Go­ing fur­ther

Le­banese in­sur­ance leader begs to dif­fer

Executive Magazine - - SPECIAL REPORT - Dig­i­tal for Al­lianz is a pri­or­ity and part of our strat­egy

The lack of strong reg­u­la­tion, strong cap­i­tal and strong com­pa­nies is not en­cour­ag­ing and is some­times not al­low­ing small, well-man­aged com­pa­nies to grow.

Al­lianz SNA is one of the most ac­tive in­sur­ance com­pa­nies in Le­banon and the Mid­dle East.

Ex­ec­u­tive sat down with its Chair­man and Re­gional Chief Ex­ec­u­tive Of­fi­cer, An­toine Issa, to talk about the state of the in­sur­ance in­dus­try and the in­ter­con­nec­tions be­tween con­sol­i­da­tion, gov­er­nance and in­sti­tu­tional in­vest­ments.

How do you view Le­banon from the per­spec­tive of a re­gion­ally ac­tive multi­na­tional in­sur­ance com­pany?

I have worked in most of the coun­tries in the ME re­gion, in some di­rectly and also as a board mem­ber of in­sur­ers work­ing in these mar­kets, so I have lot of ex­pe­ri­ence in the [re­gion’s] in­sur­ance sec­tor. I can tell you that, de­spite ev­ery­thing, the level of tech­ni­cal know-how and the level of qual­ity, and pric­ing of the in­sur­ance mar­ket in Le­banon is prob­a­bly the high­est [in the re­gion] still to­day.

Is that sur­pris­ing, given that other, larger mar­kets in the re­gion have seen a great deal of in­sur­ance de­vel­op­ment?

I was ask­ing my­self: how can that be when you have 60 com­pa­nies in a small coun­try like [Le­banon] and very lit­tle reg­u­la­tion over the in­sur­ance sec­tor as well as all other sec­tors in econ­omy? [This is a coun­try where] you don’t have good gov­er­nance, and some­times, you don’t have gov­er­nance at all. So how can it be that you have a very good level of tech­ni­cal know-how, of pric­ing, of prof­itabil­ity, of in­no­va­tion and so on? I think this is not con­tra­dic­tory be­cause when you have 60 com­pa­nies, you have 60 chief fi­nan­cial of­fi­cers, 60 chief risk of­fi­cers, in­sur­ance tech­ni­cians, etc. I think [this sit­u­a­tion] is pro­mot­ing com­pe­ti­tion, in­no­va­tion and self-dis­ci­pline, and thus is mak­ing Le­banon what it is to­day.

But the in­sur­ance in­dus­try in Le­banon has seen rel­a­tively lit­tle growth or in­no­va­tion as of late. So what is the prob­lem?

The mar­ket is be­com­ing too frag­mented with too many small com­pa­nies. The lack of strong reg­u­la­tion, strong cap­i­tal and strong com­pa­nies is not en­cour­ag­ing and is some­times not al­low­ing small well-man­aged com­pa­nies to grow. But when you want to grow and in­sti­tu­tion­al­ize, you need good gov­er­nance. Other­wise, it is im­pos­si­ble. So we now have some kind of bot­tle­neck. We have some very good small com­pa­nies that are very well man­aged, but they are not able to grow, merge or open their cap­i­tal.

Cur­rently, in­vest­ment op­por­tu­ni­ties for Le­banese in­sur­ers ap­pear re­stricted due to out­dated reg­u­la­tion and other fac­tors. Do you have pro­pos­als re­gard­ing how in­sur­ers can work as in­sti­tu­tional in­vestors in Le­banon?

It be­gins with the new law and new reg­u­la­tion, plus in­cen­tives for com­pa­nies to move grad­u­ally into new en­vi­ron­ments. The reg­u­la­tion is not very re­stric­tive. You have the pos­si­bil­ity to­day, in this coun­try, to in­vest 50 per­cent of your money abroad. When

you al­low com­pa­nies to in­vest abroad, there is a larger hori­zon when com­pared with other ju­ris­dic­tions, like KSA or Egypt, where you can only in­vest lo­cally. How­ever, we would wel­come more lo­cal in­vest­ment op­por­tu­ni­ties, such as funds that are tai­lored for the needs of in­sur­ers. But, it can­not be some small closed-ended fund; that doesn’t give me enough com­fort. I need funds that are listed in a strong cap­i­tal mar­ket. We need to have a change of mind­set and need to start agree­ing that we need a min­i­mum [level] of in­fra­struc­ture.

What would be the men­tal­ity shift to fa­cil­i­tate in­sur­ers to act as in­sti­tu­tional in­vestors?

To have list­ing, you need trust in the cap­i­tal mar­kets and the Cap­i­tal Mar­kets Author­ity. To­day, peo­ple don’t [have that] trust. Why are peo­ple not buy­ing? Be­cause they have not seen trans­parency. We have good names [of listed banks on the stock mar­ket], but we don’t see the trans­parency that one would ex­pect from listed com­pa­nies. We need more com­pa­nies to list, and we need to have strong gov­er­nance, to show us that when we list a com­pany, or to­mor­row list a util­ity, Elec­tric­ité du Liban or Eau du Liban or what­ever, we can as con­sumers and as in­sti­tu­tions start buy­ing the stock be­cause we have good con­trol and good gov­er­nance. To do this [for the pri­vate sec­tor], how­ever, you first need the pub­lic sec­tor to ac­cept [a high] level of gov­er­nance and trans­parency.

How would you de­scribe the re­la­tion­ship be­tween Al­lianz So­ciété Na­tionale d’As­sur­ance ( SNA) and the Mid­dle East and the re­la­tion­ship be­tween Al­lianz and SNA? Is what you are go­ing through in the re­gional and Le­banese in­sur­ance mar­kets com­pre­hen­si­ble from the per­spec­tive of the cor­po­rate head of­fice? Al­lianz SNA is a com­pany that is now 100 per­cent owned by Al­lianz Group. This was a grad­ual move by the found­ing share­hold­ers. The name of the com­pany – So­ciété Na­tionale d’As­sur­ance – was cho­sen to sig­nify from day one of our history that this was a com­pany with Le­banese man­age­ment. The Le­banese share­hold­ers al­ways be­lieved that we needed to have a strong for­eign partner, not only to de­velop the in­sur­ance mar­ket in Le­banon, but also to de­velop [ it in] the Mid­dle East. [ The ac­qui­si­tion of 100 per­cent of SNA] came at the end of a very long and suc­cess­ful grad­ual jour­ney to team up with a top- notch for­eign partner.

Why are peo­ple not buy­ing? Be­cause they have not seen trans­parency. We have good names [of listed banks on the stock mar­ket], but we don’t see the trans­parency that one would ex­pect from listed com­pa­nies

What is the role of the Le­banese op­er­a­tion for Al­lianz?

Al­lianz is us­ing Le­banon as a plat­form to de­velop the rest of the Mid­dle East. Out of Le­banon, we de­vel­oped Al­lianz Egypt, and also started our jour­ney into Saudi Ara­bia. To­day Al­lianz is again us­ing Le­banese tal­ent to fur­ther de­velop these two mar­kets, but also other [new] mar­kets in the Mid­dle East. We are us­ing Le­banon as a hub with a tal­ent pool and ex­per­tise in in­sur­ance. I think that with time, if we see bet­ter gov­er­nance, reg­u­la­tion, more trans­parency in the law, in fis­cal trans­parency and in the way we op­er­ate here, many multi­na­tion­als will use Le­banon as a tal­ent pool for the rest of the Mid­dle East, as they did in the past. They went out [in part] due to the war but mainly due to lack of reg­u­la­tion and trans­parency.

How many coun­tries are un­der your lead­er­ship in the Mid­dle East?

I have the whole Mid­dle East, but the core mar­kets that we are work­ing in are Saudi Ara­bia, Egypt and Le­banon. We have joint ven­tures in Jor­dan and in Bahrain, but these two mar­kets are not pri­or­i­ties for us be­cause of their size. We have an op­er­a­tion in the United Arab Emi­rates, but it is in the DIFC [Dubai In­ter­na­tional Fi­nan­cial Cen­tre], and thus we are not op­er­at­ing in the lo­cal mar­ket di­rectly. We are op­er­at­ing in the lo­cal mar­ket by fronting with lo­cal com­pa­nies. We are look­ing, as one of our next de­vel­op­ments, to en­ter the UAE mar­ket.

Do you have a con­sol­i­dated view on your mar­ket po­si­tion in the Mid­dle East re­gion?

I think we are one of the larger multi­na­tional in­sur­ers in the Mid­dle East re­gion. We don’t have many multi­na­tion­als in this re­gion and this is per­haps be­cause we don’t have many [multi­na­tional] competitors but also be­cause we are in the largest mar­kets. In the UAE, which is the largest mar­ket for in­sur­ance in the re­gion, we are fronting lo­cally and have a pres­ence; the KSA is the sec­ond largest mar­ket and we have a strong pres­ence there. The fourth largest [in­sur­ance mar­ket] is Egypt and we are there and the fifth is Le­banon and we have a pres­ence [here too]. Out of the top five [mar­kets in the Mid­dle East] we are miss­ing Qatar, but Qatar is closed to for­eign play­ers.

How is the split be­tween life and non-life in­sur­ance in your port­fo­lio?

In Le­banon we are split 50:50 be­tween life and non-life; in Saudi Ara­bia we are 75 [per­cent] non- life and 25 life, be­cause the mar­ket is very much into non-life and the size of busi­ness in non-life is very big. How­ever, we are a dom­i­nant player in life with our small share. In Egypt, it is the re­verse: 20 per­cent property and ca­su­alty and 80 per­cent life. The rea­son is that we iden­ti­fied op­por­tu­ni­ties in life when we en­tered the Egyp­tian mar­ket, which at that time was a vir­gin mar­ket for life in­sur­ance and also un­tapped by ban­cas­sur­ance, which we in­tro­duced to this mar­ket. We are scal­ing up this po­si­tion now and we will con­tinue de­vel­op­ment in life in­sur­ance.

What is your tar­get in terms of the re­la­tion­ship be­tween life and non-life in Egypt?

Our ideal is to have a good bal­ance be­tween life and non-life like we have in Le­banon. Jor­dan is also an ex­am­ple of this bal­ance as we have 50 per­cent life and 50 per­cent non-life. Al­lianz is a non-spe­cial­ized com­pany that is tar­get­ing all seg­ments of cor­po­rate and re­tail in­sur­ance and all lines of busi­ness be­tween life and non­life. Al­lianz is also known as a multi-ac­cess, mul­ti­dis­tri­bu­tion com­pany with our own sales force, with ban­cas­sur­ance, with bro­kers and with di­rect sales. That is why we will par­tic­i­pate in the up­com­ing dig­i­tal­iza­tion con­fer­ence [of GAIF and ACAL in Beirut next month].

One of your high-end ex­perts par­tic­i­pated in the GAIF gen­eral con­fer­ence last year as speaker.

That was Sol­maz [Altin], our chief dig­i­tal of­fi­cer. This time, I’m bring­ing our head of mar­ket man­age­ment and dis­tri­bu­tion of­fi­cer [Jean-Marc Pail­hol] be­cause we want to talk about dig­i­tal­iza­tion from the dis­tri­bu­tion per­spec­tive. Dig­i­tal for Al­lianz is a pri­or­ity and part of our strat­egy.

How many banks are you work­ing with in prod­uct part­ner­ship in Le­banon?

We have [part­ner­ships with] 11 banks.

What is the ra­tio­nale be­hind work­ing with so many banks in Le­banon?

The strat­egy of Al­lianz is [to of­fer] mul­ti­ac­cess. We need to look at the cus­tomer. If he wants to deal with us, we should ac­cept to deal with him [through what­ever chan­nel]. We are an in­sur­ance risk car­rier, not a dis­trib­u­tor, and we don’t have any con­flict of in­ter­est in this. In our opin­ion, it is the cus­tomer who should de­cide

Our pri­or­ity, if the law and reg­u­la­tions al­low us to do so, is [to es­tab­lish a stronger lo­cal pres­ence] in the UAE where we al­ready have a lo­cal fron­ter

which dis­tri­bu­tion chan­nel he or she uses and all of the dis­tri­bu­tion chan­nels have a role and an added value.

Is it cor­rect that the mar­ket po­si­tion of Al­lianz SNA in Le­banon has im­proved in re­cent years?

Yes, on a com­pos­ite level we are num­ber one for life and non-life. We aren’t num­ber one in life nor are we num­ber one in non-life, but when you take both com­bined, we are num­ber one. I think what is mak­ing us num­ber one is hav­ing this multi-ac­cess and multi-seg­ment strat­egy. Be­cause we want to be multi-seg­ment and of­fer a com­pre­hen­sive range of so­lu­tions for in­sti­tu­tions and for re­tail, we have been able to be­come num­ber one on a con­sol­i­dated base. The chal­lenge for us now is to be­come num­ber one in each line of busi­ness and in each dis­tri­bu­tion chan­nel.

Are you look­ing to roll out ser­vices in new mar­kets, l ike Iraq?

As I said, our pri­or­ity, if the law and reg­u­la­tions al­low us to do so, is [to es­tab­lish a stronger lo­cal pres­ence] in the UAE where we al­ready have a lo­cal fron­ter. Another mar­ket that we are look­ing at is Iran. I vis­ited Iran in 2015 and it is one of the largest mar­kets in the Mid­dle East. How­ever, be­fore hav­ing a lo­cal pres­ence in Iran, we are still wait­ing un­til all sanc­tions are lifted. It is a process.

But pres­ence in Iran would be through Al­lianz SNA, not from Germany, Tur­key or France?

Yes. We are work­ing on it out of Le­banon, but we won’t see a lo­cal pres­ence be­fore all the sanc­tions are lifted.

What is your per­spec­tive on the Le­banese mar­ket in 2017/18, in terms of growth po­ten­tial and in­ten­sity of com­pe­ti­tion?

Growth [of the Le­banese in­sur­ance mar­ket in re­cent years] has been lim­ited to 3 to 4 per­cent [per year], and we be­came num­ber one be­cause we were grow­ing faster than the mar­ket. In 2016, we had growth of 6 per­cent, which was above mar­ket. I can tell you that 2017 has started quite well. The mar­ket here is a re­tail mar­ket, and re­tail is very emo­tional. [To date the pos­i­tive de­vel­op­ment in 2017] is linked to the new gov­ern­ment, the rec­on­cil­i­a­tion be­tween the par­ties and the move­ment to­ward re­build­ing the coun­try. This was ex­tremely well re­ceived; Jan­uary was a great month for us and Fe­bru­ary also was a good month, par­tic­u­larly if we com­pare them to [the same months in] 2016. As far as we are con­cerned, we have confidence that we will have sim­i­lar growth as in 2016, if not more. We also be­lieve that the mar­ket will wit­ness larger growth than in the past two years.

Some in­sur­ance CEOs have the per­cep­tion that there are too many com­pa­nies and too much com­pe­ti­tion on price in the Le­banese mar­ket and that this ex­treme com­pe­ti­tion is dam­ag­ing the mar­ket.

I don’t have this per­cep­tion. I think that the num­ber of com­pa­nies and the num­ber of dis­trib­u­tors in the coun­try is cre­at­ing more in­no­va­tion, al­low­ing the sec­tor as a whole to in­crease the pen­e­tra­tion rate. Although [in­sur­ance pen­e­tra­tion] here is the largest in the re­gion to­gether with Morocco with 3 per­cent, we are still a vir­gin mar­ket in terms of per­cent [of GDP spent on in­sur­ance], and we still have a lot of peo­ple who are not in­sured. The num­ber of in­sur­ance com­pa­nies is def­i­nitely cre­at­ing com­pe­ti­tion, but not to the ex­tent of re­duc­ing the pre­mium. The qual­ity of the man­age­ment of these com­pa­nies, even the small ones, is [such that they are] com­pet­i­tive, but not crazy. We still main­tain a sound level of tech­nic­ity in Le­banon.

Were there not, for ex­am­ple, large med­i­cal group con­tracts that were hotly con­tested and mov­ing from one provider to the next due to price wars?

This is true, but the com­pe­ti­tion is still not crazy. We have much tougher com­pe­ti­tion in other mar­kets, and some­times we see crazy com­pe­ti­tion [there]. Also [in Le­banon], we are sell­ing to peo­ple that were not in­sured in the past, and we are still see­ing that the mar­ket is vir­gin. I’m quite op­ti­mistic for this [rea­son]. Hav­ing said that, I think we will gain by hav­ing bet­ter reg­u­la­tion and fewer com­pa­nies, with a higher level of cap­i­tal. This will def­i­nitely help, but I’m not sure that the prob­lem is in the num­ber of com­pa­nies. I don’t have the same po­si­tion as many of my peers who are say­ing that it’s bad to have a lot of in­sur­ance com­pa­nies. On the con­trary, we need to grow and I would be glad to have 60 very strong com­pa­nies to­mor­row. I’m say­ing they should reg­u­late them­selves and their cap­i­tal should be stronger.

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