strategies of international insurance companies to shape emerging markets

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 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 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



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



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!

strategies of international insurance companies to shape emerging markets

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