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May 11, 2009

News Digest

(FREE) commissioner tells insurers to play fair, Swine flu creates dilemma for industry, Aviva takes steps to strengthen financial fortifications, UK gets first HIV cover, Tesco teams up with Friends Provident, Aviva bolsters Russian pension market position, Malaysia eases limits on foreign insurers, Allianzs successful foray into micro-insurance, Generali enters UAE life market, Aegon rids itself of a costly Asian problem

By Verdict Staff


State commissioner tells insurers to play fair

Thomas R Sullivan, Connecticut’s insurance commissioner has issued a stern warning to life insurance companies and their representatives who use the financial status of competitors to unscrupulously encourage policyholders to switch carriers.

Writing in a bulletin to CEOs of insurers licensed in the state, Sullivan stressed: “Though it is acceptable for companies and their representatives to reference their financial strength, it is not acceptable – and likely a violation of Connecticut law – for companies and their representatives to make unfair or misleading statements, implications or innuendos about the financial condition or solvency of other companies.”

Sullivan warned that his office will scrutinise replacement activity of all insurance policies, including but not limited to, sales promotional schemes oriented towards replacement of life insurance products and product and compensation designs which seem to be applicable only to replacement situations.



Swine flu creates dilemma for industry

Since the report of the first human to die after being infected by the A(H1N1) virus, or swine flu, hit the headlines in mid-April, the world has been gripped with fear that a pandemic of major proportions has struck.

While a major pandemic appears inevitable (see LII 234), whether A(H1N1) is the one to be feared is uncertain.

According to the World Health Organisation (WHO) as at 10 May, 29 countries had reported 4,379 A(H1N1) infections and a total of 49 deaths. Deaths have been confined to Mexico with 1,626 infections and 45 deaths, the US with 2,254 cases and two deaths, Canada with 280 cases and one death and Costa Rica with eight cases and one death.

Allaying fears, WHO director general Margaret Chan told delegates to a conference in Bangkok held on 8 May: “The world is better prepared for an influenza pandemic than at any time in history.”

But on a cautionary note, she added: “The only certain thing that can be said about influenza viruses is that their behaviour is entirely unpredictable. No one can say how the current situation will evolve.”

Meanwhile the avian flu (H5N1) virus continues to claim lives, the WHO reporting 28 cases and eight deaths so far this year and a total of 423 cases and 258 deaths since 2003.



Aviva takes steps to strengthen financial fortifications

Aviva, the UK’s largest insurance company, has taken decisive steps to ward off the impact of any further deterioration in global financial markets.

Among Aviva’s key initiatives during the first quarter of 2009 was an increase in its regulatory capital position based on the European Union Insurance Groups Directive from £2 billion ($3 billion) at the end of 2008 to £2.5 billion at the end of March 2009, after taking into account the 2008 final dividend.

Aviva noted that factors contributing to the increased capital surplus included ongoing operating profit, the issue of hybrid bonds and use of additional re-insurance in its UK life business. While no analysis of the contributions of these factors was provided, the insurer did note that a 35 percent uptake of the final dividend in scrip form accounted for some £200 million of the increased capital surplus.

Aviva also increased its equity hedging, noting that a 40 percent fall in equity markets would reduce its capital surplus by only £200 million at 31 March 2009, while a 40 percent rise would benefit the surplus by £800 million.

Solid first-quarter 2009 results saw Aviva’s worldwide sales rise to £10.3 billion, up 5 percent compared with the first quarter of 2008, Life and pension sales, up 11 percent, accounted for £9.7 billion.

Bancassurance sales were robust, rising 15 percent overall and 20 percent in the life and pensions segment where they accounted for almost a third of total sales.



UK gets first HIV cover

In a UK first for a mainstream insurer, PruProtect has launched a life insurance policy specifically targeting people who have contracted the human immunodeficiency virus (HIV). The product provides up to £250,000 ($370,000) life cover over a maximum period of 10 years.

Providing cover for HIV sufferers has been made possible for advances in Highly Active Antiretroviral Therapy (HAART). Based on data from reinsurer Hannover Life Re (UK). PruProtect believes that 20 percent of people who started HAART treatment in the last five years could now be eligible for cover.

At present, noted PruProtect, this represents up to 7 percent of people currently diagnosed with HIV.

PruProtect noted that premiums for its HIV product will be underwritten on individual circumstances and will generally be higher than traditional life insurance policies to accurately and fairly reflect the risk.

Based on estimates by non-profit body Terrence Higgins Trust, some 97,400 cases of HIV have been reported since in the UK the early 1980s and over 18,000 people with HIV have died during this period.

PruProtect is the trade name for Prudential Health Services, a joint venture between UK insurer Prudential and South African insurer Discovery.



Tesco teams up with Friends Provident

Tesco, the UK’s largest grocery chain, has entered into an exclusive distribution agreement with Friends Provident’s (FP) under which it will distribute the life insurer’s protection products via its stores and its personal finance website.

This positive development comes against the background of a disappointing first quarter for FP which saw sales decrease by 40 percent compared with the first quarter of 2008 to £148 million ($218 million).

The result was well below a consensus forecast by analysts of sales of £205 million for the first quarter.

The insurer announced that it was on track to achieve annual cost savings £31 million, up from £25 million targeted at the end of 2008, a year in which it reported an £871 million pre-tax loss.

FP is currently trading at £0.60 per share, some 50 percent off its 52-week high. In early-2008 FP’s board rejected a £1.50 per share acquisition offer from US private equity firm JC Flowers.



Aviva bolsters Russian pension market position

UK insurer Aviva has signed an agreement to acquire ING Group’s non-state pension fund business and its holding company in Russia for an undisclosed sum. The deal has received regulatory approval and is expected to close later this month.

The acquisition brings with it assets under management of £30.4 million ($45 million) and, according to Aviva, will result in it becoming the leading foreign-owned provider of non-state pension fund products in Russia, with around a 10 percent share of the assets under management in the non-captive corporate pensions market.

“This acquisition will grow our market share of the Russian non-state pension fund business significantly, taking us from a top three foreign-owned player to the leading position,” said Aviva Europe chief executive Andrea Moneta.

Moneta added that the deal also provides the opportunity for Aviva to cross-sell other life and savings products to a substantial customer base.

ING’s Russian pension fund sale follows other recent disposals by the Dutch bancassurer including its 70 percent stake in ING Canada for €1.4 billion ($1.9 billion) as part of strategy to divest itself as market conditions permit of between €6 and €8 billion in what it terms non-core activities.



Malaysia eases limits on foreign insurers

Bank Negara, Malaysia’s central bank, has announced measures aimed at liberalising the country’s financial sector as one of the final phases of its Financial Sector Master Plan initiative launched in 2001.

Of particular significance is a decision to increase the limit on the foreign equity holding in Malaysian-based insurance companies from the existing 51 percent to 70 percent.

In addition, Bank Negara will consider permitting a foreign equity stake in Malaysian insurers of above the 70 percent limit on a case-by-case basis. This concession, noted the banks, will be for companies that can facilitate consolidation and rationalisation of the insurance industry.

Bank Negara has also announced that it will grant up to two new family takaful (life insurance) licences in 2009, a move which it said is designed to move to enhance the country’s position as an international Islamic financial hub.

Takaful companies must have a paid up capital of MYR100 million ($28 million) and are also subject to the increase in foreign equity participation.

In the banking sector, Bank Negara is to issue up to two new commercial banking licences and up to two new Islamic banking licences in 2009 and up to two new commercial banking licences in 2011.

All new licences will be offered to foreign companies.



Allianz’s successful foray into micro-insurance

Small but profitable is how the president director of Allianz Life Indonesia (PLI), Jens Reisch, describes the insurer’s micro-insurance programme launched in 2006.

“For us, micro-insurance has a double bottom line: it has a positive social impact and is financially sustainable for us,” said Reisch.

He added that, even though premium income of micro-insurance business is relatively small, given the right administration and management it generates a reasonable profit.

PLI’s programme gained considerable momentum in 2008 with the number of micro-

insurance policies quadrupling compared with 2007 to some 178,000.

Annual premium income increased by 350 percent to IDR1 billion ($90,000).

In 2008, Allianz Indonesia settled 76 claims for its micro-insurance customers.



Generali enters UAE life market

Advancing its strategy of expanding into fast-growing markets, Italian insurer Generali has been granted a licence to establish a life insurance business in the United Arab Emirates (UAE) by the federation’s Ministry of Economy.

Commenting on the development, Generali Group CEO Sergio Balbinot said: “With the number of expatriates and high net worth individuals coming from Europe, USA or Asia amounting to 80 percent of the population, the United Arab Emirates’ insurance market, which has been growing above 20 percent over the last years, has certainly a still untapped potential for future growth.”

Balbinot added that Generali will pay particular attention to developing Islamic Sharia-law compliant takaful insurance products.

The UAE, which comprises Abu Dhabi and Dubai – the two main emirates – Sharjah Ajman, Umm al-Quwain, Ras al-Khaimah and Fujairah, has a population of about 4.5 million people.

According to Generali, the UAE’s insurance market generates annual premium income of about $4.7 billion of which life insurance represents only 16 percent.

Penetration of life and general insurance combined stands at only 1.7 percent of the UAE’s GDP.



Aegon rids itself of a costly Asian problem

Ending a 16year presence in Taiwan, Aegon has announced the sale of its Taiwanese life insurance unit to Zhongwei Company, a holding company established and funded by a consortium led by the chairman of Taiwanese property and construction company Meifu Development and the president of glass manufacturer Taiwan Glass Industry.

Though the Dutch insurer did not disclose the deal price it noted that the sale is based on a valuation of Aegon Taiwan at about €65 million ($86 million) at the end of 2008.

Aegon estimates the sale will result in a total negative earnings impact of about €400 million in the second quarter of 2009, resulting in a charge of about €300 million to shareholders’ equity.

However, the sale rids Aegon of a unit that recorded a net loss of €103 million in 2008. The sale also enables Aegon to avoid scheduled capital contributions to Aegon Taiwan which in turn will “substantially” lower its required economic capital.

Aegon CEO Alex Wynaendts stressed that the insurer still views Asia as an important growth market.

“We will focus our attention on further developing Aegon’s Asian platform which we believe offers significant growth and return prospects in the coming years,” said Wynaendts.



BNP Paribas increases stake in Korean venture

French bancassurer BNP Paribas’ composite insurance unit BNP Paribas Assurance has increased its stake in Korean life insurer SHC & Life Insurance (SHC Life) from 50 percent to 85 percent under an agreement reached with its partner in the insurer, Shinhan Financial Group, Korea’s second largest financial services company.

No financial details of the deal were disclosed.

Under the terms of the agreement, Shinhan has transferred its 50 percent plus one share interest in SHC Life as follows: 35 percent plus two shares to BNP Paribas Assurance and 15 percent minus one share to its banking unit, Shinhan Bank.

Commenting on the deal, BNP Paribas Assurance chairman and CEO Eric Lombard said: “BNP Paribas Assurance has decided to increase its stake in this joint venture by 35 percent to bring our Korean clients a broader portfolio of products and personalised services.”

Specifically, SHC Life Insurance is to add protection products to its existing range of savings products marketed since its founding in 2002.

In addition to continuing to distribute SHC Life’s products through Shinhan Bank’s 970 branches, BNP Paribas plans to add new distribution agreements with other financial services companies in Korea.

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