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Strategies of international insurance companies to shape emerging markets

Strategies of international insurance companies to shape emerging markets. Hannes S. Chopra CEO ROSNO Representative Allianz SE in CIS Executive vice-president Allianz SE Moscow, 2007. Emerging Markets – High Risks or Great Opportunities. Market entry – Allianz Success Stories. Summary.

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Strategies of international insurance companies to shape emerging markets

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  1. Strategies of international insurance companies to shape emerging markets Hannes S. Chopra CEO ROSNO Representative Allianz SE in CIS Executive vice-president Allianz SE Moscow, 2007

  2. Emerging Markets – High Risks or Great Opportunities Market entry – Allianz Success Stories Summary

  3. Markets Growth Rates (GAGR 2006 – 2004)* Emerging Markets (CIS, India, China, Brazil, etc.): key growth markets and very attractive for global insurers… Emerging/Pre-Emerging Markets Mature Markets 42% 27% Russia* USA 2,2% 3% 45% 19% Western Europe 15% India 3,3% 22.5% Japan 19.5% China -3,7% -3,6% L/H P/C *Source: Sigma Reports, AZ Data For Russia – real market, P/C/H and L

  4. Core Growth Markets at a Glance, 2007 Russia • Population 141 m • GDP (EUR): 755 bn • GDP per Capita (EUR): 5,305 • Inflation: 9% • Insurance Market (EUR): 9 bn • Insurance Penetration: P/C/H = 1.1%, L = 0% • Increasingly active role of insurance regulator • Foreign insurers’ share in aggregated charter capital must not exceed 25% (cur. – about 7%) • Stricter solvency rules for insurance companies since July 2007 • Expected liberalization after WTO entry India • Population 1,129 m • GDP (EUR): 613 bn • GDP per Capita (EUR): 555 • Inflation: 5% • Insurance Market (EUR): 11 bn • Insurance Penetration: P/C = 0.7%, L/H = 2.5% • Restrictions for foreign insurers: Shareholding in Indian JV limited to 26% • Licensed insurers can operate across India with no geographical restriction • Major changes to be expected: Increasing the foreign insurers limit to 49% in JV companies China • Restrictions for foreign insurers: for Life JV – maximum stake of foreign shareholder is 50%. No such limit for P/C • Foreign P/C branches in China can be transformed to “wholly foreign-owned” companies since 2004 • Foreign P/C companies are not allowed to write compulsory automobile liability insurance which is 70% of total market • Population 1,314 m • GDP (EUR): 2,039 bn • GDP per Capita (EUR): 1,552 • Inflation: 1.5% • Insurance Market (EUR): 55 bn • Insurance Penetration: P/C = 0.8%,L/H = 1.9%

  5. Entering emerging markets may be thus described as follows “If You Can’t Stand the Heat, Get out of the Kitchen!” OPPORTUNITIES RISKS • Political instability • Legislative framework • Uncertainty about the future – need of flexibility in long-term strategy • Level of transparency • Financial instability • High Economic Growth • Low barriers to entry • Rapid capitalization growth • High Return on Investments • Learning Curve – Customer Patterns Fluid • Lower costs, higher Profits

  6. Emerging Markets – High Risks or Great Opportunities Market entry – Allianz Success Stories Summary

  7. 19% Growth Markets: Where Do We stand? 9m’ 07 7,9 2 7,9 4,8 3,1 61% 39% * All Figures for 3Q 2007 Including non-consolidated OEs (Thailand, India, ROSNO, Hana Korea, Pakistan), 2006 Figure

  8. Allianz Strategy – Being in the Right Markets at the Right Time Penetration (total premiums as % of GDP) 14 Mature, mixed growth 12 Japan Taiwan Korea 10 High growth Australia 8 Hong Kong Singapore Malaysia 6 Czech Republic Ukraine Thailand China Russia Slovakia 4 India Immature Hungary Bulgaria Poland 2 Romania Kazakhstan Indonesia 0 100 1,000 10,000 100,000 -2 Capacity (GDP/capita in USD) CIS Source: Dresdner Bank, Swiss Re Sigma, Deutsche Bank New Europe Asia-Pacific

  9. Allianz Poland – Among the Champions : Greenfield + Further Acquisitions Success Story #1 Allianz Poland Allianz Insurance Company Allianz Pension Fund AZ Investment Fund Allianz Life Insurance Key Facts : 1996 – established as Allianz AG subsidiary (Greenfield scenario) 1997 – start of operations 1999 – Allianz Pension Fund was established and started operations 1999 – Allianz AG together with UniCredito Italiano bought a major stake in Pekao SA bank – the greatest transaction with a foreign investor 1999 – Merger between Allianz Polska and AGF Polska – the greatest merger in the Polish history 2006 - №4 Non-Lifeand №6 Life Insurance Company on the market Success Drivers: • Efficiency: Strict cost control • Distribution: Focus on own branch network and AZ exclusive brokers • Value chain: Acquisition of Pekao SA bank

  10. Bajaj Allianz Life India: Focus on Aggressive Distribution Success Story #2 2002 2003 2004 2005 2006 2001 #4 among 11 #5 among 12 #5 among 14 #6 among 14 #3 among 15* #1 among 15* Success Drivers: Major Actions Performed: • Rapid increase of distribution network: agents and sales offices. • 2005 2006 • Agents 4 500 108 000 • UM 2 000 5 700 • Offices 110 450 • Market Share 4.5% 7.6% • Open offices not only in major cities (top-100), but in secondary level cities (top-300). • Unit link products were introduced to the market, while the other market players provided only endowment products • To be present everywhere: not only big cities, but smaller ones • To be simple in products range: to concentrate on the fast growing segments and most popular products within those segments • To introduce new products to the market – both interesting for customer and profitable for the Company – “unit link” *Among private companies. LICI (Life Insurance Corporation of India) is the govt. owned Company which had around 68% of market share. Private companies together account for 32%

  11. Allianz Life China: Hard to Enter, Quick to Grow - with a Strong Local Partner Success Story #3 Entry path: • First subsidiary established • Restart of insurance market after reopening the People’s Insurance Company, PICC in 1978 - Second touch down of Allianz immediately after reopening of PICC • Next 15 years of numerous mutual visits, seminars, work-shops • Representative offices opened in Beijing, Shanghai and Guangzhou • Intensive lobbing at all levels (political, business associations, etc.) • Know-how provision and “promotion trips” to Germany. • Harmonizing of German/Chinese political tensions. • Involvement of numerous German and Chinese state leaders. • Partner search and JV negotiations. • Life operations of Allianz started • Chinese WTO negotiations: expansion of foreign insurers stopped • Start active Life operations through joint-venture with CITIC Trust and Investment Company. Start Non-Life operations in parallel. • Partnership with ICBC (Industrial and commercial Bank of China, AZ acquires a 2.5% share in ICB) on bancassurance lead to significant growth of premiums: 52% of total life policies sales were sales through ICBC in 2006. GPW (EURO m) 1917 4 times growth! 1978 1978-1993 1994 1994 - 1998 Success Drivers: 1998 • To lobby the insurance market development among local authorities • To become the provider of Insurance industry knowledge and Know-How to the market • To expand operations on related markets: banking, asset management • To set-up a Partnership with strong local Partner 1999-2001 2003 2006

  12. HUNGARY: How to make an Acquisition Successful? Success Story #4 1991 - 1993 1995 - 1998 1994 1999 - 2006 1990 • Market segmentation and Risk-Based Tariffs • Strong IT Support:WEB-based platform was implemented in 2002 • Best-in-Class Customer Service • Value chain development: in 2006 Allianz Bank was set-up: 25 thnd clients, 18 thnd bank accounts already • Start of the Life Insurance • Establishment of two pension funds • 100% ownership of AZAG The State sold in a privatization tender the 49% of the shares of Hungaria Biztosito to the Allianz AG Break-even in profitability Turnaround of the motor portfolio – 60% of total GPW • Sustainable EVA • Dividend Payment from 2001 GPW 2006 = €672 mio, Market Share = 25.6%, Market Position #1 Success Drivers:

  13. Market segmentation Strong branding Aggressive regional development and agents network build up M&A Allianz in Russia: Aggressive Profitable Growth Success Story #5 2007 2001 2004 2005 2006 1991 ROSNO-Ukraine established Allianz becomes a shareholder of ROSNO together with AFK Sistema and owns 45% of the company Allianz-ROSNO Asset Management and Allianz-ROSNO Life established Allianz acquired additional 49% stake in ROSNO and 100% stake in Progress-Garant Acquisition of Medexpress – VMI specialized company Allianz Russia representative office establishment Success Factors: ROSNO Group performance, GPW (USD m) and Market Share (%) • Key achievements: • GPW grew almost 6 times in 6 years (2001-2006) – from $118 mn in 2001 up to $787 mn in 2006 • Number of points-of-sales, offices and agencies more than doubled – from 382 in 2005 up to 813 in 2006 • Number of effective agents more than doubled – from 923 in 2005 up to 2079 in 2006 • ROSNO increased its market share in OMTPL more than 1,5 times keeping loss ratio 1,5 times lower than that of competitors

  14. Protection Allianz in Russia and CIS now: Facts • TOP-3 on Russian real insurance market • Best-in-class Customer service provider GPW Breakdown 2006 • GPW $962.2m • AuM $479m • PAT $32m Figures 2006 Performance Provision PAT Breakdown 2006 VMI Kazakhstan rep. office

  15. Regions Regions Moscow Moscow Well diversified presence in Russia GPW 2006 (in EUR m) Allianz Russia NL 28 • more than 8,500 agents • more than 100 branchesand 1,100 points of sales Progress-Garant (PG) ROSNO 424 Sales Moscow vs. Regions Moscow &Moscow region Progress-Garant (%) SeveroZapadnaya VolgoViatskaya DalneVostochnaya Centralnaya ROSNO (%) ZapadnoSibirskaya SredneVolgskaya VostochnoSibirskaya Uralskaya SredneSibirskaya Yugno Volgskaya Allianz expands its distribution network with clear focus onregional development and retail

  16. Russia GDP 2006population CIS1 Regional growth potential. Regional expansion is the main priority in CIS Moscow EUR 124bn10.4m Russia St. Petersburg Tatarstan EUR 24bn4.7m EUR 13bn3.8m Sverdlovsk EUR 13bn Tymen EUR 28bn9.7m Belarus EUR 59bn3.3m EUR 80bn46.5m Ukraine Kazakhstan rep. office EUR 58bn15.4m Kazakhstan Moldovia Kyrgyzstan Georgia Tajikstan Armenia Uzbekistan EUR 15bn8.5m EUR 12bn27m Azerbaijan Turkmenistan Allianz is growing in main economic centers. 1) CIS = Commonwealth of Independent States 2) 2006 3) 2002

  17. Emerging Markets – High Risks or Great Opportunities Market entry – Allianz Success Stories Summary

  18. Greenfield? Acquisition + Greenfield? Efficient Ways of Market Entry: Analyzing the Pros and Cons… Strategy Pros Cons • Internal Standardsimplementation from the first day • Transparent financial and quality control from the first day • No re-branding issue • High level ofmarket consolidationby major players– additional barriers to achieve TOP position • Licensing periodmay require significant time • Risk of loss of the growing market benefits Poland, Czech Republic, Ukraine, China, India Suitable for the long-term investments, and the new segments where the other market players do not have enough experience and knowledge • Close-knit teamof professionals • Market knowledge and client relations • Regional coveragefrom the first day • Strong position on the market from the first day • Few available targets on the market • New standards implementationmay take time and face the existing management reluctance • Re-Brandingissue may take several years and involve significant costs Acquisition? (control stake) Hungary, Bulgaria, Croatia Suitable for the cases when: 1) market structure and internal rules and standards are already settled up; 2) local market players have strong positions and customer trust; 3)decision to enter the market quickly and obtain a strong market position is taken; 4) good targets for acquisition are available • Ideal on growing markets • Provides an opportunity to obtain all the benefits from both Acquisition + Greenfield • Greenfield is generally applied for new market segments, where the local experience is low, e.g. Life Insurance. • Acquisition is more suitable for those market segments where local players are strong and competitive, e.g. – Non-Life Insurance. Slovak Republic, Romania, Russia

  19. Efficient ways of Companies management: + Wide distribution Efficient Business Processes TOM • Business Steering/Central Functions • Technical Product Provision (TPP) • Sales/ • Distribu-tion • Marketing/ • CRM • Processing * AZ NEW Europe and AZ Asia Pacific Target operating model! Multi-sales channel approach!

  20. Allianz shaping emerging markets… Russia • #3 on the market • Major acquisition on Russian insurance market • New standards of insurance: new products, new customer service standards Hungary • #1 on the market • Customer value-chain fulfillment. Allianz-Bank • Strong IT solutions India • #2 on the market • Aggressive distribution approach • Customer focus approach in products: give to the market, what market needs …and using the synergies Allianz Direct: Shared Services Center: + + + Joint Financial services center (accounting) for Allianz Polska, Allianz Zagreb and Allianz Tiriac Joint WEB platform of Allianz Polska and Allianz Pojistovna (Czech Rep.) for Motor insurance sale Same operating structure (TOM) for all companies of the Group

  21. Thank you!

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