Following a 56-26 Senate vote in her favour, Janet Yellen has been approved as head of the Federal Reserve and later this month will become the first woman to hold the position in the institution’s 100-year history. The Brooklyn-born economist has been the clear favourite to succeed Ben Bernanke since he announced his plans to step down last year, having her service as vice chair for three years and her part in many of the Fed’s most influential decisions of late.
“The American people will have a fierce champion who understands that the ultimate goal of economic and financial policymaking is to improve the lives, jobs and standard of living of American workers and their families,” said President Obama in a statement. “As one of our nation’s most respected economists and a leading voice at the Fed for more than a decade – and Vice Chair for the past three years – Janet helped pull our economy out of recession and put us on the path of steady growth.”
Yellen will succeed Bernanke when his term expires on January 31 and is expected to continue with the Fed’s aggressive bond-buying programme for some time yet. Although the stimulus was pared by $10bn in January, the amount still stands at $75bn per month and so a decision to taper the sum further still will likely come during Yellen’s tenure.
The 67-year-old’s dovish leanings, however, are the reason why the vote was one of the closest in the institution’s history and something that certain onlookers are less than convinced by, fearing that monetary stimulus on this scale will ultimately result in out-of-control inflation rates.
The 67-year-old’s dovish leanings […] are the reason why the vote was one of the closest in the institution’s history
Nonetheless, the Fed’s quantitative easing policies and record low interest rates appear to be having a positive effect on the US economy, and have been instrumental in bringing down the US unemployment rate – an area that Yellen expresses an especial interest in.
Yellen’s service so far is perhaps best characterised by an unerring focus on unemployment and how it is the country’s central banking authority can reduce joblessness. “The mandate of the Federal Reserve is to serve all the American people, and too many Americans still can’t find a job and worry how they’ll pay their bills and provide for their families,” she said at a White House ceremony in October.
Regardless of Yellen’s approach, her tenure will span a term of relative uncertainty for the US economy, as the country’s central bank prepares to reduce the country’s dependency on monetary stimulus and boost employment opportunities wherever possible.
China’s cabinet has drawn up a series of regulations pertaining to the country’s thriving shadow banking sector in an effort to curb the country’s spiralling debt levels and put power back in the hands of banks. The guidelines, labelled “document no. 107”, aim to curtail the sector’s boom of these past few years, whilst recognising that China’s non-bank institutions are a central pillar of the country’s financial system and an indication of its diversified offerings.
The guidelines issued by China’s cabinet are surprisingly positive given that many analysts have expressed concern over China’s rising debt levels
A copy of the draft regulations obtained by the FT reads, “The emergence of shadow banks is an inevitable result of financial development and innovation. As a complement to the traditional banking system, shadow banks play a positive role in serving the real economy and enriching investment channels for ordinary citizens.”
Critics maintain, however, that the sector shares a great deal of responsibility for China’s spiralling debt levels, adding that unregulated financial dealings are having a huge impact on the supposed transparency of China’s credit flows. Only a few years ago China’s financial system was dictated almost entirely by banks, however recent years have seen non-banking institutions come to account for near half of China’s funding.
The guidelines issued by China’s cabinet are surprisingly positive given that many analysts have expressed concern over China’s rising debt levels, which have risen quite substantially since 2008 and the explosion of shadow banking since 2010. China’s State Council warned against the threat of non-bank institutions with regards to rising debt, suggesting that they return to their role as asset managers and refrain from credit business.
At the present time, trust companies are the non-bank institutions with the most assets under management, having quite recently surpassed those of insurance companies at the beginning of this year.
Provided that the guidelines pass, Chinese authorities will be hoping that fresh restrictions on shadow bank lending will prevent parties from exploiting the regulatory loopholes at large in the current system and, as a consequence, lower the country’s growing debt levels.
Following the financial crisis, Italy is undergoing social and economic change, representing interesting opportunities, but also challenges for the insurance sector. Maria Bianca Farina, CEO of Poste Vita and Poste Assicura, discusses Poste Vita’s strategy, how it tailors its solutions to meet the needs of Italian families and companies, and the impact the Italian government’s cuts are having on the Italian insurance industry.
World Finance: Maria, the Italian insurance sector was hit quite hard by the financial crisis, yet Poste Vita flourished, what are the reasons behind this success, do you think?
Maria Bianca Farina: Our success relies on many factors, but above all on our capability to protect and support Italy’s householders, through the offer of innovative experienced and savings solutions, tailored to fulfil the real needs of Italian families and companies.
To give you an example, thanks to our competitive pricing model, customers have access to affordable, high quality insurance coverage, as well as low premium investment and pension plans.
“The challenge insurance companies face is to make individuals aware today of their forthcoming needs”
World Finance: What challenges will the Italian insurance sector face over the next few years, and how do you plan to address them?
Maria Bianca Farina: Some convergent factors, such as the population ageing, the economic crisis, and the need to cut back on public expenditure, make it ever more and more urgent for people’s need to have access to covers to protect and manage both their present and future lifestyle.
The challenge insurance companies face is to make individuals aware today of their forthcoming needs.
Insurance companies can offer an essential contribution to promote a comprehensive, combined and efficient action, focused on designing affordable solutions that take into account daily problems.
With regard to the corporate and SME segment, we are developing collective welfare solutions for personal protection and health that employers can offer as an additional benefit to their employees.
Last but not least, the Italian insurance sector will have to face the impact of digitalisation on consumer behaviour. Given that in the future, traditional distribution channels will continue to dominate the scene, in the coming five to 10 years, we need to invest, to ‘digitally arm’ our distributors, as well as enhance our customer experience.
World Finance: What role will Italy’s insurance sector play in the future of the country?
Maria Bianca Farina: The decrease of the traditional welfare model increases people’s need to rely on alternative solutions to protect and manage their present and future. In this macroeconomic scenario, insurance companies have the opportunity to meet the new needs that have arisen in different fields – welfare, health, social services, and income security during the working age and afterwards – by supporting the development of new markets, and producing clients with a secure net compared to government expenditure cutbacks.
A greater access to insurance products could contribute to the whole welfare and health system, allowing public money to be allocated differently, and managing private assets more effectively.
“The decrease of the traditional welfare model increases people’s need for alternative solutions”
World Finance: Who do you target for your services, and how does that address the needs of the Italian consumer?
Maria Bianca Farina: We concentrate marketing new products that can meet people’s everyday needs, such as income assistance and health.
For example, Postapersona Sempre Presente, our new long term care cover, and Postaprotezione Casa Special, which includes all major house covers, plus the bill protection warranty, which covers all costs related to the household in case of job loss, disability, or long term illness.
We also intend to strengthen our position in the management of the new welfare, by making supplementary pension plans more easily accessible to companies for their employees through our new collective pension scheme that we will be launching very soon.
World Finance: So, what’s your strategy for the next few years, bearing in mind Italy’s current economic climate?
Maria Bianca Farina: Although we keep on improving our product range, our real commitment focuses on reinforcing sale assistance offered to post offices, developing new client services, leveraging on existing resources and competencies within the group, as well as continuing to improve and modernise information technology systems.
“Greater access to insurance products could contribute to the whole welfare and health system”
World Finance: Finally, the topic of boardroom composition is an interesting one; what does it take to succeed as a woman in this market?
Maria Bianca Farina: In fact, the world of insurance and finance is still predominantly male-dominated. But luckily, we are witnessing some changes. In the last decades, more and more women have become part of the financial services sector, and they brought in more feminine traits such as caution, reduced inclination to risk, and greater attention to taking action.
Today, a woman still has to make a much greater effort compared to a man to achieve the same goals. Nevertheless, her unique and irreplaceable features are what to put a stake on. Moreover, I believe that a woman doesn’t need to act like a man to break the glass ceiling. As far myself, I never changed my personal approach in a working environment, always preferring to be true to myself and my ideas.
Cryprus’ insurance industry is relatively small, but EU membership is helping the country to attract international insurance management and reinsurance operations. Christos Christodoulou, Frixos Savvides, and Mehran Eftekhar from Trust International Insurance, discuss the challenges in Cyprus’ insurance industry caused by Solvency II and other EU regulations, but also the opportunities for consolidation as banks are forced to divest their insurance arms.
World Finance: Christos – you’re the fastest growing insurance company in Cyprus. Tell me what the secret is behind this success?
Christos Christodoulou: In 2009 we decided to enter the Cypriot market. The new board has said, from the beginning of its operations, that we will become a leading insurance company through innovation and customer service excellence. Because the Cypriot market was a very crowded and mature market; we needed to separate ourselves from the competition.
Therefore the board saw this opportunity to innovate. So we produced a new approach to general insurance, and we have established good systems, to provide to customers excellent support.
“The whole structure of the insurance business in Cyprus is changing”
World Finance: Tell us how the industry has developed from its British heritage to international influences.
Christos Christodoulou: In 1960, insurance was offered mainly from the UK, that maintained branches in Cyprus. It was not done until 1969 that the first insurance company was established on the island.
Currently we have 30 insurance companies operating on a small island with a population of less than one million. The Cypriot people are accepting insurance, and they are insurance-literate.
The market in Cyprus is relatively small, but due to EU membership, we expect it to grow.
World Finance: Frixo – what challenges does the Cypriot insurance market face?
Frixos Savvides: We have gone through a lot in these past few months. Definitely the whole structure of the insurance business in Cyprus is changing. And either it has to change by force, or it has to change voluntarily.
Traditionally, Cyprus insurance market was predominantly led by the two major banks through their subsidiaries. Now the two major banks: one of them is gone, Popular Bank has gone, and Bank of Cyprus is going through an unbelievable restructuring and redevelopment of the capital, and a load of other activities; and naturally as a process imposed by the European Union, the banks have to get rid of their insurance arms. And they have to be on the same level of competition as everybody else.
Thus, the major change which is going to be very painful to the banks, but also it will give the opportunity to young companies like us, to buy out or merge with other companies in order to absorb these unbelievably valuable businesses which will become available.
“Banks have to get rid of their insurance arms, presenting an opportunity to buy or merge with these companies”
World Finance: Mehran, how do you see cross-border business developing?
Mehran Eftekhar: In order to do cross-border, you need passporting. Passporting really means that your regulator, in the country that you’re operating in, will allow you to do business in other European Union countries, or actually any other country in addition to the EU. And for the regulator there to also accept you as a company that can transact business in that country, and therefore it will be very difficult.
World Finance: You already mentioned regulations – what are they key regulations, and what kind of impact have they had on the country?
Mehran Eftekhar: The main regulation is European Union directives on the insurance industry. We have also international financial reporting standards, that Cyprus applies through its local institute of accounting and other bodies.
We also have the local laws which they have to abide by, and now Solvency II.
“Trust International Insurance is a step ahead, because we are mostly ready for Solvency II”
World Finance: In terms of Solvency II, Christos, perhaps you can give us some detail about the technicalities?
Christos Christodoulou: As from the first of January 2014, the whole way of evaluating solvency in an insurance company will be changing. Depending on the speed things will change, it will affect the market, because due to the financial crisis we are going through the financial position of the different companies from the island has been affected. Solvency II makes things tougher; it corrects things, but it makes them tougher. So the timing of applying the Solvency II, and the speed with which it will be implemented, will change the insurance industry. Some of the players will not be able to take this rate.
This is again where Trust International Insurance is a step ahead, because we are not affected, and we are mostly ready for Solvency II. We are ready to implement all its provisions, and our assets are solid. Therefore we look to a future with a lot of prosperity, and we hope it will be turned to our favour.
World Finance: Christos, Mehran, Frixos, thank you very much for your time.
Christos Christodoulou, Fixos Savvides, Mehran Eftekhar: Thank you, thank you very much.
