Strategies of international insurance companies to shape emerging markets
Hannes S. ChopraCEO ROSNOCEO ROSNO
Representative Allianz SE in CISRepresentative Allianz SE in CISExecutive vice-president Allianz SEExecutive vice-president Allianz SE
Moscow, 2007Moscow, 2007
2
Market entry – Allianz Success Stories
Emerging Markets – High Risks or Great Opportunities
Summary
3
Markets Growth Rates (GAGR 2006 – 2004)* P/C L/H
Mature Markets Emerging/Pre-Emerging Markets
2,2% 3%USA
Western Europe
Japan
Russia*
India
China
3,3%
15%
-3,6% -3,7%
27%
42%
19%
45%
22.5%19.5%
Emerging Markets (CIS, India, China, Brazil, etc.): key growth markets and very attractive for global insurers…
*Source: Sigma Reports, AZ Data
For Russia – real market, P/C/H and L
4
Core Growth Markets at a Glance, 2007
Russia
China
India
• 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%
• 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%
• 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%
• 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
• 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
• 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
5
Entering emerging markets may be thus described as follows “If You Can’t Stand the Heat, Get out of the Kitchen!”
OPPORTUNITIES RISKS
• High Economic Growth
• Low barriers to entry
• Rapid capitalization growth
• High Return on Investments
• Learning Curve – Customer Patterns Fluid
• Lower costs, higher Profits
• Political instability
• Legislative framework
• Uncertainty about the future – need of flexibility in long-term strategy
• Level of transparency
• Financial instability
6
Market entry – Allianz Success Stories
Emerging Markets – High Risks or Great Opportunities
Summary
7
Growth Markets: Where Do We stand?
9m’ 07
7,9
7,9
* All Figures for 3Q 2007 1) Including non-consolidated OEs (Thailand, India, ROSNO, Hana Korea, Pakistan), 2) 2006 Figure
4,83,1
39%
61%
2
8
Allianz Strategy – Being in the Right Markets at the Right Time
Capacity (GDP/capita in USD)
Penetration (total premiums as % of GDP)
Source: Dresdner Bank, Swiss Re Sigma, Deutsche Bank
Immature
High growth
Mature, mixed growth
BulgariaRomania
Poland
Australia
Czech Republic
RussiaThailandUkraine
China
India
Slovakia
Hungary
Indonesia
Japan
SingaporeHong Kong
Malaysia
Taiwan
Korea
-2
0
2
4
6
8
10
12
14
100 1,000 10,000 100,000
New Europe Asia-Pacific
Kazakhstan
CIS
9
Allianz Poland – Among the Champions : Greenfield + Further Acquisitions
Allianz PolandAllianz Life Insurance
AZ Investment Fund
Allianz Pension Fund
Allianz Insurance Company
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-Life and №6 Life Insurance Company on the market
1998 1999 2000 2003 2006
Employees Agents
1. Efficiency: Strict cost control
2. Distribution: Focus on own branch network and AZ exclusive brokers
3. Value chain: Acquisition of Pekao SA bank
1. Efficiency: Strict cost control
2. Distribution: Focus on own branch network and AZ exclusive brokers
3. Value chain: Acquisition of Pekao SA bank
Success Drivers:
Success Story #1
10
Bajaj Allianz Life India: Focus on Aggressive Distribution
2001 2002
#4 among 11 #5 among 12 #5 among 14 #6 among 14 #3 among 15* #1 among 15*
Major Actions Performed:
• Rapid increase of distribution network: agents and sales offices.
2005 2006Agents 4 500 108 000UM 2 000 5 700Offices 110 450Market 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
2003 2004 2005 2006
Success Drivers:
1. To be present everywhere: not only big cities, but smaller ones
2. To be simple in products range: to concentrate on the fast growing segments and most popular products within those segments
3. 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%
Bajaj Allianz Life GPW, EURO m.
2696
394
737
2003 2004 2005 2006
Success Story #2
11
Allianz Life China: Hard to Enter, Quick to Grow - with a Strong Local Partner
19 29
117
2004 2005 2006
GPW (EURO m)
4 times growth!
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.
1917
1978
1978-1993
1994
1994 -
1998
1999-2001
1998
2003
2006
1. To lobby the insurance market development among local authorities
2. To become the provider of Insurance industry knowledge and Know-How to the market
3. To expand operations on related markets: banking, asset management
4. To set-up a Partnership with strong local Partner
Success Drivers:
Success Story #3
12
HUNGARY: How to make an Acquisition Successful?
1990 1991 - 1993 1994 1995 - 1998 1999 - 2006
1. Market segmentation and Risk-Based Tariffs
2. Strong IT Support: WEB-based platform was implemented in 2002
3. Best-in-Class Customer Service
4. Value chain development: in 2006 Allianz Bank was set-up: 25 thnd clients, 18 thnd bank accounts already
1. Market segmentation and Risk-Based Tariffs
2. Strong IT Support: WEB-based platform was implemented in 2002
3. Best-in-Class Customer Service
4. Value chain development: in 2006 Allianz Bank was set-up: 25 thnd clients, 18 thnd bank accounts already
The State sold in a privatization tender
the 49% of the shares of Hungaria
Biztosito to the Allianz AG
Turnaround of the motor
portfolio – 60% of total GPW
Break-even in profitability
-Start of the Life Insurance
-Establishment of two pension funds
-100% ownership of AZAG
-Sustainable EVA
- Dividend Payment from 2001
GPW 2006 = €672 mio, Market Share = 25.6%, Market Position #1
272 221
391
613688 672
1990 1995 2000 2003 2005 2006
GPW (EURO, m)Success Drivers:
Success Story #4
13
• 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
1991 2001 2004 2005 2007
Allianz Russia representative office establishment
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
ROSNO-Ukraine established
118 151 216368
550
787
6.1%5.4%
4.4%4.5%4.8%
6.8%
0100200300400500600700800900
2001 2002 2003 2004 2005 2006
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%ROSNO Group performance, GPW (USD m) and Market Share (%)
Allianz in Russia: Aggressive Profitable Growth
1. Market segmentation
2. Strong branding
3. Aggressive regional development and agents network build up
4. M&A
1. Market segmentation
2. Strong branding
3. Aggressive regional development and agents network build up
4. M&A
2006
Acquisition of Medexpress – VMI specialized company
Success Factors:
Success Story #5
14
Allianz in Russia and CIS now:
• TOP-3 on Russian real insurance market
• Best-in-class Customer service provider
• TOP-3 on Russian real insurance market
• Best-in-class Customer service provider
Kazakhstan rep. office
ProvisionProtection Performance
• GPW $962.2m
• AuM $479m
• PAT $32m
• GPW $962.2m
• AuM $479m
• PAT $32m
VMI
787
128
48
ROSNO Group
Progress-Garant
Allianz Russia
GPW Breakdown 2006
27,3
3,01,7
ROSNO Group
Progress-Garant
Allianz Russia
PAT Breakdown 2006
Facts Figures 2006
15
Well diversified presence in Russia
Allianz expands its distribution network with clear focus onregional development and retail
Progress-Garant (PG)
ROSNO
GPW 2006 (in EUR m)
more than 8,500 agents
more than 100 branchesand 1,100 points of sales
Sales Moscow vs. Regions
Progress-Garant (%)
ROSNO (%)
56 46
39 44 54
61
2004 2005 2006
77 66
21 23 3479
2004 2005 2006
RegionsMoscow
RegionsMoscow
41
Moscow &Moscow region
Centralnaya
221
Yugno Volgskaya
4
18
DalneVostochnaya
2
7
SredneSibirskaya
3
10Zapadno
Sibirskaya
15
1
SredneVolgskaya
8
8,5
Uralskaya
227
SeveroZapadnaya
VolgoViatskaya
181
VostochnoSibirskaya
7
10
424
29
42
28Allianz Russia NL
16
Regional growth potential. Regional expansion is the main priority in CIS
Allianz is growing in main economic centers. 1) CIS = Commonwealth of Independent States
2) 2006
3) 2002
Russia
CIS1
GDP 2006population
Azerbaijan
Russia
Kyrgyzstan
Tajikstan
Uzbekistan
Turkmenistan
Moldovia
GeorgiaArmenia
Ukraine
Belarus
Kazakhstan
EUR 28bn9.7m
EUR 80bn46.5m
EUR 15bn8.5m
EUR 12bn27m
EUR 58bn15.4m
Moscow
Tatarstan
Sverdlovsk
Tymen
St. Petersburg
EUR 59bn3.3m
EUR 13bn
EUR 13bn3.8m
EUR 124bn10.4m
EUR 24bn4.7m
Kazakhstan rep. office
Key CIS economic centers
2005Pop (m)3
GDP (EUR bn)
GDP per cap. (EUR)
Tymen 3.3 59.6 18,243
Moscow 10.4 107.3 10,332
Astana (Kaz.)2 0.6 3.9 6,745
Krasnoiarsk 3.0 11.8 3,989
St. Petersburg 4.7 17.9 3,837
Almaty (Kaz.)2 1.3 4.8 3,739
Kiev (Ukraine)2 2.7 9.9 3,643
Tatarstan 3.8 13.1 3,462
Moscow Region 6.6 18.9 2,850
Bashkorkostan 4.1 10.2 2,489
Novosibirsk 2.7 6.4 2,395
NizhniyNovgorod 3.5 7.9 2,256
Kemerovo 3.6 7.9 2,196
Irkutsk 3.7 7.2 1,956
17
Market entry – Allianz Success Stories
Emerging Markets – High Risks or Great Opportunities
Summary
18
Strategy Pros Cons
• Internal Standards implementation from the first day
• Transparent financial and quality control from the first day
• No re-branding issue
• Close-knit team of professionals
• Market knowledge and client relations
• Regional coverage from the first day
• Strong position on the market from the first day
• Few available targets on the market
• New standards implementation may take time and face the existing management reluctance
• Re-Branding issue may take several years and involve significant costs
Suitable for the long-term investments, and the new segments where the other market players do not have enough experience and knowledge
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
• High level of market consolidation by major players– additional barriers to achieve TOP position
• Licensing period may require significant time
• Risk of loss of the growing market benefits
Efficient Ways of Market Entry: Analyzing the Pros and Cons…
• 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.
Greenfield?
Acquisition? (control stake)
Acquisition + Greenfield?
Poland, Czech Republic, Ukraine,
China, India
Hungary, Bulgaria, Croatia
Slovak Republic, Romania, Russia
19
Efficient ways of Companies management:
Wide distribution Efficient Business Processes
Sales Channel Allianz Achievements on Growth Markets*
Agents •More then 235 000
Bancassurance
• More then 100 bank partners• Growing faster than traditional
channels
Assurebanking • Allianz Bank - Hungary/Bulgaria• Assurebanking in India
Direct Sales • Cross-Border: Common internet sales for Poland/Czech Rep.
* AZ NEW Europe and AZ Asia Pacific
•Processing
•Marketing/•CRM
•Business Steering/Central Functions
•Sales/•Distribu-tion
•Technical Product Provision (TPP)
TOM
+
Multi-sales channel approach! Target operating model!
20
Allianz shaping emerging markets…
Russia
Hungary
India
• #3 on the market• Major acquisition on Russian insurance market• New standards of insurance: new products, new customer service standards
• #1 on the market
• Customer value-chain fulfillment. Allianz-Bank
• Strong IT solutions
• #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: +
Joint WEB platform of Allianz Polska and Allianz Pojistovna (Czech Rep.) for Motor insurance sale
Shared Services Center: + +
Joint Financial services center (accounting) for Allianz Polska, Allianz Zagreb and Allianz Tiriac
Same operating structure (TOM) for all companies of the Group
21
Thank you!