2014 | World Finance

AEC launch opens insurance opportunities in the pan-Asian market

Posted on December 12, 2014November 10, 2014 by Ashton Wenborn

The launch of the ASEAN Economic Community is finally upon us. At the end of next year, 15 of South East Asia’s most prominent economies will band together as key trading partners in a move unprecedented in the region. This, of course, will open many doors for industrial development, and there is no exception for the insurance industry.

Viriyah Insurance is already a market behemoth in its native Thailand, and, with the launch of the AEC, it is poised to take the next step into the wider world of the pan-Asian insurance market. Pravit Suksantisuwan, Deputy Managing Director at Viriyah Insurance PCL, spoke to us about the challenges and opportunities this burgeoning market will offer insurance companies across the region.

What are the biggest opportunities in the Thai non-life insurance market?
The upcoming launch of the ASEAN Economic Community in the region opens up more significant opportunities for the Thai non-life insurance industry. Insurance companies will benefit from the opening of markets in many countries, especially those that have competences and readiness. The overall population of AEC countries is currently around 600 million people, which makes it the third largest population in Asia, after China and India, and a whopping nine percent of the global population. It is one of the world’s large economic groups, with 2.4 percent of the world’s GDP. These offer many positive factors for non-life insurance companies in the region. The leading countries in the region are Singapore, Malaysia, and Thailand. In 2013, the non-life insurance industry in Thailand gained about THB200bn (around $6.25bn, see Fig. 1). It is expected to grow much more after the opening of the AEC in 2015.

Value of Thai non-life insurance — Source: Viriyah Insurnce

In 2013, comparing among insurance companies in ASEAN in terms of premium size, Singapore, with its 37 insurance companies, gained premiums worth about TBH300bn. Thailand, with its 65 insurance companies (see Fig. 2), gained about TBH160bn. Indonesia, with 84 insurance companies, gained TBH150bn. Geographically, Thailand is located in the middle of the ASEAN countries, which is a major advantage in terms of transportation.

Have the auto and industrial markets suffered this year, as was predicted?
As a consequence of the government’s tax refund for purchasing cars in the year 2013, the total number of cars sold for the first two quarters of 2014 has declined as much as 40 percent when compared to the year before. The business forecast indicates the total number of cars sold will have a total decline rate of 30 percent for a one year period. Thailand’s economy is returning to normal after a prolonged political incident during the first half of the year. Thus, without unexpected natural disasters, economic and political crisis, the premiums of the motor insurance business will likely return to normal growth.

What are the key trends facing the market?
Developing quality of service in underwriting and claims to gain more efficiency and effectiveness in order to serve all customer needs in a timely fashion is definitely a major factor most insurance businesses care about. This can also be used as a strategic business policy to gain more customers and ensure high satisfaction. Since customers are looking for high returns on their investment, they will absolutely renew or buy more insurance policies. Furthermore, they will talk to their friends or family members about the good experiences they have.

The coming AEC in 2015… has been a hot issue and insurance businesses of all sizes have been working on their business assessment and development

Insurance renewal rate is another key area where insurance businesses have been competing. Due to the decreasing rate of newly registered vehicles in the market because of negative economic factors, the political situation in Thailand and the high level of purchasing in the previous year – due to a benefit from the government – the sales of all passenger vehicles have dropped compared with last year’s sales. This definitely leads to declining revenue of insurance businesses, especially for those who focus on auto insurance. All insurance companies certainly need to retain all existing customers as best as they can.

Moreover, all insurance businesses will need to prepare for the coming AEC in 2015. This has been a hot issue and insurance businesses of all sizes have been working on their business assessment and development: training and providing more skills for their employees, developing more competitive products and expanding their network to serve their customers in all areas.

As the economy continues to grow and develop, the new government continues to lay down well-defined goals, and AEC opportunities: the insurance business in Thailand is expected to steadily expand for the next three years. However, should any adverse situations arise – such as disasters or uncertain political situations – there could be more challenges for insurance businesses in the Thai market.

Why should foreign investors be looking at these opportunities?
Because the penetration rate of non-life insurance in Thailand is still low, it has a very high potential for growth. After the great flood in Thailand in 2012, the consumer interest in buying insurance has increased exponentially due to knowledge and a better understanding of the gains from having insurance coverage for their property.

The AEC

600m

Combined population

9%

of the world’s population

2.4%

of the world’s GDP

The government also continuously promotes and supports insurance businesses and a variety of insurance policies. These projects include microinsurance (which focuses mainly on low-wage consumers), the Insurance Bureau System (which acts as an insurance-related information centre to help insurance-related businesses improve their efficiencies).

E-Claim offers an internet gateway and online payment system. There’s been a transformation of buying and selling insurance coverage from conventional methods to doing it online. Purchasing motor compulsory insurance policy online is an example for that. Furthermore, lots of reports are in real-time, to efficiently improve information systems and serve people in Thai communities more effectively. Foreign investors are able to support and stimulate the growth of non-life insurance by providing useful information, new innovations, new technologies and new management systems. Experiences, such as how to systematically analyse and manage various risks, and new innovations in compensation managements and claims, will help strengthen the stable growth of Thai non-life insurance industry.

How are your products different to those of your competitors?
Currently, both life insurance and non-life insurance products are limited within the tariff system regulated by the Office of Insurance Commission. As a result, the company is unable to improve, create or provide a wider range of coverage for consumers, but instead focuses mainly on after-sale services (compensation services). By focusing mainly on customer service, Viriyah Insurance has been well known for a long period of time. We are the best non-life insurance company in the country. We have the most efficient compensation service system, which covers 77 provinces around the country. We offer many services such as accident inspection services and repair centres.

Thai non-life insurance market share 2013 — Source: Viriyah Insurance

What plans does Viriyah have to expand into new regions?
We see a lot of opportunities and beneficial gains from the ASEAN Economic Community. As a result, we have formed a partnership with insurance companies from countries participating in the AEC community, in the form of Co Sign. We have partnered with Allianz General Laos – the largest insurance company in Laos – to expand our Carrier’s Liability Insurance and insurance coverage for cross-border commercial vehicles between Thailand and Laos. The coverage will be expanded to cover the customers of people and businesses in the AEC mainland (including Malaysia, Singapore, Vietnam, and China) in the near future.

Currently, we are negotiating with major insurance companies in Malaysia to conduct co-insurance of life insurance and non-life insurance in the Malaysian market. We believe that, by being the best, the largest, best-known and highly trusted insurance company in Thailand – combined with exceptional expertise in companies’ stability and compensation service systems – Viriyah Insurance will have a better chance of gaining many advantages and opportunities from the ASEAN Economic Community.

Fortunately, Thailand is geographically beneficial when compared to other countries in the AEC. As a result, Thailand will act as a logistics hub for imports and exports in the East-West Economic Corridor. We have planned insurance policies for in-land transportation that would cover most personal and commercial vehicles that need to travel throughout Myanmar, Laos, Malaysia, Singapore, Vietnam and China. The company is developing products to support Thailand’s role as a logistic hub for the AEC. For instance, there are travel insurance, accident insurance, and health insurance products.

Unemployment special: Australia’s future looks bleak as mining boom ends

Posted on December 12, 2014January 5, 2015 by Ashton Wenborn

Despite somehow weathering the great global recession of 2008 with very little damage incurred, fast forward to late 2014, and the Australian economy’s gold streak is well and truly over. The mining investment boom, which lasted a decade and contributed 13 percent to real per capita household disposable income per year since 2002, has come to its inevitable bitter end, and other industries have been slow to fill the gaping hole it’s left in the economy. An RBA report released in August found that without the mining boom, Australia’s unemployment rate would have risen by 0.75 percent during the global financial crisis, which suggests dark times could be ahead for the nation in its absence.

Unemployment special: can France escape a vicious circle?

Slowing growth in China has had a detrimental long-term impact on commodity prices, most notably coal and iron ore, the latter of which has fallen by over 40 percent in just one year. This has contributed further to the loss of resource-related roles as firms experiencing a decline in profits seek to cut costs in other areas. And lower-than-expected growth in 2014 has set a disheartening precedent for 2015, with the IMF predicting that growth won’t exceed three percent for the next five years. The Australian economy’s downturn comes in the midst of its major transformation, as the main driver of activity shifts from investment in resources projects to a broader variety of non-resource based sectors.

Sitting at 6.2 percent in October, Australia’s unemployment rate is set to be the second-worst in the Asia-Pacific region over the next two years with only the Philippines lagging behind; a heightened concern when considering the amount of significantly less developed, emerging economies in this region. 2014 has seen the rate reach a 12-year high of 6.4 percent, and in 2015, the IMF predicts a reduction of just 0.1 percent, while the Philippines’ is predicted to fall from 6.9 to 6.8 percent.

In such a fragile global and domestic climate, employers have been understandably reluctant to hire. And although the Australian working population is dwindling as the baby boomers reach retirement, this does seem to be picking up: the participation rate climbed 0.1 percent in November to 64.7 percent, somewhat offsetting the employment rate, which climbed to 6.26 percent. A high rate of joblessness has led to a deceleration of wage growth, which has then in turn helped to control inflation.

In July, the Reserve Bank of Australia (RBA) said employment was likely to remain low “well into 2015,” picking up only very gradually over the next few years. The RBA’s assistant governor Christopher Kent anticipates some progress in late 2015, when GDP growth should eventually pick up to an above-trend pace. Although many anticipated interest rates to remain at a record low of 2.5 percent, where it has been for 16 months, further joblessness growth in recent months suggests the RBA may be inclined to reassess.

Unemployment data is distorted somewhat by the fact that it doesn’t take the under-employed – those in a part-time or casual position, who would prefer to be in full-time work – into account. And as in most cases, the slump is felt most tangibly among young people, where the joblessness rate climbs to over 14 percent, topping 28 percent in certain regions. The pool of entry-level jobs is diminishing fast, and if employment is achieved, the role is likely to be casual, temporary or part-time, and therefore less likely to offer opportunities to progress. A September 2014 report by the Brotherhood of St Laurence warns of today’s youth becoming a “lost generation” if drastic action is not taken soon.

Prime minister Tony Abbott has put forward various schemes as solutions, for example, making the government’s Work for the Dole programme compulsory for all unemployed people – which will in fact come into effect on 1 July 2015. Or, insisting that jobseekers must apply for 40 jobs per month before they can receive the meagre Newstart allowance. However many of these schemes, including the 40-application quota, have largely been met with a chorus of criticism for how they punish the jobless without solving the fundamental issue of a lack of jobs. The government has also set aside $500,000 to pilot an education scheme which would see more vocational and technical subjects made available to students alongside the standard high school curriculum.

If a new sector doesn’t step up to the plate and fill mining’s boots soon, the Australian economy is at a heightened risk of falling into recession. Steps must be taken in 2015 to open up more roles, particularly for young people, or the “lost generation” could become a reality in the not so distant future.

Globalvia on the future of infrastructure investments

Posted on December 11, 2014 by Ashton Wenborn

In the wake of the 2008 financial crisis, infrastructure development by governments was put on hold as their coffers were spent on emergency responsiveness. Now, as markets open and governments start spending, Perez Fortea – CEO of global infrastructure titan Globalvia – tells us about how the growing appetite for development is happening worldwide.

World Finance: Javier, as governments rebound from the crisis, can you tell me how much money is being allotted to infrastructure development?
Javier Perez Fortea: That depends on where we’re talking about. If we’re talking about Europe, there’s nothing; because basically governments have cut down spending, and there are very few infrastructure projects that make it all the way through the tender process.

Now if we talk about the US, that’s a different story. In the US they acknowledge that their infrastructure network is obsolete, and they’re taking the steps needed to get everything renewed, and all this investment into the country.

In the US they acknowledge that their infrastructure network is obsolete

They are doing this; and they announced it a couple of months ago by creating an infrastructure hub that will gather up all the know-how and all the best practices in the industry.

I had the opportunity to participate in the B20 meetings in Australia this summer; what came out of those meetings was some proposals that we were making to the G20 Prime Ministers for their meeting later on in November in Brisbane, Australia. And infrastructure is considered a tool to create jobs and a sustainable economy.

Again, one of the proposals that the B20 made for the G20 was precisely to create an international infrastructure hub, which would look over all the infrastructure projects that are needed all over the world; specifically in the developing economies.

World Finance: Excellent; now can you tell me about some of the examples of some of these recent projects that you’ve taken on?
Javier Perez Fortea: We’ve just finished construction and opened to traffic a highway in Mexico. It’s a highway in the corridor that connects Mexico City to the Gulf of Mexico. That was opened to traffic in September.

We also completed the construction of the subway in Malaga, a city in the south of Spain. And that was opened to traffic in late July.

These projects however were projects that were tendered and awarded prior to the crisis. The only countries that have been active during the crisis are emerging economies – for example, our shareholder FCC has just been awarded the subway in Lima, Peru. Or the subway in Saudi Arabia, in Riyadh. So there are major projects happening; but not in Europe, unfortunately.

World Finance: Now we know that institutional investor sentiment has been shifting in terms of allocating more capital towards these types of projects; tell me how have you benefited from the change in sentiment?
Javier Perez Fortea: It used to be in the past that the financing for these projects came from banks – obviously governments also, but lately we are seeing a lot of institutional investors coming in. We’re talking about pension funds, infrastructure funds.

We in particular, Globalvia in particular, has benefited from this appetite from these types of investors, because we have three funds that back our company. That’s OPI Trust from Canada, PGGM from Holland, and USS from the UK.

These funds are funding our investments, which has allowed us to grow in a moment where it was almost impossible to grow. Because you know, Spain is in the south of Europe; the south of Europe was hit by the crisis even worse than some other countries in Europe. And in spite of this, we had the firepower and were able to grow, thanks to the backing of these pension funds.

Basically, we are now probably the largest subway and tram investor and operator

So we are very glad that there are alternative sources of funds, and we think that companies like us are still very much needed in this infrastructure world. Because we’re the ones that are able to manage all the risks involved in transportation infrastructure projects.

World Finance: In light of this formidable marketplace, tell me; how much of it has influenced your ability to take on the Metro de Sevilla project?
Javier Perez Fortea: The Metro Sevilla is a great project for many reasons. But the main reason by which we decided to take it on was because it rounded off our curricula.

Basically, we are now probably the largest subway and tram investor and operator – because there are other larger operators, but we invest in the assets also.

So it has allowed us to be in the top of the world of operating subways and trams, which is allowing us to tender projects in Asia or in North America, or in Australia, for example, which we wouldn’t have been able to do prior to this.

World Finance: So tell me; what’s on the horizon for Globalvia?
Javier Perez Fortea: Three words: growth, growth, growth! We are hoping to keep investing with the backing of these pension funds that are behind us. And Globalvia is right now number two in the world by number of concessions that we operate; and we are hoping to make it all the way to number one, obviously, by investing very well and investing in very specific and transformational projects.

Not small projects, but large projects: always in the world of rail and road.

World Finance: Exciting times ahead; Javier, thank you so much for joining me today.
Javier Perez Fortea: Thank you.

The rise of the super-rich puts pressure on wealth management sector

Posted on December 11, 2014February 14, 2017 by Ashton Wenborn

The wealthy are becoming increasingly rich (see Fig. 1) and the term millionaire has recently been dubbed obsolete as multi-millionaires or the ultra-wealthy continue to dominate rich lists. The new wealth standards are particularly common in emerging markets such as China and Russia, but also in developed countries such as the US.

This is putting pressure on the wealth management sector to rethink their products and services in order to match the demands and specifications of the super-rich. The growing amount of personal wealth has also spiked criteria for private banking clients, as more and more firms look to only take on the very wealthiest of customers.

Wealth managers and private banks have had to refocus their energies and businesses on emerging markets

Increasing figures
Interestingly, during the past 10 years, worldwide millionaire and multi-millionaire numbers have grown at vastly different rates, especially with the amount of those that are ultra-wealthy increasing. On a worldwide basis, millionaire numbers have grown by 58 percent during this period, while there are now 71 percent more multi-millionaires, according to a study from the wealth consultancy New World Wealth.

In particular, the higher growth of ultra high-net worth individuals can be put down to a number of factors, including a widening wealth gap at the top-end, a rising rate of conversion of millionaires into multi-millionaires and strong growth in countries that have a large number of ultra wealthy persons. This has been a particularly strong development in countries such as Russia and India, the study said.

Surprisingly, growth in multimillionaires hasn’t just been centred on major economies but in very high growth areas such as South America, which has seen the largest growth in multi-millionaires at 265 percent over the 10-year period. Other top performers include emerging markets such as Australasia and Africa, which have seen a surge in major wealth. According to New World Wealth, this is no surprise, as all the countries with more than 200 percent growth in multi-millionaires are emerging and includes key markets such as Russia, Brazil, China and Angola (see Fig. 2). A lot of this comes down to the 10 percent or above GDP growth percentage that most of these countries have enjoyed in recent years.

With developed markets seeing less exponential growth in high wealth, wealth managers and private banks have had to refocus their energies and businesses on emerging markets. The surge in wealth has also lead to a shift in products and services as they’re increasingly geared towards ultra-high-net-worth individuals (UHNWIs).

The death of the millionaire
To this end, the term millionaire or high-net worth individual may have become redundant as wealth providers are looking for new definitions for this group of individuals with net assets of $10m or more. In this respect, there’s little doubt that the richer are getting much richer.

This year’s annual CapGemini/RBC survey of investors worldwide showed the number of households with more than $1m in investable wealth rose almost 15 percent to 13.7 million in 2013. Shockingly, their total wealth rose almost 14 percent to $53trn. In essence, this means that both the ranks of the rich and their collective wealth have now risen 60 percent since 2008, according to the survey, and those fortunes are expected to rise a further 22 percent by 2016. For those in the wealth management industry, this presents new opportunities.

To a large extent private banks and wealth managers have rebranded to focus on the ultra-wealthy by changing their services and products to match the very specific needs of this segment and distinguish between the assets of a billionaires versus those who are affluent. With the finance industry becoming increasingly oriented towards niche services, segment specialisation has been drawing in clients like never before and for firms, such client retention means sure-fire profit.

It has also meant an investment in new private client teams, with advisors dedicated to only a handful of clients, ensuring the best service available for the ultra-wealthy. That said – firms have kept such changes largely under wraps, not willing to divest any trade secrets as to how they’re drawing in and retaining extremely profitable clients.

14%

Growth in global HNWI wealth

$52.6trn

Record high achieved

UBS, one of the world’s largest banking groups, has largely focused on wealth management in recent years, rolling back less profitable divisions such as investment banking. In 2010 the bank started actively targeting affluent clients in emerging markets as Europe’s economic decline has continued to bring down wealth and growth in developed markets. As a result, Switzerland’s largest bank is currently boosting business with an inflow of ultra-wealthy families with at least $54m of investable assets, and is said to have a business relationship with as many as eight out of 10 billionaires in Asia. “We have a penetration of one in two billionaires in the world,” Chief Executive Officer Sergio Ermotti said in the bank’s announcement of second-quarter earnings this year. “In Asia, this was much deeper.”

Pretax earnings at the wealth-management division for customers outside the Americas rose 11 percent to 557 million francs, the company added today in a more detailed quarterly filing. That unit attracted $10.8bn in net new money, with emerging markets and the Asia-Pacific regions driving growth, and the most money coming from UHNWIs.

Similarly, German lender Deutsche Bank rid itself of its UK-based asset manager, Tilney, which focused on the mass affluent lower end of the wealth management market. With the decreasing number of millionaires in developed markets, Tilney saw its losses grow from $14.6m in 2011 to $15.6m in 2012, according to its annual report at the time. To a large extent, the loss was caused by a drop in its assets under management from $8.2bn to $7.7bn, lower fees from clients with smaller accounts, goodwill impairments and client redresses.

In this respect, the impact of compliance and regulatory costs has sent client costs through the roof, providing further incentive for firms to focus on ultra-rich clients. Deutsche has openly chosen to focus on the super-wealthy as it continues with a lengthy and broad restructuring of its underperforming asset and wealth management business.

So far, this has been a successful move as Deutsche Asset and Wealth Management has grown its profits from $902m in 2012, reaching $6.05bn by the end of 2013. This has partly been achieved through a mixture of cost cuts, staff reductions, bundling of investment platforms and closer collaboration with the group’s investment bank. However, some cost reductions have also been reinvested to expand the global business and, in particular, hiring senior advisers for a 30-strong ‘key client partners’ team that is exclusively dedicated to advise ultra-rich families in London.

UHNWI map — Source: World Wealth Report. Notes: 2014 figures

Billionaire worth
It’s no surprise that this focus on the higher end of the wealthy segment has paid off for major banks and wealth managers. The global UHNWI population currently counts 187,380 individuals with a combined wealth of $25.8trn and, curiously, a lot of this comes down to a surge in billionaires. Meaning that not only are millionaires becoming multi-millionaires, but the even richer are especially gaining. According to a recent report from Wealth-X, the world’s UHNWI population grew by 0.6 percent but the growth rate of the global billionaire population outstripped that growth rate by expanding at an impressive 9.4 percent.

Currently, there are 2,160 billionaires globally, representing the top 1.2 percent of the world’s UHNWI population, yet controlling a quarter of the total fortune attributable to the ultra wealthy. As such, every billionaire is on average worth $2.9bn each. In comparison, the lowest tier of the ultra-wealthy segment is represented by those worth $30m-$49m. Making up the largest group of the super rich it’s noticeable that they only amount to a combined fortune of $3.3trn.

[F]ocus on ultra-high net worth individuals is a convincing long-term strategy for those firms betting on high wealth management profits

With the combined wealth attributable to this segment shrinking gradually from year to year, as the eurozone crisis and a slowdown in emerging economies continues to hurt the mass-affluent, financial firms have done well to focus on the extremely rich, rather than the averagely rich. It has also become clear that the mass affluent tend to be more vulnerable to market fluctuations. In this respect, focus on ultra-high net worth individuals is a convincing long-term strategy for those firms betting on high wealth management profits.

With the highest growth in billionaires centred on Asia and emerging markets in general, it’s no surprise that more and more firms are also expanding their wealth management business in this region. By 2016, the Asian Pacific region is forecasted to account for 18.8 percent of world wealth, whereas North America will account for a marginally smaller 17.9 percent, despite the US typically boasting the largest number of UHNWIs in the world.

This is why Nordic banking group Nordea launched its first private client business in Singapore and why UBS has specifically focused its efforts on the Asian region. In this respect, wealth management has become a big earner for firms, and banks are hedging their bets on the safest option for profitable growth in years to come – the emerging super-rich.

Zurich Sigorta on Turkey’s growing insurance sector

Posted on December 10, 2014December 12, 2014 by Ashton Wenborn

The Turkish insurance sector, like the country’s economy, has taken off in recent years, due to favourable demographics, urbanisation, and an expanding middle class. World Finance speaks to Yılmaz Yıldız, CEO of Zurich Insurance Turkey, to ask whether this growth is set to stay.

World Finance:Yılmaz, Turkey has been one of the world’ fastest growing economies. Is this still the case? And how does this translate in the insurance sector?
Yılmaz Yıldız: It was one of the fastest after China and India: eight, nine percent growth rates we’re talking about. But with the ‘new normal’ which you see… okay, America’s doing pretty well, but Europe’s slowed down, no growth. In China what they call the ‘new normal’ is around seven percent growth. So overall there’s a shifting paradigm in terms of slower growth than what we’ve seen before.

So that also impacts Turkey. On one side you have the Fed tapering, which is expected to increase the interest rates; and the slowdown in the global economy is impacting the Turkish economy as well. So our ‘new normal’ is three to four percent in the next few years.

The non-life insurance sector is very much impacted by what happens in the general economy

The non-life insurance sector is very much impacted by what happens in the general economy. So, when the Turkish economy was growing eight to nine percent, the non-life market was growing 15-20 percent. Now with three to four percent growth, the growth rate in non-life is expected to be 10-15 percent: still slower than before, but materially higher than Europe and most of the emerging markets.

World Finance: Well which insurance sectors are the most developed? What sort of coverage does the country have, and what do you focus on?
Yılmaz Yıldız: So if you look at non-life, you’re looking at a $10bn market, which is growing 10-15 percent per annum.

Now, half of the market is auto; then the second biggest segment is property, then health, followed by marine, construction, liability, and the others.

If you look at auto ownership in Turkey, and you compare that to Europe, it’s one third to one fourth. And with the Turkish economy’s growth and increasing GDP per capita, auto ownership is expected to increase.

Add on top of that the kasko [comprehensive insurance] penetration rates, which is hovering around 30 percent, you have the overall market growth, plus penetration being just 30 percent: huge upside potential. So the kasko is one of the main lines that is expected to grow in future years.

The second one is liability: overall liability is growing, and it’s expected to grow substantially as well. Health, similarly, the third line. And on the commercial property, marine, construction; all these are very much linked to the investment climate, and as the Turkish economy grows, those will grow as well.

And lately, environmental risks, and short-tier products are demanded. And so in fact, we will be one of the first in Zurich to provide those to the companies.

World Finance: Well the Turkish government has implemented a number of policies to encourage insurance, such as the 25 percent state contribution to private pension plans. What impact has this had?
Yılmaz Yıldız: The private pension system started toward the end of 2003, and you have the state’s mandatory social security system. And this is a complementary and voluntary system on top of the state’s social security system.

And from 2003 until 2014, we have five million citizens voluntarily entering the private pension system, and the funds under management have become about $15bn. And the average growth rate is 30 percent per annum.

The Turkish government is trying to increase the savings rate; and one of the best ways to increase your long-term savings rate is to convince the citizens that they should be part of this private pension system, and save for the long-term.

World Finance: So what funds do you invest in, and how do you manage risk?
Yılmaz Yıldız: Financial income is a vital part of insurance companies, and usually you make more money from financial income than from technical income, because of the nature of the insurance business. Because you collect the premiums, but the claims come later on.

We have a very well managed and very well governed asset management policy; basically with our colleagues at headquarters, and we have special committees that we determine the strategic asset allocation. And for each country that changes. In Turkey, depending on the Turkish economy and investment climate, plus Zurich Group’s approach to asset management and the strategic allocation, we determine what that strategic asset allocation should be, and then we invest.

We have a very well managed and very well governed asset management policy

World Finance: Well Turkey is a close neighbour to a number of politically unstable countries in the Middle East. What impact has this had on the insurance sector, and what challenges does it pose?
Yılmaz Yıldız: Well, what is happening in Syria and Iraq is very unfortunate. It’s a human tragedy, on the one side. And on the other side it’s having a major impact on trade, as well.

Iraq is in the top three, top four trading partners in Turkey. Syria was a major trading partner before these unfortunate events happened. As such with these events, especially in Syria – the trade with Syria has diminished substantially. With Iraq, Turkey imports oil and exports all types of consumer goods and infrastructure capital goods.

In terms of insurance, in that geography; insurance penetration is lower compared with the other parts, but certain products such as marine and auto are impacted negatively, because of the higher loss ratios, and what happened there. So yes, you do have damage due to uprisings and some other events, but the impact so far has been marginal.

World Finance: Well, many of the insurance companies in Turkey are foreign-owned or partnered, so does this mean that Turkey’s a good place to invest for companies looking for new growth markets?
Yılmaz Yıldız: The past 10 years, more than $100bn were invested across the sectors; but roughly one third has been in the financial sector. And within that, insurance took a big share.

We see interest continuing, actually. There are new entrants, there are mergers and acquisitions that are going on. And if you go forward, there will be certain consolidation in the market, and M&A activity will continue.

World Finance: Well finally, how do you stay ahead of the competition?
Yılmaz Yıldız: Going forward we have to continue our growth. We’re growing more, 40-50 percent faster than the market.

We’re one of the most profitable – if not the most profitable – non-life insurance company. And our multi-product, multi-channel strategy will continue, and we will make sure that we are the best judged by our customers, our employees, and of course, our shareholders and stakeholders.

World Finance: Yılmaz, thank you.
Yılmaz Yıldız: Thank you.

‘There is a much stronger culture of philanthropy in the US’ than the UK

Posted on December 10, 2014 by Ashton Wenborn

World Finance: Americans are more generous than Brits, that’s according to my next guest Rupert Scofield.

Tell me, that’s a pretty bold declaration to make, what was it all about?
Rupert Scofield: That there is a much stronger culture of philanthropy in the US. I mean something like 90 percent of US citizens make some kind contribution, whether it’s financial, or volunteering for a charity.

I think the reason that [philanthrophy] isn’t so developed in the UK is that the UK has a much more public service mindset

I think the reason that it isn’t so developed in the UK is that the UK has a much more public service mindset. So I think there’s an attitude by the Brits, well why are you asking me for a contribution? I pay my taxes. That’s the government’s job, to take care of social services.

World Finance: Now the UK is just one country that heavily taxes citizens. If you look across Europe, there’s larger social welfare systems frankly. How are you going to change the psyche of the average European to want to give back as you suggest?
Rupert Scofield: I think it’s a matter of education, Kumutha – and we have to do a much better job measuring and demonstrating our results, and also communicating.

For many years we were just so busy building out our programmes and channelling the money into loans to poor people, and we didn’t care about demonstrating the results or proving the impact. It was so obvious.

World Finance: Do you think this is the future of stemming poverty and corruption in terms of allowing people to transcend some of those local barriers and, like you said, move forward and build?
Rupert Scofield: It is a case, Kumutha, of an essential piece. I mean, how in the world is a country, how is a family going to get ahead if they don’t have access to basic financial services? It’s like water, it’s like oxygen. It’s necessary for development.

It’s not the whole story of course, but it is a big part of the story, and unlocking the enormous productive power of the people around the world.

World Finance: OK, well you’re a great salesman, I’m sure you’ve convinced many. Rupert Scofield, thank you so much for joining me today.
Rupert Scofield: Thanks so much Kumutha.

Hoidi Group’s win-win strategy drives China’s industrial insurgence

Posted on December 10, 2014November 10, 2014 by Ashton Wenborn

The emergence of China as a global economic superpower over the last decade is presenting huge opportunities for the country’s manufacturing and engineering industries. A number of firms have established themselves as integral in a range of industries, growing from modest beginnings just a few years ago. Perhaps a clear example is Hoidi Group, the number one jack-up rig leg fabricator in China (see Fig. 1), which has rapidly transformed itself in its two decades of operation.

Formed as a small fabrication company in China back in 1994, with the goal of being the country’s best offshore engineering supplier, its founder couldn’t have imagined how one event would lead to its subsequent astronomic growth. Hoidi’s current position as the number one jack-up rig leg fabricator in China and one of the best EPC houses in China can be traced back to the trust that the Chinese national oil company COSL (China Oilfield Service) placed in Hoidi in the early 2000s, when it took the chance to support a local yet burgeoning entity and awarded the fledgling fabricator a contract – a break that has set Hoidi’s mission of creating mutually beneficial strategies for its partners, its people and the community.

“Our commitment to sharing our opportunities and creating win-win situations has been instrumental in our success,” says Philip Tan, General Manager of Hoidi International. “We won that all important first tender due to a combination of factors: our previous work, our experience in welding and fabrication, the strong group of employees supporting us and my CEO’s outstanding personality and work ethic,” he explains.

“But it was this project that catapulted us to fame as China’s pioneer manufacturer of jack-up rig legs for the international market, and one of the few non-shipyard firms able to offer leg segment fabrication and erection in the world. From there, we have been in a strong position to include others in our success, which in turn has contributed to our success and further growth.”

A niche market
From this one project, things moved rapidly. In the next two years, Hoidi won leg and piping EPC projects for Noble JU2000E rigs, which gained the company the attention of the international market. The momentum started to build over the next 10 years and over the last decade Hoidi has successfully established itself internationally as a quality and reliable manufacturer to the industry, supported by a strong partnership in its steel supplier, JFE Steel Corporation. “Getting JFE on board was a boon,” comments Dong Xue Yong, VP of Hoidi Group, “as there are only five to six different steel makers capable of producing the thickness that is required for jack-up rigs.”

Our commitment to sharing our opportunities and creating win-win situations has been instrumental in our success

Partnering with JFE was a risk initially, but not one unfamiliar to Hoidi. “JFE was not able to produce the required quality of steel at first,” recalls CEO Geng Yue Jie. “But I remembered the chance I had been given by COSL as we were starting out and I believed that by supporting JFE, we could finally find a strong and trusted supplier.” His faith paid off and JFE came through on every project. With Hoidi finally sure of a firm supply of quality steel, combined with its skill and well-earned reputation, the group was ready to compete in the international market.

Since 2010, Hoidi has manufactured almost 20 percent of the world’s new rig legs and over 50 percent of the new GustoMSC model jack-up rig legs. By 2017, the legs for 25 percent of the 72 new jack-up units to be delivered in China, and a total of 42 ABS approved rigs all around the world, will be created by the company. Hoidi will also be providing fabrication and installation to almost 70 percent of all jack up rig pipeline systems produced in China by the end of this year.

As a testament to its skill, Hoidi is able to produce a complete set of GustoMSC model CJ46 375ft jack-up rig rack and chord within a month, meeting all standard ABS requirements, while a typical whole rig leg production takes the company four to six months, as compared to the eight to 10 months required by its competitors.

New-build jack up rigs to be delivered by Hoidi Group infographic — Source: Hoidi. Notes: April 2014 figures

Getting in on the success
“It sounds like a cliché, but it is our people that got us to where we are today and will propel us into the future as we branch out into topside fabrication and detailed module fabrication. So Hoidi is committed to creating win-win situations for our staff to ensure that they are recognised for their achievements and that their well-being is taken care of,” says Tan.

With Quality, Health, Safety and Environment (QHSE) measures in place, Hoidi aims to ensure a ‘zero causalities’ and ‘zero accidents’ work environment for all. “We don’t believe that producing products is worth more than life,” he says. “In fact we would rather delay production than compromise safety.” Taking care of one’s staff is essentially taking care of the company, an internal positive representation in action.

Management views the company like a basketball team. Not everyone gets to touch the ball for the entire game, but every player is key to the game’s success. With its people as a top priority, Hoidi has set up several incentive programmes to ensure that employees stay motivated and contribute to Hoidi’s competitive edge. Yue Jie believes in rewarding hard work, understanding that it is through its people that Hoidi continues to grow and gain competitively.

One key programme is Hoidi’s Freedom of Project Platform (FPP) scheme, aimed at allowing people to grow by giving them the freedom to make decisions. On a project basis, trained members who have performed well in their division in past projects are given the chance to lead future projects or tasks while adhering to the company’s values of creativity, progression, high quality, hard work and commitment. They are given standard managerial controls such as ‘check ins’ and ‘update meetings’, but are mostly left to their own devices to see how they are able to express themselves. If they fail, they learn. If they do well, they grow.

“There are many ways to get things done, and not just my way,” Yue Jie admits. “Having this platform with the right amount of controls will expand our people’s talent and creativity and, if they make a mistake, they can always come back and clarify. I am always willing to teach, to listen, to see how we can do things better the next time.”

Sharing successes
Ever cognisant of its mission to create a win for all, Yong confirms that “Hoidi is all about relationships and building something greater than what we are.” Forming and strengthening local partnerships all around Southeast Asia is a top priority as the company expands, now that it has been strategically headquartered in Singapore since 2012. “We believe that the best way for us to proceed forward is to develop partnerships with local companies, as we have expertise in fabrication and also the track record, whereas some local yards may not have similar experiences,” he explains.

Hoidi has a strong corporate social responsibility programme in place that ensures that the company gives back to the communities it impacts

Hoidi also sees opportunities in the Southeast Asian region where there is a high demand for rigs and the lack of local expertise to fabricate them. “With plenty of shallow water, over 75 percent is under 200 metres in depth in oil production areas, and ever growing demand for the region; we are currently exploring with certain companies to form strategic partnerships to work with each other’s strengths,” says Tan. True to the company’s philosophy of sharing its success, Hoidi aims to ensure that both the country and the company win in terms of increasing the region’s offshore capability and oil production for growing energy needs.

In addition to sharing the benefits with other local or start-up companies and its employees, Hoidi has a strong corporate social responsibility programme in place that ensures that the company gives back to the communities it impacts and showcases the benefits of the win-win strategy.

Harsh weather conditions in the fabrication yards of China pose a continuous problem for the company in keeping its working environment safe for its workers. In early 2008, heavy snow and freezing temperatures in Hoidi’s Shen Zhen yard impacted production and morale. Hoidi initiated an employee emergency programme and started the ‘although the cold is here, so are we’ slogan to let the employees know that the management was there for them. The project site emergency response team promptly distributed quilts for ancillary workers and applied other measures to ensure that everyone had the warmth they needed. The workers responded well and even maintained the datelines needed for production.

The warmer months also present their own challenges. In the summer of 2009, with continued high temperatures plaguing the southern region, the safety and morale of all was severely impacted. Sunstroke was a concern for those labouring under the sun, and especially for employees welding in confined areas. To negate the potential health issues, Hoidi initiated sunstroke security protocols such as requiring covered areas to be set up and installing additional fans in confined areas. Work schedules were also changed to provide extended work breaks and to avoid employees working outdoors at midday in an effort to reduce the effect of the heat. Although time was shorter, workers work more efficiently in a comfortable environment, and produced higher quality of work on time.

From a simple start-up 20 years ago to China’s pioneer in jack-up leg production globally, Hoidi has never forgotten the opportunities it has been given along the way. Its commitment to creating winning opportunities for the companies, people and communities it touches has become an indelible and ingrained pillar of its corporate culture, and the very reason for its rapid growth over the last decade.

Unemployment special: statistics to get worse for South Africa in 2015

Posted on December 10, 2014January 5, 2015 by Ashton Wenborn

Chronic unemployment has long hindered South Africa’s move towards becoming a developed economy – to the point where a BBC poll conducted in May 2014 found the biggest concern among young people to be finding a job. And with the unemployment rate sitting at a rather uncomfortable 25.2 percent, this isn’t surprising. In fact, joblessness hasn’t fallen below 20 percent since 1997, and the figures are particularly high among the younger population – for those aged 15-24, it climbs to around 50 percent; the third highest in the world.

While South Africa’s economic growth over the past two decades has averaged a solid 3.3 percent per year, that figure seems less impressive when compared with other emerging market economies, which have maintained an average above five percent. Persistent jobless growth – a term which refers to an economy that demonstrates growth while its unemployment stagnates, or in some cases, increases – has plagued the South African economy to this point and restricted its progress.

Various parties, including the IMF and OECD, have urged the South African government to undertake drastic structural reforms, stressing the importance of improving the flexibility of the labour market and increasing educational attainment to the creation of jobs. The WEF found that in the sub-Saharan Africa region, fostering innovation would be the best solution to persistent jobless growth, along with increased creation of the jobs themselves, and improvements to targeted vocational development. The root of the problem seems to be education – despite the schooling system having improved considerably in the past two decades, many schools lack basic learning materials and at present, just one in 10 students obtain grades that would allow them to attend university.

Unemployment special: out-of-work youths plague Italy

Innovation is certainly another weak point for the nation – research conducted earlier this year by venture capital firm Savannah Fund found it to be the most expensive country to start a tech company on the continent. Governmental funding for start-ups and SMEs, or increased tax breaks for such companies would help to create the right environment for start-ups, which are central to economic growth, to flourish. Even smaller initiatives, such as the introduction of entrepreneurship education in schools and colleges, could help.

This year saw growth in the catering and accommodation, finance, real estate, general government services, agriculture, forestry, fishing and transport industries, which bodes well for employment. These industries should continue to flourish well into the new year, and a weak rand has boosted the tourism industry – which can also be expected to continue thriving. Finance minister Nhlanhla Nene told CNBC Africa in October that “the completion of major energy, transport and logistics projects over the medium term will boost the growth potential of the economy”. These projects include several undertaken by utility firm Eskom, which, while a long way from solving the problem, will contribute additional jobs to its sector.

The National Development Plan (NDP) was launched in August 2012 with the aim of improving SA’s low employment rate. Its somewhat ambitious goals range from increasing labour force participation to 65 percent, to reducing unemployment from 25 to six percent, both by 2030. This would require the creation of an additional 11m jobs, and the IMF calculates that for the plan to work, economic growth must exceed five percent per year. We already know that hasn’t happened so far, and as South Africa’s unemployment problem is structural, governmental intervention is essential to its reduction. Structural reforms are urgently needed for Africa’s biggest economy to keep up with its other emerging counterparts. Unemployment is predicted to fall by just 0.2 points to 25 percent in 2015. If every year following that sees the same rate, a three percent reduction will have been achieved by 2030 – evidence that intervention is desperately needed for the plan to work.

The country is likely to be hit by the withdrawal of many investors from emerging markets; a move that began in May 2013 when it was first hinted that the US’s QE would be coming to an end, and has gained momentum in the latter half of 2014. In October alone, $9bn was withdrawn from stocks and shares across emerging markets, and as the Fed slowly begins to raise interest rates, this is likely to continue. While eastern Europe has been hit the hardest by this move – sentiment has been doubly dampened following geopolitical tensions in the region – sub-Saharan Africa faces difficulty in the midst of the Ebola outbreak.

The economic costs of chronic unemployment can be catastrophic. If drastic government action is not taken imminently, South Africa’s unemployment figures will continue to eat away at its growth until that also grinds to a halt – which would eradicate any prospects of job market recovery completely.

Chinese inflation hits five-year low

Posted on December 10, 2014February 14, 2017 by Ashton Wenborn

New government figures show that Chinese inflation dipped to a five-year low in November, and a look at the country’s performance indicators suggests that growth in the world’s most populous nation is slowing. At only 1.4 percent, the November inflation rate is 0.2 percent shy of October’s, and represents the lowest monthly decline since the same month in 2009.

The figures have inflamed fears that the country could be heading for a deflationary trap

The figures have inflamed fears that the country could be heading for a deflationary trap, and further easing measures look a likely prospect if the rate continues to plummet in the months ahead. Towards the latter part of November the central People’s Bank of China cut benchmark interest rates for the first time in over two years, which goes to show that fears of deflation are rife even among the country’s leading policymakers. Analysts, on the whole, expect inflation to clock in at sub-two percent throughout 2015, which could merit further easing measures.

China’s close run-in with deflation echoes circumstances in both the EU and Japan, where policymakers are fighting the same problem in a bid to repay wayward debt obligations and set the countries on an upward trajectory. And although deflation in China is not as pressing an issue as it is in either the EU or Japan, the country is currently contending with a prolonged slowdown that threatens to hamper China’s former competitiveness.

The country’s disappointing performance was far from excluded to inflation, however, and China’s third quarter GDP growth, at 7.3 percent, was at its lowest since the beginning of 2009. To compound fears of a coming crisis, producer prices have now plummeted for 33 consecutive months, and this month’s 2.7 percent producer price index slide is the worst since last June. Already weak demand and falling commodity prices have heaped pressure on the slowing economy, though experts believe the issues will let up in the year ahead and do not pose a sustained threat.

Wheelock Properties makes biggest en bloc office purchase in HK’s history

Posted on December 9, 2014November 10, 2014 by Ashton Wenborn

Hong Kong is an international financial centre with a well-established economy and legal system. The territory’s continued economic prosperity depends very much on its success in maintaining this status. To keep a competitive edge, Hong Kong must ensure a steady and adequate supply of Grade A offices and continue to develop new high-grade office clusters through land use planning, urban design, area improvement and the provision of better transport networks.

Although constantly striving for improvement in these areas, Hong Kong’s traditional Central Business District (CBD) can no longer satisfy the growing demand for office space. In particular, larger occupiers who are looking to consolidate operations in one location now find it challenging to secure sufficient space at the right price. Occupiers are also forever seeking more cost-efficient space and certain occupiers are looking for creative alternatives to satisfy their space requirements.

All this translates into increasing demand for office space in decentralised areas, where availability is normally higher and rents are more affordable. Occupiers are considering decentralised locations such as Kowloon East as solutions to their space challenges.

Hong Kong’s CBD2
Kowloon East is an area comprising the Kai Tak metropolis, Kwun Tong and Kowloon Bay business districts in Hong Kong. The government of the Hong Kong Special Administrative Region has adopted a visionary, coordinated and integrated approach to facilitate the transformation of this area into a commercial hub, with the expedition of the Energizing Kowloon East initiative, intended to fast track development.

Kowloon East has been growing steadily in importance as a CBD2 for Hong Kong

Wheelock Properties is a forward-thinking developer and a pioneer in initiating development in, and adding value to, non-traditional but upcoming commercial areas. In support of the government’s initiative, Wheelock Properties continues to invest in Kowloon East, showing a commitment to building a new commercial hub for the territory – one that is energised by well-planned infrastructure and community development and has a critical role in enhancing Hong Kong’s position as an international financial and commercial centre.

Since its birth, Kowloon East has been growing steadily in importance as a CBD2 for Hong Kong. It is likely the territory will see a further increase in occupier attention over the course of this year. This is, in part, due to the fact the right kind of space is available in the area for growing numbers of multinational corporations that want to consolidate their business and need to find an area in which to do so.

Part of this growing interest in Kowloon East is due to Wheelock’s en bloc sales strategy, which supports large corporations’ strategic space planning and enables them to consolidate staff into one building, enhancing operational efficiency.

Wheelock Properties sold the East Tower, One Bay East to Citi in a landmark, $70m deal, in June 2014. The deal marked the biggest en bloc office transaction in Hong Kong’s history. The deal was the second en bloc tower transaction at One Bay East, following the acquisition of the West Tower by Manulife (International) in April 2013. The acquisitions of Citi and Manulife (International) combined totalled $1.2bn. Both deals were advised by the world’s largest commercial real estate services and investment firm, CBRE Group.

An overview of One Bay East
Located at 83 Hoi Bun Road, Kwun Tong, One Bay East is a Grade A, waterfront, twin tower office development. Both towers stand 21 stories tall and total 512,000 sq. ft. each. The development has efficient office space and panoramic sea views over the new cruise terminal and the future Kai Tak metropolis. With good connectivity, convenience and state-of-the-art provisions and specifications, it is the epicentre of Kowloon East’s commercial hub.

Wheelock Properties has a proven track record in Grade A office development, and continuously delivers quality developments to meet the high standards of multinational institutions. Firms such as Citi and Manulife have very stringent requirements when selecting premises, and their acquisitions of towers at One Bay East illustrate their commitment to the Hong Kong property market, and to Kowloon East.

For Citi, which has a long history of making significant investments in Asia Pacific, the decision to purchase the East Tower, One Bay East, underlines a belief and confidence in Hong Kong’s continued growth as a leading global financial centre and hub for its core regional business.

Citi’s acquisition was the culmination of a longstanding relationship between CBRE, Wheelock Properties and Citi in Asia Pacific. It is an example of strong collaboration between three parties that have worked together to create a business case, understand market dynamics and move a deal to completion.

The group strives to develop sustainable developments in its master planning, detail design and landscaping

The deal
CBRE was appointed by Citi to advise on the financial institution’s future footprint in Hong Kong. CBRE saw limited options in the market and a small window of opportunity to execute a deal that would coincide with Citi’s lease expiries in 2016 and 2017. Citi and the CBRE team decided to investigate the purchase of a property, instead of leasing new space.

In April 2014, the East Tower, One Bay East was identified as the ideal property for Citi’s future home in Hong Kong. Citi embarked on a complex consolidation, relocation and purchase in which it would relocate all four of its Hong Kong Island offices to Kowloon. It submitted an offer to Wheelock Properties and, by mid-June, the deal was done.

The consolidation of Citi’s offices into East Tower, One Bay East will enable the company to implement an activity-based workplace strategy, significantly reduce its occupancy footprint and its annual operating costs. A strategic investment, Citi’s ownership of this asset in Hong Kong’s CBD2 will insulate the financial institution from Hong Kong’s volatile rental market. The building will be handed over to Citi in Q4 2015 for interior fit-out, with the first occupants due to move in during Q2 2016.

Future development in Hong Kong
Wheelock currently has more than 1.2 million sq. ft. of waterfront office portfolio under development in Hong Kong, to meet increasing office demand. This includes One HarbourGate at Victoria harbour cluster (680,000 sq. ft.) and the redevelopment of Wharf T & T Square (600,000 sq. ft.) in Kowloon East. One HarbourGate comprises twin, Grade A, office towers and a pair of low-rise retail villas with an open Victoria Harbour view.

The group strives to develop sustainable developments in its master planning, detail design and landscaping. Green provisions and energy-saving devices are provided to reduce power consumption for lights, air conditioning and water, which help operational savings in the long term.

Sky garden or green spaces will be provided in future developments to create a better work and living environment. Wheelock’s design team and landscape consultant take care of landscape design and maintenance to ensure green spaces fit each project. The group also promotes environmental awareness and encourages care for the environment among staff and business partners, while also supporting various green awareness activities. Beyond ensuring its properties meet high environmental standards, Wheelock Properties will continue enhancing the physical spaces and communities in which people live and work in Hong Kong.

Former Satyam chairman jailed in accounting scandal

Posted on December 9, 2014February 14, 2017 by Ashton Wenborn

Ramalinga Raju, once the chairman of India’s fourth largest IT company, has been sentenced under the Companies Act by a local court for overstating profits several years ago.

Other senior executives including the CFO, CEO and former managing director – Raju’s brother – have also been jailed. The six-month sentence marks the longest possible under the Companies Act.

The six-month sentence marks the longest possible under the Companies Act

In a letter in 2009, Raju confessed to having overstated revenues several times in order to hide the company’s poor performance. “It was like riding a tiger, not knowing when to get off without being eaten,” he wrote.

In July several of the group’s former senior executives faced penalties from the market regulator with fines totaling $291m (Rs18.5bn), the FT reports.

According to Business Standard, the police’s economic offences wing (EOW) filed a separate case which saw Raju and others convicted of six out of seven accusations – they included fabricating balance sheets, accounts and dividends. The Central Bureau of Investigation (CBI) meanwhile filed another case, citing forgery, criminal conspiracy and fiddling records among other misconduct.

The scandal marked one of India’s most destructive in history, driving the Securities and Exchange Board of India to tighten up its corporate governance regulations. The case led to overseas investors fleeing en masse and saw Satyam verge on bankruptcy.

Indian IT group Tech Mahindra acquired the company in 2013 to save its reputation. Mahindra did away with the brand name and seems to have prompted a recovery, with shares rising 57 percent in 2014.

But the company has nevertheless suffered from the scandal according to Anand Mahindra, the group’s chairman. “We never expected this [legal battle] to be drawn out for so long, where the person who is part of the cavalry is being targeted and fired on,” he told Indian news agency Press Trust. “We are the rescuers… we are the white knights, we are not people who did the stealing.”

Binary options: why didn’t the regulators step in earlier?

Posted on December 8, 2014 by Ashton Wenborn

It is a rather one-sided market. But how do they work? Well, just like standard options they allow investors to place a bet on whether a particular stock – at a predetermined point in the future – will rest above or below a line drawn in the sand commonly known as a strike price. But unlike traditional options contracts, which provide a safer alternative to stocks, these all-or-nothing alternatives, expose investors to massive risks and minimal returns.

Binary options trading sites have grown in popularity among armchair investors, who like the allure and prestige associated with playing in the big leagues, but prefer the minimalism and effortlessness of betting that is reserved for online casino sites. Though these ominous options may look like an easy way to trade stocks. Those that do are more likely to find themselves with little but lint lining their pockets than they are of winning big. Binary options’ trading is more Fremont Street than Wall Street, with the sites responsible for pushing these junk instruments choosing not to generate revenue by traditional means, such as charging a commission fee. Instead, they make their profit from the ‘spread’ that exists between possible payouts and losses, stacking the odds in the houses favour. If investors intend on making any money at this table they are going to need skills that would put even Raymond Babbitt to shame. Even if you get the call right 55 percent of the time you will be lucky if you break even, let alone any sort of profit.

The fact that binary options customer base consists predominately of inexperienced retail investors, has had a big impact on the way these outfits choose to promote these financial abominations, with the marketing style for these toxic options drawing parallels with other ‘get rich quick’ schemes you see all over the web; promising everything and delivering nothing. Online adverts boast about how others are “earning over 70 percent every hour on the hour” in a desperate attempt to trick people into signing up. But at least their sad attempt at self-promotion helps expose these fraudsters for what they are, which is nothing short of con artists. That at least is the view now taken by regulators in several jurisdictions.

In order to protect investors from these cowboy casinos, regulators in the US decided to step in. And on June 6 2013, the US Commodity Futures Trading Commission (CFTC) issued an Investor Alert in an attempt to make investors aware of the dangers of binary options and the trading platforms that they operate on. Sadly, it has done little to deter people from throwing their money down the toilet.

It is common to see new financial instruments gain a bit of traction at inception because the initial excitement and lack of knowledge that surrounds them means that it often takes time for people to see them for what they really are, which is often worthy of contempt. Let’s hope that investors get wise quick before they end up losing too much of their hard earned money.

Thai Life Insurance cements itself in customers’ hearts

Posted on December 8, 2014November 10, 2014 by Ashton Wenborn

The Thai life insurance market is booming. In the first five months of 2014 the sector grew by an astounding 20 percent, with new premiums skyrocketing up by 29.1 percent. These remarkable figures are due to the fact that Thailand is a relatively underdeveloped market, where penetration has been historically low. But following intervention by the government, the Thai population is increasingly aware of the many positive benefits of purchasing life insurance – and keeping it for good.

Thai Life Insurance has long since been a leader in the local life insurance market, and with the industry prospering, the company has decided to relaunch its mission and philosophy. “This year, Thai Life Insurance announced a change in its vision and mission, to become a people business giving priority to the company’s stakeholders, both direct and indirect,” says Chai Chaiyawan, President of Thai life Insurance.

“To this end, the company has had to change its beliefs and values because we not only sell life insurance, but more importantly, we sell trust, care, empathy and helpfulness. Thai Life Insurance’s new position from now on will be like a close friend that is prepared to stand alongside and do everything possible to make every stage in life of our customers secure. The key is true understanding of our customers. At the same time, we must not stop pioneering, finding new life insurance solutions to meet the needs of all life situations of everyone.”

The move could not have come at a more opportune moment; as the industry grows and attracts investment; Thai Life Insurance has clearly positioned itself as a consumer favourite brand, approachable and reliable. “Thai Life Insurance’s road map going forward will be in line with its new vision to be a People Business by determining a business strategy that is not merely re-branding or re-marketing. We will give importance to management in various areas,” says the Chaiyawan.

$200

Life insurance density in Thailand

Thailand is a high-growth market for insurance. Market penetration is a low 2.6 percent, while other Asian powerhouses like Singapore and Japan boast penetration rates of four and nine percent respectively. Furthermore, the life insurance density in Thailand currently stands at around $200, a fraction of Singapore’s $2,000 and Japan’s astronomic $4,000. That means that opportunities in the sector are plenty, for companies that have clear strategies.

Life planners to life partners
“Thai Life Insurance’s new vision will focus mainly on people, giving importance to internal personnel by developing and driving personnel both at the head office and branch offices to be more than just employees of a life insurance company,” says Chaiyawan. “They must think of customer needs as well as give importance to doing good deeds. In this regard, the company has supported its personnel to continuously engage in social contributions.

“Meanwhile, sales personnel must not merely be life insurance agents. They must develop from life planners into life partners, like life companions in every situation for policyholders or people in society. They must be capable and knowledgeable persons in order to offer total life solutions. At the same time, they must be good people with integrity, ethics and conscience as well as be givers. Thai Life Insurance personnel must continue to learn and never cease to innovate to be on top of every situation and be able to add security for customers and society.”

Though small, the Thai market is fiercely traditional, with most of the business being conducted in specialised agencies. Thai Life Insurance is looking to innovate in this respect as well, and as such has invested heavily in the training and dispatching of its agent force. “Creating sustainability for our main sales channel is very important at present as customers demand better services and demand better understanding of products in order to be able to make comparisons with products and services offered by other companies,” says Chaiyawan.

“At the same time, life insurance products are becoming more sophisticated, such as investment linked products, while agents are getting older. Despite the benefit in terms of good relationships between agents and customers, we must not forget that it is harder to motivate or manage older agents to have skills in selling new products. We must make Thai Life Insurance agents to be more than just life insurance agents. They must be trustworthy, be able to take care of clients and provide better services, clearly understand products and customer needs, as well as be professional advisors.”

New and innovative life-insurance products are another key factor in the company’s development plans. “We have been busy creating value for alternative channels such as bancassurance and direct marketing. We must create a business model that can be integrated. For example, Thai Life Insurance products can be bundled with other products based on customer preference as well as making life insurance integrated into the bank’s incentive system,” says Chaiyawan. “At the same time, work processes must be able to be integrated with the banks. Life insurance companies must be able to create value added which will support customise marketing for the banks, such as producing training materials and organising CRM activities for customers from the banks.”

Staying at the top
Part of these innovations have been to ensure that Thai life Insurance can remain at the top of its game, and continue to compete successfully, as the local market heats up. The company is reviewing its product portfolio in order to come up with new products to meet their customers’ every need. “Products that do not meet our clients’ needs must be changed,” says Chaiyawan.

We cannot work independently. Everyone is like an orchestra that must synchronise and play together in unison to deliver a harmonious song

“The work will integrate insurance mathematics, underwriting, and marketing in order to innovate new insurance products that will satisfy customers. The integration process involves setting up joint working committees such as the Product Committee. At the same time, evolution of the IT system and business process requires better management. Thus, management of talent and creation of a corporate culture is essential. We cannot work independently. Everyone is like an orchestra that must synchronise and play together in unison to deliver a harmonious song. This translates into strong teamwork.”

Thai Life Insurance’s innovative new business plan is also committed to generating sustainable profits, and optimising the company’s returns. This is because Thailand has proved to be an increasingly volatile market over recent years, with political instability threatening the development of the economy, and a growing propensity for epic storms potentially causing trouble for insurers.

“[We must be] giving importance to investment and professional risk management with rationalised investment decisions, consideration from risk perspective, and emphasis on asset liability and risk management process,” says Chaiyawan. “At the same time, in managing the business, we not only focus on growth. To create sustainable profits, we cannot emphasise solely on growth; we must also focus on the company’s value paradigm. Thai Life Insurance is committed to optimise profits and return profits back to society in the form of corporate social responsibility. In creating profits, the company must maximise products and sales channels as well as put cost perspective into operation management in all areas. ”

An open market
Thai Life Insurance, though a traditional and recognisable Thai brand, is taking its expertise and know-how to launch across number of other ASEAN markets. This rapid-growth region has been increasingly targeted by insurances companies from all over the world, but because of Thai Life’s strong presence in it native Thailand, they are optimally placed to expand across the region fast. “Preparedness in terms of brand is essential,” says Chaiyawan. “Today, we have already refreshed our brand. Furthermore, we have formed a strategic partnership with Meiji Yasuda, making us ready to effectively compete.”

The goal of Thai Life Insurance is to be the life insurance company that is in the hearts of customers, both in Thailand and those in ASEAN, because in the near future, it will step into the AEC. In order to be remembered, everyone, whether policyholders or not, must remember Thai Life Insurance as a part of society, an organisation that has received recognition from society and is able to be a sustainable part of society. Chaiyawan puts it concisely: “What defines achievement of our goal to be an iconic regional brand.”

‘Kuwaiti Banks are well-placed for potential risks and shocks’, says KIB

Posted on December 8, 2014February 2, 2015 by Ashton Wenborn

Kuwait’s banking sector hit record highs in the first half of 2014, reaching profits of $13.3bn. World Finance speaks to Mourad Mekhail, Board Advisor of Kuwait International Bank, to discuss what’s driving the country’s banking industry success.

World Finance: Well Mourad, Kuwait ranks fifth in the world in terms of highest density of millionaires. Would you say this is a good representation of the country’s economy as a whole?
Mourad Mekhail: Indeed: Kuwait has a strong and solid economy, driven by oil and linked to the oil price.

The high growth in private wealth is driven by the high growth of the saving rates. Kuwait International Bank is always developing new, innovative products to accommodate and exceed the needs of these high-net-worth and ultra-high-net-worth individuals.

Kuwait has a strong and solid economy, driven by oil and linked to the oil price

World Finance: Well how well developed would you say the banking sector is in Kuwait, and what do you think is driving the profits?
Mourad Mekhail: The Kuwaiti banks are well-regulated by the Central Bank of Kuwait. Driving forces are high liquidity, high capitalisation – which, by the way, exceeds the international requirements of Basel III.

Again, high-improved asset quality, high provisioning, declining of non-performing loans, and continual profitability.

By the way, these factors and these criteria: they were the driving forces for our bank at the beginning of the year to receive the upgrade for its rating to A+.

The results of stress test exercises by the Central Bank of Kuwait shows that Kuwaiti banks are really solid and well-placed for potential risks and shocks.

World Finance: What’s Kuwait International Bank’s share value, and what keeps it competitive?
Mourad Mekhail: The share value is increasing tremendously in our bank, and comparing to the last four years we have doubled it. We have achieved a record high of 320 fils (KWD 0.32; $1.10).

I really take this opportunity to congratulate everyone in my bank for these achievements, and in particular Sheikh Mohammad Al-Sabah. He managed and succeeded again and again to optimise the performance and the share value of multiple institutions – among them is Kuwait International Bank – by taking wise decisions and managing certain crises in his banking career, bringing the share price of the bank to that level and value.

World Finance: So what’s your approach to crisis management? Especially considering the amount of political instability in the region?
Mourad Mekhail: Kuwait International Bank is a transaction and profit-oriented bank. We are always pursuing certain transactions which we feel that we have competitive advantages in these transactions.

I really take this opportunity to congratulate everyone in my bank for these achievements

Competitive advantages in terms of: that we understand these transactions, we understand the risks embedded in these transactions, we know how to mitigate and hedge the risk in these transactions. Also in certain markets that we feel that we don’t have high competition, and if we have all of these last three factors we are in a position to achieve higher returns.

World Finance: Well finally, what do you see to be the trends that will affect the banking sector in Kuwait in the future, and what are you targeting for growth?
Mourad Mekhail: The Kuwaiti market is a small, very highly competitive market.

Nevertheless, in the local and domestic market there are big opportunities, alongside the ambitious governmental development plan, which is very important for the next few years.

Kuwaiti banks have to continue adopting the universal banking model; holistically offer retail, private and corporate banking to their potential clients; also beyond the domestic market.

Expanding internationally will bring them to a position where they are reducing their risk and increasing their return, which will be reflected in the share value of their banks.

World Finance: Mourad, thank you.
Mourad Mekhail: Thank you.

Africa after Ebola: what healthcare and economic infrastructure upgrades are needed?

Posted on December 8, 2014 by Ashton Wenborn

The greatest revelation from the Ebola crisis was how much healthcare and economic infrastructure upgrades are badly needed in Africa. World Finance speaks to Rupert Scofield – President and CEO of FINCA (Fighting Poverty with Financial Inclusion) – about changes in the continent.

World Finance: As we think about how West Africa can recover from this crisis, do you think that the international community, local stakeholders, should focus more on the people who are frankly building local economic infrastructure than on governments?
Rupert Scofield: Kumutha, if there’s two things that I think would unleash the enormous productive potential of the African continent, one would be dealing with rule of law, allowing the smaller people justice through the court system.

Also, investing in infrastructure like power. I was at a conference on energy the other day and, incredible statistic, the World Bank estimates that if all people could get access to power in Africa, the GDP would grow by four percent a year.

I love the African people and the continent. It’s been one of the greatest experiences of my life

So I’m optimistic, I think the governments are becoming much more responsive, so hopefully we’ll see change on both these fronts.

World Finance: Beyond governments, who else needs to get involved, and in a more aggressive way? Emerging middle classes perhaps?
Rupert Scofield: You know, there’s an attitude of sort of helplessness on the part of many of, even the elites and the affluent, but certainly the growing middle class. There’s an inclination, I’m going to stay out of politics, it’s a dirty business, but they actually have to get involved.

I can’t really speak of my country, because we have enormous apathy on the political front in America. I think something like 40 percent of the population votes in elections, which is shameful. But if you stay on the sidelines then you have to be responsible for the lack of progress.

World Finance: And speaking of America, if you want to talk about the most vocal business community, the American business community drives elections.
Rupert Scofield: It certainly does.

World Finance: So is that what we’re going to see in a more mature Africa? I hate to gloss over the whole continent as one, but as it moves forward are we going to see that sort of push, the political machine?
Rupert Scofield: I certainly hope so. I love the African people and the continent. It’s been one of the greatest experiences of my life, and the people are fantastic, but they do absolutely have to get involved.

I believe, being a businessperson myself, that is the key to economic development. It’s not going to be government infrastructure or World Bank investment. It’s going to be millions of small and medium enterprises, just like in the US, that provide the employment and the production, and generate the wealth for the future.

We make loans for school fees to the women who live in those communities

World Finance: Finally, Rupert, this is your plug. Tell me how FINCA Plus is going to play a role in this future.
Rupert Scofield: FINCA Plus is the term we use for going beyond just microfinance, and getting involved in energy, education, healthcare.

In fact, what’s really interesting Kumutha is a lot of our clients on their own initiative are entering these sectors. We have teachers who leave the public education sector, take loans from FINCA and set up little schools and communities, and they hire other teachers, and they build infrastructure. So you get a school that is in the community, the children don’t have to walk 10 kilometres to the public school.

Also, we finance the demand side. We make loans for school fees to the women who live in those communities, so their kids can pay for the tuition.

Year: 2014