Strategies of international insurance companies to shape emerging markets

1
Strategies of international insurance companies
to shape emerging markets

• Hannes S. Chopra
• CEO ROSNO
• Representative Allianz SE in CIS
• Executive vice-president Allianz SE
• Moscow, 2007

2
Emerging Markets High Risks or Great
Opportunities
Market entry Allianz Success Stories
Summary
3
Markets Growth Rates (GAGR 2006 2004)
Emerging Markets (CIS, India, China, Brazil,
etc.) key growth markets and very attractive for
global insurers
Mature Markets
Emerging/Pre-Emerging Markets
42
27
Russia
USA
2,2
3
45
19
Western Europe
India
15
3,3
22.5
Japan
China
19.5
-3,7
-3,6
L/H
P/C
Source Sigma Reports, AZ Data For Russia real
market, P/C/H and L
4
Core Growth Markets at a Glance, 2007
Russia

• 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

• 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

India

• 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

• 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

China

• 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

• 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

5
Entering emerging markets may be thus described
as follows If You Cant 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
Emerging Markets High Risks or Great
Opportunities
Market entry Allianz Success Stories
Summary
7
19
Growth Markets Where Do We stand?
9m 07
7,9
2
7,9
4,8
3,1
61
39
All Figures for 3Q 2007

• Including non-consolidated OEs (Thailand, India,
  ROSNO, Hana Korea, Pakistan),
• 2006 Figure

8
Allianz Strategy Being in the Right Markets at
the Right Time
Penetration (total premiums as of GDP)
14
Mature, mixed growth
12
Japan
Taiwan
Korea
10
High growth
Australia
8
Hong Kong
Singapore
Malaysia
6
Czech Republic
Thailand
Ukraine
China
Russia
Slovakia
4
India
Immature
Hungary
Bulgaria
Poland
2
Romania
Kazakhstan
Indonesia
0
100
1,000
10,000
100,000
-2
Capacity (GDP/capita in USD)
CIS
Source Dresdner Bank, Swiss Re Sigma, Deutsche
Bank
New Europe
Asia-Pacific
9
Allianz Poland Among the Champions
Greenfield Further Acquisitions
Success Story 1

• Allianz Poland

Allianz 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

• Efficiency Strict cost control
• Distribution Focus on own branch network and AZ
  exclusive brokers
• Value chain Acquisition of Pekao SA bank

Success Drivers
10
Bajaj Allianz Life India Focus on Aggressive
Distribution
Success Story 2
2002
2003
2004
2005
2006
2001
4 among 11
5 among 12
5 among 14
6 among 14
3 among 15
1 among 15
Major Actions Performed
Success Drivers

• Rapid increase of distribution network agents
  and sales offices.
• 2005 2006
• Agents 4 500 108 000
• UM 2 000 5 700
• Offices 110 450
• Market 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

• To be present everywhere not only big cities,
  but smaller ones
• To be simple in products range to concentrate on
  the fast growing segments and most popular
  products within those segments
• 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
11
Allianz Life China Hard to Enter, Quick to Grow
- with a Strong Local Partner
Success Story 3
Entry path

• First subsidiary established
• Restart of insurance market after reopening the
  Peoples 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.

GPW (EURO m)
1917
4 times growth!
1978
1978-1993
1994
1994 - 1998
Success Drivers
1998

• To lobby the insurance market development among
  local authorities
• To become the provider of Insurance industry
  knowledge and Know-How to the market
• To expand operations on related markets banking,
  asset management
• To set-up a Partnership with strong local Partner

1999-2001
2003
2006
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HUNGARY How to make an Acquisition Successful?
Success Story 4
1991 - 1993
1995 - 1998
1994
1999 - 2006
1990

• Start of the Life Insurance
• Establishment of two pension funds
• 100 ownership of AZAG

The State sold in a privatization tender the 49
of the shares of Hungaria Biztosito to the
Allianz AG
Break-even in profitability
Turnaround of the motor portfolio 60 of total
GPW

• Sustainable EVA
• Dividend Payment from 2001

GPW 2006 672 mio, Market Share 25.6, Market
Position 1

• Market segmentation and Risk-Based Tariffs
• Strong IT Support WEB-based platform was
  implemented in 2002
• Best-in-Class Customer Service
• Value chain development in 2006 Allianz Bank was
  set-up 25 thnd clients, 18 thnd bank accounts
  already

Success Drivers
13
Allianz in Russia Aggressive Profitable Growth
Success Story 5
2007
2001
2004
2005
2006
1991
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
Acquisition of Medexpress VMI specialized
company
Allianz Russia representative office establishment

• Market segmentation
• Strong branding
• Aggressive regional development and agents
  network build up
• MA

Success Factors
ROSNO Group performance, GPW (USD m) and Market
Share ()

• 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

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Allianz in Russia and CIS now
Facts

• TOP-3 on Russian real insurance market
• Best-in-class Customer service provider

GPW Breakdown 2006

• GPW 962.2m
• AuM 479m
• PAT 32m

Figures 2006
Provision
Performance
PAT Breakdown 2006
VMI
Kazakhstan rep. office
15
Well diversified presence in Russia
GPW 2006 (in EUR m)
Allianz Russia NL
28

• more than 8,500 agents
• more than 100 branchesand 1,100 points of sales

Progress-Garant (PG)
ROSNO
424
Sales Moscow vs. Regions
Moscow Moscow region
Progress-Garant ()
SeveroZapadnaya
VolgoViatskaya
DalneVostochnaya
Centralnaya
ROSNO ()
ZapadnoSibirskaya
SredneVolgskaya
VostochnoSibirskaya
Uralskaya
SredneSibirskaya
Yugno Volgskaya
Allianz expands its distribution network with
clear focus onregional development and retail
16
Regional growth potential. Regional expansion is
the main priority in CIS
Moscow
EUR 124bn10.4m
Russia
St. Petersburg
Tatarstan
EUR 24bn4.7m
EUR 13bn3.8m
Sverdlovsk
EUR 13bn
Tymen
EUR 28bn9.7m
Belarus
EUR 59bn3.3m
EUR 80bn46.5m
Ukraine
Kazakhstan rep. office
EUR 58bn15.4m
Kazakhstan
Moldovia
Kyrgyzstan
Georgia
Tajikstan
Armenia
Uzbekistan
EUR 15bn8.5m
EUR 12bn27m
Azerbaijan
Turkmenistan
Allianz is growing in main economic centers.
1) CIS Commonwealth of Independent States 2)
2006 3) 2002
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Emerging Markets High Risks or Great
Opportunities
Market entry Allianz Success Stories
Summary
18
Efficient Ways of Market Entry Analyzing the
Pros and Cons
Strategy
Pros
Cons

• Internal Standards implementation from the first
  day
• Transparent financial and quality control from
  the first day
• No re-branding issue

• 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

Poland, Czech Republic, Ukraine, China, India
Suitable for the long-term investments, and the
new segments where the other market players do
not have enough experience and knowledge

• 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

Acquisition? (control stake)
Hungary, Bulgaria, Croatia
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

• 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.

Slovak Republic, Romania, Russia
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Efficient ways of Companies management

Wide distribution
Efficient Business Processes
TOM

• Business Steering/Central Functions

• Technical Product Provision (TPP)

• Sales/
• Distribu-tion

• Marketing/
• CRM

• Processing

AZ NEW Europe and AZ Asia Pacific
Target operating model!
Multi-sales channel approach!
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Allianz shaping emerging markets
Russia

• 3 on the market
• Major acquisition on Russian insurance market
• New standards of insurance new products, new
  customer service standards

Hungary

• 1 on the market
• Customer value-chain fulfillment. Allianz-Bank
• Strong IT solutions

India

• 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
Shared Services Center



Joint WEB platform of Allianz Polska and Allianz
Pojistovna (Czech Rep.) for Motor insurance sale
Joint Financial services center (accounting) for
Allianz Polska, Allianz Zagreb and Allianz Tiriac
Same operating structure (TOM) for all companies
of the Group
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• Thank you!