Asia attractive to major players

IN THE PHOTOGRAPH: (from left) LIAM president Md Adnan Md Zain, Kerzner, Bank Negara Malaysia assistant governor YBhg Dato' Muhammad Ibrahim and Malaysian Host Committee chairman Ng Lian Lu at the 17th Limra/Loma Strategic Issues Conference held in Kuala Lumpur recently

By Alfean Hardy
Asia's relatively young and large population and its growing middle class have made the region an attractive venture for many North American and European life insurance companies looking for opportunities amidst the current economic downturn, Limra, Loma and LL Global Inc president and chief executive officer Robert Kerzner said.
Limra is an association that provides research, consulting and other services to the insurance and financial services sectors. Loma is an international association of insurance and financial services companies. LL Global is their parent organisation.
In his speech at the 17th Limra/Loma Strategic Issues Conference held in Kuala Lumpur recently, Kerzner said, over the last few weeks, capital has once again begun to flow and US firms like Prudential Financial and Metropolitan Life Insurance Co have been raising capital via stock and/or debt offerings, which he sees will help fuel future growth in the global insurance sector. As the sector transforms, he said many firms will begin to decide in which market and country they would want to play.
"Many will look to Asia. What we're seeing worldwide, major players are pulling out of some major green field markets and are choosing to play much harder in others. And it's clear that the growth of the next decade is clearly much more focussed in Asia than the US or Western Europe," he added.
Kerzner said, with the renewed capital within the system, many chief executive officers of major US companies have expressed an intent to make use of the global financial crisis to gain ground and grow market share over their competitors.
"In the US, 79% of chief financial officers (CFOs) say they want to buy life (insurance) companies and 75% want to buy the group operations.
"At the same time, they have their eyes clearly on Asia. Prudential has already bought one company in Japan and is rumoured to be looking at others. At the same time, the president of Metropolitan said he would sleep better at night if they owned another asset in Japan," he added. Speaking to reporters later, Kerzner said Asia's large population and not as mature markets meant there were more opportunities to sell a whole array of products.
"In many Asian countries, you have an ageing population and, there by all accounts, there's simply been not enough money saved for retirement, and this was prior to the crisis," he said.
"Also, Asia has many who are coming into the new middle market of having more assets and your economy is growing wealth at a faster pace and so there's a broad need for more products that life insurance companies have. When you look at the demographics across Asia, over time, the outlook is optimistic," he added.
All countries within Asia, Kerzner said, are attractive. "Japan is mentioned more often because, for some of the western companies have a better understanding of the Japanese economy and there's a more immediate need for retirement products (given its large ageing population) there," he said.
"But I think you're going to see the Europeans, in particular, and the North Americans look broadly within Asia. "When I talked about green field operations of the Europeans being closed down, that may mean more focus is given here in the Asian countries and choose to be a fierce competitor in the markets that they've decided are crucial.
"Also, there's also a history that shows that, when one or two of these (Asian expansions) are announced, then others will feel the need to get in before it's too late. "You could see, over the next year, as capital frees up and companies look to where they really want to expand strategically, then you will see Asia becoming a focus again," he added.
Kerzner said regulatory restrictions and competition would not be major hurdles for western life insurance companies venturing into Asia as many of these firms have already operated in regulated industries in the west.
"The major barrier to entry is culture and really understanding what's crucial within each individual Asian country," he said.
"If you look at history, many have entered the US and Western European markets, that's because that's where there's been a great deal of wealth. "I think companies have traditionally looked at where the needs are the greatest but where's the most activity versus longer-term involvements in countries that will be slower to grow.
"I also think, if you look at Asia, the companies that have done well in Asia for many years, particularly those not based within the Asia region have a stong base in (Asian) countries and, as the country grew, they grew as well.
"So, I believe the new entrants will tend to sometimes look for the more matured markets but those who look for a long-term view will look at the more emerging markets and take more of a five, 10, 15-years view," he added. Kerzner said it had been the European global players that have had the broadest reach worldwide.
"I can't comment on specific companies but if you look at announcements made last week in China and Taiwan, you are seeing and will see many, many more deals being announced or at least companies buying lines of businesses and licenses to expand and leave open opportunities for the future," he added

(This story appeared in The Malaysian Reserve on June 24, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, appearing on alternate Wednesdays)

BNM: Trust and growth essential for insurance sector

By Alfean Hardy
Bank Negara Malaysia has identified four priorities that insurers should adopt and is itself undertaking more measures in the pipeline to insure the growth, and the public trust and confidence in the insurance sector, its Assistant Governor Datuk Muhammad Ibrahim said.
"The first area of priority is ensuring strong capital buffers and sound risk management by insurers. The second area of priority concerns the management of financial risks by insurers," he told delegates in his keynote address at the recent LOMA/LIMRA Strategic Issues Conference in Kuala Lumpur
"Thirdly, there is also a need for more uniform global approaches to the effective regulation of reinsurance activities. Fourthly, as part of the financial system, a key imperative for insurers is re-building the confidence of retail investors and consumers in financial institutions," he added. Muhammad said the recent decades had indicated that the significance of the insurance industry to financial stability has become more pronounced and the adoption of core fundamentals essential.
"Insurance and reinsurance companies have become an important and growing class of financial market participants," he said.
"The involvement of the insurance industry in the capital markets has both deepened and broadened substantially (and), from being important investors, insurers and reinsurers have evolved to become important intermediaries in a broad range of financial markets," he added.
Muhammad said recent problems indicated that the lines between the insurance and banking sectors had become more blurred amd that unregulated activities and failure in internal risk management of a large global insurance group could adversely affect derivatives, and bank counterparties in creditrisk transfer transactions on a scale that had led to unprecedented market failure.
"As an integral and important component of the financial system, building the resilience of the insurance industry is therefore, critical. Unless adequate attention is directed towards promoting resilience in all of the core components of the financial system, efforts to preserve financial stability and prevent the occurrence of a future financial crisis and its consequences would be jeopardised," he added.
Muhammad said achieving more meaningful and consistent protection for consumers was also critical to rebuild confidence. To that extent, he said that in July 2009, all licensed local insurers and takaful operators would be required to comply fully with its guidelines on the introduction of new products.
"A large part of the Guidelines is devoted to addressing the responsibilities of the operators towards consumers in ensuring that the needs and rights of consumers are respected, and that consumers are clearly and fully informed of the nature and risks associated with the products," he added.
Muhammad said the local industry was undergoing a transformation that would provide a strong foundation for a more resilient and competitive industry. He said that the introduction of the risk-based capital framework and other initiatives were part of a broader move to introduce a regulatory regime that would allow greater flexibility to insurers under a rigorous internal supervisory and oversight framework.
"These developments will create opportunities for insurers to build financial solidity, restore consumer confidence and respond proactively to changing consumer needs in a more uncertain environment. Later this year, the bank will also consult the industry on risk management standards that insurers are expected to observe as part of this evolution.
"The priorities of the industry should be equally weighed between preserving the inherent strengths and original purpose of insurance, while committing to meaningful change that is needed to secure long-term viability and contribute to financial stability," he added.

(This story appeared in The Malaysian Reserve on June 24, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, appearing on alternate Wednesdays)

Life insurers urged to focus on fundamentals to ride out storm

By Alfean Hardy
The Life Insurance Association of Malaysia (LIAM) is calling upon the life insurance sector to remain focussed on the industry's key fundamentals in order to ride out the global financial crisis and its president, Md Adnan Md Zain, is predicting single digit growth for the sector in spite of the current economic climate.
In a speech at the 17th Strategic Issues Conference in Kuala Lumpur yesterday, Md Adnan said 2008 had been a challenging year for the indusry, given a global financial turmoil that has been considered the worst since the Great Depression of the 1930s.
"Nevertheless, there are always sliver linings that will appear with untapped business opportunities, multiplied with unexpected growth possibilities. By focussing on key fundamentals, including sound risk management, highly prudential and regulatory standards, and strong corporate governance, we are confident that we'll be able to ride out this stormy crisis," he added.
Speaking to reporters later, Md Adnan said that the country had benefited from steps undertaken by the authorities, like the adoption of the risk-based capital framework in January 2009, which aimed to create a strong risk management structure.
"Players are now more mindful that of ensuring that they put in place good processes and proper management practices to be able to bring out strengths in various areas for the betterment of themselves and their policyholders and, that in itself, will make the players perform at far higher standards," he added.
Md Adnan, who is also the chief executive officer of MCIS Zurich, said the life insurance sector has also been helped by a public at large that has come to a great understanding on the importance of life insurance in their lifes, barring investment-linked products.
"Even as we speak, the economic situation is the one that is not encouraging. Yet, there's still growth in the life insurance industry. Perhaps, because of the investment climate, investmentlinked products may not be featuring very well in terms of growth but the traditional life insurance is still showing good developments. People are still buying insurance. That clearly shows the knowledge, the awareness and people are recognising the importance of life insurance, both in terms of protection as well as savings. Medical is also another area that is shifting up well. And, for a country like ours, these are areas that will really see more growth opportunities with the growing population and the understanding of needs of people protecting themselves. Medical costs are also increasing and people have become more conscious of the good of insurance to provide them with a good position to provide for themselves and their families through insurance coverage," he added.
Md Adnan said, to question about growth forecast for the sector this year was his personal view that the life insurance sector would see single digit growth this year.
"We have been having some double digit growth in the past. You will see growth but it will be single digit growth," he said. "For traditional life insurance, growth is fairing much better. but investment linked is slowing down. It's cyclical and with the measures being undertaken by the authorities, in ensuring the stability of the economy, it's a matter of time that you will find the positive changes taking place and that will again bring back the confidence in the investmentlinked segment," he added.

(This story appeared in The Malaysian Reserve on June 23, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, appearing on alternate Wednesdays)