Nav­i­gat­ing the in­surance maze

Growth slow­down nec­es­sary process for the econ­omy, says AIA pres­i­dent

China Daily (Canada) - - BUSINESS - By ZHANG HAIZHOU in Hong Kong zhang­haizhou@chi­nadaily.com.cn

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.

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