THERE IS ‘INFINITE DEMAND’ IN ASIA: PRUDENTIAL CEO
Source: CNBC.com, 10 August 2012
The insurance industry is seeing strong growth in Asia and the only limiting factor is product distribution, said Prudential CEO Tidjane Thiam.
According to Thiam, Asia is the central growth area and the company continues to make progress across the countries in the region such as Indonesia, Malaysia, Hong Kong and Singapore. The main constraint to growth is their ability to put products out there, because demand is infinite.
Britain’s biggest insurer has reported half-year profits which show an increase of 13%. It made an operating profit of 1.16 billion pounds (US$1.81 billion) for the period, beating expectations. (1.00 GBP = 4.93 MYR) The company has used funds from its U.K. operations to lead expansion in the economies of South East Asia.
Thaim said that the penetration
rate in Indonesia is just 1%, in
Vietnam 0.7% so, growth is determined by the company’s ability to distribute. However, strong growth may not translate into reducing profit margins.
Prudential has two distribution channels, agency and bank. According to Thiam, the banking channel is less profitable than agency but it is still very profitable by any measures. With low interest rates around the globe Thiam highlighted that it was a challenging period for insurance companies with Prudential combating this by pricing its products aggressively.
The company has also transformed the way it makes money by concentrating on underwriting profits (the profit after paying all claims), rather than conventional margin income which is dependent on markets.
Thiam also believes that insurance companies are a stabilising factor for the economy and were wrongly tarred during the financial crisis by the near collapse of AIG. He is positive on the issue of solvency for insurers.
The Solvency II Framework, which is due to be passed through the European Parliament, is looking at creating “countercyclical” measures – which aren’t affected as much by economic fluctuations.