Navigating the insurance maze
Growth slowdown necessary process for the economy, says AIA president
Stretching along the west bank of the Huangpu River that divides Shanghai into two parts, the Bund is not just the city’s top scenic draw, but a symbol of its global reach and international orientation. Once part of a British concession, the 1.5-km long narrow strip of land used to house foreign banks, financial institutions and trading houses from countries like the United Kingdom, France and the United States. But there is one building that stands out from the others.
Standing on No 17 in the Bund is the AIA tower, a modern construction in Renaissance style built in 1921. Between 1928 and 1947, it housed the offices of the American International Group, founded by Cornelius Vander Starr in Shanghai in 1919, and the parent company of the AIA Group.
Though most people would consider AIA an American company, the GroupChief Executive andPresident Mark Tucker strongly disagrees.
“The AIA story is verymuchaChina success story. Significantly for AIA, we are effectively a Chinese company,” the 56-year-old Tucker told China Daily.
“Our deep-rooted connection with China is a heritage that we have always treasured and this sense of alignment has increased since we became a Hong Kongheadquartered and independently listed company in 2010.”
With operations in 17 markets in the Asia-Pacific region and total assets of $159 billion as of May 31 this year, AIA is now the largest independent and listed pan-Asian life-insurance group.
This week, the company’s board met for the firsttimeinShanghaiand the Chinese mainland since its listing, highlighting its continued confidence in China’s growth. The recent slowdown, Tucker said, is more of a “necessary transition” for China to move toward quality growth.
“It’s a necessary transition to move more to qualitative, more to productivity and efficiency, which we believe is absolutely the right thing, and absolutely the right timing,” he said.
“We don’t think in one or two years, we think in five, 10, 15, or 25 years,” Tucker said. “Today, China is an integral part of our past and fundamentally important to our future also.”
Recently released figures showed the Chinese economy growing at its slowest pace for more than five years. Growth in the third quarter was 7.3 percent compared with a year earlier, down from 7.5 percent in the previous quarter.
But the Chinese mainland was still one of the best-performing markets among all AIA markets in the first half of 2014. It achieved a record in new business wins of about $120 million, up 58 percent from the same period of 2013, ranking fourth and contributing about 13.79 percent of the group’s total volume of new business, a key performance metric that measures value creation. Hong Kong, Thailand and Singapore occupied the top three slots.
“The potential in China is unlimited,” said Tucker, as the country’s growing middle-class population is set to bring new opportunities for insurance companies.
“As people build their assets, they want to protect them. They want to protect their families and jobs, etc. And life insurance will protect their health,” he said.
The world’s middle class, comprised of people with assets ranging between $10,000 and $100,000, now stands at 1 billion. The Chinese middle class has more than doubled since 2000 and amounts to onethird of the group, according to Credit Suisse’s Global Wealth Report 2014.
Insurance penetration, a key indicator of the industry’s role in the overall economy, is expected to reach 5 percent in China by 2020, the State Council said in August.
The rate, calculated by dividing the overall premium by GDP, now hovers at around 3 percent, indicating huge growth potential. The global average life insurance penetration stood at 3.69 percent by the end of 2012.
Insurance density, calculated by dividing the premium by population, is estimated to hit 3,500 yuan ($565) per person by 2020, up from the current 1,266 yuan.
Statistics from the China Insurance Regulatory Commission showed that China’s premium income stood at 1.72 trillion yuan in 2013, ranking fourth globally. Yet it is still way below the $1.3 trillion paid in the US and below even the UK’s $330 billion, according to Munich Re and Swiss Re data.
“China’s insurance industry is still in the early stage of development,” Luo Zhongmin, former chairman of the Insurance Institute of China, said last month.
As the market promises more growth opportunitiesnowthan ever before, Tucker says AIA would like to “expand across the whole of the country”.
The company currently operates in Beijing, Shanghai, Shenzhen, Guangdong, and Jiangsu, or the Chinese mainland’s better-off regions, only.
“We are talking to the Chinese authorities to try and understand how best we can open this up, but this is a major policy decision that clearly will take time,” Tucker said.
Foreign insurance companies, the category AIA falls into despite its Shanghai origins in the CIRC’s official list, had a 5.6 percent market share in China’s insurance market in 2013, according to accounting advisory firm Ernst & Young’s latest report of foreign insurance companies operating in the Chinese mainland market. The report interviewed 27 foreign insurance companies’ chief executive officers and senior executives operating in China.
However, Tucker remains optimistic, as he sees the investment environment in insurance “has been opening up” and this is a process AIA has seen in many countries.
“We think it will happen in China over time, but there’s been some relaxation and it’s important the Chinese authorities ensure there are orderly markets and things are done at the right pace,” Tucker said.
“We believe in the countryandthe future. Therefore we’ll wait as long as we need to wait,” he said.
The investment environment in insurance has been opening up with the ability to invest in more asset classes.
Could you tell us about the board meeting in Shanghai?
AIA was listed four years ago. This is the first time the board of directors meets in Shanghai. We had meetings in Malaysia, Thailand and Hong Kong. We have a very experienced board who know China well.