The integration of the ASEAN Economic Community is naturally going to shake up Asia’s financial service providers. What changes can we expect in the insurance sector as the countries come closer together? Actuarial Analyst Arthapas Cheuasangpan says that far from consolidation in the insurance industry, the opportunities will see new businesses emerge. He gives an overview of the competition in the ASEAN countries, with Thailand’s non-life premiums worth $8.4bn. Nittaya Dockchan, Deputy Managing Director of The Viriyah Insurance, explains how the company will be working with international partners to deliver cross-border services, and Viriyah’s plans to expand into Thailand’s health and personal accident insurance sectors.
World Finance: The integration of the ASEAN Economic Community is naturally going to shake up Asia’s financial service providers; joining me to discuss the insurance sector are Arthapas Cheuasangpan and Nittaya Dockchan from Thailand’s The Viriyah Insurance.
Arthapas, what changes can we expect in the insurance sector as the ASEAN nations come closer together?
Arthapas Cheuasangpan: The idea behind ASEAN is to create a strong, competitive economy, which benefits all 10 member states. There are many benefits: the free flow of goods and services. An international firm can set up offices throughout the ASEAN countries. Banks will find it easier to provide loans and capital to overseas companies. Lastly, the free movement of eight key professions, who will be able to move freely throughout the ASEAN countries.
Overall, the stronger economy will ensure that consumer demand for insurance products increases, and in turn it will also lead to the creation of new insurance companies and the expansion of existing insurance companies.
At the moment though, there are examples where countries use different systems, or have different legislation, which makes it difficult for consumers and companies to do business across the region. In order to liberalise the interest market, the AEC will aim to standardise the financial framework; and these changes fall under the AEC Blueprint 2025.
World Finance: How does Thailand’s non-life insurance sector compare with that of your neighbours’?
Arthapas Cheuasangpan: Competition is high in the ASEAN. Indonesia has 29 companies, compared to Thailand which has 63. While Myanmar has the least, with three companies.
Within the region, Singapore has the most non-life insurance premiums, of $11.5bn, followed by Thailand, which has $8.4bn. Thailand actually has the highest penetration ratio compared to the ASEAN region, at 2.2 percent. The ratio in Thailand is even higher than in China and Hong Kong.
At the other end of the scale, Brunei, Cambodia, Laos and Myanmar each have non-life insurance premiums under $1bn.
World Finance: Nittaya; Viriyah has established itself as the leading, most trusted name in motor insurance in Thailand; so how are you going to be working to establish that same brand overseas?
Nittaya Dockchan: Initially we will develop partnerships with local trade partners. And through these channels we will assist our partners on technical issues, and on how to improve our claim service efficiency.
Up to now, the company has cooperated with Allianz General Laos to offer cross-border insurance to customers crossing the border into Laos by motor vehicle. And this cooperative approach will be extended to other border countries such as Cambodia, Myanmar and Malaysia.
The company has extended the third-party liability to other Asian countries where we have a large number of cross-border cargo transporter customers. And according to our customer opinion survey, most of them found this service very useful, and it can enhance their business.
World Finance: Thailand’s health and personal accident insurance sectors have been growing at double-digit rates for recent years; how are you going to be expanding into these areas?
Nittaya Dockchan: We will apply the business model of motor insurance by emphasising our leadership in claims service.
The company has been able to use the knowledge and technology expertise, but most of all, the cooperation from our business partners, to develop a top quality claim service to respond to our customer needs with the highest efficiency. And with Thailand on the verge of becoming an ageing society, people are realising the fact that they need to prepare and look at appropriate insurance plans. And the company takes this opportunity by joining forces with high-profile major business partners that already have a comprehensive health service network in Thailand and other Asian countries. One of these business partners is the Bangkok Hospital Group. And we are now in the process of preparing the necessary things before launching this project in this fourth quarter.
Meanwhile we are also getting ready to provide top-up services without the health insurance scheme, under the public welfare systems, such as the social security system, the universal healthcare system.
World Finance: Nittaya, Arthapas: thank you both so much.
In July, Shinzō Abe showed himself to be one of post-war Japan’s most successful and powerful politicians, as the Prime Minister of Japan once again claimed victory in the country’s upper house parliamentary elections.
The Liberal Democratic Party (LDP) and its junior coalition partners received 70 of 121 available seats in the 242-seat chamber, giving Abe’s party, alongside its coalition partners and other independent politicians, a two-thirds parliamentary majority.
While much international focus has been on how this will give Abe the lawful majority to amend aspects of Japan’s constitution, many observers have noted how the election was fought primarily on economic grounds.
Abe has a deep commitment to Japanese conservatism, yet his commitment to reforming his economy has led him to compromise on such principles
Abe has also proven himself to be one of modern Japan’s most resilient prime ministers. While not yet the country’s longest serving prime minister, he has proven himself to be a greater source of stability than many other incumbents in recent years. Since 2007, Japan has had six different prime ministers, with the rotating premiership widely perceived to have added to Japan’s inability to adequately deal with its economic difficulties.
Abe has gained support from far-reaching segments of Japanese society for a number of reasons: his successful bid to change Japan’s constitution, with the intention of weakening its pacifist elements, has led to sharp divisions among Japanese citizens, yet his tenure as leader of the country is closely tied to his promises of economic reform. His plans and actions for reviving the sluggish Japanese economy have come to be known as Abenomics.
Path to power
Abe’s path to power has been a long one. Born in Nagato Province in 1954, Abe was Japan’s first prime minister to be born after the conclusion of the Second World War. He also came from political stock – both his father and paternal grandfather were influential politicians, while his mother was the daughter of Nobusuke Kishi, Japan’s prime minister between 1957 and 1960. His family’s rich political history is often said to have been a major influence on him.
In 1977, Abe graduated from Seikei University in Tokyo, having studied political science. He then travelled to the US to study at the University of Southern California’s School for Public Policy. Following the conclusion of his studies, he began to work for Kobe Steel. However, he soon followed in his family’s footsteps and began to pursue a career in politics.
He left Kobe Steel in 1982, entering his political career through holding a number of posts, including executive assistant to the Minister of Foreign Affairs and private secretary to both the chairperson of the LDP General Council and the LDP Secretary-General.
After 11 years, Abe was elected to the House of Representatives for the first district of Yamaguchi Prefecture, marking the start of his career as an elected politician. From the late 1990s to the early 2000s, he held a number of cabinet positions for the LDP, as well as serving as Japan’s chief negotiator with North Korea, where he represented the families of Japanese citizens abducted by the North Korean regime.
The prestige he gained in these roles soon earned him enough support to be elected president of the LDP, which in turn led to him being elected Prime Minister of Japan in 2006, aged 52. However, his initial reign as prime minister was to be short-lived: he resigned from the position in 2007 when his party began to suffer from unusually poor election results. However, in 2012 he returned to power, and has led the LDP to numerous electoral victories since.
52
The age at which Abe became Prime Minister, making him Japan’s youngest post-war leader
¥10.3trn
Value of the stimulus package proposed in Abe’s first budget in 2013
30%
Abe’s target for industry leadership roles to be held by women by 2020
1.4
Japan’s birth rate per woman, an issue Abe has put at the centre of his Abenomics policy
With his family being key figures in the history of the LDP – the dominant conservative political party in Japan – Abe is often referred to as a deeply conservative man “whose life and family history is wrapped up in the LDP and its traditions and constraints”, according to David Ignatius of The Washington Post, speaking at a Council on Foreign Relations event in 2015.
However, Ignatius also noted that the economic problems facing Japan have made Abe an accidental progressive. This unintentional liberalism was borne of his acceptance of reality and his recognition of the fact that deep reforms are necessary if Japan hopes to deal with its past few decades of economic malaise and stagnation.
Structural struggles
Since Abe’s second term as prime minister began in 2012, he has made the economy his core agenda.
Abenomics – the common name for Abe’s economic policy – is composed of three prongs: fiscal stimulus, monetary easing and structural reforms. Abe has aggressively pursued fiscal stimulus, recently approving a multibillion-dollar stimulus magazine, while the Bank of Japan has taken the once-unprecedented step of maintaining a negative interest rate.
However, Abe himself faces the biggest challenge when it comes to structural reforms: one of the key reasons cited for Japan’s sluggish economy is its ageing workforce, and so a crucial focus of this policy has been repairing the Japanese labour market. The country’s fertility rates have plummeted, and at present the birth rate sits at 1.4 births per woman, meaning it is well below the replacement rate. At the same time, advances in medical science have meant Japanese people are living longer than ever before; Japan has the oldest population of any major economy in the world.
Depressed birth rates have meant there are fewer young people who are able to join the workforce, while an ageing population means there are more people leaving the workforce and then living for longer periods of time. This has created a top-heavy demographic bulge in the country: fewer people entering the workforce has stunted the Japanese economy’s ability to grow, while a large pool of retirees – drawing their living from previously acquired wealth – has meant less saving funds for investment.
A large retired population is, of course, something that cannot be addressed. While it may have economic drawbacks, it is also testament to Japan’s ability to provide a decent quality of life, allowing record numbers to live longer lives. However, the issue of fewer people entering the workforce can and – to a limited extent – is being addressed by Abe.
Compared to the rest of the industrialised world, Japan has a much lower labour force participation rate for women. By contrast, it has one of the world’s highest labour force participation rates for men. Boosting the number of women entering the workforce, then, would help alleviate current demographic pressures. Abe has recognised this, and pursued policies in this direction: a policy he has termed ‘womenomics’. Speaking at the 2015 World Assembly for Women in Tokyo, Abe said: “Abenomics is womenomics.”
Since 2012, he has pursued a raft of reforms aimed at creating conditions that will encourage more women to enter the workforce. These reforms seem to be working to a limited extent: according to figures from the OECD, Japan’s female labour force participation rate has grown from 65 percent in 2013 to 66.7 percent in 2015.
Japan still has a long way to go in terms of seeing more women enter the workforce, but Abe’s policies are in general pushing progress in the right direction. He has worked towards expanding access to childcare, and has pledged that by 2017 Japan’s currently long waiting lists for childcare facilities will be eliminated, allowing some 400,000 children to be accommodated. At the same time, experimental policies are being pursued to lift bans on immigrant housekeepers in Osaka and Kanagawa, with an eye to expanding the policy nationally.
The Japanese economy has been struggling in recent years, something often attributed to the shrinking workforce
The fact that lifting bans on foreign housekeepers should initially require district-specific experiments nods towards another key issue afflicting Japan’s ability to deal with its ageing population: immigration. Japan is, for an advanced economy, a uniquely homogenous society. Conservative social attitudes have meant that, while much of the industrialised world has seen major waves of migration since the mid-to-late-20th century, Japan has largely declined to open its doors to foreign workers. While 11 percent of the UK’s workforce does not have British citizenship, and 17 percent of workers in the US are foreign-born, less than two percent of Japan’s labour force is made up of foreign workers.
Abe, being socially conservative himself, is far from an advocate of increased migration to Japan. However, by also being an accidental progressive, he has recognised the necessity of boosting immigration in order to address his country’s demographic issues.
The LDP announced this plan in its policy platform for the latest elections. It noted concern over the fact that “grave effects are emerging because Japanese people alone are insufficient for the workforce”. To this end, the party explained that a “large increase in foreign workers
is anticipated”.
The Japanese Government has now started to relax its notoriously strict foreign worker rules. Principally this will involve a pledge to introduce a permanent residency card – planned to be the fastest in the world – to skilled migrants. Furthermore, migrants with the desire and skill to work in nursing homes should see restrictions relaxed, while migration will also be increased for the construction of the 2020 Olympics project.
Conservative reformer
Policies aimed at increasing the working rate for women and increasing immigration, although by no means the complete solution, are the sort of policies Japan needs. Such policies may make many citizens uneasy, going against the traditionalist values held by some sections of Japanese society – not least portions of Abe’s political party’s constituency. However, Abe, with his conservative credentials, has been able to push forward with such reforms out of necessity.
His family’s long history with conservative politics generally and Japan’s LDP specifically – and his own heartfelt commitment to conservative principles – gives him the credibility to sell these polices to the public on the basis of absolute necessity. Abe has a deep commitment to Japanese conservatism, yet his commitment to the country and to reforming his economy has led him to compromise on such principles in the name of pragmatism. If Japan is able to continue pushing ahead with such reforms, he may well prove himself to be the saviour of Japan’s sluggish economy.
Shinzō Abe CV Born: 1954, Nagato Province, Japan Education: Seikei University
1954
Abe was born in Nagato Province to a politically prominent family. Many of his relatives, including his father, were influential politicians, while his mother was the daughter of former prime minister Nobusuke Kishi.
1978
Having graduated from Seikei University with a degree in political science the year before, Abe travelled to the US to study public policy at the University of Southern California School for Public Policy.
1982
Abe’s political career began when he left his job at Kobe Steel to take on a number of posts within the Japanese Government, including executive
assistant to the Minister of Foreign Affairs.
2002
While serving as deputy chief cabinet secretary, Abe travelled to North Korea as Japan’s chief negotiator. Here he negotiated the release of five Japanese citizens who had been kidnapped by the North Korean regime.
2006
Abe was voted in as the leader of Japan’s Liberal Democratic Party. This move led to him being elected the Prime Minister of Japan at age 52. He resigned from the position a year later, citing health reasons.
2012
Abe returned to power as the country’s prime minister. Since his second term began, he has focused on boosting Japan’s dwindling economy through fiscal stimuli and reforms and tackling its shrinking workforce.
After almost half a century of the country’s insurance sector being a closed monopoly, Myanmar recently opened its door to both domestic and international insurers. The transformations have been rapid, and have occurred throughout all sectors. A dozen domestic private insurers have been formed since 2013, while an array of eminent multinational insurers too have opened their representative offices in the country.
Moreover, three international insurers of repute have been allowed to conduct business domestically, although they are limited to the Thilawa Special Economic Zone. Nonetheless, the market still remains highly controlled, with state-owned Myanma Insurance being the dominant player. There is no room for actual competition yet, and foreign firms are being kept at a distance. That said, the initial, crucial steps have been taken and the prevailing conditions seem to be right for accelerated development.
Change is afoot
This year marked the second ever census report being published in the country, which was a milestone in itself. The 2014 census revealed the latest demographics of Myanmar, reporting a population of 51.5 million (see Fig 1). Around 30 percent of the population were found to be living in urban areas, and the remaining 70 percent rural. Trend analysis shows nearly 54.9 percent of Myanmar’s population falls into the ‘productive population’ age bracket of 15-64 years. At the same time, with a flourishing middle-class and population growth at 0.89 percent per annum, Myanmar’s statistics certainly attract investor’s attention from across the globe.
The emergence of foreign players in the insurance sector is a testament to the vast potential within the
Myanmar market
The year 2015 was one of transformation for the country and its people: the insurance market had to face several changes, as well as challenges. These included greater competition, an increase in claims and some important modifications within the regulatory framework.
We are very pleased, however, with our 2015 results, and despite all the transitions happening, we managed to reach our goals and maintain our position as the undisputed market leader among the country’s private insurers for the second consecutive year. During these years, we have maintained a responsible and sustained growth line, focusing on prompt customer service and operational efficiency, yet without altering our stringent risk and cost control guidelines. At IKBZ, we make sure guidelines are supported with timely and adequate investment for modernising the company, and always strive to stay abreast with changes in the market and industry.
Political situation
In recent times, if there was one milestone for the country and its people, it has to be the landslide victory of Aung San Suu Kyi’s National League for Democracy party, which won a credible election with almost no violence. Five months into the new government’s five-year term (at the time of writing), it is a little too early to decide and judge the credibility of its performance. Nevertheless, its priorities and approach are becoming clearer and more transparent, and there are some initial indications of how the nation’s political party is tuning into changed realities.
These provide the basis for an initial assessment as Myanmar’s transition enters a new phase under a democratically elected government, which has set a positive initial tone and taken important steps to address the previous legacy. Going forwards, the government plans to lay policies encouraging the liberalisation of the insurance sector. The regime has promised at every opportunity to incentivise the private sector as a means to propel sustainable economic growth.
Governance is one of the critical factors that can explain the divergence in performance across developing nations. Of late, there has been much talk about good governance all across the media. For a country to develop, good governance at both levels – corporate and government – needs to be practiced. It is all the more necessary for public companies to show an elevated level of good governance as the public invests their money by buying shares.
The fate of a company’s shareholders therefore relies on the financial performance of those companies. The key elements of good governance are the absence of corruption and the use of accounting standards, while the corporate body’s financial affairs must be managed with the utmost transparency and accountability. This means it has to be done with the three Es: economically, efficiently and effectively. With these in place, good governance will prevail in corporate bodies, much to the advantage of shareholders, stakeholders and the country at large. Government and non-government organisations are taking measures to share knowledge about good governance to their members by organising seminars and workshops.
The new government demonstrated its rational approach to economic policy when it formed the financial regulatory department, which plays a secretarial role for the newly restructured Insurance Business Regulatory Board under the Ministry of Finance. The members of the new regulatory board are now an amalgamation of retired insurance officials who are working in private insurance companies, people holding high academic degrees in insurance, and also government officials from the auditor general office and other departments. This certainly shows the current government is taking meticulous steps to support all the sectors with existing subject knowledge and the right kind of local expertise.
The road ahead
There is a great need for the government to address a number of key challenges. After decades of authoritarian rule and civil war, some are long-term issues that need to be attended to. Most important is moving the peace process forwards.
The country has witnessed ethnic tension breakouts for more than half a century, with no resolution for restoring peace so far. Now, with the 21st Century Panglong Peace Conference proposed by the state counsellor Suu Kyi, the conflict may soon fade away and become a thing of the past. This will help immeasurably in mending the tarnished image of the country.
As such, the government must take necessary measures to ensure the army and political parties back its peace initiative. It must also ensure belligerents sign the nationwide ceasefire agreement without any delay. Furthermore, it is absolutely imperative this peace conference must be all-inclusive, keeping national development and human security a priority before anything else.
In addition, the government should implement effective policies that will enable private industries to become more competitive both domestically and globally, thus providing the best deals for customers. Keeping this in mind, we have to adopt effective competition laws and a framework designed to empower the lower strata of society in order to bring about social mobility.
There is also a need to boost the country’s foreign sector. There is no denying the fact that foreign investment in any form can bring much benefit to the country in terms of job opportunities – jobs that are much-needed, considering the current unemployment situation in the country. Foreign investment is a necessity for developing countries like ours, because there are certain industries such as manufacturing, mining, and oil and gas exploration that require the infusion of huge capital beyond the capacity of local entrepreneurs. It is even more important foreign investment is prioritised in terms of the type of industry, which has the potential to effectively contribute to the development of our economy.
Proceeding with caution
In a highly competitive sector like ours, the usual trend that exists between the key players is to appear very similar in terms of product and service delivery. This level of competitiveness within the insurance industry is only expected to increase with the inflow of foreign insurers to Myanmar’s insurance space. The emergence of foreign players in this sector is a testament to the vast potential within the Myanmar market. However, imposing certain limitations on the operation of these foreign players may prove beneficial at present, until the local players are fully equipped to take the lead.
Domestic insurers are generally novices and need time to develop so that they can withstand competition. Liberalisation will thus be a delicate process that will balance opening up the market enough to bring in capital, expertise and capacity for international companies, without overwhelming or crowding out local players. More freedom in terms of policy design and premium pricing will have to be undertaken in such a way as to avoid price wars and substandard coverage.
To witness accelerated development in the sector, we must welcome best practices from the international community. Their services of rendering appropriate guidance, support and wise counsel to domestic players will be highly appreciated. Moreover, they should not shy away from giving befitting advice as and when necessary to the regulators. In the long run, this guidance will not only benefit the insurance fraternity, but will also shape the attractiveness of the country’s retail market. In other words, this will have a profoundly positive affect on Myanmar’s much-needed economic progress.
In October 2008, the Qatari Government launched the Qatar National Vision 2030 development plan, in response to the country’s economic situation. Despite sustaining significant growth and rapid advances in social development, a plan was needed to focus investment in areas that would promote growth on a long-term basis. The plan laid out in the National Vision 2030 plan is one that will support the nation’s development into an advanced economy with consistently high living standards.
The backbone of any developed economy is its banking sector. Without the right programmes and initiatives supporting the private sector, growth is unachievable. Given this, Qatar Development Bank is driving several important programmes to support the young entrepreneurs who will power Qatar in the future. World Finance had the opportunity to speak to the CEO of Qatar Development Bank, Abdulaziz bin Nasser al-Khalifa, about some of these initiatives.
SMEs constitute the foundation of a diversified, knowledge-based and sustainable economy
How will Qatar’s National Vision 2030 plan impact the direction of Qatar Development Bank?
Today, Qatar Development Bank (QDB) is a key player, with a core mandate of contributing towards accomplishing the human and economic development pillars of the Qatar National Vision 2030 plan. Our mandate reflects Qatar’s commitment to develop the private sector, as it strongly believes small and medium sized enterprises (SMEs) constitute the foundation of a diversified, knowledge-based and sustainable economy. Being a strategic player in this transformation, QDB enables the diversification of the Qatari economy by promoting and strengthening private sector development. In doing so, QDB supports local entrepreneurs in a number of ways, both financial and non-financial.
How will QDB promote entrepreneurship among SMEs, and why is this important?
Promoting entrepreneurship is at the heart of our mission. In 1997, the government established QDB with the primary objective of accelerating the growth and economic diversification of the private sector in Qatar. Since then, we have greatly expanded our portfolio. Our most important addition is that QDB today actively promotes entrepreneurship and start-ups in various sectors.
To promote the development and growth of SMEs, QDB now effectively implements a multi-faceted strategic roadmap for start-up development. This includes five key components: specialised consultancy for start-ups, legal support, assistance with financing and audit, marketing and promotion, and matchmaking support with importers abroad. Furthermore, while we support start-ups on every step of their journey, every existing SME we deal with is also eligible to tap into any of these five resources, as per their circumstantial demands.
Lastly, we also support SMEs through the launch of our one-stop shop (OSS) multi-service support centre. Through it, we promote entrepreneurship among SMEs by simplifying market entry for new companies that focus on technology and operate eco-friendly business models. With the opening of OSS, our products and services became more readily available to SMEs, who may now avail themselves of our developmental resources in a single location.
Most importantly, at our OSS we also host the full-service offices of various Qatari ministries and government departments, with whom many SMEs regularly work. In addition, we facilitate official state procedures through our legal consultancy service.
We are strong believers in the power of small businesses to innovate and create value for society. Therefore, we are committed to providing innovative small businesses with a supportive environment, so they can unlock our country’s human potential.
What role does QDB play in promoting the nation’s private sector?
To promote the local private sector, QDB offers a wide-ranging support programme across myriad industries. Furthermore, we have adopted a range of financing and non-financing products, aimed at unlocking access to international markets for local businesses.
Within the country, QDB collaborates with a group of preeminent partners to organise competitions for the creation of start-ups, such as the Al-Fikra National Business Competition. Our strategic partners for these endeavours include both local entities and international corporate, education and petroleum giants operating within Qatar.
Other schemes, such as the Jahiz I and Jahiz II initiatives, seek to empower existing local SMEs that are operating across a diverse range of industries, including chemicals, electronics, plastics, wooden materials, and food. The purpose of these initiatives is to develop the non-oil and gas sectors of the Qatari economy.
Finally, we are firmly committed to the export and promotion of Qatari products across the global marketplace. We regularly conduct studies of Qatari companies that have flourished in their transactions in the international marketplace, and we analyse the causes of their success. Based on our results, we identify importers and arrange matchmaking meetings between local exporters and prospective importers through participation in international and regional trade fairs.
Qatar currently has a large youth population. What policies has QDB pursued to support this demographic?
Our mission has been to instil the spirit of entrepreneurship in the youth of Qatar. We wish to inspire them to lead the change they want to see in this world. To further this, we launched our prized initiative – the Al-Fikra National Business Competition, a nationwide challenge that promotes entrepreneurship and inspires a new generation of Qatari business leaders. Our annual competition is open to university students, entrepreneurs and working professionals.
The competition is based on a team’s ability to successfully propose and develop a workable business concept that can achieve success in the local market. Prizes for the top five entrants include free incubation, admission to an integrated consultancy programme, and access to our financing products. We have been delighted with the reception that Al-Fikra has received over the past four editions, and have recently launched the fifth edition, which is testament to the success the competition has achieved in filling a big void in the field of entrepreneurship and encouraging new businesses.
QDB has taken a role in major projects, including Al-Dhameen and the Jahiz I and II projects. Can you expand on these?
At QDB, we see ourselves at the vanguard of the drive to empower the private sector. Our Al-Dhameen partial loan guarantee scheme is formed in collaboration with local banks and financial institutions. It is at the forefront of our private sector empowerment strategy. It is our way of assisting companies, across all priority sectors, that lack the collateral to secure access to financing.
The Al-Dhameen scheme is viable for both existing companies and young start-ups. Existing companies are eligible for guarantees of up to 75 percent of unsecured outstanding principal loans and financing limits of up to QAR 15m ($4.1m). On the other hand, start-ups that meet our basic criteria are eligible for up to 85 percent of the loan amount.
Jahiz I offers 32 plots to Qatari business owners and entrepreneurs at a competitive lease rate to execute ambitious, eco-friendly industrial projects in the chemical, electronics, plastics and wood industries. Jahiz II offers 14 plots to Qatari business owners and entrepreneurs who wish to start food and beverage manufacturing businesses in Qatar.
Furthermore, as part of the Jahiz initiatives, QDB assists applicants through the provision of comprehensive start-up business solutions, which include consultation, development of business plans, and feasibility studies. The purpose of the Jahiz I and Jahiz II initiatives is to accelerate the development of the private sector and diversify the economy by bringing down the many barriers to entry across a number of hi-tech manufacturing sectors. The Jahiz initiatives are aimed at helping the nation achieve greater self-sufficiency.
Prior to the development of the Al Dhameen partial loan guarantee scheme and the Jahiz initiatives, our analysts researched the demand and supply metrics of the local market, as well as the needs of local SMEs. We then analysed our results, and brainstormed how QDB could help improve market conditions and nurture start-ups and SMEs.
Which segments of the private sector are most important to Qatar’s diversification push, and how will QDB assist in that?
We focus our efforts on accelerating the development and diversification of the economy in line with the Qatar National Vision 2030 plan. To achieve this goal, we segmented the local private sector into the categories that are most vital for Qatar’s diversification agenda. We promote these sectors through investments, as well as providing housing and development-related initiatives on behalf of the government.
Currently, the seven sectors we are focusing on are those that are projected to have an overall positive impact on the social and economic standard of living in Qatar. These sectors are agriculture, education, healthcare, industrial development, livestock, fishery and tourism.
How do you retain profitability when your primary commodity halves in value? That’s been the challenge for oil and gas players over the last few years. Nelson Tanure and Renato Jerusalmi from independent oil producer PetroRio discuss its strategy for success. In 2015 the firm sold off its exploratory assets to focus on oil development and production – a lower risk strategy for a small oil player. Now unleveraged and with strong cashflow from the Polvo field, the business is looking to expand through acquisitions – including from the scandal-plagued Petrobras.
World Finance: How do you retain profitability when your primary commodity halves in value? That’s been the challenge for oil and gas players over the last few years; here to explain PetroRio’s strategy for success: Nelson Tanure and Renato Jerusalmi.
Nelson, 2015 obviously a very challenging year across the industry, but you had a highly profitable one. So how did you cut costs and turn the company around?
Nelson Tanure: We went through the same struggles as everybody else. But part of the reason why we had a good year was that in actual fact it began in the second semester of 2014. We needed to be profitable with oil prices below $45, and in fact it wound up even surpassing this low.
But we were able to lower costs significantly to put in a variable component in relation to the oil price. So if oil went up so did the supplier cost. But oil going down, they shared the burden together with ourselves.
So the focus was very much on profitability. And above everything else, the reason why we had a good year was essentially people. We had very creative, very dedicated people who searched for returns and who searched for doing things the right way.
So we come out of the year with a bigger cash position than we went in. We preserved our balance sheet. And from a strategic point of view, looking at our assets, we increased our position in a profitable, producing asset, which is Polvo. And we divested out of the non-core exploration assets. So it was a good year for us.
World Finance: Indeed it was a transformative year for PetroRio, changing from an exploration company to a producing and developing one. What was the motivation behind that shift?
Renato Jerusalmi: First it was survival mode. Because we changed from a poor exploration company that was spending a lot of CapEx in Solimoes, to a development and production company that bought a producing field from BP, which was Polvo.
The second part of it was, this strategy fits much better for a small company in which you have a lower risk strategy of buying producing assets with cashflows, than having much higher risk of spending CapEx in exploration. So it fits well with our strategy. It really has three pillars.
The first one is operational – we want to replicate what we did in Polvo. We want to reduce OpEx, and really focus on reservoir management to increase reserves in small fields – that are considered small for the majors, but are quite a considerable size for us.
The second part is leverage. As you know we’re highly unleveraged, so we have a lot of leverage room.
And finally we have a very strong capital discipline, so we only want to do creative deals. So I think we’re a lean company: we cut costs, we cut OpEx really well. We have much better operations to generate value for our shareholders.
World Finance: Looking at the oil and gas industry in Brazil, how are things going to be changing in the next year or two? In the wake of the Petrobras scandal.
Nelson Tanure: The company’s facing a lot of pressure. Together with the fact that we’re getting to the point where the major oil companies – many of their fields are reaching their midpoint, where they’re becoming a bit mature. So that’s generally when a major will look to divest. And for an independent company such as ourselves, this is the perfect timing. Because from a balance sheet perspective, in cash; and from an operational point of view; we are the ideal company to be able to buy these assets.
So we expect to keep on an upwards trend, and ideally be able to make some very creative acquisitions.
World Finance: How are you going to be funding that?
Renato Jerusalmi: We’re looking at first leveraging the company in a responsible manner. The company is highly unleveraged, so now with net cash at around $130m. Also, because we’re buying producing assets, those assets have cashflows. So we’re also going to leverage those assets.
Then the second step, I think after the leverage, will be looking at some partnerships on an asset level. And finally, if we keep finding creative opportunities, we can always think about new equity. We’re listed on BOVESPA, we’re listed on TSX. So I think we have a good capital base to raise equity if we would like to.
World Finance: Aside from acquisitions, your current asset, the Polvo field. What are the growth prospects there?
Nelson Tanure: Polvo is a field that produces around 9,000 barrels of oil per day. And part of the reason why we like the field so much is that it has a characteristic that we always look for. So besides steady production there are upside opportunities. And in Polvo specifically, we just underwent a very successful workover campaign, where we increased production. And we’ve also identified further prospects for eventual drilling.
We’re looking at drilling in the first semester of 2017, if all things work out well. And we should see a nice improvement in production.
Renato Jerusalmi: When we did the redevelopment programme, which was the first semester of this year, we found a new reservoir. We proved a new reservoir – which was new sandstones. This generated a new prospect to us. So that’s one of the examples that we can generate value within the producing fields. And as you know, in oil and gas, most producing assets have some exploration upsides. So most of the acquisitions we’re looking at have some exploration upsides.
So it’s not our core, but of course we’re going to look at organic growth and some creative exploration upsides.
Sri Lanka is undergoing a massive demographic shift and significant economic development. A lower-middle income country with a population of 20.8 million people, a new era of progress has emerged in Sri Lanka, with its economy growing at an average of 6.4 percent per year between 2010 and 2015. Naturally, this has prompted greater levels of spending, leading the government to focus on much-needed infrastructure development in order to support continued growth.
But as the country changes, so do the needs of its people, and the services industry has been working hard to keep up. One sector showing rapid development is the Sri Lankan life insurance industry. Relatively young in the scheme of global insurance markets, the industry was liberalised in 1988, allowing private sector insurers to begin operations. Since then, it’s seen a significant number of players enter the market and no shortage of competition.
But despite the competitive market, life insurance uptake in Sri Lanka has remained relatively low: in 2011, the Insurance Board of Sri Lanka’s statistical review found 11.13 percent of the population had taken up a life insurance policy. By 2015, the figure had only grown to 13.45 percent.
With a shrinking labour force and growing inflation, retirement planning is becoming essential for the Sri Lankan economy
In light of this, the market has become a competitive field, with insurers fighting to win over an untapped customer base. World Finance had the opportunity to speak to Rajkumar Renganathan, Managing Director and CEO of Ceylinco Life Insurance – one of the major players in the market – about how the company plans to grow its customer base while continuing to assist in the development of Sri Lanka and its people.
Developing market
In 2009, Sri Lanka saw the conclusion of a 30-year civil war and entered a new era of economic development. Since then, the country has seen a shift from a predominately rural, agriculture-based economy to a more service-driven, urbanised economy.
There has also been a concerted government effort to develop the country’s infrastructure through projects such as the megapolis development plan and the Colombo Port city development project. These schemes have been designed to create more employment opportunities and grow national disposable incomes. The success of these measures can be seen by figures published by the World Bank in 2015, which show per capita income in the country has risen to $3,926 (see Fig 1).
Larger incomes tend to mean a greater need for life insurance protection. Ceylinco Life has a 25 percent market share based on gross written premiums in the country and covers approximately one out of three policyholders. Even so, the company has its sights set on further growth.
“Especially due to the fact that, as Sri Lanka is an underpenetrated market, there is vast potential for the life insurance industry to grow”, explained Renganathan. “Hence, the need to offer protection to an underpenetrated market such as ours is important.”
Renganathan said, despite the low penetration rates over the past few years, life insurance industry growth rates have been encouraging. Combined with the level of market activity and changing economic conditions in Sri Lanka, the future of the life insurance sector is bright.
The growing economy has also presented other opportunities. Renganathan explained: “Next, considering the changing demographics and ageing population, the need for retirement planning has become of paramount importance.”
Demographic challenges
A challenge facing many countries is an ageing population, which strains economies as workforces dwindle and more pressure is put on state services. Sri Lanka is no different: in 1971, the percentage of the population aged 60 years and above was 6.3 percent. By 2012, this figure had risen to 12.2 percent. If current trends continue, by the year 2041 as much as 24.8 percent of the population could be aged over 60. With a shrinking labour force and growing inflation, retirement planning is becoming essential.
Renganathan said that, being the market leader in Sri Lanka, Ceylinco Life Insurance has pioneered many different projects to keep people informed about how trends like this could affect them. Retirement Planning Month is an annual campaign designed to raise awareness of the importance of financial planning for the future. The campaign focuses on an area that has a significant impact on retirees and retirement planning – inflation. He explained: “This spurred the aptly themed ‘How Much is Enough?’ campaign, which encourages the public to think about the funds they have saved for retirement, and whether it would be sufficient for their retirement after inflation.” The campaign was conducted via both mass media and below-the-line channels, and was successful in raising significant awareness among the masses.
Another national campaign is annual life insurance week, designed to explain to people the value of life insurance on a nationwide scale. “Over 4,000 sales representatives are deployed island-wide to meet customers at their doorstep and communicate the importance of life insurance”, Renganathan said. “It is also supported by mass media awareness using real life case studies of life insurance beneficiaries.”
The campaigns have seen yearly successes since being launched, with thought-provoking themes used to educate the public about life insurance and retirement planning. “Ceylinco Life’s long-term vision is to take the message of life insurance to every Sri Lankan family”, Renganathan explained. “In line with our vision, Ceylinco Life invests in developing its sales force, which is our main strength in taking the message of life insurance to the public.”
Renganathan said Ceylinco Life Insurance has also invested in expanding the company’s branch network, with over 250 branches now open across Sri Lanka, in order to make life insurance more accessible to the public. However, this is not the only way the company is trying to connect with the public.
Given Sri Lanka’s developing economy and changing demographics, new technologies are now playing a much bigger role in the development of the life insurance sector. Ceylinco Life is modernising its workforce to take advantage of this opportunity and keep on top of changing expectations. Renganathan said most of Ceylinco Life’s agents are now equipped with a tablet or laptop to provide quick service to customers. In addition, premium payments can now be accepted via smart phones, and policies can now be sold over the internet as well.
“Claims processing and back-end operating systems are constantly being reviewed to increase the efficiency of operations”, Renganathan said. “We have seen competitors also using similar convenience-driven technology platforms.”
For the future, Ceylinco Life’s plans to increase manpower, maintain professionalism and minimise lapses through improved orphan policy management. An orphan insurance policy is one where the original policy agent is no longer active, possibly because they are no longer in the industry or have moved to another company. In this situation, managing orphaned policyholders effectively is important from both a customer service and administrative perspective.
Continuing social development
Corporate social responsibility has also become a priority for Ceylinco Life Insurance, particularly in the fields of health and education. While Sri Lanka has indeed seen significant economic and social development in recent years, many rural areas are still lagging behind. One such area is education in rural communities. Ceylinco Life has been working to improve education opportunities for the rural youth by providing them with access to high-quality infrastructure. The vast majority of children in Sri Lanka are dependent on free education provided by state schools. However, many schools struggle to maintain basic facilities, with state aid being the only way to keep the doors open in some rural areas.
“To date, Ceylinco Life’s schools development project has helped many rural schools by reconstructing classrooms and donating furniture and other basic amenities”, Renganathan said. “Classroom projects in 2015 were executed in the areas of Haldummulla, Trincomalee and Mannar, bringing the total to 64 to date.”
Healthcare is another service many rural regions are struggling to provide, and another area Ceylinco Life is working to improve. With the company’s Waidya Hamuwa project, the organisation is levering its spread of staff and personnel to reach those who need it most. It promotes good health in rural areas by providing access to free medical camps: these camps are conducted at more than 75 locations across the country and are led by a team of experienced doctors hired by Ceylinco Life.
While currently still growing, the Sri Lankan life insurance industry continues to develop to meet the ever-changing needs of its customers. Like all industries in Sri Lanka, the insurance sector’s next few years will be of great importance.
In recent times, Malaysia’s insurance industry has enjoyed steady expansion, growing at an average of 6.6 percent over the last four years. This expansion is projected to continue, with growth in the industry expected to be further driven by the country’s Economic Transformation Programme. As part of Malaysia’s National Transformation Programme, the Economic Transformation Programme aims to help Malaysia obtain ‘developed nation’ status by 2020.
Within the insurance industry, growth has also been led by the life insurance segment, which accounted for 65.9 percent of the industry’s gross written premiums. The non-life segment followed this with 29.6 percent, while the personal accident and health insurance segment achieved 4.5 percent.
World Finance spoke with Kamaludin Ahmad, CEO of Maybank Ageas Holding Berhad – a firm comprising Etiqa Insurance Berhad and Etiqa Takaful Berhad, one of Malaysia’s leading insurers – to find out more about the industry’s development.
The insurance industry is witnessing a breed of digital players encroaching into traditional business
What role has Etiqa played in shaping the insurance industry in Malaysia?
At Etiqa, we differentiate ourselves by humanising insurance and Takaful, prioritising people over policies. ‘The Etiqa way’ has been introduced to change the way our employees behave: we place people over policies and we keep our customers’ best interests at heart. Because we understand every individual’s needs are different, our products are designed to cater for him or her.
We also have the company philosophy of providing an ‘EPIC customer experience’. EPIC here is an acronym for four characteristics that describe our interaction with customers: empathy, professionalism, integrity and courage. An example of this is the utilisation of a proactive claims mechanism, deploying multiple channels to track Etiqa’s policyholders who may have been entitled to payment claims. We have a team who constantly monitor the mass media and social media, and once we identify a policyholder, we will reach out to them or their families.
In times of national crises, we reach out to ensure there is a quick way to expedite claims, in order to ease the burden on customers. This includes minimal documentation, appointment of additional adjusters and dedicated personnel to process claims. We ensure our customers enjoy hassle-free claims, with just one phone call needed for personal accidents and home incidents.
One of our key strategies to ensure the success and effectiveness of the distribution of insurance and Takaful products has been to understand emerging markets. Alongside this, we have focused on the internet as an emerging alternative distribution channel with significant potential for growth. We have made substantial inroads due to the younger generation’s expectation to fulfil their needs online. Indeed, Etiqa is one of the pioneers for direct sales through the internet.
What are main challenges facing the insurance market in Malaysia?
At present there is strong competition from established conventional players in terms of the branding and efficiency of distribution channels. Takaful competitors in particular are growing faster. Malaysia is also facing limited amounts of economic uncertainty, compounded by the fall in crude oil prices. Stemming from this global economic uncertainty is increased profit volatility.
The present low interest rate environment, coupled with the sluggish economic growth, has dampened investment returns – a key source of income for insurers. As a result, life insurers may move away from products with a pure investment and towards protection products. At the same time, in a frail economy with rising costs, consumers may not have deep pockets to spend on insurance. Therefore, insurance is going to be way down the list of what to purchase.
How important are new forms of technology to the insurance sector?
Today, everyone is talking about digitalisation. The insurance industry is witnessing a breed of digital players encroaching into traditional business. Our customers are also changing the way they interact with us, as they are more digitally savvy than ever before; they are becoming increasingly more sophisticated with their online requirements, hence increasing the complexity of their relationships and the specificity of their demands. Customers now have more access to information, experts and lower cost channels. This increases the pressure on insurance companies to deliver good value.
When it comes to our own utilisation of technology, Etiqa has been an early adopter of a customer-centric Master Data Management (MDM) solution, which aims to sharpen its competitive edge in Malaysia’s newly liberalised insurance market. The system provides Etiqa with better control of its data, enabling it to build a consolidated customer profile as it pursues new avenues of growth in a more open and competitive Malaysian insurance market.
We have one platform for accessing, integrating, cleansing and governing our customer data. This customer-centric view across general and life insurance lines of business plays a powerful role in helping Etiqa attract and retain insurance customers and grow revenues. We have enhanced our data analytics capabilities to draw greater insights into the needs and preferences of our customers. Armed with such valuable insights, our distribution channels are able to offer the right products to the customer at the most appropriate time, and to consistently deliver quality service.
How does Etiqa integrate new information channels and why are they important?
New information channels have allowed us to connect with customers on social media and through e-marketing and cross-selling. Social media’s growth has also allowed us to provide a consistent customer experience across channels where the choice of engagement lies with the customer. New information channels have also allowed us to digitalise the whole process of buying insurance from start to finish, making it an end-to-end paperless process.
Providing the public with education concerning insurance has also become easier with social media. We have been able to educate the general public particularly through online videos. For instance, Etiqa has launched Etiqapedia, a series of short, educational videos on basic insurance knowledge can be viewed on YouTube.
What edge does Etiqa have over other insurance firms?
The major benefit of Etiqa is that we have experience with all markets related to our industry. This means we are in the life insurance and general insurance, as well as in Takaful; we also service the retail market up to the corporate market. We underwrite small general insurance, such as travel insurance, in addition to insuring big businesses, such as the airlines, oil and gas businesses, and marine, aviation and transport risks.
As a true multichannel distributor, Etiqa has a strong agency force
On the life side, we are strong players in the individual market. We also have a leading position in employee benefits and medical coverage. In the Malaysian market, Etiqa is the only local company with such a wide business mix. This gives us stable growth, as well as stable profitability. Looking ahead, Etiqa will leverage on Maybank Group’s strength and build a wider distribution footprint for its products and services, as well as looking at alternative distribution channels.
As a true multichannel distributor, Etiqa has a strong agency force, comprising over 24,000 agents, 30 branches, sales offices and customer service centres located throughout Malaysia. We also have a wide bancassurance and bancatakaful distribution network, with more than 400 Maybank branches and agreements with professional third-party banks. Etiqa is also one of the pioneers for direct sales through the internet with online Motor Takaful and Maybank2U. Cooperatives, brokers, institutions and online banking services provide added accessibility and convenience to our customers.
How does Etiqa approach corporate social responsibility?
We aim to deliver long-term value for the community and ensure our sustainability efforts work in tandem with our economic activities. We are fully committed to giving back to the community through our corporate social responsibility/Corporate Zakat Responsibility (CZR) programmes.
In 2015, we built 46 permanent houses for Kelantan flood victims who lost their homes in the devastating floods that hit the state in December 2014. The construction project was the largest CZR project ever to be undertaken and fully financed by any Malaysian corporation for flood victims. A total of MYR 2.4m ($591,000) was allocated for the construction of 31 houses in Kampung Lebir, Gua Musang and 15 houses in Pahi, Kuala Krai. The construction of the 46 houses in Gua Musang and Kuala Krai was financed by Etiqa Takaful Berhad’s CZR fund and its customers’ ‘tabung amal jariah’ [charity fund], which was derived from the distribution of surplus contribution.
We have also contributed a total of MYR 808,000 ($119,000) of CZR and amal jariah funds to improve the quality of life and economic wellbeing of villagers living in Pekan and Kuantan. Out of these funds, MYR 340,000 ($83,800) was allocated to the construction of two bridges in Pekan and MYR 350,000 ($86,250) to build a dormitory for Rumah Anak Yatim Nur Iman in Kuantan. We also allocated MYR 100,000 ($24,650) to provide fishing nets for a fishing village in Tanjung Lumpur and various equipment to help small business owners obtain the resources they need to start their businesses. The remaining MYR 18,000 ($4,435) was used to provide basic food packs for 200 needy families.
During the financial crisis, Hungary’s insurance sector proved itself to be crisis-resistant. In another sign of its robustness, the market has shown impressive annual growth over the last three years: according to the Hungarian Insurers’ Association, in 2015 the number of total written premiums had increased by 2.2 percent in a non-inflationary environment.
Non-life insurance written premiums were the strongest basis of this growth, having increased 7.7 percent to HUF 427bn ($1.54bn). In parallel, written premiums of life insurance had decreased to HUF 441bn ($1.59bn), which can be explained by the 12 percent decline in single premium insurance, while the regular premium life insurance portfolio could still increase after a considerable period of time. Therefore, the adjusted written premium of the life insurance branch increased by 2.9 percent to HUF 294bn ($1.07bn), in which 10 percent of the single written premiums are included.
Revenue expansion in non-life insurance can be attributed to the fact that after a long period of time, the fierce premium competition in the field of compulsory third party liability motor insurance did not continue. This in turn has caused the written premiums of this line of business to increase from HUF 90bn ($320m) in 2014 to HUF 107bn ($390m) in 2015.
The mission of insurance companies is not scaremongering, but setting forth a realistic alternative
Nonetheless, average insurance premiums are still far below the premium level of neighbouring countries. Growth in regular life insurance premiums clearly resulted from pension insurances that are supported by state tax allowance, which saw the number of contracts exceed 135,000 last year alone. And so, although the market continues to show signs of stability, there is scope for considerable growth.
At this interesting point in the market’s advancement, World Finance had the opportunity to speak to Anett Pandurics, CEO of Hungarian Post Life Insurance Company, about Hungary’s highly robust insurance market, and her plans for the future.
How has insurance legislation changed, and how has this impacted the Hungarian market?
The national market has been preparing intensively for the transposition of EU regulations, the ever-changing conditions of Solvency II and the implementation of the IDD and PRIIPS rules. As a company, we have taken further steps forward as well. The cooperation developed under the aegis of the Association of the Hungarian Insurance Companies between the profession’s stakeholders and the Hungarian National Bank performing its supervisory role is a pioneering initiative.
Following negotiations, the Insurance Act has been amended in several stages: as of this year, the act now centrally regulates the minimum levels of investment and surrender values while limiting the commission rate payable for life insurance. To further strengthen insurance rules, it has also become mandatory to involve depositaries, and from next January only those units that have been invested by the insurance company may be shown.
An even more ambitious change is that, uniquely in Europe, the total expense ratio (TER) – which was introduced in 2010 by insurance undertakings for unit-linked life insurances as a self-regulating measure – remains applicable as a legislative provision. Since 2014, the TER level of pension insurances has been regulated by the Hungarian National Bank. In order to widen the scope, earlier this year the regulation ensuring cost transparency was extended to all life insurance policies.
Which aspects of the Hungarian insurance market currently show the most potential?
It is clear that life, pension and health insurance provide the best potential. Numerous studies show an increasing number of Hungarians are aware that old-age benefits cannot be financed solely from a state pension. According to a recent study by the Hungarian National Bank, the stability of the current pension system is ensured until 2030, meaning our ageing society will be confronted with increasingly substantial challenges in the subsequent years. In fact, people are already facing problems with the healthcare system. In this respect, the mission of insurance companies is not scaremongering, but setting forth a realistic alternative.
What are the most important trends in the Hungarian insurance market?
Our domestic economy has established an appropriate basis in recent years; as households and companies have started to regenerate assets, their demand for insuring these assets is increasing. Moreover, the number of people who take out travel insurance when going on vacation is continuously increasing year after year.
As the economy improves, the number of people travelling abroad increases as well. Consumer propensity to save has also taken a positive turn; the importance of self-provision is recognised more and more by the Hungarian population.
77%
Growth of Hungarian non-life insurance premiums in 2015
$1.54bn
Non-life insurance premiums’ current value
What other challenges must the sector be prepared for?
One of the sector’s key tasks is to create and continuously build trust. According to a recent market survey, only 27 percent of consumers explore the market unprompted. An even greater concern is that 48 percent of them do not understand products. This is a problem because many of them might have the wrong idea about a product they have bought, which may remain misunderstood for years. For this reason, insurance companies have a great responsibility in clearly communicating with the client both during and after a sale. As far as I am concerned, the Hungarian insurance sector and regulators of the Hungarian legal environment have developed cutting-edge solutions in this field. However, there is plenty more to be done in order to make it clear that different types of insurance have positive utilities at both micro and macro levels.
Although a low interest rate environment presents another challenge to insurance companies, it is also an important advantage, as insurance coverage may provide valuable help over such timeframes where the accumulated return on investment would not resolve the problem encountered in the given life situation. Besides, we have to overcome an important innovation challenge: insurance cannot be distributed to members of Generations Y and Z by traditional methods anymore. It is therefore crucial to rethink our products, services and sales solutions, and take advantage of digitalisation.
What is Post Insurance’s main focus in light of such opportunities and challenges?
Regarding our short-term plans, we understand current economic trends are more beneficial for the development of non-life insurances. We are witnessing organic market development in this field, where both written premiums and penetration are increasing, therefore we are investing significant professional resources into it. Although a stronger regulatory environment does not favour life insurance policies, we can find niche markets in terms of product portfolio and sales channels, in which our company may gain significant advantages.
Likewise, we benefit from our flexibility, which enables us to provide services that harmonise with the increasingly rapid pace of life and the habit of planning for the shorter term. Our overall aim is to have people consider Post Insurance – after a year or two, as well as after 10 years – as an easily accessible, reliable and useful partner in many walks of life, just as more than three million Hungarian customers have considered us for almost 1.5 decades.
How important is innovation to Post Insurance?
Innovation plays an increasingly important role in our customer service. We have made a major leap forward in our technology, having introduced a new customer service IT system that gives us the opportunity to make numerous developments in the future. It is fantastic for managing outgoing campaigns and, thanks to the knowledge-based call distribution, it directs the call to the most competent administrator for any given product, thereby shortening the administration process on both sides. As our customer service staff may receive requests regarding more than 30 different products or product modalities, these solutions ensure a smoother workflow.
In a move towards greater efficiency, our online sales system at post offices has become redundant, and it is now accessible through our integrated postal network at an even higher bandwidth than before. Besides developing our sales system and rationalising our mailing process, several back office processes were optimised last year. We now include an intelligent barcode on each and every insurance proposal and document; this means all documents received and converted into an electronic document are catalogued automatically.
Experiences gathered during the last year prove we have the opportunity to recreate our classic values in the online space as well, to conquer new target groups and, as a result, conquer new market segments through new services and products. In this context, we are working on providing a modern service to the customers of Generations Y and Z, who rarely visit post offices, thus enabling us to develop products that correspond to their needs.
How would you rate the company’s successes last year?
The 14 years of cooperation and a joint commitment with the Hungarian Post for continuous innovation brings us success year after year. As a result, this year we were voted the Best Life Insurance Company, Hungary for the third year in a row in the World Finance Global Insurance Awards. For this award, we have to thank all of the postal employees who welcome our clients day after day at around 2,500 points of sale in Hungary.
What are Post Insurance’s plans for the future?
At the end of August, we placed a new product on the market that offers a burial term life insurance to our postal clientele. We endeavour to add as many term life insurances to our product line as possible, as demand for self-provision and insuring owned assets is continuously increasing in Hungary’s improving economic environment.
We believe it is very important to enhance customer satisfaction with our services, whether at the signing of a contract, handling a claim or making payment at the termination of an investment product. When changing our current practices, we will continue to request feedback from our customers about experiences they had with our assistance service, and on any changes they would propose in order to make our administration practice as efficient as possible and to improve customer satisfaction.
On October 31, General Electric (GE) announced that it will be merging its oil and gas division with oilfield services giant Baker Hughes. GE will contribute its oil and gas operations along with $7.4bn in order to take a controlling stake in the merged business. The deal, which has been unanimously approved by the boards of both companies, is set to create the world’s second largest oilfield services provider, with operations in more than 120 countries.
“This transaction creates an industry leader, one that is ideally positioned to grow in any market”, General Electric Chairman and CEO, Jeff Immelt, said in a statement confirming the merger.
The partnership will enable GE to harness Baker Hughes’ expertise in drilling and fracking wells, while avoiding a costly full acquisition
“Oil and gas customers demand more productive solutions. This can only be achieved through technical innovation and service execution, the hallmarks of GE and Baker Hughes.”
The merger comes as oil companies look to cut costs through consolidation as they continue to battle low crude prices. The partnership will enable GE to harness Baker Hughes’ expertise in drilling and fracking wells, while avoiding a costly full acquisition of the company. The merged business is anticipated to generate $32bn in annual revenue and is predicted to produce synergies of $1.6bn by 2020.
The deal brings fresh hope to GE and Baker Hughes, both of which have suffered from the collapse in crude oil prices. As reported by the Financial Times, Baker Hughes reported an operating loss of $1.45bn in the first nine months of 2016, while GE’s oil and gas unit saw a 43 percent drop in operating profits for the same period.
However, both companies remain confident of a price recovery, believing that the merged business will be poised for growth as crude prices harden. Some believe this trend has already begun in the wake of the OPEC agreement to cut oil production, given that crude prices have recently risen slightly to around $50 a barrel – up from a low of $28 in January.
GE and Baker Hughes anticipate that the transaction will be finalised by mid-2017, although it still faces regulatory approval. As a wave of consolidation activity sweeps the oil industry, the merger may face increased scrutiny from US regulators, who are concerned with reduced competition in what is a rapidly shrinking market. Earlier this year, US antitrust regulators rejected Halliburton’s bid to acquire Baker Hughes, citing similar fears over industry monopolisation.
Although the possibility of gas infrastructure in East Siberia has become an attractive prospect for both oil and gas producers, significant challenges remain. As testament to this, Irkutsk Oil Company (INK) has dedicated more than six years of development to this particular area of activity.
More than 13 years ago, INK established itself as the first oil producer in the region, utilising its resources even without developed infrastructure for transportation or the presence of well foundations. Adapting to such conditions, INK grew to become the largest privately owned independent oil producer in Russia, consisting of several companies that specialise in every stage of the hydrocarbon extraction process (from research to production) across INK’s 23 licensed fields.
INK is also the region’s most experienced firm when it comes to difficult projects and commissions within East Siberia. Its most recent development consisted of opening eight new fields in the Irkutsk region and the Republic of Sakha. In the same vein, the past five years have seen INK drastically increase its production of crude oil, achieving more than 5.6 million tonnes in 2015, while 2016 is projected to exceed 7.5 million tonnes.
The technology used was able to yield both gas and petroleum in locations that were bereft of infrastructural developments
The largest taxpayer in the Irkutsk region, INK supplied over RUB 200bn (equivalent to $6bn at the time) to the government’s coffers between 2007 and 2015. As a consequence, the company’s net profit acts as an economic stimulus to the entire region.
Capturing success
The official start of INK’s gas framework in 2010 was marked by the introduction of gas re-injection into formation, with the simultaneous capture of liquids such as gas condensate. Just two years into the project – which was the first of its kind in Russia – INK was able to capture associated petroleum gas (APG).
The main innovation behind this advancement lay in the accessibility of the project, as the technology used was able to yield both gas and petroleum in locations that were bereft of infrastructural developments. These achievements received much praise and recognition from the European Bank for Reconstruction and Development, the project’s financing partner.
In recent years, INK has made significant investments into increasing the capacity of the compressors that process APG at its Yaraktinsky field. The Markovsky field, where the company also aspires to achieve the utilisation of APG, was included in INK’s gas project as well. Consequently, there are now 13 compressor units with a total power of 34MW in operation in both fields. Having this capacity in place boasts numerous advantages: importantly, they include the elimination of flaring gas, as well as a considerable reduction in the emission of greenhouse gases.
Given the success achieved by the Eastern Siberian project, INK then proceeded with the construction of several facilities, all of which relate to the processing of natural gas and APG. Furthermore, the framework for a coherent transportation system, predominantly concerning propane, butane and stable gas condensate, will soon be available for buyers of said valuable gas components. As such, it seems the gas industry in Eastern Siberia will flourish.
“I think that our example [of developing infrastructures in the region] will enter textbooks”, said Chairman of INK’s Board of Directors, Nikolay Buynov. “Many decisions still remain on paper, not set in concrete. Only in 2018, when the operation will literally start working, will we say we
have succeeded.”
Project backbone
Through a $40m investment in 2014, INK has raised international awareness about its gas programme. Then, in 2015, as the project began to increase its operations, INK tripled its investment into the concept, reaching $125m. The first phase of construction is now near completion, which will culminate in the establishment of natural and gas infrastructure in the region. The results will bear a production rate of 3.6 million cubic metres of gas per day, as well as creating a new pipeline that will stream liquefied petroleum gas (LPG) from the Yaraktinsky field to the city of Ust-Kut along a distance of 196km.
Speaking of the progress INK has made, Buynov remarked that this gas infrastructure is “the backbone” of a great future – not only for the project, but also for the whole region.
5.6m tonnes
Irkutsk Oil Company’s 2015 crude oil production
7.5m tonnes
The company’s projected total production for 2016
As things currently stand, the general processing of LPG is scheduled to commence in the first half of 2017. In parallel, propane and butane delivery to respective clients of the company will begin as well. The initial dispatch of LPG will consist of 160,000 tonnes per year, most of which will be transported by railroad to both foreign and domestic markets. In the local mobility sector, car drivers and public transportation will soon benefit from cheaper fuel and a cleaner environment. And here lies another major opportunity for the LPG industry: to displace gasoline and diesel fuel in river vessels.
New niche
INK’s new facility will have the ability to produce value-added products, such as propane and butane mixed with isobutane, which will meet international standards. With the capacity to process 1.8 million tonnes of natural gas liquids per year, the facility will be highly functional as well.
As natural gas liquid contains up to 39 percent ethane, by adding ethane processing, the facility’s processing power will be increased by another 30 percent, to 2.4 million tonnes. Eventually, ethane will form the feedstock for the facility, effectively actualising the third phase of INK’s gas project. The project is sui generis at its core: no comparable undertakings exist in the region at this time.
The launch of the facility will change the direction of INK’s sales strategy by supplying Pacific Rim countries with finished goods that will be transported by both land and sea. Deputy Commercial Director Vladimir Asmakovets told World Finance: “This market is large and exciting: China’s imports increase every year, with 2015 bringing 10 million tonnes of LPG, in comparison to only four million tonnes imported in 2013. Japan also consumes more than 10 million tonnes of LPG per year. INK holds an advantageous position in terms of logistics, as Asia-Pacific markets border us.”
Three additional gas processing plants with a daily capacity of six million cubic metres each will be supplied by UOP, a company owned and operated by Honeywell, within the next two-to-three years. UOP is a leader in modular plants for the natural gas industry and the world-leading manufacturer of gas processing equipment.
Another company that is deeply involved in the process is Toyo Engineering, which prepared front-end engineering design of the gas processing plants and assisted INK with development of the concept of the project. Teaming up with such experienced partners is essential for the undertaking of this project, as INK’s technologists and engineers have yet to accomplish tasks of such scale and complexity without external assistance.
Around $215m has been spent on the realisation of the project to date, while the total spending – which includes the construction of production facilities – is estimated at $3bn. INK’s ambitious goal is to monetise all components of natural gas and APG from virtually all of the company’s fields.
The culmination of INK’s gas project is the realisation of an advanced gas chemical complex. Indeed, this complex will allow the company to utilise the maximum potential of its gas resources. INK plans to have a polyolefin-production facility based in city of Ust-Kut, which will manufacture both linear low-density polyethylene and high-density polyethylene. Equipped with the most advanced technology available, the factory can dispense up to 500,000 tonnes of polyethylene per year. To accommodate such a high output, INK plans to build a 100MW-capacity power plant on the site.
The realisation of the three-phase project will have a great effect on the socio-economic status of East Siberia. In addition to creating myriad new jobs, INK’s plan will lift the living conditions of the citizenry and form a favourable economic atmosphere. Given that during the first 15 years of production the government is expected to collect more than $3.1bn in tax revenues, the project will significantly increase the local government’s budget as well. This in turn will have its own ripple effect, spurring economic activity and development throughout the region.
Typhoon Meranti is just the latest tropical cyclone to wreak havoc around Southeast Asia, as Pacific typhoon seasons seem to grow year on year in intensity. How is the insurance industry coping? John B Echauz and Patricia Echauz-Chilip from Philippines’ Standard Insurance explain that with 14-20 typhoons each year, they’re very familiar with insuring against natural catastrophes. 1,200 people all over the Philippines ensure the company is available to offer a quick and compassionate response, while excellent risk mapping and the best reinsurance facility in the country ensure Standard Insurance’s success.
World Finance: Typhoon Meranti is just the latest tropical cyclone to wreak havoc around Southeast Asia, as Pacific typhoon seasons seem to grow year on year in intensity. How is the insurance industry coping? John B Echauz and Patricia Echauz-Chilip from Philippines’ Standard Insurance join me now.
Patricia: how is the insurance industry generally coping with these increasing catastrophes?
Patricia Echauz-Chilip: Do you know, in the Philippines we have about 14-20 typhoons a year. And then the archipelago sits on a web of faults. So we’re really familiar with nat-cat.
I think the industry, and the clients, are getting smarter every year. We learn with every single event. Every year we review the risks together with our clients, and we provide more cover if they need it.
They’re also very proactive already, about protecting their assets. They retrofit their structures, they rebuild on higher ground. And sometimes it’s as simple as parking your car out of the way of the flood.
World Finance: A lot of the time speaking with insurance providers, people are talking about client education. But it seems very general, just about the benefits of insurance. Whereas you’re actually really reaching out to be specific about how to mitigate risk.
Patricia Echauz-Chilip: Yeah – there’s a sense of urgency, because maybe for other places it’s one in every four hundred years. For us, for typhoons it’s every year.
We have about 1,200 people all over the Philippines, so we’re physically there to help process the whole thing. Sometimes people have lost their businesses, their homes, even members of their family. And we kind of hold their hands through the process of how to go about their insurance, and how we can help them. We think of ourselves as a part of the community, and we’re happy to help in any way.
John B Echauz: Today, thanks to GPS, thanks to the internet, thanks to good hazard maps, thanks to geodetic engineers, thanks to political will: we are able to map our risks very, very carefully. We can tell if this street is prone to flooding, while this street next to it is not. We can tell if this property is prone to ground shaking or ground rupturing, or if it is not. That makes all the difference.
So our book, actually, is managed at a very detailed level. Once we’re happy with the risk that we have, the book that we have, we make sure we have the right reinsurance for it. We believe we have the best reinsurance facility in the country, thanks to our reinsurance team, led by our group chairman, our father, who’s done a very good job protecting our book. We have the most reinsurance capacity vis-a-vis our property book, which also supports and protects our motor book.
World Finance: You’ve always been an innovative insurer; how are you keeping ahead of client expectations in terms of technology and service?
John B Echauz: There are many, many things going on. For example, we have our own core IT system, which is first class, it’s fantastic. We have our own catastrophe monitoring system. We have our own digital platform to serve customers, intermediaries, and our associates.
We have our own vehicle recycling facilities. We have good learning and development for all our associates. We have to make sure that as they age their future is with us. We have our own BPO facility that helps us serve our international markets. Of course our reinsurance facility, which is fantastic. All of these things we put together, to help us achieve that single objective: being able to produce a product that works and is affordable to the public.
World Finance: Obviously technology is transforming all industries; what kinds of new needs for insurance are you seeing come out?
Patricia Echauz-Chilip: Everybody’s travelling all the time, so we have a growing travel insurance book. We’re studying technology: how to cover things like Uber and Grabb. It’s not traditionally insured, so: how do you do that? So things like this.
We’ve always been a traditional motorcar insurer, but now we also do construction, because the Philippines is in the middle of a boom.
John B Echauz: We also have to be very thoughtful about how we chop up the markets. And each market has a particular way of working and thinking. For example, millenials. We’re only learning now how to work with them, because they think very differently! They don’t want to speak with anyone. They want things very simple. They have no patience for you if you can’t do a good job.
Patricia Echauz-Chilip: And they don’t aspire to own a car or own a home! So that’s a traditional thing that we insure, so it’s all experiential for them. We have to be able to figure out how to address them.
World Finance: Let’s talk about the international market; what’s Standard Insurance’s strategy there?
John B Echauz: They say that there is ASEAN integration. For those of you who are not from Southeast Asia, it’s just one region: Southeast Asia! Actually these countries have very little in common. The average Filipino will know almost nothing about the average Thai, Malaysian, Indonesian or Vietnamese person. They might be nearest to us, but culturally they are so different.
We are closer to the US in terms of thinking and ways of doing things. And in terms of international expansion we can do two things. One we do today already: we have our BPO business. We provide support services to insurers all over the world. And the second thing is, all of these things we’ve put together has given us a good platform. We actually have enough to go to the US and put up a small, low-cost operator, supported by our entire Philippine operations.
So I think there is potential to go out. But whatever happens we’ll maintain our culture. Our culture is very precious to us; our culture of compassion, loyalty, and fighting spirit. We think a certain way, and our group chairman, our father, said that, “When times are difficult, you can walk slower. When times are easy, you walk faster. But what’s important is that you never stop. Because after a certain time, you’ll find yourself some place good. And that the journey was worthwhile.”
That’s gotten us this far, and we think it’ll take us to the next step.
World Finance: Patricia, John, thank you so much.
John B Echauz, Patricia Echauz-Chilip: Thank you so much, Paul.
The issues of tax transparency and an increasingly complex world are making trusts and foundations more important for families to consider as part of their asset protection and succession planning. Many traditional providers of trust and foundation services are troubled by increased complexity and a growing need for tax compliance.
A number of bank-owned trust companies have been sold or scaled down, law firms and others operating smaller fiduciary services companies have been selling their businesses, and for many trust and foundation providers, there is serious concern about the future.
Trusts have had a long history, as has their civil law sibling, the foundation. While the two have many differences, they also have many similarities, and are broadly interchangeable vehicles that can be used by families to achieve a number of important objectives. Both are very flexible, but it is this flexibility that has contributed to misuses of trusts and foundations, particularly with regard to tax evasion and badly executed attempts at what was wrongly perceived as legal tax avoidance.
The recent move to tax transparency is not an attack on trusts and foundations, but rather an attack on any attempt to conceal income and assets that are legally required to be disclosed under tax laws applicable to those with relevant interests in the income and assets involved. There is no question that trusts and foundations are part of the new focus on how wealth owners structure their affairs, but for the well-advised wealth owner, it is more the case that trusts and foundations have to be considered as key tools in the wealth planning toolbox.
A rapidly changing world requires new ways of managing and navigating family wealth. For this challenge, we bring the right people to the table
To gain a better insight into trusts and foundations and the current role and challenges they face in the world, World Finance spoke to Philip Marcovici, Member of the Board at Kaiser Partner.
What can trusts and foundations achieve that other structures cannot easily replicate?
Both trusts and foundations offer families the ability to set out how they would like assets to be held and distributed in the long term. Structures can help to oversee family assets, with appropriate ‘checks and balances’ over trustees or foundation board members who take on the responsibility to look after things in a way that meets the needs of the family involved.
If a wealth owner has young children, and the wealth owner dies or becomes disabled, how can the wealth owner ensure his children will be properly looked after financially and the assets properly administered? If the children reach the age of 18, is it appropriate that they come into meaningful amounts of wealth? Is it important for someone to consider the intentions of the deceased or disabled wealth owner regarding how the assets should be administered and distributed?
Insurance structures, partnerships, corporate vehicles and other structures are all important elements of good wealth and succession planning. But it is not straightforward for these structures to provide the potential for long-term succession and asset protection planning that trusts and foundations can provide.
How do trusts and foundations work?
In very simple terms, there are four characteristics of trusts and foundations that are important to understand: these characteristics are revocable, irrevocable, fixed and discretionary. The settlor of a trust or the founder of a foundation is able to choose, when establishing the structure, whether to retain a right to ‘revoke’ or cancel the structure.
Being irrevocable does not mean the founder or settlor cannot be a potential beneficiary, but it does mean a clear right to cancel the structure and get the assets back does not exist. While it may be tempting to think it is always better to have a structure be revocable, this is not necessarily the case. If I am a founder or settlor, and am concerned about future lawsuits I may face, will the assets held in a trust or foundation be safer against claimants if I have a legal right to get the assets back, as opposed to an irrevocable structure, where I do not?
And is it better in the context of the wealth owner’s objectives for the trust or foundation to be fixed or discretionary? There is no single right answer, but the key is to understand the difference. If the structure is required to distribute to my child when he reaches the age of 25, my child is a beneficiary with a ‘fixed’ interest. If the trustee or foundation does not make the distribution, my son can sue to enforce his rights.
The opposite is where the structure is ‘discretionary’, meaning the trustee or foundation board does not have to distribute to my son when he reaches 25. I, as the settlor or founder, may have provided a ‘letter of wishes’ expressing my hope the trustee or foundation board would consider a distribution when my son reaches 25, but by leaving this in the discretion of the trustee or foundation board, my son does not have a legal right to force a distribution.
Is this good or bad? This depends: if my son is subject to a marital or other dispute, the assets may be significantly safer if my son does not have a legal right to the assets.
Good governance in trusts and foundations requires careful attention in overseeing the trustee or foundation board, and this is often achieved through the inclusion of a protector or guardian. A good trustee or foundation provider will provide wealth-owning families with clarity on the choices they have and help guide them through the many ‘what-ifs’ families should be asking themselves on an ongoing basis.
But what about tax and reporting?
The good news for wealth owners is that, in many countries, trusts and foundations are becoming increasingly understood, with the development of tax and reporting rules that clarify the tax treatment of trusts, and when and how interests in trusts need to be reported.
This is a good thing, as tax planning – which can still be achieved in legal and accepted ways using trusts and foundations – is only one of many needs of wealth-owning families: political risk; the destruction of wealth divorce claims give rise to; asset protection from creditor and other claims; succession and protection of the younger generation; ensuring assets are properly identified and administered; dealing with complex family relationships; holding special assets such as collectibles and businesses and much, much more can be addressed using well thought-out trusts and foundations.
Can you provide an example of why a trust or foundation may be a smart solution for a wealth owner?
A wealth owner considers giving a substantial gift to their daughter, who is in her 20s. Should this be a direct gift or a transfer to a trust or foundation for the daughter’s benefit?
If the daughter receives a gift of $10m, on the death of the wealth owner or before, what happens if her new husband comes up with a hare-brained business idea and tries to convince his wife to fund his business? What if there is a divorce? What if the daughter, on becoming a plastic surgeon, makes a mistake in the first surgery she performs? All or part of the money will be gone. What if the daughter moves to Canada or China or the US or to one of many other countries? She will be taxed on a worldwide basis on the income generated by investing the $10m, and if she dies and passes assets to her children, there may be tax at that time: in Canada, on the basis of a deemed disposition of assets, or in the US, under the estate tax rules of that country. And in the case of a country like China, ownership of the assets would also subject the daughter to exchange control and other rules.
If the daughter, instead, is a discretionary beneficiary of a trust or foundation established by her parent, the position may be transformed. If her husband has a good business idea, he cannot pressure his wife into supporting it. He needs to convince a professional trustee or foundation board that will be more able to say no – if saying no is the right decision.
Lawsuits against the daughter, for professional negligence, divorce or otherwise, will be difficult to enforce against assets in the trust or foundation if it was well structured and maintained. And in the tax area, Canada, the US and many other potential countries of residence are good examples of fully disclosed use of trusts and foundations that can permit significant tax savings. In both Canada and the US, appropriately structured trusts and foundations can permit beneficiaries to avoid taxation on both the earnings on assets held in the discretionary structure and on fully disclosed distributions. And assets that stay in trust or in the foundation can be held for further generations without exposure to taxes that arise on death and through gifts.
To say the least, 2016 has been a challenging year for Nigeria’s economy. With 70 percent of the nation’s revenue derived from oil, the commodity’s steep fall in price has led to a significant devaluation of the naira. Add to this a fall in foreign reserves and instability caused by the Boko Haram insurgency, and it is plain Nigeria has become a hard environment in which to do business.
Amid this economic uncertainty, Access Bank has been adopting innovative strategies to maintain its strong financial position and continue its growth. Access Bank was founded in 1988 and is now one of the five largest banks in Nigeria in terms of assets, loans deposits and branch network. Its position was significantly boosted in 2012 when it acquired International Commercial Bank, one of a number of banks that were failing government stress tests. This acquisition gave Access Bank the branch network and asset base to quickly become a major force in Nigerian banking.
To support the national economy, the bank has been partnering with the federal government on various programmes designed to uplift Nigeria’s non-oil industries. Another focus is on sustainability programmes, which the bank remains committed to despite the difficult economic climate.
With 70 percent of Nigeria’s revenue derived from oil, the commodity’s steep fall in price has led to a significant devaluation of the naira
World Finance had the opportunity to speak to Herbert Wigwe, Group Managing Director and Chief Executive Officer of Access Bank, about how these sustainability programmes are ensuring the future strength of the Nigerian banking sector.
How does Access Bank define sustainability?
At Access Bank, we appreciate the impact that environmental degradation has on the world we live in. Even though we are in business to make profit, we refuse to do so at the expense of our people and our planet.
We understand the projects and deals we finance could have a significant negative impact on our local communities. Our activities impact people’s livelihoods, the rivers, the soil, farmlands and even air quality. Sustainability to us is responsible business practices and community investment. Our work in sustainable development primarily focuses on health, arts, sports, education, gender empowerment and the environment.
How prevalent are sustainable approaches within your markets?
With the creation of the UN Sustainable Development Goals in September 2015, businesses and industries are challenged to drive agreed global objectives in their various communities. However, on a larger scale, the Nigerian banking industry’s attitude towards the adoption of sustainability is progressive and evolving. Many institutions are now showing commitment to sustainability as a strategy, practice or set of activities, offering opportunities to manage risks, explore opportunities and adapt to changing business.
For a successful and genuine commitment to sustainability, society at large has to provide an enabling environment in which it can thrive. Unfortunately, the Nigerian business environment – like most developing markets – is still characterised by an evolving structure. This in turn has implications for the success or failure of sustainability in banking operations.
Despite this, the launch of the Nigerian Sustainable Business Principles was a major step in the right direction. Even though there is room for improvement in creating an environment in which sustainability can thrive, the truly committed banks are seeking to create the change they desire.
Sustainability is often overlooked within challenging markets. Why is that?
Many companies have the misconception that the more sustainable they become, the more their efforts will work against their competitiveness. This pushes management executives to approach sustainability with reluctance, viewing it as an avoidable corporate social responsibility separated from business objectives. However, due to their intermediary role in the economy, banks hold a unique position and are therefore expected to approach sustainable development with a more proactive approach.
Sustainable businesses are ones that are able to ensure their future. They are able to cut down on energy and waste costs, which will in turn have a positive impact on their bottom lines. Ignoring the relevance and importance of sustainability is foolhardy.
Clients and investors are also drawn to sustainable businesses. If taken seriously and diligently enforced, the positive and profitable reputation for sustainable practices will grow.
What are the biggest challenges to maintaining a sustainable approach in a challenging market?
Sustainability should be firmly anchored in the business strategy and leadership structures of all organisations. However, embedding sustainability in a brand is usually ridden with various shortcomings and choked by several other pressing issues. This creates setbacks to advocating sustainability in business operations.
The challenges of embedding sustainability into business operations are diverse, ranging from the creation and definition of a business case for sustainability to the lack of standards and metrics for the measurement of sustainability. Furthermore, the motivation of management and employee engagement on sustainability issues remains low. With the lack of government policies supporting sustainability and the lack of understanding and support among consumers, advocating sustainability becomes an uphill battle. The lack of expertise for the credible implementation of sustainability initiatives and the need for better guidelines for engaging key stakeholders are also challenges.
At Access Bank, we recognise the sustainability journey is filled with challenges, and we believe that sustainability must be embedded into the fabric of any business that intends to contribute to economic development while achieving long-term success. Sustainability therefore remains at the core of our operations.
We have set up a sustainability committee at the executive management and board level, tasked with the responsibility of steering Access Bank’s sustainability strategy. The committee is responsible for the supervision of the bank’s sustainability activities. This includes monitoring performance and producing public reports of the bank’s sustainability projects.
Fulfilling a broader social, environmental and economic purpose does not mean looking away from profits. The significant impact of unsound banking practices on the economic health of many countries around the world is a salutary reminder of the responsibilities banks hold. Therefore, we at Access Bank have pledged to stand and advocate for sustainable business practices in our industry.
830,000
Access Bank’s number of shareholders
305
Branches in Nigeria
How have your various platforms helped to increase access to banking in Nigeria?
PayWithCapture was launched by Access Bank to solve issues of connectivity, intuition and diversity. It is a first in the sub-Saharan African payment space. It provides financial services anywhere and anytime, even without an internet connection.
The innovative app provides convenience and ease in accessing banking services for all individuals, whether they are customers of Access Bank or not. It also provides a solution that allows all types of devices, from smartphones to the simplest mobile devices, to access financial services utilising the USSD system. It is the ultimate mobile wallet that enables all types of diverse users to save, spend and invest their finances quickly and conveniently.
How important are innovative digital banking platforms in the Nigerian market?
In the Nigerian landscape, marketers and their clients are becoming aware of the fundamental effect and importance of digital banking. The leaders in digital banking are more client-centric, tech-savvy, inclusive and open to fundamental change to deliver the best results. In the past decade, digital banking has taken hold; most leading Nigerian banks have incorporated strong digital strategies into their system. These leaders understand the importance of mobility in a digital strategy. They are developing more agile operating models and, most notably, they have tackled the need for internal culture shifts.
First, as more customers use their mobile phones and tablets to do their banking, the mobile experience is becoming a crucial aspect of digital strategy that banks must address. Second, to keep up with the fast-changing technological market, Nigerian banks will have to adapt to newer, more innovative and more technologically advanced operating models. Top management-led innovation towards technological advancement and progression will lead the way to addressing market changes, becoming more agile, and improving openness to digitilisation in day-to-day business.
However, the digitilisation of retail banking is not a new development. Online solutions and services have existed since the turn of the century and have progressively led banking beyond mere multichannel strategies. In coming years, mobile use will become the epicentre of digital banking. Across Nigeria, transaction volumes from mobile devices are starting to take over all the other channels. It is therefore imperative that financial institutions strategise and embrace digital banking opportunities to advance with the world and changing trends in banking.
What changes can we expect to see in the Nigerian banking sector in the coming years?
As a result of the current economic crisis, raising the capital base of the banks has become a necessity. The need for this has become more imperative as capital ratios are under pressure from write-downs on credit products, downgrades of securities, as well as pressures to expand credit to the private sector, which requires banks to hold even more capital against potential losses.
Another trend that will result from the recent crisis will be the need to review the existing rules and laws relevant to the financial industry in Nigeria. In addition to all of this, it is also expected that the Nigerian banking sector will undergo a major shift towards more sophisticated, digitalised and modernised financial practices that will be customer-centric and efficiently sustainable, creating a more admirable banking industry and Nigerian economy.
The cloud of economic uncertainty over Malaysia has lifted, and with it the outlook for the country’s property market has taken on a whole new shape. A string of major infrastructure projects bodes well for both the commercial and residential sector, and stable incomes mean buyers are doing away with the wait-and-see approach that was so prevalent in the past.
Testament to its success in the property market, Mah Sing Group Berhad was recently selected as one of Macquarie’s top 10 picks for Malaysia. The report said: “Mah Sing is our top pick in the Malaysian property sector… Mah Sing has placed itself well in the market to capture the first homebuyers and upgrades at affordable pricing points. We believe, given the current property market conditions, Mah Sing will retain its exposure in the affordable segment in 2016 as this segment was seen to have better support from the buyers, especially in the Central Region.”
World Finance spoke to Tan Sri Dato’ Sri Leong Hoy Kum, Group Managing Director at Mah Sing Group Berhad, about Malaysia’s changed circumstances and the steps the company has taken to capitalise on this newfound sense of optimism.
Can you tell us about the property market in Malaysia and how Mah Sing has managed to maintain its market leadership position?
The competition among property developers here in Malaysia is very high, and this is a good thing. It is through healthy competition that we have been able to push ourselves to be better at what we do and to grow Mah Sing to where the company is today.
More than just building homes, we strive to provide innovative solutions to buyers looking to own their own homes
For the time being, Mah Sing will continue to focus on end-user demand for beginner homes, driven by a young demographic, continuing new household formation and stable labour market conditions. Our future sales pipeline includes the Meridin East township in Pasir Gudang, with affordable landed homes and Cerrado serviced apartments. While the group carefully times its launches to ensure products are in line with market demand, it also actively pursues sales from existing projects.
New growth corridors will benefit from ongoing and proposed major infrastructure projects such as the MRT [mass rapid transit], LRT [light rapid transit] and extension, and the proposed High Speed Rail.
What in your brand positioning makes you stand out from the competition?
At Mah Sing, our developments are known for their exceptional quality. When our buyers purchase one of our homes, they will likely stay in it for a considerable portion of their lives. As such, we ensure all of our developments are up to the mark when it comes to quality. Each of our developments goes through stringent quality assessments and we have also won numerous awards, which highlight our dedication in delivering quality homes. Nowadays, quality is no longer an extra: it is a given.
To maintain our position as a market leader, we are also highly committed to providing uncompromising customer experience. As a premier lifestyle developer, Mah Sing continues to ensure pleasant and memorable customer experiences at all points of contact – from handing over vacant possession, to managing customer feedback for continuous improvement in our products and services.
Our biggest asset is our people. Hence, it is a challenge to find talent. We want the cream of the crop to automatically have top-of-mind recall when they want to apply for a job in the property industry.
In your opinion, what was the biggest success in Mah Sing’s history?
Innovation is the key to the group’s success, and as a group we always look to offer something more to our buyers. We are proud of our Iconic Series developments, which have changed the Kuala Lumpur skyline. Mah Sing’s Iconic Series is a series of innovative developments known for their revolutionary design and exceptional quality. These properties have also enjoyed an excellent take-up rate. Our four Iconic Series developments include the Icon Tun Razak, the Icon Residence in Mont Kiara, M City in Jalan Ampang, and Icon City in Petaling Jaya.
More than just building homes, we strive to provide innovative solutions to buyers looking to own their own homes. We make this possible through our innovative campaigns, which offer different methods through which buyers can finance their homes.
How does Mah Sing stay on track with its overall plans and ensure its revenue is sustainable?
We are exploring land acquisition and joint venture opportunities. The group has approximately MYR 895.3m ($220m) in cash and bank balances, as well as a net gearing of 0.06 times compared to 0.09 in Q1 2016. As previously mentioned, the group’s remaining gross development value and unbilled sales can potentially support the company’s revenue growth for eight to nine years.
Further adding to the group’s cash position is the final stage billings, which amount to approximately MYR 446m ($110m) for the properties to be completed this year. Mah Sing has a key focus in Greater Kuala Lumpur and Klang Valley, as well as in Johor Bahru, Penang and states with strong economic prospects.
Mah Sing’s Cerrado Residential Suites Tower A achieved an impressive 100 percent take-up rate during its launch, with all 404 units of Tower A being taken up over a two-day period. The successful launch of Cerrado’s Tower A has seen Southville City lock in MYR 1.77bn ($432m) in just over two years. This follows the successful launch of Lakeville Residence’s Final Tower in Taman Wahyu, which attained a 92 percent take-up rate in August.
Mah Sing later launched Tower B of Ferringhi Residence 2. The first launched tower of the development opened up a total of 120 units for bookings. A total of 101 units were sold, which amounts to an 84 percent take-up rate.
The launch of Mah Sing Group’s largest township, Meridin East, saw the township’s double storey link homes, the Greenway, reach an impressive 85 percent take-up rate. Greenway comprises 492 units of double storey link homes priced from MYR 357,000 ($87,212).
What is the financial outlook for Mah Sing for the remainder of 2016?
Property is a cyclical industry; we support the market’s needs for affordable housing through our attractive pricing points, with 50 percent of 2016’s planned residential launches priced below MYR 500,000 ($122,146). Overall, 89 percent of our planned residential launches are priced below MYR 1m ($244,292), with 68 percent priced below MYR 700,000 ($171,000).
We are planning to further intensify our efforts in the coming months, and we are well positioned to reach a sales target of MYR 2.3bn ($560m) with our upcoming launches in the second half of 2016.
MYR 183.9m
Mah Sing Groups’s net profit in the first six months of 2016
MYR 27.5bn
Its remaining gross development value as of 30 June 2016
How does Mah Sing ensure it has the best minds and skills to stay ahead of economic trends?
Mah Sing is a market-driven developer. We go where the market is, and we strive to customise our product offerings to the needs of the market. Currently, our strategy is to focus on accessible, mass market housing in line with market demand and, as 89 percent of our planned residential launches are under the MYR 1m range and 50 percent are under MYR 500,000 ($122,146), we are primed to capture the market.
We also have a dedicated research team that conducts in-depth studies on what the market needs. The information we gather gives us the ability to identify and set new trends. Our product development team works with both international and local architects to design the product so that it appeals aesthetically and meets the needs of the buyers.
How do you inspire your employees to strive for excellence?
The description of a good leader is to be driven, passionate and disciplined. I have always emphasised to my team that change is constant and openness to change means constantly improving and learning new things.
I am proud to say that these are the traits my team practice. We are able to adapt quickly and constantly innovate our products to meet the market’s needs. At Mah Sing, we understand the significance of human capital to the group: we are committed to nurturing a diverse, versatile and dedicated talent pool for the growth and development of the group.
Various trainings are held to provide a platform for employees to discover and realise their full potential. In 2015, our employees had more than 27,000 training hours – a significant increase from 12,000 hours in 2014. We are also concerned about our team’s wellbeing, health and safety in and outside the workplace. Further to ensuring our workstations are conducive, Mah Sing Sports Club is taking the lead in encouraging a work-life balance with activities such as badminton, fitness classes, Skytrex Adventure and festive celebrations.
As a leader, what have you learned from your employees?
Along the years of building Mah Sing together with my team, we have learnt that life is about continuous learning and improvement. The world is constantly changing and, as a market-driven developer, we need to adapt to and stay ahead of the market. This commitment guides us in everything we do, and we strive to live up to our brand’s promise in building sustainable projects as part of a well-managed company.
What do you see the Mah Sing group achieving in the next 10 years?
I hope to see Mah Sing continue to grow and maintain its stature as one of the top developers in the country. We would like to continue our township development, niche industrial development and strategic commercial and mall development. Southville City is turning into the talk of the town and I hope to see it become the next major township in Malaysia. My ultimate goal is to see Mah Sing recognised as a world-class developer.
China’s aviation and tourism conglomerate HNA has purchased a 25 percent stake in the world’s largest hotel chain, Hilton Worldwide. In a statement released on October 24, the Chinese giant announced it had purchased the stake from Hilton’s biggest shareholder, Blackstone Group, for $6.5bn.
“We are pleased to welcome HNA Group as a long-term investor and strategic partner”, according to Hilton President and Chief Executive Christopher J Nassetta.
The Hilton deal marks HNA’s second hotel investment this year, as it aims to further tap into the profitable Chinese travel market
“We believe this mutually beneficial relationship will open new opportunities for our brands and guests around the world, particularly in light of HNA’s strong position in the fast-growing Chinese travel and tourism market, the largest outbound travel and tourism market in the world.”
As increasing numbers of Chinese citizens are travelling abroad, Chinese companies have been looking to invest in tourism-related industries overseas. The Hilton deal marks HNA’s second hotel investment this year, as it aims to further tap into the profitable Chinese travel market. In April, the conglomerate announced it had agreed to acquire Carlson Hotels for an undisclosed sum, thus expanding its hotel portfolio in Europe, the Middle East and Africa, where Carlson successfully operates.
The deal between HNA and Hilton marks another significant acquisition for China, in what has been a record year of foreign spending for the nation. As growth at home has slowed, Chinese companies have increasingly looked to invest in overseas acquisitions. HNA’s investment in Hilton takes China’s spending on foreign deals in 2016 to $191bn, far surpassing 2015’s record of $105.7bn.
As one of China’s leading aviation and tourism companies, HNA has emerged as one of the nation’s most prominent investors in overseas mergers and acquisitions. According to Reuters, the company has announced around $20bn in foreign deals so far in 2016. Aside from hotel investments, the company has also looked to expand its logistics operations, acquiring the electronics distributor Ingram Micro for $6bn in February of this year.
As HNA continues with its ambitious overseas investment programme, the rapidly expanding company looks set to develop further revenue streams from Chinese tourism. With the conglomerate already generating $30bn in annual revenues, such strategic investments will surely see the tourism giant enjoy continued financial success.
The new government demonstrated its rational approach to economic policy when it formed the financial regulatory department, which plays a secretarial role for the newly restructured Insurance Business Regulatory Board under the Ministry of Finance. The members of the new regulatory board are now an amalgamation of retired insurance officials who are working in private insurance companies, people holding high academic degrees in insurance, and also government officials from the auditor general office and other departments. This certainly shows the current government is taking meticulous steps to support all the sectors with existing subject knowledge and the right kind of local expertise.
