The Leaders Issue
How global expansion and demutualization strategies helped six insurers plan for the future.
Insurers experienced another challenging year in 2012, contending with everything from capital constraint to a global economic recession.
But that hasn't stopped six carriers from making big strides both near and afar. And the leaders at the helms of those companies played a vital role in their success.
For carriers such as Prudential, capital grew as the company bolstered its global presence. Others, such as Economical Insurance, are awaiting a corporate restructuring that's expected to solidify their position in the industry.
Numerous carriers ventured down the path to global expansion in 2012, including Japan's oldest life insurer. Meiji Yasuda Life Insurance invested in Indonesian life writer PT Avrist Assurance, in addition to continuing to grow its presence and market share in other global markets.
Thousands of miles away, Spanish carrier Mapfre S.A. is continuing its expansion push in Western Europe and the Middle East. Recently, it opened a representative office in Italy.
International growth strategies are "important for companies like Mapfre who are experiencing adverse economic conditions in their core market and facing the dark cloud of the eurozone financial crisis lingering over their heads," said Stefan Holzberger, managing director of analytics for A.M. Best Europe - Rating Services Ltd.
"[Mapfre] has significant business in Brazil and other parts of Latin America as well as the United States. Most of its major international platforms are operating at a healthy margin of technical profitability as their underwriting performance in those markets is very strong."
Areas like Asia-Pacific also are particularly ripe for growth by carriers. Ernst & Young's Flexibility in Uncertain Times 2012 global insurance report revealed that market concentration in mature markets is compelling growth in new and emerging markets in the region. Also, rising wealth levels and changing population demographics are driving demand for life, retirement and non-life products among Asian citizens.
Prudential plc is meeting those needs. In 2012, the London-based carrier expanded its Asian presence, particularly in the Indonesian, Singapore, Malaysia, Philippines and Thailand markets.
Growth is on the minds of life writers across the globe. "Global expansion is inevitable not only for Meiji Yasuda but also major Japanese life insurance companies, given the weak growth potential in the domestic market led by a shrinking population," noted Seewon Oh, a senior financial analyst at A.M. Best Asia-Pacific Ltd.
Back in the U.S. market, life writers continue to contend with issues like low interest rates affecting sales and a growing regulatory regime. But that hasn't stopped carriers like Prudential from securing themselves as leaders in the market. Newark, N.J.-based Prudential continues to maintain its second-place slot among the top 25 U.S. life/health groups, based on 2012 admitted assets, according to A.M. Best Co.
Along with domestic growth, the company continues to strengthen its stronghold in Japan, added Andrew Edelsberg, vice president at A.M. Best. The vast majority of Prudential's international business now operates in what he calls "an affluent market with an aging population."
Companies' overall quest for global expansion hasn't been without some challenges, however.
Protracted low interest rate environments, intensifying regulatory risk and capital pressures, eroding top lines and a dire need to streamline costs have proven somewhat troublesome, according to Ernst & Young's report. At the same time, insurance-buying preferences in many regions are causing a profound transformation driven largely by the Internet.
But, say industry experts, those conditions aren't hampering carriers' quests for geographic spread.
Here, presented in alphabetical order, are six insurers and their leaders who have made changes to boost profitability and/or expand their international growth strategies.
A New Direction
Economical Insurance is in the process of demutualizing to fund growth.
When Economical Insurance opened its doors in 1871 it was hard to imagine that the Waterloo, Canada-based carrier, which was begun by a group of local farmers, merchants and families wanting to protect themselves from the catastrophic costs of fire and disaster, would one day become a leading property/casualty insurer in Canada.
But fast-forward to today and the company now serves more than 1 million policyholders and boasts nearly C$153 million in annual net income.
Two years ago, the company decided to fundamentally change the game for its future strategy through a precedent-setting demutualization.
"Demutualization will give us far better access to capital that we can use to grow and improve our business," said Karen Gavan, president and CEO. "As a result, we will be able to realize the full potential of our strong fundamentals."
Economical's December 2010 announcement of its intention to demutualize, however, was followed by a flurry of events, including the attempted replacement of Economical's entire board of directors by a group of mutual shareholders who believed the board was not aggressive enough. But they were soundly defeated in a vote at a company annual and special meeting in May 2011.
Shortly after that meeting, the Canadian government began public consultations on a process to develop regulations to allow federally regulated P/C mutuals to convert to share companies.
Economical is awaiting the demutualization regulations from the federal government. It's been more than two years since the journey began, Gavan noted.
In April, Economical received formal confirmation from the Minister of Finance that he and his staff continue to be actively engaged with the company and other industry participants as they continue the task of developing an orderly, transparent demutualization process.
In the meantime, the company continues to build long-term sustainable value. In 2012, Economical's gross written premiums grew 5.6% over the prior year, while total mutual policyholders' equity climbed by C$164.1 million to a record high of C$1.46 billion.
Going Strong
Fairfax Financial's combination of disciplined underwriting and asset investment sets it apart from its peers.
Ask the leaders of Fairfax Financial Holdings how the company differentiates itself from other property/casualty carriers and reinsurers and they'll point to disciplined underwriting combined with the investment of assets on a total return basis.
The Canadian financial services holding company, primarily engaged in P/C insurance and reinsurance throughout the United States, Canada and internationally, operates its companies under its own brand name. It also has a strong foothold in the growing markets of Southeast Asia, Eastern Europe, the Middle East and Brazil--regions Fairfax says continue to grow rapidly due to low penetration of insurance.
Toronto-based Fairfax, founded in 1985 by present chairman and CEO V. Prem Watsa, continues to go strong. In 2012, net earnings totaled more than US$532 million, a significant rise from US$45.1 million a year earlier.
The company says the increase reflects a return to profitable underwriting results after large catastrophe losses in 2011.
Fairfax underwrites a broad, geographically diverse book of underwriting risk on both a direct and assumed basis, which includes "Main Street" personal and commercial property and liability insurance coverage and specialty classes of commercial insurance.
Growth resulted both organically and via acquisitions. In 2012, Fairfax purchased Brit Insurance Ltd.'s runoff business for US$335.1 million, completed the sale of interest in Cunningham Lindsey for cash proceeds of $270.6 million and acquired 25% of Bangkok-based reinsurer Thai Re for $70 million. The latter reflected a long-standing Fairfax strategy of growth--and an opportunity created by the 2011 Thailand floods.
This year, the company is bolstering its presence in the U.S. market. Recently, it signed a merger agreement with one of the oldest and largest U.S. pet insurance providers, Hartville Group Inc., pursuant to which Hartville will become wholly owned by Crum & Forster's United States Fire Insurance Co. Fairfax hopes to close the transaction early in the third quarter of 2013.
Since its inception, Fairfax has increased its book value per share by 23.3% on an annual basis.
Near and Afar
Mapfre S.A. is expanding its geographic spread in Latin America, the United States and other global markets.
Mapfre S.A. may be ranked as the top insurer in its home nation of Spain--it's been No. 1 since 1983--but it's also quickly becoming a predominant player across global markets.
In fact the company, which is primarily focused on motor, multirisk household, health and life insurance, now has a presence in more than 45 countries.
Today, the company founded in 1933 by Agrupación de Propietarios de Fincas Rústicas de España is financially strong. While 2012 was marked by a difficult environment in the Spanish insurance and financial markets, Mapfre Group posted €10.1 billion (about US$13.3 billion) in consolidated equity and a 10.1% rise in premiums. Consolidated total revenue rose 7.5% to €25.3 billion.
Mapfre has consolidated its position in the Spanish market with a 13.9% market share. Its Latin American market share now surpasses 10%. Today, the company is present in all Latin American markets, where it ranks second overall, and is the leader in non-life insurance.
Mapfre moved into the U.S. market in 2008 with what it calls "the largest investment in its 75-year history"--the acquisition of Commerce Group. Commerce is the largest private passenger auto and homeowners insurer in Massachusetts., according to BestLink, A.M. Best Co.'s online financial system.
Also, Mapfre is continuing its expansion into Western Europe and the Middle East. In 2011, it opened a representative office in Milan, Italy, as part of a development and expansion strategy aimed at reinforcing its structure in Europe.
Mapfre started operating in Turkey in 1996 in the Assistance business with the establishment of Tur Assist. In 2007, it made a qualitative leap with the acquisition of an 80% stake in Genel Sigorta and its life subsidiary, Genel Yasam (that shareholding increased to 100% in 2010). In 2012, Mapfre's Turkish group subsidiary, Mapfre Genel Sigorta, achieved premiums of €387 million.
Mapfre has no plans to halt its geographic diversification strategy. It expects to earn revenues in excess of €26 billion as it focuses on expanding its Latin America presence, along with expected growth in the United States and its domestic market, despite the continued economic uncertainty.
A Legend Lives On
Meiji Yasuda Life finds success in expanding into international markets.
Japan's oldest life insurer is still going strong after more than a dozen decades.
That's because Meiji Yasuda Life Insurance Co. continues to live by its motto of working the "spirit of mutual aid and endeavor to become a company that values its customers and provides them high-quality comprehensive insurance services."
That's paying off in a big way. In 2011, the Tokyo-based carrier maintained a 14.3% market share of premium, while life insurance in force climbed to ¥210.7 trillion (US$2.56 trillion) and total assets totaled ¥29.7 trillion (US$360 billion), despite Japan being hit by its most powerful earthquake ever.
The company also is prospering in the United States since its venture there in 1976. It was the first Japanese company to enter the market with its wholly owned subsidiary, Hawaii-based Pacific Guardian Life Insurance Co. Ltd.
Recently, the company began developing Asian and European markets by building business partnerships with established insurers and acquiring ownership interest in local carriers.
In 2012, Meiji Yasuda acquired 30% of the shares of Warta Group, a major Polish insurance group, from Talanx International AG.
In the same year, Meiji Yasuda acquired additional shares in another major Polish insurance group, Europa Group, and increased its shareholding ratio in Europe to 33.46%.
It ventured into the Chinese market in 2010 with its partnership of Haier Group. In May 2012, Meiji Yasuda announced that its foreign joint venture company, Haier Meiji Yasuda Life Insurance Company Ltd., welcomed Peking University Founder Group Company Ltd. as a stakeholder.
Recently, the company invested in Indonesian life writer PT Avrist Assurance as part of an overseas expansion plan. The investment netted Meiji Yasuda a 23% stake of Avrist Assurance, formerly PT Asuransi AIA Indonesian, a life subsidiary of AIA Group.
Meiji Yasuda also continues to bolster its bancassurance sales. Over the past five years, those sales led to a compounded annual growth rate of 15% on the company's premium income, compared to the industry growth rate of 5%, according to A.M. Best Co.
Securing the 'Sweet Spot'
Prudential plc is furthering its presence in the 'vast and diverse' Asian market.
Prudential plc is expanding its presence in Asia, particularly in what its Group Chief Executive Tidjane Thiam calls the "sweet spot" markets of Southeast Asia, which include Indonesia, Singapore, Malaysia, the Philippines and Thailand.
In 2012, the London-based financial services group grew in the "vast and diverse" Asian region. The group reported International Financial Reporting Standards operating profit of £2.5 billion (US$3.8 billion), up 25%, with Asia contributing £988 million, up 26%.
In recent years, growth in Prudential Corporation Asia has led it to become the largest part of the group alongside its sizable operations in the United States and the United Kingdom.
Prudential has more than 24 million insurance customers around the world; 13 million in Asia. It added 1 million customers in the region in 2012.
The region's positive demographics, strong economic growth, sound public finances and favorable public policy environment with a clear preference for private provision of protection, has helped build a rapidly expanding middle class, with a strong and growing demand for Prudential's savings and protection products, Thiam said.
Prudential plc's primary growth metric is new business profit rather than sales.
In 2012, the company's new business profit grew 14% to more than £2.4 billion, with Asia delivering more than £1.2 billion, up 18%, led by Indonesia, Singapore and Malaysia (up 27% collectively).
New business profit in Asia grew more quickly than sales as the company refocused businesses in Taiwan, Korea and Malaysia.
Sales of lower-margin products were deliberately reduced to ensure a consistent focus on higher-value lines, Thiam noted.
2013 is also off to a good start. The group's new business profit in Asia increased 18% to £308 million during the first quarter.
Thiam expects Prudential will enjoy "leading positions in Southeast Asia, where the outlook for long-term, profitable growth remains extremely favorable given low insurance penetration and a rapidly growing, increasingly urbanized and wealthy middle class."
Road to Prosperity
Prudential remains a life insurance market front-runner.
Prudential is cementing its position as a market leader.
Once again the carrier, which was founded in 1875 as the Prudential Friendly Society by insurance agent John Fairfield Dryden, was ranked second among the top 25 U.S. life/health groups, based on admitted assets as of Dec. 31, 2012, according to A.M. Best. Co.
Prudential reported separate account assets of $253.3 billion as of Dec. 31, 2012, a 16% increase from 2011. Admitted assets of Prudential Insurance Company of America topped more than $283 billion in 2012, a 15% change from the prior year.
Like its trusted brand symbol--The Rock--Prudential is known for strength, stability, expertise and innovation in the life market. This year, it further strengthened that position with the $615 million acquisition of Hartford Financial Services' individual life insurance business.
Prudential touts "record high" earnings in its retirement business for the first quarter of 2013, driven by the first full quarter of results from two pension risk-transfer transactions in 2012.
Chairman and CEO John Strangfeld feels the company is "off to a good start" to achieve its goals this year. Retirement, U.S. individual life and international insurance "all contributed significantly" to first-quarter results.
Prudential continues to strengthen itself in global markets. In fact, about half of its pre-tax adjusted operating income from its Financial Services Businesses divisions stemmed from its international insurance businesses in 2012.
Japan is Prudential's largest hub of operations outside the United States, primarily focused on traditional life insurance products. The company entered Japan in 1987. In 2001, it expanded its business there with the acquisition of a failed Japanese carrier that it renamed Gibraltar Life Insurance Co.
Significant growth in the Japanese market also came in 2011 when Prudential acquired AIG Star Life Insurance Co. and AIG Edison Life Insurance Co., the Japanese life insurance subsidiaries of American International Group, for $4.7 billion.
This year, Prudential hopes not only to bolster its position in Japan but also continue to build developing businesses in Latin America, China and India. The company operates in Italy, Poland, China and India under the "Pramerica" name.
By Lori Chordas, senior associate editor, Best's Review: Lori.Chordas@ambest.com
