XPRIMM News No. 169, December 2nd, 2010

Insurance with yet unexploited potential

mihaela.circu@mxp.ro

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Interview with Florina VIZINTEANU
President of the Board
BCR Asigurari de Viata VIG

XPRIMM: The whole insurance market has experienced negative dynamics in the first six months of this year, life insurance being the only segment that has seen an increase. How do you comment this reality?
Florina VIZINTEANU: It is necessary go a little deeper with the analysis. In the broader category of life insurance we have a segment that has generated growth and which marked a significant evolution, both last year and this year - investment-type insurance: unit-linked insurance, index-linked insurance.
It is very natural because, since the end of 2008, the range of investment possibilities has greatly restricted. The real estate market is still in a state more or less uncertain, so a real estate investment is not very attractive right now, unless there are some special opportunities. In no case do we have the situation from 2005, 2006 or 2007 when there was a great effervescence on the real estate market. Regarding the stock exchange, we are still in the situation in which the Bucharest Stock Exchange is not the most dynamic investment environment.
In this context, great accent was placed on financial and banking products. We, as life insurance companies, come with packages that come in addition to what a bank traditionally offers: the bank comes with a range of savings and investment type products, and life insurance comes to complete these packages.

XPRIMM: What is the profile of the Romanian client interested by index-linked products?
F.V.: We can say that those who came to this area were those who had financial resources. Basically, the life insurance market has developed on the medium-plus segment. If we talk in terms of bancassurance - mass-affluent and above, not mass-market.
Three years ago, we were talking about a development on the mass-market, because we were talking about products that were related to a credit. But now, we return to a market of those who clearly have above average income and who can afford to save money. Moreover, we must keep in mind that this increase is not spectacular. We are talking about an industry where life insurance penetration is very low. And it was low, even in "boosting" years - then we were witnessing very high growths because we were starting from very small volumes.
Indeed, every year there have been very large increases that were somehow related to the economic growth, but even in peak years the penetration rate was very low. Density and penetration rate were very low, even when Romania was on an economic growth trend - this is because when we were on a trend of economic growth, but also of consumerism, and automatically, life insurance was not even then a priority, but consumption was. Currently, we are on a negative trend in terms of economic growth, so automatically, life insurance is not a priority now, either, for the simple reason that people no longer have the available financial resources.
Also, we must keep in mind that there is the effect of the 24% VAT, which automatically comes with an impact, because from the moment people pay extra for all goods, this automatically reduces the financial resources that could be spent on life insurance.

XPRIMM: In terms of life insurance share in the total market, we had an almost constant 20% in the last eight years. At this point, life insurance increases, while the rest, the other classes, are experiencing a decline. How do you think the share of life insurance in the total market will evolve in the future?
F.V.: Its share will increase. In fact, it has already risen, for we had at one time even 26%, we also had 17%, but I do not think we will go over the psychological threshold of 30%.
We see the development of the country "through the lenses" of the economic growth, following several macro indicators. But when we analyze the insurance industry, there are some indicators that position you closer or farther away from certain areas of Europe. And I am not talking about Western Europe, I am talking about the Central and Eastern Europe area, where we are basically in, and anyway we are below that level, both in terms of ratio general insurance versus life insurance, as well as regarding penetration rate, density and average premium.

XPRIMM: In this context, how do you see the evolution of life insurance sales? But that of sales through the bank? Are we heading to one stop shopping, to the financial adviser who can provide a wide range of services, from banking to mutual funds, or do we expect a separation and a specialization of distribution channels?
F.V.: Initially, we had specialized channels. We were going straight on the direct sales force channel on life insurance, and then the banking channels began to develop. In parallel, those networks that sold financial products, loans etc. have appeared. Somehow, I believe that a selective development is not the best solution right now, and I am not talking strictly from the point of view of the CEO of a life insurance company, but from the point of view of the individual, the counselor who sells life insurance. Because he already becomes a person who has experience in the area, who has developed, and who needs much more.

XPRIMM: Given the context of this crisis, how will insurance continue to sell?
F.V.: It is obvious that the life insurance advisor is a character who becomes increasingly better educated and increasingly more complex. When he can offer life insurance in a professional manner, he has already entered the area of financial counseling, as life insurance itself has crossed the border.
Basically, we talk about a border industry between insurance and the financial area. For example, we do not simply sell life insurance covering the risk of death, everyone in the market offers, in fact, life insurance covering the risk of death, but it comes in addition with financial protection, it is savings insurance. In fact, this is how the market has developed from the beginning.

XPRIMM: There are big companies that will come or have already entered the market and have quite sophisticated products. Do you think the market is ready for such complex products?
F.V.: If we talk in terms of sales force, the answer is: the market is definitely ready. As long as we have successfully managed to sell an index-linked type product, which is very complex, the market is certainly ready. But the customer is not very well informed. He is still not educated enough for these products, and it will take years to educate the client.
But the highly sophisticated products are already here. And if the companies address those segments to which these products are dedicated to, naturally, they will succeed. Any company that comes with a sophisticated product knows that the product addresses a specific market segment. Again, we are not talking about mass-market, because you can not discuss about something like that in life insurance and especially in a country like Romania, with its insurance penetration rate.

XPRIMM: What do you think is the most pressing problem facing the Romanian life insurance market?
F.V.: The major problem at this point is related to the Romanian economy - it is the problem that affects us all and it will continue to affect us. Yes, we have an increase in the present, but I am speaking of substantial growths - they will come back a bit later after the economy recovers, this is obvious.
Moreover, the impact of the difficult situation from the public sector over life insurance industry is a major one. I am talking about the general decrease of the salaries, about reduced employment. Life insurance companies and banks had a very good customer base, very serious and healthy, in this area. There were people who had above the average income, with a quite high level of education. The impact of the measures adopted in the public sector will have on the life insurance industry can not be measured yet, but there is a risk, from my point of view.

XPRIMM: Returning to life insurance area, there are at least two major players entering the market this year. How will the entry on the market of two important names, that have been very much expected, change the landscape of Romanian insurance market? Do you estimate that this will determine overall changes?
F.V.: Not in the near future. Companies that are currently on the market have years of development behind them. It takes time to set up the basis and to get the whole operational process of a life insurance company to work. So then, in the next period of time, I do not see dramatic changes in terms of life insurance market structure.
What I do see and I wish to emphasize, however, is the positive side: any new player entering the industry gives us a positive signal. It is a market where there is enough place - returning to what I said earlier, we have a very low penetration rate, so there is and there will be enough place for development. And any new entry in the market, especially if it comes with know-how and it is a company that has experience, can only bring value to the market. From my point of view, it is an encouraging thing.

XPRIMM: What are the objectives for the coming years?
F.V.: At BCR Asigurari de Viata level, basically, this year we've covered all lines of products that could have been launched through the banking network.
A month ago, we launched a scholarship annuity product. The campaign slogan was "Your dreams will come true" - both the dreams of the child and of the parent. We considered it was a time when the need for such a product was obvious in Romania, given both the negative issues the educational system in Romania is facing and the parents' lack of material resources for their children's education.
As you have seen, there is a tendency to go to university studies abroad, a trend that can be very beneficial for our society, and such a product can support at any time such objectives of a child from a family with an average income. Moreover, we believe our client is a client dedicated to his child. This is the Romanian family structure, as the parent generally wants what is best for his child - and we come with this product exactly in this direction.
This is the product we have launched, in addition to investment type products that have high demand. It is a product very "dear" to us and we believe that, through it, we will manage to reach important objectives.

XPRIMM: Thank you!

by vlad.panciu@mxp.ro,
alexandru.ciuncan@mxp.ro

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Florina VIZINTEANU President of the Board
BCR Asigurari de Viata VIG

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FRANKS: Romanian economy starts to recover, insolvency risks decreased
Contrary to statements made by the Managing Director of the International Monetary Fund (IMF), Dominic STRAUSS-KAHN, suggesting Romania is facing default over its very large debt, the head of the IMF mission to Romania, Jeffrey FRANKS, has said Romania had better prospects than some of the Euro-zone countries such as Portugal, Hungary, Ireland or Latvia who encounter difficulties, because, in Romania, the budget deficit has been curbed to a significant extent and the economy is recovering, thus reducing existing risks.
"Very tough measures were taken in Romania, in July, towards cutting the budget deficit. The budget revenue is growing whilst expenditures decrease. Romania's risk premium dropped on the international markets when such measures were taken, because the international markets know that Romania is now in a much more sustainable situation", FRANKS pointed out, according to Mediafax. He explained that, by the structural measures adopted, the country's financial situation had changed from an "explosive" one into one that would allow the budget deficit to drop to under 3 percent in 2012. FRANKS mentioned that the value of a new agreement had not been discussed yet, but assured that the Fund would make available to Romania sufficient financial resources to act against possible issues that might occur in the coming years.
The IMF official pointed out that current issues in Europe are one of the reasons why President Traian BASESCU and Prime-Minister Emil BOC had decided to extend the agreement with the IMF.
The Fund representative noted that, under the current programme with a 2011 budget deficit of 4.4 percent and one smaller than 3 percent in 2012, Romania's public debt will not go beyond 40 percent of GDP, that being the level causing "nervousness" on the international markets when it comes to a country like Romania, the situation being quite different for countries such as the US or Great Britain.
In his turn, Adrian VASILESCU, Adviser to the Governor of the National Bank of Romania (BNR), says STRAUSS-KAHN's statements were political and unsustained ones, according to Realitatea.net.
The BNR official said also that Romania cannot come out of recession through inflation, although a higher inflation could get us economic growth, but the system would become ill in that way. He pointed out that the forecast 2 percent economic decrease by the end of the year was very close to reality for Romania.
Lending could only be resumed by banks when Romanians will have regained their trust in the Romanian economy, according to VASILESCU. He also made the positive point that the banks did not need to intervene to rescue the banking system in Romania. Romania's foreign debt is now worth EUR 90 billion, of which the state has to repay EUR 18.5 billion, BNR - EUR 9 billion and the population EUR 17 billion, according to data presented by Adrian VASILESCU.
by nineoclock, 29.11.2010

Economy showing signs of thawing, but how solid are they?
The first EUR 100 million transaction since March 2008, the revival of lorry sales and the fact that exports continued their 28% growth rate are signals that the economy can return to growth in 2011.
The real estate market, corporate lending and even the stock exchange, by announcing future listings, are showing the first signals that the Romanian economy is trying to pick itself up after two years of recession, primarily with the aid of exports, amid the recovery of economies in the euro zone.
The last transaction worth over EUR 100 million was sealed in Romania in March 2008. At the end of last week, a group of South African investors and UK's Robert NEALE struck a deal in Bucharest for the purchase of FLOREASCA Business Park, in Northern Bucharest, an over EUR 100 million deal, struck just three weeks after AUCHAN and two Belgian investors paid over EUR 30 million for 12 hectares of land at ELECTROPUTERE Craiova.
What does this mean? There is still money for real estate investments and some foreign investors see a business potential in Romania and expect a return to economic growth. Is this another "fata morgana" or are these the "first seagulls" signalling that the shore is close, as lawyer Ion NESTOR recently wondered in an interview to ZF?
Blake HORSLEY, Manager of the Investments Department of COLLIERS, which acted as a consultant in the FLOREASCA Business Park transaction, does not provide details on the deal concluded last week, but says: "Over the next 12 months we will see more transactions involving quality properties at more competitive prices for sellers. (...) There is an opinion on the market, according to which 2011 could see Romania become a target for investors who will buy interesting assets for specialised real estate funds, which are as yet absent from the market, but which will come later".
by www.zf.ro, 1.12.2010

Renewable energy capacity to rise by 2020
The National Energy Regulatory Authority (ANRE) estimates that, by 2020, Romania will boast a total 4,800 MW- renewable energy capacity, in which the largest portion will be claimed by wind power (70 pc), and the rest by hydropower, biomass and solar power. "The effect of the aid scheme on the final price of energy will range between EUR 2 and 33/MWh. This is an estimate which may fall short of reality", Zoltan NAGY-BEGE, General Director of the Energy Efficiency Regulatory Department within ANRE, stated on the 25th of November, in a specialized conference, quoted by Agerpres. According to the latter, by July 2011, Romania has to draft a new National Energy Efficiency Action Plan, which will have to be presented in Brussels. As a matter of fact, statistics show that Romania boasts the highest wind power potential in South-Eastern Europe, especially in Dobrogea, in Constanta and Tulcea areas.
by nineoclock, 26.11.2010

RON 36 million works at Gheorgheni power substation completed
TRANSELECTRICA and ABB-Romania completed modernization works on the Gheorgheni (Harghita County) 220/110/20 kV electrical power substation, works which amounted to a total RON 36 million, Agerpres informs. The Gheorgheni substation is the only injection substation within the TRANSELECTRICA transport network, in the Harghita County 110 kV network, which generates power for the entire county under normal exploitation conditions. In its modernised form, the Gheorgheni substation has the capacity to generate enough power for up to three neighbouring counties, in the event electrical units in neighbouring substations should be faced with problems. The general contractor for works was the Swiss industrial group ABB-Romania. The latter estimates, for 2010, a 10 pc rise in its turnover, and a 15 pc advancement for next year, the company's general manager for Romania, Peter SIMON, stated on Friday, the 26th of November 2010, in a press conference.
by nineoclock, 29.11.2010

GfK: Number of credit card users doubled in 2010
The number of Romanians who are using credit cards doubled this year against 2009, up to 10 pc of the urban population - similar to the level registered at the beginning of 2008. This kind of banking product is most popular with managers and highly educated specialists, GfK announces in a press release. Although the economic crisis worsened in 2010, a possible explanation for this experienced comeback is the banks' focus on promoting credit cards this year, with an accent on various benefits, such as an extended grace period. Those who earn more than RON 1,300 a month tend to use credit cards more than the rest of the population - 17 pc, compared to 10 pc at the level of the whole urban population.
by nineoclock, 26.10.2010

Physical employment records to be replaced by electronic records as of January 1st
As of January 1st next year, traditional physical records of employment will be replaced by databases to which employers will have access via a username and a password. The measure is provided for in the current Labour Code and this is not the first time one seeks to implement it, with the previous deadline being the beginning of 2009.
"There are two steps involved: the first one is to introduce the information in the employment records, and the second one is to scan employment records so they can be returned to employees. One thing is certain: classical employment records will disappear," says Eugen TIFIN, spokesman of Labour Inspection. All information on length of service, pension rights and on each employee's professional trajectory will be electronically recorded with pension houses and with territorial labour inspectorates. At present, there are two places where employees' records can be found: at the headquarters of the employer and at the territorial labour inspectorate (ITM).
by www.zf.ro, 1.12.2010

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