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FINANCE THE TOP 10 GLOBAL INSURANCE COMPANIES Increasing profitability, market share and competitive edge By Barbara Kubis-Labiak TLFeBOOK Barbara Kubis-Labiak Barbara has a BA (Hons) in Business and Management and is currently at the end of her MSc in International Finance degree Barbara started her career working as an intern for the European Commission in Brussels, and then in 1999 she joined Datamonitor Financial Services department as an analyst Barbara's work at Datamonitor involved various projects and reports, including the FinTab project, where she helped to develop an online data resource covering the insurance, banking, investments and payment cards sectors Barbara also authored a number of reports: Retirement Provision in Germany 2001-2008, Retirement Provision in Germany 2002, European Mutual Funds 2001, UK Wealth Management, Distribution of life insurance and pensions in Europe 2002 and Central and Eastern European Life and Pensions 2002, as well as consultancy projects, for example Motor insurance distribution in central Europe, Competitors in occupational pensions in Germany, Bausparkassen in Germany and many others Copyright © 2004 Business Insights Ltd This Management Report is published by Business Insights Ltd All rights reserved Reproduction or redistribution of this Management Report in any form for any purpose is expressly prohibited without the prior consent of Business Insights Ltd The views expressed in this Management Report are those of the publisher, not of Business Insights Business Insights Ltd accepts no liability for the accuracy or completeness of the information, advice or comment contained in this Management Report nor for any actions taken in reliance thereon While information, advice or comment is believed to be correct at the time of publication, no responsibility can be accepted by Business Insights Ltd for its completeness or accuracy Printed and bound in Great Britain by MBA Group Limited, MBA House, Garman Road, London N17 0HW www.mba-group.com ii TLFeBOOK Table of Contents The Top 10 Global Insurance Companies Increasing profitability, market share and competitive edge Executive Summary 10 The global insurance market overview 10 The top 10 global insurers: company analysis 11 Chapter Introduction Report structure Global insurance overview Introducing the top 10 global insurance companies Chapter Global Insurance Overview 16 16 16 16 20 Summary 20 Introduction 20 Life and non-life insurance markets worldwide Definitions 21 21 European life bancassurance overview Unit linked policies Opportunities in European bancassurance Regulations 27 29 30 31 Chapter Allianz AG 34 Summary 34 Overview 34 History 35 SWOT analysis Strengths 37 37 iii TLFeBOOK Weaknesses Opportunities Threats 38 38 39 Company activity snapshot 40 Chapter Axa 44 Summary 44 Overview 44 History 46 SWOT analysis Strengths Weaknesses Opportunities Threats 47 47 48 48 48 Company activity snapshot 49 Chapter American International Group, Inc 54 Summary 54 Overview 54 History 55 SWOT analysis Strengths Weaknesses Opportunities Threats 57 57 58 59 60 Chapter Assicurazioni Generali S.p.A 62 Summary 62 Overview 62 History 63 SWOT analysis Strengths Weaknesses Opportunities Threats 65 65 66 67 68 iv TLFeBOOK Company activity snapshot Chapter 68 ING Groep N.V 70 Summary 70 Overview 70 History 71 SWOT analysis 73 Strengths Weaknesses Opportunities Threats 74 74 75 76 Company activity snapshot 76 Chapter Nippon Life Insurance Company 80 Summary 80 Overview 80 History 82 SWOT analysis Strengths Weaknesses Opportunities Threats 83 83 84 85 86 Company activity snapshot 86 Chapter State Farm Insurance Companies 90 Summary 90 Overview 90 History 91 SWOT analysis Strengths Weaknesses Opportunities Threats 93 93 94 95 96 Company activity snapshot 97 v TLFeBOOK Chapter 10 Aviva Plc 100 Summary 100 Overview 100 History 101 SWOT analysis Strengths Weaknesses Opportunities Threats 102 103 103 104 105 Company activity snapshot 105 Chapter 11 Zurich Financial Services 108 Summary 108 Overview 108 History 109 SWOT analysis Strengths Weaknesses Opportunities Threats 111 111 112 112 112 Company activity snapshot 113 Chapter 12 The Dai-ichi Mutual Life Insurance Company 116 Summary 116 Overview 116 History 117 SWOT analysis Strengths Weaknesses Opportunities Threats 118 118 119 120 120 Company news 121 vi TLFeBOOK Chapter 13 Report Conclusions Summary Global insurance industry recovers Japanese stagnation China, the land of potential Stricter regulations Bancassurance Chapter 14 123 123 123 124 125 126 126 Appendix 129 Definitions of distribution channels 129 Index 130 List of Figures Figure 1.1: Figure 2.2: Figure 2.3: Figure 3.4: Figure 4.5: Figure 5.6: Figure 6.7: Figure 7.8: Figure 8.9: Figure 9.10: Figure 10.11: Figure 11.12: Figure 12.13: Total life and non-life premium volume in the top five European markets, 2000— 2003 10 Stock market indices in major stock markets in Europe, 2000—2004 21 Total life insurance premium volume in the top five European countries, 2000—2003 24 SWOT analysis of Allianz 37 SWOT analysis of Axa 47 SWOT analysis of AIG 57 SWOT analysis of Generali 65 SWOT analysis of ING Groep 73 SWOT analysis of Nippon Life Insurance Company 83 SWOT analysis of State Farm Insurance 93 SWOT analysis of Aviva 102 SWOT analysis of Zurich 111 SWOT analysis of Dai-Ichi 118 List of Tables Table 1.1: Table 2.2: Table 2.3: Table 2.4: Table 2.5: Top 10 global insurance companies, by premium income in 2000—2003 Total premium insurance volume by country and region, 2000—2003 Life insurance premium volumes by country and region, 2000—2003 Non-life insurance premium volumes by country and region, 2000—2003 Distribution of life assurance by distribution channel, 2002 17 23 25 26 28 vii TLFeBOOK TLFeBOOK Executive Summary TLFeBOOK Executive Summary The global insurance market overview 2003 saw some signs of recovery after two years of worldwide recession and growth rates are gradually picking up The world insurance premium volumes, after a drop from $2,444,903 in 2000 to $2,408,252 in 2001, are now growing at a steady pace, and reached $2,940,670 in 2003, experiencing a compound annual growth rate of 6.3% in the period 2000 and 2003 Figure 1.1: Total life and non-life premium volume in the top five European markets, 2000—2003 Total premium volume, €mln €m 250,000 200,000 150,000 100,000 50,000 2000 2001 2002 2003 UK Germany France Italy Netherlands Business Insights Source: Swiss Re, sigma No 3/2004 10 TLFeBOOK Dai-ichi operates internationally and has signed bilateral agreements for re-insurance with large insurance companies all over the world The company's reinsurance partners are based in the UK, Germany, France, Australia, Hong Kong, Taiwan, Singapore, Philippines, Thailand, Malaysia and Indonesia For the fiscal year ended March 2004, The Dai-ichi Mutual Life Insurance Company achieved revenues that totalled ¥5,090.4 billion ($46,990 million) - a decrease of 4% against the previous years revenues of ¥5,255.9 billion Reduced insurance premiums and lower revenues from group pensions were some of the key reasons behind the fall in overall revenues Dai-ichi sold 1.38 million life insurance and individual annuities in 2003, an increase of 3.8% compared to fiscal 2002 The company is in a strong position to launch new products on a consistent basis and leverage its competitive position in the Japanese insurance sector History The Dai-ichi Mutual Life Insurance Company was the first Japanese mutual life insurance company The head office was shifted to its current location in Tokyo in 1938, which served as the Occupation Forces' general headquarters following World War II In 2002, to celebrate its 100th anniversary the company launched two new products; the Dodo Jinsei plan, which provided customers with freedom and flexibility and allowed customisation And, the Yuyu Jinsei plan, launched simultaneously, was primarily intended to meet the nursing and medical needs of middle seniors In October 2002, the Ikiteku plan was introduced, which offered enhancements, including the ability to utilise part of the cash-value of the whole life insurance to pay for policies that provide death and hospital benefits Dai-ichi drafted a new reform policy in fiscal 2003 for improving its performance in all fronts 117 TLFeBOOK The company announced its intension to issue 10 year subordinated bonds (dollar denominated) primarily targeting U.S and European institutional investors, in March 2004 This is expected to benefit the company by around ¥30 billion SWOT analysis Figure 12.13: SWOT analysis of Dai-Ichi Weaknesses Weaknesse Strengths Strength • Strong position in the home market • Partnerships • New products •Lack of other sources of income apart from premium income Lower loan collections Threats Threat Opportunities Opportuniti •Structural Reform •Expansion into group life insurance market •Reinsurance •Stagnant Japanese economy •Strong competition Business Insights Source: Author analysis Strengths Strong position in the home market: Dai-ichi is one of the largest insurance providers in Japan, selling a wide range of life insurance, non-life insurance and pension products to individuals and to groups through its vast network of 48,000 representatives By the end of fiscal 2003, there were approximately 9.06 million Dai-ichi individual life insurance policyholders 118 TLFeBOOK Partnerships: Dai-ichi has strengthened its position in the Japanese market by entering into several global alliances with major companies in the insurance industry to expand its presence in the international market In 2000, Dai-ichi partnered with Yasuda Fire and Marine Insurance Co., Ltd and entered into a marketing alliance with American Family Life Assurance Company of Columbus (AFLAC) and Sompo Japan Insurance Inc As a result of these alliances, sales of non-life insurance tie-up products reached 420,000 and about 1,670,000 cancer and life-insurance tie-up products were sold in fiscal 2002 New products: Dai-ichi has been working on improving its potential by continuously introducing new products, making sure these products are flexible and continually meet the needs of the increasingly more demanding customers The new products launched include life insurance products such as 'Ikiteku Plan' (Plan for the Future) and 'Yuyu Jinsei' (Calm Life) Plan, to serve the nursing care needs of the middle-aged population It also upgraded the existing products according to the clients’ demands Weaknesses Lack of other sources of income apart from premium income: the company receives the majority (about 70%) of its total revenues from premium income, and only 30% from net investment income and fee income This means that the company is overly dependent on its premium income and therefore vulnerable to negative economic conditions Should the economic conditions deteriorate, the company, faced with smaller number of renewals and new business is likely to see its income decline sharply For example, in fiscal year 2003, the premium income declined by 12.2% over 2002 which caused the decline in the company's revenues by 2.6% to ¥5255.9 billion Lower loan collections: Dai-ichi reported decline in its total loan collections in 2003, with overseas loans reporting a 10% decline and home loans experienced an 11% decline Also, consumer loans declined 2% reflecting the company's inability to capitalise on the prevailing low interest rates 119 TLFeBOOK Opportunities "Structural Reform": Dai-ichi drafted a new reform in fiscal 2003 in order to improve its performance, reduce costs and boost profitability All the measures implemented so far have already resulted in a 4.7% decline in operating expenses in fiscal 2003 to ¥450.7 billion, however the company hopes that the cost cutting measures will eventually improve its earnings in the near future Expansion into group life insurance market: Dai-ichi reported a 3.2% increase in group products in 2003 as the company decided to enter the niche employee-funded group life insurance sector As a result of these efforts, Dai-ichi's group insurance products increased by 3.2% in fiscal 2003 amounting to ¥54.2 trillion At the same time, the company started a consulting service for the pensioners to provide retirement solutions and to improve the company's pension funded assets Reinsurance: in Asia, Dai-ichi has expanded its reinsurance business to include approximately 13 firms across five countries Dai-ichi has entered reinsurance agreements with the some major insurance companies such as PPP Healthcare (UK), AMP (Australia) etc., which are expected to enhance its prospects in the reinsurance sector As Japanese companies are becoming more global, the demand for reinsurance assistance is expected to increase in future Threats Stagnant Japanese economy: the Japanese economy is faced with a severe economic circumstances; ongoing stagnation and a collapse in stock prices Unemployment has resulted in lower levels of household income, which in turn has posed a severe burden on policyholders This loss of income means that consumers are cutting down on their expenses including insurance policies Dai-ichi and other Japanese insurance companies have been experiencing a steady decline in number of policies sold and also a greater number of policy cancellations Furthermore, low interest rates and volatility in stock prices in Japan are affecting the investment performance and a combination of these 120 TLFeBOOK factors means that Japanese insurers are faced with exceptionally complex market conditions Expansion outside of Japan is one possible solution to this problem Strong competition: the Japanese insurance industry is not only troubled with the stagnant economy and low interest rates, but the competition between the top Japanese insurance is getting more severe, as the market conditions worsen The life insurance and mutual fund industry in Japan is flooded with major players such as Nippon Life Insurance Company and Sumitomo Life Insurance Company Competition is a direct threat to Dai-ichi’s position in the Japanese market and means that despite decline in growth, the company has to continue to innovate its products and invest The deregulation of the Japanese insurance market in 1996 meant that the Japanese market became even more competitive, since non-life insurers and life insurers can enter each other’s markets and compete Company news In June 2004 Dai-ichi announced that it was considering launching life insurance operations in China and Thailand to gain access to these rapidly growing markets The company plans to move forward with related activities, such as the selection of a local partner The decision comes as the stagnant Japanese market makes it difficult for the insurers to survive, and after Dai-ichi’s major competitor, Nippon Life Insurance has already set up joint ventures in China that began operations last year Dai-ichi Life has around a1% stake in the country’s number two insurer, Ping An Insurance Co of China However, “the capital interest in the company is purely an investment” to gain dividend returns, according to Dai-ichi “If we are to enter the market, it would entail crafting a new framework” Dai-ichi is following the steps of other global insurers who have decided to enter the Chinese market because it offers the strongest growth and is therefore an opportunity to boost performance 121 TLFeBOOK Chapter 13 Report Conclusions 122 TLFeBOOK Chapter 13 Report Conclusions Summary The events of September 11, 2001 in the United States, followed by the global recession has had a significant impact on the global insurance industry, which will inevitably continue for years to come At the moment insurers are trying to abandon markets with weak growth and invest in locations where they can recover their losses China, once a country almost impossible for a foreign insurer to enter has been a member of the World Trade Organisation since 2001 and become a Promised Land to many global insurers China is an emerging market and is now growing rapidly Also low insurance product penetration means that there is great potential for insurers to grow According to analysts, the key for foreign insurers entering the Chinese market is finding a distribution channel, either through a partnership or acquisition of a local partner The following section outlines the major issues that the global insurance industry faces at the moment, including its road to recovery, problems with stagnation of the insurance industry in Japan, potential for growth in the Chinese market, tougher regulations and bancassurance Global insurance industry recovers The events of September 11, 2001 in the United States, followed by the global recession have had a significant impact on the global insurance industry, which will inevitably continue for years to come Global insurers have been coping well with the losses incurred due to the declines in premium income and falls in value of equity across the globe However, it should be noted that the losses incurred by the global insurance industry have now been estimated at $40 billion to $50 billion 123 TLFeBOOK Insurers have announced that in spite of the losses, they would be able to recover and most insurers, as indicated in the profiles analysed in this report, are gradually achieving this aim All of this, however, is happening at a cost The losses incurred by the insurance industry had to be recovered somehow and a surge in premiums was one of the answers This in turn means that many businesses around the world are forced to pay more for less protection; even before 2001 non-life insurance rates were forecasted to increase The declines in global stock markets mean that insurers, now faced with negative returns from their investments, had yet another argument for increasing the premiums Currently, insurers are trying to abandon markets with weak growth and invest in locations where they can recover their losses One of the problems is that some insurers with stronger financial records have been able to become more competitive, since it is mainly the struggling businesses that had to significantly increase their premiums The stronger companies are able to innovate their product offering according to customers’ demands and cutting costs is not their priority Japanese stagnation In the past, the Japanese life insurance industry was all about door-to-door sales of policies by agents Nowadays, however, the market is overloaded with life insurance policies, with many households owning multiple policies According to analysts at Moody’s Investors Service, Japan is an over-insured market, which means that consumers are getting increasingly more demanding and product innovation is crucial One of the major problems Japan has faced in recent times was the difference between investment returns and yields promised to policyholders Another problem is the fact that consumers have started to limit their spending on policies as a result of the recession and unemployment, and the industry has witnessed a significant number of cancellations and a decline in new business This in turn means that insurers have been faced with lower premium income and therefore decline in profitability Three of the top 10 insurers, Mitsui Life, Sumitomo Life, and Asahi Life, 124 TLFeBOOK have been marked with non-investment grade ratings Such problems have initiated consolidation, cost cutting and partnerships and some insurers have looked at the options to demutualise, transforming a mutually owned company into a joint stock company Because of depolarisation, life insurers and non-life insurers have been able to cross-sell their products and expand distribution channels Dai-ichi Life, for example, formed a comprehensive alliance with Sompo Japan, a non-life group formed by the merger in July of Yasuda Fire and Marine and Nissan Fire and Marine China, the land of potential China, once a country almost impossible for a foreign insurer to enter is now a member of the World Trade Organisation since 2001 and has become a Promised Land to many global insurers It is difficult to find a global insurer that is not investing or planning to expand in China - the potential for growth there is enormous China opened its insurance market to foreign companies on a limited experimental basis in 1992 and by the year 2000 there were only 17 foreign insurers in China However, by entering the WTO, the opportunities are much wider and gradually all restrictions on the type of products that non-domestic insurance companies could offer are being eliminated It is forecasted by the Financial Times World Insurance that by 2005 the total business volume will reach $33.82 billion China is an emerging market and is now growing rapidly Also low insurance product penetration means that there is great potential for insurers to grow According to analysts, the key for foreign insurers entering the Chinese market is finding a distribution channel, either through a partnership or acquisition of a local partner AIG is an example of a company that managed to establish itself in China already in 1919 in Shanghai and in 1992 AIG was the first foreign insurer allowed back as China opened the market to foreign competitors Other insurers are now following AIG’s steps and as the profiles 125 TLFeBOOK analysed in this report show, almost all of the global insurers are trying to find their way to the Chinese market and win the share of this precious, fast growing market Stricter regulations UK insurers are facing tighter regulations in view of the collapse of Independent Insurance few years ago, the commercial insurer, and the problems at Equitable Life, the world's oldest mutual life assurer The FSA is expanding its monitoring of the insurance industry Rules are being designed to increase transparency for customers and to strengthen company's reserves Bancassurance Bancassurance, which means selling insurance products through a bank branch network, is still a key strategy for many insurers An example of the importance of bancassurance can be seen in Germany with its pension reform The takeover of troubled Dresdner Bank by Alliaz marked Allianz’s attempt to enter bancassurance, however the results of this deal have been small The acquisition took place when Dresdner faced serious financial problems and Allianz, so far, has been acting more like a rescuer, trying to cut costs at Dresdner Other bancassurance deals include Munich Re, the world's biggest insurer and Germany's second largest primary insurer, which formed ties with HVB Group, Germany’s second biggest bank Also, Assicurazioni Generali set up an exclusive distribution agreement with Commerzbank, German third biggest listed bank At the moment, after the lesson learned by the Allianz and Dresdner deal, bancassurance players prefer strong partnerships rather than full-scale mergers Munich Re claims that its partnership with HVB, although difficult to manage, is cheaper and less risky than the Allianz-Dresdner model 126 TLFeBOOK 127 TLFeBOOK Chapter 14 Appendix 128 TLFeBOOK Chapter 14 Appendix Definitions of distribution channels Intermediary channels: indirect distribution channels utilised by insurance companies, including tied agents, and brokers: tied agents: intermediaries other than company employees, who are remunerated by commission and sell products from one provider Intermediaries could sell from a company office, door-to-door or by other means, including the telephone; brokers (or multi-tied agents): independent intermediaries selling products from different providers from a company office, door-to-door or by other means, including the telephone Direct channels: direct distribution channels utilised by insurance companies other than bancassurers, including: Company salesforce: salaried employees selling from company offices, door-to-door or by other means, apart from over the telephone; telephone sales: sales realised by means of the telephone, but not including telebrokers or other tele-intermediaries; direct mail: sales realised by means of direct mail; other: sales realised through other direct channels, such as the Internet Bank channels: bank distribution networks including: Bank branches of bancassurers: sales realised by means of the branch networks of banks, savings banks and building societies and utilised by bancassurers, namely, insurance companies in which the bank holds a majority stake (more than 50% of its capital); 129 TLFeBOOK banks acting as intermediaries: banks acting on behalf of autonomous insurers or insurance companies in which the bank holds less than 50% of the capital, utilising various distribution channels, including the branch network; other bancassurance channels: all direct or indirect channels utilised by bancassurers other than branch networks Index Aegon, 112 building societies, 130 AIG, 13, 54, 55, 56, 57, 58, 59, 60, 126 Commerzbank, 66, 127 Allianz, 12, 16, 17, 27, 33, 34, 35, 36, 37, 38, 39, 40, 41, 51, 127 consolidation, 49, 59, 105, 112, 126 debt, 100, 103, 104, 114 Alpina, 110 Deutsche Bank, 81, 109, 110, 111 Asahi Life, 125 direct mail, 130 Asahi Mutual Life Insurance, 87 distribution, ii, 11, 12, 16, 20, 27, 28, 29, 31, 38, 47, 50, 54, 67, 70, 74, 86, 87, 93, 95, 100, 101, 103, 104, 124, 126, 127, 130, 131 asset finance, 73 Assicurazioni Generali, 12, 16, 17, 61, 62, 63, 67, 127 Dresdner, 12, 27, 34, 36, 38, 39, 41, 127 Equitable Life, 127 Aviva, 12, 17, 56, 99, 100, 101, 102, 103, 104, 105, 106 equities, 30, 49, 66, 68, 72 Axa, 12, 16, 17, 43, 44, 45, 46, 47, 48, 49, 50, 51, 112 European Commission, ii bancassurance, 11, 16, 20, 27, 28, 29, 30, 31, 38, 39, 100, 101, 102, 103, 104, 105, 106, 124, 127, 131 Germany, ii Beijing Capital Group, 75, 76 growth, 10, 11, 17, 20, 21, 22, 24, 25, 26, 29, 30, 31, 36, 37, 39, 48, 49, 50, 54, 55, 56, 57, 59, 60, 63, 65, 66, 67, 68, 72, 74, 76, 80, 82, 83, 84, 85, 95, 101, 104, 121, 122, 124, 125, 126 bonds, 66, 84, 118 HBOS, 111 branch, 75, 76, 77, 90, 91, 92, 105, 109, 127, 130, 131 health insurance, 35, 45, 62, 82, 91, 96, 101 Bank of America, 111 high net worth, 46, 112 brokers, 30, 34, 101, 105, 130 130 TLFeBOOK policyholders, 40, 46, 49, 88, 91, 95, 116, 119, 121, 125 homeowner, 94 Independent Insurance, 127 premium income, 11, 17, 20, 22, 24, 30, 31, 37, 55, 63, 65, 67, 76, 101, 119, 124, 125 ING, 11, 16, 17, 69, 70, 71, 72, 73, 74, 75, 76, 77, 105, 109, 111, 112 innovation, 84, 125 profitability, 12, 17, 37, 38, 49, 58, 60, 62, 65, 67, 74, 77, 88, 112, 114, 120, 125 interest rates, 24, 49, 68, 74, 83, 86, 94, 120, 121 property, 12, 22, 34, 37, 44, 45, 54, 56, 57, 58, 59, 70, 74, 77, 87, 90, 93, 94, 96, 108, 114 Internet, 55, 70, 71, 74, 86, 87, 90, 91, 130 Prudential, 56, 60, 112 life insurance, ii, 11, 16, 20, 21, 22, 24, 25, 26, 35, 37, 40, 44, 45, 47, 48, 49, 50, 54, 55, 56, 58, 59, 60, 62, 65, 67, 68, 70, 71, 73, 74, 76, 77, 80, 82, 83, 84, 88, 92, 96, 97, 100, 103, 104, 105, 108, 112, 116, 117, 118, 119, 120, 121, 125 recession, 10, 17, 20, 21, 24, 29, 34, 38, 57, 66, 103, 124, 125 risk management, 84, 116 State Farm Insurance, 12, 17, 89, 90, 91, 93, 95, 97 merger, 44, 47, 50, 71, 81, 101, 102, 110, 126 Sumitomo Life, 87, 121, 125 Mitsui Life, 84, 125 tied agents, 28, 130 Munich Re, 127 UK, ii Nippon Life Insurance, 17, 79, 80, 81, 82, 83, 84, 85, 87, 88, 121 unemployment, 125 Norwich Union, 12, 56, 100, 101, 102, 105 Yasuda Fire, 116, 119, 126 online, ii, 37, 81 Zurich, 13, 17, 35, 62, 66, 81, 107, 108, 109, 110, 111, 112, 113, 114 pension, 22, 31, 37, 41, 60, 71, 72, 85, 86, 101, 102, 106, 116, 119, 120, 127 131 TLFeBOOK