Author: World Finance

Is Bangladesh going through an insurance revolution?

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As emerging market economies experience strong middle class growth, the insurance realm is blossoming alongside these demographic changes. Farzana Chowdhury and Nasir Choudhury from Green Delta Insurance discuss the Bangladesh insurance market and the potential for greater penetration in insurance in Bangladesh.

World Finance: As emerging market economies experience strong middle class growth, the insurance realm is blossoming alongside these demographic changes. 

Here to share insight about how the industry is evolving: Farzana Chowdhury and Nasir Choudhury.

First let’s talk about how the middle class growth has evolved?

Farzana Chowdhury: I think the middle class growth has been enormous, for the last 11 years we have been enjoying this over six percent of GDP growth. I mean, a few years ago, I mean the per-capital income was less than $500 but now it’s over $1,200 and because of the economy growth we are having a lot of opportunities for young people to join in various industries like insurance, banking, non-financial institutions.

Bangladesh is the second largest exporter country in the world, so with this expansion of the economy’s growth, we have seen in the insurance industry a lot of insurance needs are coming up at the moment; in addition, you know, to the traditional insurance covers that we have been giving them.

World Finance: So what I they calling for in terms of their insurance needs?

Nasir Choudhury: Without the insurance, no added economic growth, now we have achieved lower middle class, middle-income group now, we are giving proper protection, insurance protection to the government and industries. And they are getting maximum support from the banks and insurance industry.

And the young generation, a lot of people we are seeing in Bangladesh, they are coming for work, for different industries. And we are getting more interest from industry compare to other countries. We have got cheap labour, of course. In Bangladesh we have a lot of… we are giving them a lot of training facilities, to the workers. And insurance cover they are getting … we are expecting the developed countries to take more labour from Bangladesh.

World Finance: So can you tell me Nasir is it mostly corporate or personal insurance that they are looking for?

Nasir Choudhury: It is both, but mostly in Bangladesh’s insurance industry at the moment, we are giving more attention to the corporate. Because we are getting business from them. Unless you give proper cover, proper insurance protection, the industry will not succeed, you know?

World Finance: Now Farzana tell me how do you start to overcome barriers related to lack of awareness about your industry?

Farzana Chowdhury: We are the largest insurance company in Bangladesh for the last 30 years.  Even having the market share of 15 percent you will be surprised to know that our market penetration of insurance is lower than one percent.  Awareness is actually embedded everywhere, in every activity. We have a motto; to have insurance coverage for everyone.

We do a lot of activities, we do branding, improving our brand image. And we do a lot of marketing activities. Green Delta has always been a pioneer in coming up with innovative products and services.

We have also gone into the health sector; we have developed a health package for the people of our country. Also, we have joined hands with the government, where we will be giving insurance packages to 30,000 people in one area. That is their pilot project; and then we can, you know, increase all over the country. This is how we are trying to create awareness and branding at the same time.

World Finance: Nasir tell me, what do you think is going to be the growth projections for your country, in the decade ahead?

Nasir Choudhury: This is fast growing now, our people are not very much insurance minded, you know. And we have to teach them how to get their protection from the insurance industries, you know. And we have got an insurance association with all the insurance companies and we are trying together to increase the capacity of interest cover even to the people who are penetrated into the share market. We have gone to the capital market and we are going to the insurance training side. And all the insurance companies are coming together and go for even better services, better covers to the public, to the insurance public.

World Finance: Finally, can you tell me Farzana where do you place your company in the growth plans Nasir has just spoke off?

Farzana Chowdhury: We have the largest market share in the country and the insurance market. We are having 15 percent growth roughly every year. So with the penetration, like I mentioned, the government project that we are in. There are other innovative products that we have: we are into a crop insurance project with the IFC – IFC with us as an equity partner.

We launched a health insurance product for the corporate sector, and we have a comprehensive insurance package for women: which gives trauma allowances for the acid victims, rape victims and those who are exposed to road rage, in addition to the personal accident. So that will give us a first mover advantage. So we will be having 20 to 25 percent growth. This is what we are thinking of: improving the corporate governance. You have the international standard enterprise risk management and give better services to our people and, you know, maximising their benefits at a minimum cost.

World Finance: Farzana and Nasir thank you so much for joining me today. 

Farzana Chowdhury: Thank you very much.

Nasir Choudhury: Thank you, thank you.

Saudi Arabia opens doors to foreign investors

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Saudi Arabia has opened its stock market to foreign investors with more than $5bn in assets under management. The initial reaction was extremely positive, explain Khalid Al-Muammar and Ali Imran from Saudi Hollandi Bank, but significant investments may be delayed until Saudi Arabia enters the MSCI index in 2017.

World Finance: Saudi Arabia has opened its stock market to foreign investment. Here to share insight on how the investment community will mature and diversify, Khalid Al-Muammar and Ali Imran.

So, Khalid, first let’s talk about how the investment community reacted to this news?

Khalid Al-Muammar: The response has been great. Before the announcement, before the actual law went live, the market expectation was extremely high. That has been damped a little bit later on, due to a number of factors.

First of all, the drop in oil prices obviously had an impact on the appetite of foreign investors to come into the market. But also foreign investors would require time to digest the law and to see it played action; and also to be comfortable with the legal framework in Saudi Arabia.

World Finance: What competitive advantages do you think that the Saudi stock market and its respective local industries have over regional players?

Khalid Al-Muammar: We will experience change in the investment environment and investment strategy in Saudi Arabia. I envisage two main changes to be there: first enhanced market sophistication as well as fostering of the international best practices.

Sophistication: currently the market is dominated, the daily trading volume is dominated, by individuals. Individuals really have a short-term speculation in the investment arena, whereas a foreign institutionalised investor will have a much longer-term interest in the market.

World Finance: Given these opportunities, let’s talk about the depth of the foreign investment community and how that’s going to shift given this news.

Khalid Al-Muammar: The registration of QFIs – qualified financial institutions – has been slow. However going forward, the depth of investment will relate to the timing of Saudi Arabia entering into the MSCI index for emerging markets, which is expected in 2017. Then, international funds will have to allocate percentages to the Saudi stock market, and we will be able to see major funds flow into the economy.

World Finance: Ali, we just heard about some of the upcoming changes that are going to arise. Tell me about how the needs of your clientele are equally going to keep pace?

Khalid Al-Muammar: In the past the traditional methods of outreaching communication has served the industry well. But the new generation of young millennial customers are very demanding, and they are on multiple channels.

The test doesn’t work in the sense of being connected with the financial services not through the traditional methods. Today most of them, spend their lives on smartphones and social media. These are probably the two most important platforms where they expect their service providers to be. And so that is the case in our area – we are very active and visible in mobile banking, as well as the various social media platforms.

World Finance: Let’s be more specific about trends relating to in-demand services for smart banking in Saudi Arabia.

Khalid Al-Muammar: It is essentially providing all sorts of financial services, products and offerings accessible on the go.

The demand primarily that we see is the service delivery in terms of ease, intuitive design, and making sure that simple, easy products are delivered through the mobile banking platforms, which are relevant, and suited to their life styles.

World Finance: Finally gentlemen, let’s talk about global macro trends. We know that lower oil prices of course have an impact on markets all over the world. Let’s talk about Saudi Arabia in particular.

Ali Imran: The investment banking in particular in Saudi Arabia has been the first to feel the hit with the market correcting itself back in October as result of the falling oil prices.

Furthermore, we should expect that the appetite for industries to list their companies, for example, will be lower and they will have to wait until valuations are improved further. Having said that, I believe that with challenges come opportunities. And I believe that the mergers and acquisitions area of investment banking will flourish, given the fact that companies would see merit in consolidating their expenses and their costs by merging.

Furthermore, the government is intent on privatising the public sector, which will further help the government to reduce the cost burden, since the income has definitely reduced by 50 percent over the same period last year. As a result of that, I see more opportunities for investment companies to act as financial advisers and underwriters of potential privatised sector of the economy going public and being floated in the stock exchange.

World Finance: Very interesting, so you know, we are talking about global oil prices right now, tell me how is that having an impact on the local financial sector?

Ali Imran: As far as the retail banking is concerned the demographics of the Kingdom are extremely compelling. More than 65 percent of the population is under 25, which makes a very strong business case for retail banking growth in the medium to long term.

The non-oil GDP reforms: I believe the government will continue to focus, and that should lead to sustainability in terms of employment creation. That’s one of the most important attributes that will fuel the continuous growth of retail banking.

As far as the Kingdom is concerned, it is still under-branched compared to developed markets, so we expect there will continue to be an expansion in the branch network, into the ATMs, as well as the point of services terminals as well.

World Finance: Phenomenal discussion today thank you so much gentlemen.

Khalid Al-Muammar: Thank you for having us, thank you.

Ali Imran: Thank you.

Investors are hungrier than ever for sustainable projects

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Socially and environmentally responsible investments are growing in the emerging market space. Yves Duponselle, CEO of Xeon International, and Giancarlo d’Elia, CEO of Xeon Fund, discuss the rising demand for socially and environmentally responsible investment funds in the wake of successive financial crises.

World Finance: Socially and environmentally responsible investments are growing in the emerging market space. Here to share insight: Yves Duponselle, and Giancarlo d’Elia.

So first let’s talk about corporate social responsibility and the demand in the wake of successive financial crises. Tell me about what your average investor is calling for today.

Yves Duponselle: The new age investor is actually calling to contribute to something that benefits the environment and society.

Originally this was a phenomenon that was very niche-oriented: it was for non-profit organisations. But it recently became mainstream. It’s a business that is reaching out to two to three billion today, and it’s estimated in the next three to five years to grow very, very rapidly, from the concern of these investors to contribute with their money to something that is good for the environment.

We believe, not only from our heads but also from our hearts, that it’s necessary our generation starts doing something in terms of social and corporate responsibility.

World Finance: So Giancarlo, why should the average investor believe that you’re any different from any other hedge fund that bet against sovereign states prior to the 2008 crisis?

Giancarlo d’Elia: We are a private equity fund; we are not into financial speculation. Our job is to create value: to generate value. And by doing so, to add this social dimension, respecting at the same time the environment, and having an eye for sustainability.

So basically, we are accountable to our investors.

Our job is also to make sure that the generated value is in equation with perceived value: otherwise we’re out of business.

And don’t forget that capitalism in the third millennium should have a social inspiration. Otherwise it won’t be, anymore.

World Finance: So Yves, what type of investors are you attracting?

Yves Duponselle: We’re attracting new business leaders that are conscious of sustainability. We’re want to talk to the second generation, who want to add the dimension of meaningfulness to what the first generation has created.

They are investors that cross all typologies. They’re a bit younger, they like technology, they are well-educated, they know how to take a calculated risk. They’re very open in assessing change as a positive thing, and they’re very open-minded towards new business models.

World Finance: Interesting. So Giancarlo, tell me about their risk profile.

Giancarlo d’Elia: Well basically we have to typologies of investors. One is more risk-inclined, and the other one is more oriented to the preservation of wealth.

But both have one common denominator, which is that they take calculated risks. And to do that, the vehicle that we have, the specialised investment fund in Luxembourg, is very well suited. Because the whole structure is designed to protect investors. All players in the circuit are there to make sure that the funds of the investors are properly taken care of. And all possible risks are mitigated.

There’s only one element which is left over, and this is the industrial risk. And this is where we intervene as a general partner: by employing the best possible specialists in their respective areas, and making sure that the top-notch people are with us.

World Finance: So how does this interest apply to alternative energies and water shortage?

Yves Duponselle: We’re actually proposing to investors two distinct, different vehicles.

One is effectively investing in alternative biofuels in emerging markets. We have been thinking how they could become more self-sufficient. We combined two pretty poor performers in the industry: we put them together, and all of a sudden we got a very well performing company that is creating very interesting profits for investors, that is putting a lot of farmers to work – so there is the social compound.

And we see a huge reduction in the carbon footprint of the energy that is produced locally. So there is our environmental impact.

The second fund is a water fund in the regions that are under severe threat of drought. This water fund is actually hoping to cope with the shortage that is forecast over the next years. So, the idea here is to produce water and to deliver it to the local communities, so it can contribute to have a social impact. And of course, also, for the farmers to have an environmental impact.

World Finance: Finally Giancarlo, how are you able to prove that this is a socially responsible opportunity as well as wealth generating?

Giancarlo d’Elia: We act according to the principle that if you can measure it, you can improve it. And according to this principle, we have inserted into our key performance indicators in the daily management of the funds, the social dimension and the environmental impact.

So basically, we know exactly how many jobs we’re going to be creating in the target market. If we look at the water fund, where we produce and supply potable water to populations suffering from water scarcity, we know exactly how many households we’re serving. And if we make water flow, we make life flow. So things are going to improve dramatically.

World Finance: Yves, Giancarlo, thank you so much for joining me.

Yves Duponselle: Thank you.

Giancarlo d’Elia: Thank you for having us.

Britam: No end in sight for foreign acquisitions in Kenyan insurance

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Kenya today is a growing economy, with a rising middle class and very low insurance penetration. So it’s no wonder that it has become an extremely attractive market for foreign capital. Ambrose Dabani, General Manager, Life and Pensions from British-American Insurance, discusses the consolidation of the insurance industry in Kenya, Britam’s approach to risk management, and its customers’ savings needs.

World Finance: Not long ago, many people in Kenya had little or no insurance coverage. Now however, comprehensive and innovative services are readily available to the masses – so much so, that it has become an extremely attractive market for foreign capital. With me now to discuss this potential is Ambrose Dabani from British American Insurance.

Well Ambrose, the Fitch ratings agency reported that investors’ appetite in acquisitions in the Kenyan insurance industry has pushed up valuations significantly. What would you say the driver is behind this?

Ambrose Dabani: You must realise that Kenya today is a growing economy, with very low insurance penetration. There is a growing middle class, and therefore increasing the capacity of people who can buy insurance.

We also have a regulator which is looking at increasing penetration, attracting foreign companies to come to the country. And it is encouraging them to come through acquisitions.

You can choose to come as a greenfield setup – but that has its own setup challenges and setup risks. So what the regulator prefers is that companies coming through should come through an acquisition. And therefore that has led to an increase in the demand-side.

World Finance: So the market is seeing a lot of consolidation: what do you make of this?

Ambrose Dabani: Currently, pre-consolidation, we have about 43 companies. And it is the feeling of the industry that that is too many. And therefore we’re looking at a period when there’s a lot of capital investment required – in terms of innovation, in terms of technology.

There’s also an increase in regulatory capital, and therefore the smaller companies are looking to be bought out. So therefore, that is also on the supply side in terms of insurance companies that are looking to be acquired, that has also increased.

World Finance: And compared to its African neighbours, why would you say the Kenyan insurance market is flourishing?

Ambrose Dabani: One: very low penetration. So that means definitely there’s an upside potential.

Two: a growing population, a growing economy. That means the middle class is also growing; that also increases the market.

And also at the moment there’s a lot of technological innovations that are giving room for increased innovation on products, on distribution.

Kenya is also seen as a hub to the rest of east Africa because of its geographical location, its developed financial markets, its educated labour force – and therefore, naturally anyone who wants to come to that part of the region will start with Kenya.

World Finance: Well as you mentioned, like most industries technology is changing the insurance landscape. So what innovations are coming to market?

Ambrose Dabani: Technology is changing. And specifically to Kenya there is what we call the mobile money phenomenon: you must have heard of M-Pesa. Now, that is where you can have all your money on your phone, never have to visit a bank – but you have all the banking services on your phone.

Now, that is really changing a lot of things. It’s changing the nature of products that we have. Now we have mobile phone products – now you can sign up for insurance on your mobile. We’re exchanging processes – now you can have all your customer care services on your phone.

It’s also changing the way we distribute. We have 20 million people – we’re talking 20 million out of a 45 million population. That’s a huge proportion that’s on a mobile phone. The penetration of smartphones means that you’re able to distribute insurance products through the mobile phone.

So yes, that’s creating a lot of innovation around distribution, around products, around processes.

World Finance: And how do you tailor your offerings to individual needs? And indeed, what are these needs?

Ambrose Dabani: As I said, we have diversified financial services. We offer products for any stage of life, right from the time you get out of school and get your first job. Of course, you have your short-term saving needs – either to go back to school, to get married, to start having a family, buy your first house… so we have lots of savings products.

Then we move on to the point where maybe someone has a family, and they’re thinking about education for their children, thinking about personal health and healthcare. We have all those products in Britam.

All the way to savings for retirement, and also even accommodating retirees, with all their needs around regular income, around meeting their medical requirements. We have very, very innovative products at Britam: to meet retirement needs, retirement expenses, regular income until death, and even to spouses and all other dependents thereafter.

World Finance: In terms of asset management and investments now, how do you manage risk?

Ambrose Dabani: At Britam we have a separate, full-fledged asset management company. It’s very, very rapidly growing in terms of assets under management, because of the investment philosophy that we have.

You’ve got to remember that we manage people’s money, and therefore first we’ve got to deliver the return we promised, and with certainty around that particular promise. And therefore we are not gambling with people’s money: we have processes, we have quality controls in place, we have risk management as a function right at the board.

Senior management and risk management function that reviews our processes. And we do our investment based on asset liability margin principles, so that we don’t take too much risk.

Remember that we’re also a regulated company, so we also have to have a look at what the regulator advises as correct investment principles. So yes, risk is very, very well managed.

World Finance: Finally, how do you see this industry evolving over the coming 12 months?

Ambrose Dabani: The coming 12 months are going to be busy! At an industrial level, at Britam’s level, it’s going to be busy.

We expect that consolidation will continue. We’re still hearing of new companies from Europe, from South Africa, looking for appropriate companies to buy. We expect that there’s going to be new legislation or regulatory environment in place. Currently the draft is being discussed by the industry – it’s causing a lot of excitement, as we move to risk-based supervision, in line with the rest of the world. So we expect that is going to continue.

We’re seeing more and more insurance companies are going to jump onto technology, coming up with innovative products, innovative distribution models, and innovative servicing, just to be more efficient and cut their costs, and deliver value to the client.

So therefore we expect lots of activities. It’s a very interesting time for insurance companies.

The Owners’ Club: Saudi Arabia’s thriving luxury car market

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Every year Saudi Arabia imports 600,000 cars, worth more than $20bn. Sheikh Ghassan Al Sulaiman, CEO of Al Ghassan Motors, tells World Finance that the key to the industry is creating the luxury lifestyle associated with the brands.

World Finance: Saudi Arabia’s luxury car market is booming. Every year the country imports 600,000 cars, worth more than $20bn. Luxury vehicles account for more than 18 percent of total imported cars, making it the world’s largest market in the luxury car category.

With me now is Sheikh Ghassan Al Sulaiman from Al Ghassan Motors: a leading car dealer in the country.

How does the car market differ in Saudi Arabia from the rest of the Arab world?

Ghassan Al Sulaiman: Saudi Arabia is completely different.

We have representation in the three major cities in Saudi Arabia, and the distance between each one of them and their population is equal to one of our neighbours.

We believe that Saudi Arabia has a big number of high-net-worth families; and you’ll see that some of these families will have more than one of our brands, the luxury cars.

But in general, the Saudi customer enjoys the quality and luxury that our brands offer. And that’s also in the rest of the GCC.

World Finance: So what is the key to being successful in the luxury car market in Saudi Arabia?

Ghassan Al Sulaiman: Customer care and aftersales service is the key. It’s always been the key of success: if you succeed in aftersales, you will succeed in sales.

Our customers would like to enjoy a lifestyle associated with the brands they drive. And that’s what we do. We create the owners’ club, to give them that lifestyle, and let them associate with the same people, in the same lifestyle, with the same brands.

So what we do too is, we invest a lot in aftersales, and the sales facilities and training of our people; to give our customers the best service they deserve in these luxury brands.

World Finance: Now you also deal in pre-owned cars; how much of a market is there for this? What kind of figures are we talking about?

Ghassan Al Sulaiman: For the last seven years, sales of new luxury cars has been growing. And logically there will be a lot of pre-owned cars in the market. And usually in the mature market there is a ratio of selling two used cars to one new one.

We’re not there yet, but the market is getting to that ratio. But it is logical for us to concentrate on the pre-owned market, and the pre-owned cars, for the reason that the customer will find cars being offered in a factory standard. And at the same time we can protect the resale value for these cars.

On this basis we opened in Jeddah the first pre-owned facility; and now, by the end of this year, we’re going to open one in Riyadh.

World Finance: So what other big projects are you working on this year? What’s next for the business?

Ghassan Al Sulaiman: As I mentioned before, the expansion in our facilities of sales and aftersales is ongoing. But we believe that with the expansion in the market, and the products coming from our partners and manufacturers – for example, the Bentley SUV – Bentayga – is coming. And that will increase, as we understand, and we forecast a 25 percent increase in our sales. So we need to improve on our facilities to accommodate this.

Also, as you know, Infinity is one of the largest growing brands in the Middle East today. And we forecast for Saudi Arabia a 30 percent growth year-on-year for the next five years.

So we believe we need to improve our facilities to accommodate all this. And our goal in this is to make our customer get the right help and the right facilities, and the right product at the end.

Our goal in this is to give our customer the best service possible, by being associated with our brands.

World Finance: Finally, how do you see the luxury car industry developing in 2015?

Ghassan Al Sulaiman: We see continuous growth, and we believe that the market is going to grow at a faster pace, because of the booming economy in Saudi Arabia. And also, all these models that are coming from the manufacturer.

And actually, like we mentioned before, there’s a lot of motors coming in the next few years. And that will make the business we’re in booming to very high levels.

And we really see that the manufacturers look at us as key players in the market. And they are really helping us and pushing us to get to our goals.

Handelsbanken: We are well prepared for the sovereign-debt crisis

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With another global financial crisis on the horizon, the international banking community is bracing for greater volatility. Michael Green, CEO of Handelsbanken Sweden, discusses Handelsbanken’s approach to risk, its profound understanding of its customers, and what the future may hold from a sovereign-debt fuelled financial crisis.

World Finance: With another global financial crisis on the horizon, the international banking community is bracing for greater volatility. Here to tell us how one major player is doing so, Michael Green of Handelsbanken Sweden.

So, we know that another banking crisis is coming; this time it’s going to be sovereign-debt fuelled. So tell me: how are you bracing for the future?

Michael Green: Let me first go back to 2008-9, with the start of the latest financial crisis. We’ve had a lot of crises since then: we started with the Lehman crisis, we had the sub-prime crisis, we had the Nordic-Baltic crisis. We’ve also had liquidity crisis, we’ve had higher interest rates, and now negative interest rates!

And throughout that time Handelsbanken has proven with our business model, that we’ve been able to keep our performance pretty stable and non-volatile through these different crises. And we’ve also created a lot of shareholder value through that time.

So we have a business model that’s proven to work even through bad times.

World Finance: Very interesting; now, part of that strategy was a conservative view of risk: tell me, what is the strategy this time around?

Michael Green: We have been pretty OK with our approach to risk throughout these years. And one of the explanations that I see is that we have a very strong business model that actually takes aim on our branches, the local decisions.

We have a business model that is actually scalable, repeatable, and which works very well in our six home markets – that is, the UK, Sweden, Norway, Denmark and Holland.

World Finance: A nice cross-regional representation there; so tell me, how does your clients’ understanding of risk influence your bank’s schemes?

Michael Green: I think with our profound knowledge of our customer locally within every one of our branches, both individual and corporate customers. We work very closely with our customers to really understand their risk approach, and give them our view on that, and try to make out the best solutions for each and every client as we go.

World Finance: So we talked about some of the challenges that come along with this next crisis; let’s talk about some unexpected opportunities.

Michael Green: I don’t know where the EUR/USD is going to trade tomorrow. I don’t know how the interest rate is going to close today. But we do know how to manage risk – and that is credit risk. We like credit risk, and we are not really into the market risks.

While saying that, we still create a very strong balance sheet. We’re one of the strongest banks in Europe right now. And why do we do that? First of all, we are here for our customers in good times and in bad times. We need to be prepared for the bad times to be able to help our customers.

Secondly, we have never received any governmental support, we haven’t received any central bank funding, and we have never asked our shareholders for new equity throughout the last financial crisis. So that’s the reason why we have a very strong financial position: to be able to support our customers and take care of our own balance sheet.

World Finance: Finally, what does the future hold for Handlesbanken?

Michael Green: We’re a full-service bank. In our six home markets we bank with both private individuals and corporate clients. We’ve been able to manage to achieve our corporate goal for the last 43 consecutive years.

We have very satisfied customers, and we have a very strong branch network that we combine with our digital platforms, in terms of the internet and smartphones. And I think we have a very strong business case moving forward.

World Finance: Excellent. Michael, thank you so much for joining me today.

Michael Green: Thank you.

Tumico: Bulgaria must fix laws to create a fairer insurance landscape

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The Bulgarian financial sector is undergoing dramatic transformations. Georgi Borisov and Venelin Georgiev from Tumico discuss the legislative and regulatory challenges that insurance companies face in Bulgaria, and the benefits that EIOPA’s Solvency II directive will bring to Bulgarian insurance.

World Finance: The Bulgarian financial sector is undergoing dramatic transformations. Here to shed light on these changes: Georgi Borisov and Venelin Georgiev.

Now first, tell me about the challenges in your local sector.

Georgi Borisov: The national legal framework allows us to do business only in the field of long term life insurance.

We’re deprived of contact with the short term life insurance contracts, which is the main sector of life insurance in Bulgaria.

For example, the company can grow significantly, even in production volume, if some unfair legal texts are just removed from the legislation. And this is one of our main goals for the future.

Some examples can be given. First, pensions that are paid from premium pension funds are not subject to taxation, whereas insurance savings are taxed.

Second, payments of premiums to pension funds is regulated and smooth, while insurance payments to insurance companies often depend on the mood of the employer of the applicant for insurance.

Third, tax authorities and the government violate regulations and directives of the European Union. There is a lack of dialogue between the government and business. The opinion of Mr Tony Thompson, who is the representative of the World Bank for Bulgaria, is that government is a partner and regulator to be avoided by business.

World Finance: We’ve just heard from Georgi some of the issues that your industry has faced; tell me about your company, and how it’s been able to transcend these problems and build a long term growth strategy.

Venelin Georgiev: Many managers advise their companies to change and rethink their goals. We at Tumico however defend the opposite idea. Because of the restrictive legal framework, we defend product simplicity and universality.

The form of simplify and repeat is received very well by the market. That is why in our practice we constantly develop more clearly defined target groups of people – also add limiting characteristics that are placed on all our papers and advertisements. Combined with altruistic product content, which says that with us it’s easy, and we hold it is so.

Georgi Borisov: I would also add that simplicity is a useful tool against the growing complexity of corporate structures. To manage with globalisation, companies are beginning to use complex metric systems of management. This is a hidden killer of the current type of business.

To avoid this, we strive for simplicity: but only simplicity is not enough. Along with it, Tumico has the following business practices: rejuvenation of staff, education of our own talent, concentration of our resources and market action, and solving complex administrative tasks by small groups of highly qualified specialists.

World Finance: Venelin, what are your clients asking for mostly? Is it corporate or private insurance?

Venelin Georgiev: We have different types of clients, but we have focused on the hardest segment: this is product at the expense of the insured.

The reason for sincere price is that through all those years, we managed to stop the turnover of our members. It should be noted that when Tumico was founded, this was a significant problem. Of all 662 people who founded the insurance company, today only three of them are still members. But in the last year, 2014, just 14 of our 30,000 members ended their membership. So you can see that fighting turnover is a very small component of our work.

World Finance: Fascinating; so tell me Georgi about how you’re preparing for Solvency II. We know that it’s coming, what’s the industry responding with?

Georgi Borisov: We understood the full meaning of Solvency II when we made our own forward-looking assessment of own risk – formally known as ORSA, Own Risk and Solvency Assessment. Solvency II looks forward in time and estimates a larger volume of factors that affect solvency, while the Solvency I directive was focused on the past and present.

But there is also a hidden effect. Questions set by EIOPA in Solvency II were a huge exchange of experience between European insurers. So this was a most pleasant surprise.

World Finance: Georgi, your company in particular, let’s talk about some of the changes that are coming.

Georgi Borisov: Corporation membership in AMICE, the Association of Mutual Insurance and Insurance Cooperatives in Europe, where Tumico was accepted and welcomed as a full member, turned out to be very useful. This is the main reason, according to us, that we are in step with EIOPA’s and the local regulator’s requirements.

World Finance: OK. So finally Venelin, what does the future hold for the Bulgarian insurance industry?

Venelin Georgiev: Gear and depth of insurance penetration will grow with the increase of peoples’ wellbeing and care. In social insurance, the obligations and rights of the business should be aligned with those of the state to its citizens, at least.

In Bulgaria there’s a difficult process of the separation of the state from its social activities, because of the structure of our country’s debt. It is still the largest employer, and its own structures provide the population with healthcare and pensions.

This must be changed so that the market advantages can become available for citizens.

Johnson: British Virgin Islands must innovate to remain competitive

Posted on by World Finance

The British Virgin Islands has long been considered a leading financial centre, with its business-friendly government. But stronger competition in the incorporations space is forcing the BVI to innovate its offering. Julien Johnson, Executive Director of BVI Finance, explains how the British Virgin Islands has changed, and introduces two innovative new funds.

World Finance: The British Virgin Islands has long been considered a leading financial centre, with its business-friendly government. With me to discuss the opportunities the region represents is Julien Johnson, from BVI Finance.

Well Julien, the British Virgin Islands of course is one of the leading financial hubs, but what sort of opportunities does it represent?

Julien Johnson: Well, the BVI has been an important part of the global economy for a very long time.

The main BVI advantage really is a robust regulatory framework that meets, and in many instances, exceeds, regulatory standards.

We have an entrepreneurial business community, we have a government that is committed to coming up with new legislation that meets the needs of the industries.

We’re also a price-competitive jurisdiction, in terms of our fees: our legal fees and corporate services fees are very competitive, making the BVI a cost-effective place to do business.

We also have an independent legal and judiciary system based on English common law, with highest appeal to Privy Council in London, which is attractive to investors.

Beyond that, we have a very good cadre of professionals working in the industry, resident in the BVI, who can provide services in every sector, whether it be trust funds, the captive insurance business, incorporations business. We also have most of the leading firms with a presence in the BVI. So it’s really a one-stop shop for all of your offshore financial services needs.

World Finance: Well when people do think of offshore jurisdictions, they often think of money laundering; so how do you ensure that business is above board?

Julien Johnson: Well, the global fight against money laundering is an evolving process. The BVI has long been a part of this process; in fact, the BVI was one of the very first jurisdictions to institute anti-money-laundering laws, going as far back as 1999.

We have a very robust anti-money laundering framework; we take very seriously our role in combatting money laundering globally. And as I said before, we meet and in most cases exceed international standards.

World Finance: The BVI prides itself on setting the highest standards when it comes to regulations and transparency; so, how advanced is this?

Julien Johnson: Setting the highest standards for transparency has really been a part of the BVI’s strategy in maintaining its competitive advantage. The BVI has signed 27 tax information exchange agreements with various countries around the world. Most recently the OECD has upgraded our rating to largely compliant in its latest peer review, which is a huge endorsement of the work that we have done as it relates to transparency and international cooperation on tax matters.

It’s a fundamental part of our business model, and one that we’re very proud of our achievements in this area of cooperation and transparency.

World Finance: You do face growing competition in the low-cost, high-volume offshore incorporations business; how do you approach this?

Julien Johnson: Well, there certainly is growing competition. The BVI’s approach now is really to look beyond incorporations. Obviously incorporations is our core business, and a very fundamental part of what we do. And really what provided the growth in the industry, and where we started from. But we’re looking beyond that.

We’re a one-stop jurisdiction that offers many other products and services. As an example, the BVI recently launched two new funds products: the approved fund, and the incubator fund, which are geared towards start-up managers, and also managers who are focusing on a very small group of connected people. So these are examples of very new and innovative products that we have launched in response to growing competition in the market, and a need to diversify ourselves.

Beyond that, the BVI has recently launched a campaign called BVI forward, which is the result of a report done by the global consultancy firm McKinsey and Company, which is really an overview of the financial services industry in the BVI, and to develop a plan to move it to the next level.

So, parts of that report are actually a key focus on value-added services, and developing additional value in the industry for its growth. So we’re very excited about that, and certainly there will be a lot more coming out of that very soon as we move financial services to the next level in the BVI.

World Finance: Finally, how does a company go about setting up in the BVI, and what do they need to be aware of?

Julien Johnson: As the world’s leading domicile for offshore companies, the BVI has established a BVI Business Company that is the core of many businesses globally.

The success of the BVI Business Company has really been the foundation of the financial services industry in the BVI. Over a million companies incorporated to date – half of which are active.

The BVI has developed a very efficient company registry. So the process of establishing a business company in the BVI is fairly easy, once the proper due diligence is performed, and customs and things have been satisfied.

The actual set-up of a business company is done through a local registered agent; a list of those are available at bvifs.vg. And the agent is responsible for setting up the company and administering it, as well as ensuring that the business behind the company is one that is legitimate, and will not bring disrepute to the industry.