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Royal Crown Insurance Company was incorporated as a private Cypriot insurance company in 1999, and every year since we have printed annual diaries to be given as New Year gifts to clients and associates. Certainly not an uncommon company practice. What distinguishes the Royal Crown diary is that a theme is selected each year that reflects and enhances current events or concerns, whether it is political, cultural, financial or even religious. Our inspired creative team works hard to create a unique journal each year. By now our diaries have become cult and are sought after by Royal Crown’s friends and others besides.
Selecting our diary subject for 2015 was easy, as recent developments on our island bore the need to place our homeland at the forefront of our very first activity for the new year. Cyprus is going through some of the hardest times in its history, and so the need for harmony and cohesion are more important than ever before. As such, even a tiny corporate gift can inspire a feeling of patriotism.
The good news is that, being a small economy, Cyprus has proved more resilient than people have expected
Troubled past
A quick run through of the history of Cyprus shows that it has hardly ever found peace. Its geographical position – right in the crossing of three continents – has always rendered it a target for conquerors. Its modern history begins in 1960 when it was declared an independent republic, but bliss lasted merely a couple of years before the divergence in the wants and needs of the Greek and Turkish communities became apparent – each too emotionally bonded to their respective mother countries to sustain a peaceful coexistence.
Various commotions took place and the founding constitution was impugned. A coup d’état against President Makarios III within a week led to the Turkish invasion of 1974, which resulted in the occupation of 37 percent of Cyprian land by the Turkish army.
This past year marked the 40th anniversary of this division, as well 40 years of failed discussions and negotiation for a fair and viable settlement of what is now rightfully named ‘The Cyprus problem’. Our capital, Nicosia, remains the last divided capital in Europe, while reunification efforts are at a standstill with the prospect of permanent partition looming in the background.
There was little in way of respite last year, with 2014 an annus horribilis for the country due to its economic troubles. In March 2013, Cyprus became the fifth country in the single-currency area to seek rescue by the European stability mechanism. A huge fiscal deficit, together with an ailing banking sector largely dependent on emergency liquidity assistance from the European Central Bank, placed the country very close to bankruptcy.
The terms of the European creditors’ bail-out included not just the usual demands for austerity measures and significant reforms, but also a shocking banking ‘bail-in’ – a deposit haircut so that uninsured depositors would absorb bank losses for our banks recapitalisation. The country’s second-largest bank was dissolved and absorbed into the largest bank, banks were closed for two weeks and capital movement control measures were implemented. Everyone held their breath on the devastating effect this would have.
Long road to recovery
A year and half later, the economy is suffering but is no longer in intensive care. The good news is that, being a small economy, Cyprus has proved more resilient than people have expected. The reforms applied by the government regarding fiscal policies are steadily showing positive results. Rating agencies have been upgrading our prospects and our banks have passed the ECB stress tests. Cyprus has been able to re-enter the international capital markets quicker than expected, and generally the outlook for the economy is positive, rebutting various projections to the contrary.
Of course, for the average financially desolate person or company, the country’s good performance and adherence to the memorandum of understanding has made no difference. We have unfortunately seen various small to medium-sized enterprises (SMEs) having to close down or severely reduce expenses.
The unemployment levels are still depressing, especially among young graduates, and a large number of our people have to depend on community groceries and other charities for their everyday needs. The continuing uncertainty around the banking sector means that growth cannot be changed in the near future. Most importantly, there are quite a few challenges to be met before we can exit the three-year programme that has imposed stringent austerity and restructuring reform measures. Each tranche of aid depends on performance evaluations by the Troika delegates.
Furthermore, due to a foreclosure bills saga, one tranche of the bailout was withheld. The foreclosure laws may or may not be effective in tackling the matter of our mounting non-performing loans, a vital step in the stabilisation of the banking sector. Two other huge areas we have to handle to the satisfaction of our lenders, and which have already stirred political mayhem inwards are the formation of a long overdue national health system and the privitisation of semi-governmental organisations.
Even though we have won plaudits for the economic reforms already in place, we are well aware that a consensus should be achieved between political parties in order to avoid delay in the approval from Troika of the framework for these highly significant reforms.
Certain sectors of the economy are struggling, but thankfully there were no substantial negative effects in others areas, making our business environment seem less gloomy. The tourism industry is still going strong, as Cyprus is, despite everything, still rightly regarded as an attractive holiday destination. Our services sector, the one that had established Cyprus as a business services centre and directly led to it being declared a small economic miracle in the years after the island division, is still the most active.
Law and accounting firms are still extremely busy. Company formation, tax planning, trusts, foreign exchange trading and fund administration are all strong segments of the business services industry and the country has continued to attract and retain business regardless of the downturn. Foreign investors have found opportunities at this time, and plans are in place for the development of large projects, such as luxury resorts, golf courses and the like. Last but not least, we should mention the prospect of Cyprus as a natural gas exporter in the future, as recent drilling off our shores has located evidence of enough reserves to allow us to hope.
Impressive endurance
The insurance industry did not escape unscathed from the economic turmoil, even though insurance companies’ deposits suffered a lower haircut rate than all others and fortunately all of them managed to retain the required solvency margins and comply with the upcoming Solvency II Directive requirements.
However, decreases in wages, the people’s financial troubles and overall financial conservatism adversely affected most insurance companies’ results during 2013-14. On the other hand, the insurance product remains a commodity, as people want to avoid further potential financial hardship caused by unexpected events – meaning that our industry is quite busy and active and has an important role to play both in the economic and social sense.
The industry has been demonstrating impressive endurance, proving it is built on healthy foundations. It has continued to fulfill its obligations adequately and has provided liquidity to the market at times of financial hardship. Several people took the opportunity to cash in on their life policies enabling them to unburden somewhat from the haircut. Moreover, the insurance industry contributed to growth and social cohesion as it provides security to troubled SMEs and families. It is also preparing to play a significant part in the development and implementation of the national health system, thereby confirming the industry’s bold presence in the social structure.
In times of crises, and need for holistic restructuring of a country’s economy, it is important to take a step back and turn inwards, towards our home. We are going through critical times on this island, in political, financial and social terms and the need to prepare and secure is prominent. Just like innovative artistic and cultural activities are popping up, for the purpose of motivation and encouragement for a restart, the financial sector, which includes the insurance industry, should become creative, and discover new roads in protection and security for the people of Cyprus.
It is often said that the backbone of the Cypriot economy is our SMEs, which are often formed and run by families. We are doing our bit for struggling family businesses to stay afloat. In business terms, we wish to adopt a simpler way of underwriting insurance – back to basics. We try to move away from rigid contracts and into more flexible arrangements And while operating within very strict practical specification within our ISO certification and enjoying the support of some of the most financially robust European reinsurance companies, building long-term relationships with them based on trust and good faith, we retain our human, traditional, old-fashioned Cypriot face. Honesty, transparency, integrity and fairness, and for 2015, a very pure sense of affection for our country, its turmoil, the people and their hardships, will be guiding us towards fulfilling our corporate responsibility.
