floods. How were you able to meet your customers’ needs?

Natdhanai Mankosol: The flood in 2011 was one of the biggest losses we have in our history. We didn’t expect that to happen, but a lot of people lost their lives and properties. And now a lot of people in Thailand realise how important insurance could benefit their lives.

And so we developed some products to serve their needs, because our business is concentrated in motor insurance. So, the comprehensive insurance which we sell, it covers almost everything, including the flood itself. But not so for our non-comprehensive insurance. So we launched our products, called the Two Plus Extra and Three Plus Extra. Two Plus Extra is the fire and theft insurance, and the Three Plus is the third party insurance, and the Extra means we added more coverage for the flood.

World Finance: You have recently experienced tremendous growth, tell us about the numbers.

Natdhanai Mankosol: In the last year we grew over 28 percent. Which is above the market industry standard. I’d say the most successful story about our company last year is our people. We’re trying to improve our processes and recruit more people that have special training throughout our people. And fortunately, our turnover rate for our employees is not high at all. A lot of people stay with us, and are happy to be with us, and when our people are happy, they serve our customers happiness.

The renewal rate from our brokers and agents is over 80 percent, and we’ve been revising our training, and we’re trying to recruit some new technologies to use in our processes. The GPS is used with our claim surveyors, to use the smartphone to go to an accident site. And our claim surveyors will check in all through the process so we can collect all the information, and use it to improve our service level.

“We’re looking for more business partners in our neighbouring countries, to serve our customer needs”

World Finance: And finally, are there any plans for expansion?

Natdhanai Mankosol: The expansion is in the near future. Currently we have over 100 branch locations, which is a lot more than other insurance companies in Thailand. But it doesn’t cover every area in Thailand. We’re trying to expand more branch locations, and we will recruit more insurance agents and brokers to get in touch with our customers everywhere in Thailand.

Since the Asian economy communities are coming in the next few years, we will be seeing a lot of different kinds of people, and different kinds of businesses, coming over and through the regions. So, we’re trying to look for more business partners in our neighbouring countries, to work together and to serve our customer needs.

World Finance: Natdhanai, thank you.

Natdhanai Mankosol: Thank you.

Cathay Life has the largest market share of any life insurer in Taiwan. It marked its 50th anniversary in 2012, but has never stopped looking forward. It’s shaping a new organisational culture, in order to maintain long-term, steady growth. Abel Lin and Joseph Wang, Executive Vice Presidents at Cathay Life, discuss the challenges and opportunities facing the company, in the context of the long-term low interest rate environment in Taiwan.

Mr Lin, if we can start with you: let’s look ahead to Cathay Life’s future, what are the challenges and opportunities facing the company?

Abel Lin: For our company culture, we always think risk first, and then reward. I think the first challenge is, how can we resolve the so-called, negative spread issue? As you know, our company has already worked for 50 years in Taiwan, and in the older time when the interest rate is high, we provide a high guarantee on life insurance products. So, actually right now our funding cost is still high as 4.1 percent, and our return general in average is around 3.8 percent to 4.1 percent, so, we still have the negative spread issue.

But, we think within five years we can totally resolve the issue by, we will continue to reduce our cash position to overseas investment, especially the overseas bond market to enhance our yeald. And secondly, we will provide more traditional life insurance company, especially regular paid products, to enhance our mortality and loading gain.And third one, we will continue to increase our risk management ability.

The second challenge is that, how can we satisfy our customer needs to avoid price competition? We want to avoid the price war, we don’t want to join the price competition, so, how can we do that? Is that we need to continue to satisfy our customer needs, so this is a big trend, so we use a large IT system to provide more convenient service to our customers.

And third challenge is, how can we expand our business overseas? As you know, in Taiwan right now, life insurance penetration is over 200 percent. It means that we are a mature market in the world. So, the only way we want to maintain the substantial growth is overseas. So right now we have already a joint venture, 50:50 in China, and fully subsidiary in Vietnam.

Then I want to highlight two opportunities. The first one is that Taiwan right now is facing the so-called ageing society. So, in this ageing society actually provide a great opportunity for pension plan, for health insurance, and also for long-term care products. So, we are facing a big problem in this ageing society.

But, for life insurance company, actually, it’s a good opportunity for we can expend our product to our customer if we can make a right product to our customer. So it’s a potential opportunity.

The second one as I mentioned is a big challenge, is that how can we expend our business overseas? Except China and Vietnam, we think globally in the next 10 years, the capital flow I think will flow to the Asian countries, especially Asian countries. And it has a lot of market potential, because right now the penetration actually is below one percent. So, we can provide our management excellent expertise to these countries, then we can gain more growth potential, growth opportunities, in Asian countries.

World Finance: If I can turn to you Mr Wang, this is an era of low interest rates, so, what’s the impact on Taiwan’s life insurance companies?

Joseph Wang: I think Taiwan’s insurance companies have been suffering from the low interest rate environment for quite a long time. Especially, even before the financial crisis in 2008, Taiwan’s interest rates were extremely low for a long time, so, as Abel said earlier, we have been in a negative interest rate spread situation. So, I think this is because we have very high saving rate, and also legup by investment opportunities. So, how do we respond to this kind of situation?

First, we diversify our investment portfolio to overseas investment. Because we can get higher yields from overseas investment. And also I think, in terms of market size and in terms of liquidity, overseas market can also satisfy our need. Because in local market, for Cathay Life, our asset size has exceeded $110bn. It’s a very big size. So, we have to diversify our investment overseas.

And secondly, we also set up an alternative investment team in 2007, and all so that we can invest in PE or hedge funds, and that can also help us enhance our yield.

And thirdly, we also added a lot of our equity position in high income, high divided equities, and especially we like the companies, they can generate free cash flow, and also pay out to shareholders.

World Finance: So finally, how do you see the relationship between interest rates and product offerings develop in the future?

Abel Lin: I think, because, as Joseph said, we are suffering a quite long-term low interest environment, so, during this low interest environment in Taiwan, actually, our product half is shift to like the interest credit annuity. And the other is growth momentum is quite strong is the unit-linked product in Taiwan. The third one I think, I want to highlight is that, as I mentioned, a big opportunity is we face in the ageing society. So, for health insurance products, actually, is to satisfy our customer need.

Also for health insurance product, actually the interest rate component is not so sensitive to their price. We will more focused on the health insurance product in the future for the rising interest rate environment.

World Finance: Abel Lin, Joseph Wang, thank you very much indeed.

Abel Lin, Joseph Wang: Thank you.

Over the next seven years, the health insurance market in Singapore is set to quadruple, due to higher levels of disposable income. One of the key players in the region is QBE Insurance Group, and its Singapore CEO, Chee Keng Koon, talks to us about the recent changes in the Singapore insurance sector, the challenges that insurers are facing, and QBE’s plans for expansion in the rest of Asia.

World Finance: Mr Chee, how has the insurance market developed over the last few years?

Chee Keng Koon: Well, Singapore is actually a very interesting market for insurance. As you know Singapore is a financial hub, and we are also the insurance hub in Asia. And if we look back at the statistics in Singapore in terms of revenues, in 2004 the revenues in Singapore were only about SGD 2.2bn written premium size for general, in terms of onshore and offshore.

In the last year, the figures came out to be about SGD 10.4bn, which SGD 3.4bn is onshore, basic domestic business, and the balance is offshore business. So, actually the growth is fantastic. Over the last eight years the growth is about 15 percent on an annual basis.

So, we have a plan in place to ensure that we will not miss out on these opportunities, in terms of the growth in Singapore.

“Over the last eight years the growth is about 15 percent on an annual basis”

World Finance: What opportunities are there for QBE in the Singapore insurance market?

Chee Keng Koon: Looking at the Singapore market, Singapore is going through what we call this ‘infrastructure renewal process,’ which therefore gives rise to opportunities for us. The Singapore government is looking at health insurance. As you know, Asians are becoming more affluent, and as a result people are more focused on health now. Health is a big market, and people in Asia are actually running to Singapore for treatment, and therefore it gives rise to opportunity in internal health, and in terms of commercial and marine.

As you know, Singapore is one of the marine hubs in Asia, so we are the leading players in marine insurance over the last 12 years, and we have been the leaders in this aspect, not just in Singapore, but also in Asia. And our growth is basically focused on these specialty lines: basically it’s marine in Asia, liabilities and casualties, and particularly on professional indemnity, where we are big players for insuring doctors, lawyers, architects, which has great demand going forward.

World Finance: Are there any specific challenges you face in Singapore?

Chee Keng Koon: The challenges as far as the Singapore context is concerned, is always the resource part. The human capital management. I think the influx of the new entrants into the Singapore market give rise to competitions, not just in terms of people trying to take over your business, but very much on the competitor trying to take over your resource. When you lose a good resource, the key personnel? It’s equal to actually losing business.

So, it’s a real challenge for me to retain talent. It’s these talents, and the key personnel, that are the ones that bring us the profits, and brings us the growth. Skill will give us the cost leaderships, besides being the leader. So, what we look at, in order to overcome the challenges, are cultivating the right attitudes of our people, building good, extremely good relationships, and the Asia business depends not just on pricing itself, but on relationships. Long terms relationships, win-win partnerships, collaborations: that’s the way to grow.

“When you lose a good resource, the key personnel? It’s equal to actually losing business”

World Finance: And what are the challenges and opportunities in the rest of the region?

Chee Keng Koon: Asia has been an emerging market, and it was the same as many. So to me there are greenfields in Burma, which is greenfield. But Singapore, Hong Kong, Malaysia and Indonesia are the markets we’re likely to focus on.

World Finance: So what are QBE’s plans for the next few years?

Chee Keng Koon: Our vision is to be in the top three insurance companies in Singapore. And also the top insurance company in Asia. Our plans are to focus on organic growth in Asia, looking at these specialty lines, like the marine insurance, the constructions, the bigger regional spaces, but specifically on the casualty and property markets. And I think we have built the team now, we have built the right capabilities. The key is that we want to build long-term, rewarding relationships with our customers, to achieve our target plans. To deliver the results for our people, for our customers, for our shareholders.

World Finance: Chee Keng Koon, thank you.

Chee Keng Koon: Thank you.

Standard Insurance Company’s successful 2012 was rewarded in December with an upgrade in its investment rating. Patricia Echauz-Chilip and John Echauz – respectively President, and Director and Executive VP – of Standard Insurance, discuss the company’s success, its approach to catastrophe risk management, and the way it’s working with its customers and the community at large to become the Philippines’ most trusted insurance company.

World Finance: So what were the key contributors to this success?

Patricia Echauz-Chilip: We really believe that we’re here to uplift the lives of people. That means our employees, our customers, and you know, all our stakeholders. Everything we do revolves around that philosophy. For instance, in our country, the Philippines, which is an archipelago of 7,100 islands, we’ve built branches across those islands, and that’s translated into the largest market reach, as well as a very localised service.

John Echauz: We are the largest retail insurer back home, and we insure more motor cars than anybody else. You can have an accident in this part of the city, in this part of the country, and within 24 hours we can get the repairs commenced. Everyone taking the time to make things go faster. Customer experience is very very important to us. And secondly, we are the country’s largest buyer of spare parts. That gives us some scale, and we share the savings with the customers.

Even little things like, we built an app? You take a picture of a damaged vehicle, and it’ll tell you exactly how much it’ll cost to repair. Little things like that, that make life better for our customers.

Patricia Echauz-Chilip: We employ about 800 people nationwide, and they’re really trained in being there for you when you need them the most. So when you suffer a fire loss, or a flood loss, you want somebody sympathetic and who’s on your side. And I think that’s translated for us, in terms of being there for our customer, throughout 55 years.

“It’s called the Floody Car Bag. So when there’s a flood, you just drive your car inside, you seal it, it stays dry”

World Finance: So John, the Philippines is particularly vulnerable to typhoons and flooding, so how do you manage this risk?

John Echauz: Even before climate change, we have always been prone to typhoons, because of our proximity to the Pacific Ocean. Every year we get 26 typhoons coming in. Recently over the last five years it’s been worse, because of climate change. Weather patterns are disruptive, unpredictable, very intense. You know really, what a place to run an insurance company!

But having said that, we protect our portfolio two ways. One is, we have our own catastrophe risk monitoring system. Basically we can take any property, and say, Okay, this property here, it’s vulnerable to typhoons, floods, volcanoes, volcanic eruptions, earthquakes. What can we do to mitigate our risk, and help our customer? For motorcar we of course do underwriting, but we also help each driver improve their driving style. We can track their bad habits and correct them.

And then lastly, in 2009 we had massive flooding. We eventually built our own giant ziplock bag for our cars, it’s called the Floody Car Bag. So when there’s a flood, you just drive your car inside, you seal it, it stays dry. It floats actually, at two feet. And that’s been very helpful for us as well. So these are the things we do to mitigate climate change.

World Finance: Patricia, very few people in the Philippines have insurance, despite the region’s vulnerability, so how is Standard Insurance approaching this?

Patricia Echauz-Chilip: You know, insurance penetration in our country is really very low, and we do our best to educate the market about the need for it. But the first asset they’ll usually have will be a mobile phone, and we insure that. And then they’ll move on to buy a motorcycle, and then maybe a motorcar, and then a home. And we try to be with them every step of the way. And as they see the need for insurance for their mobile, they’ll just sort of, ramp up from there.

“We believe in Philippine talent, and we’ll do our share to move the country forward”

World Finance: One of your aspirations is to become the most trusted insurance company, so how do you plan to achieve this?

Patricia Echauz-Chilip: You know our value system at Standard Insurance revolves around hard work, integrity, and professional diligence. Because of that, we do our best to know our business. And we hope that our knowledge and experience translates to a better customer experience. We have branch managers who’ve been around for a very long time, and with 55 years of insurance experience, and, you know, being there locally, that’s translated to, for us, really being part of the fabric of the community. And I think people know we’ll be there for a long time.

World Finance: John, Standard Insurance is also focused on corporate social responsibility, how do you give back to the community?

John Echauz: Well firstly we focus on staying strong as an institution. We employ 800 people, and each of our employees supports directly or indirectly about 20 people. That’s a multiplier effect in a developing nation such as ours. But secondarily we try to develop Philippine talent. We support the Philippine sailing team, and the national cycling team, in their bids for gold at the Southeast Asian Games, as well as the Olympics, that’s number one. Number two, we support two leading violinists, since they were very young. We brought them through school, and now they’re two of the country’s best violinists. We support schools in the middle of nowhere, in the middle of an island chain, mainly because they’re just so poor and have no access to anything. And we support quite a number of elementary and high school kids, just through their education. We believe in Philippine talent, and we’ll do our share to move the country forward.

“When you suffer a fire loss, or a flood loss, you want somebody sympathetic and who’s on your side”

World Finance: And finally Patricia, what does the future hold for the Philippines insurance sector, and Standard Insurance?

Patricia Echauz-Chilip: You know Nick, our country has seen great economic growth. This year we’re growing, our GDP’s growing by seven percent. While the local insurance industry is consolidating, because of higher capitalisation requirements, you know due to the ASEAN free trade agreement coming in 2016, we think it’s healthy for the insurance sector.

For us, motorcar sales in our country has grown 21 percent this year, and we’re just going to grow organically with that. With a rising middle class, and better economic prospects, I think the future for Standard Insurance, and our country, is bright.

World Finance: Patricia, John, thank you.

Patricia Echauz-Chilip: Thank you so much Nick for having us.