Allianz SNA is one of the most active insurance companies in Lebanon and the Middle East. Executive sat down with its Chairman and Regional Chief Executive Officer, Antoine Issa, to talk about the state of the insurance industry and the interconnections between consolidation, governance and institutional investments.
E How do you view Lebanon from the perspective of a regionally active multinational insurance company?
I have worked in most of the countries in the ME region, in some directly and also as a board member of insurers working in these markets, so I have lot of experience in the [region’s] insurance sector. I can tell you that, despite everything, the level of technical know-how and the level of quality, and pricing of the insurance market in Lebanon is probably the highest [in the region] still today.
E Is that surprising, given that other, larger markets in the region have seen a great deal of insurance development?
I was asking myself: how can that be when you have 60 companies in a small country like [Lebanon] and very little regulation over the insurance sector as well as all other sectors in economy? [This is a country where] you don’t have good governance, and sometimes, you don’t have governance at all. So how can it be that you have a very good level of technical know-how, of pricing, of profitability, of innovation and so on? I think this is not contradictory because when you have 60 companies, you have 60 chief financial officers, 60 chief risk officers, insurance technicians, etc. I think [this situation] is promoting competition, innovation and self-discipline, and thus is making Lebanon what it is today.
E But the insurance industry in Lebanon has seen relatively little growth or innovation as of late. So what is the problem?
The market is becoming too fragmented with too many small companies. The lack of strong regulation, strong capital and strong companies is not encouraging and is sometimes not allowing small well-managed companies to grow. But when you want to grow and institutionalize, you need good governance. Otherwise, it is impossible. So we now have some kind of bottleneck. We have some very good small companies that are very well managed, but they are not able to grow, merge or open their capital.
E Currently, investment opportunities for Lebanese insurers appear restricted due to outdated regulation and other factors. Do you have proposals regarding how insurers can work as institutional investors in Lebanon?
It begins with the new law and new regulation, plus incentives for companies to move gradually into new environments. The regulation is not very restrictive. You have the possibility today, in this country, to invest 50 percent of your money abroad. When you allow companies to invest abroad, there is a larger horizon when compared with other jurisdictions, like KSA or Egypt, where you can only invest locally. However, we would welcome more local investment opportunities, such as funds that are tailored for the needs of insurers. But, it cannot be some small closed-ended fund; that doesn’t give me enough comfort. I need funds that are listed in a strong capital market. We need to have a change of mindset and need to start agreeing that we need a minimum [level] of infrastructure.
The lack of strong regulation, strong capital and strong companies is not encouraging and is sometimes not allowing small, well-managed companies to grow
E What would be the mentality shift to facilitate insurers to act as institutional investors?
To have listing, you need trust in the capital markets and the Capital Markets Authority. Today, people don’t [have that] trust. Why are people not buying? Because they have not seen transparency. We have good names [of listed banks on the stock market], but we don’t see the transparency that one would expect from listed companies. We need more companies to list, and we need to have strong governance, to show us that when we list a company, or tomorrow list a utility, Electricité du Liban or Eau du Liban or whatever, we can as consumers and as institutions start buying the stock because we have good control and good governance. To do this [for the private sector], however, you first need the public sector to accept [a high] level of governance and transparency.
E How would you describe the relationship between Allianz Société Nationale d’Assurance (SNA) and the Middle East and the relationship between Allianz and SNA? Is what you are going through in the regional and Lebanese insurance markets comprehensible from the perspective of the corporate head office?
Allianz SNA is a company that is now 100 percent owned by Allianz Group. This was a gradual move by the founding shareholders. The name of the company – Société Nationale d’Assurance – was chosen to signify from day one of our history that this was a company with Lebanese management. The Lebanese shareholders always believed that we needed to have a strong foreign partner, not only to develop the insurance market in Lebanon, but also to develop [it in] the Middle East. [The acquisition of 100 percent of SNA] came at the end of a very long and successful gradual journey to team up with a top-notch foreign partner.
E What is the role of the Lebanese operation for Allianz?
Allianz is using Lebanon as a platform to develop the rest of the Middle East. Out of Lebanon, we developed Allianz Egypt, and also started our journey into Saudi Arabia. Today Allianz is again using Lebanese talent to further develop these two markets, but also other [new] markets in the Middle East. We are using Lebanon as a hub with a talent pool and expertise in insurance. I think that with time, if we see better governance, regulation, more transparency in the law, in fiscal transparency and in the way we operate here, many multinationals will use Lebanon as a talent pool for the rest of the Middle East, as they did in the past. They went out [in part] due to the war but mainly due to lack of regulation and transparency.
E How many countries are under your leadership in the Middle East?
I have the whole Middle East, but the core markets that we are working in are Saudi Arabia, Egypt and Lebanon. We have joint ventures in Jordan and in Bahrain, but these two markets are not priorities for us because of their size. We have an operation in the United Arab Emirates, but it is in the DIFC [Dubai International Financial Centre], and thus we are not operating in the local market directly. We are operating in the local market by fronting with local companies. We are looking, as one of our next developments, to enter the UAE market.
E Do you have a consolidated view on your market position in the Middle East region?
I think we are one of the larger multinational insurers in the Middle East region. We don’t have many multinationals in this region and this is perhaps because we don’t have many [multinational] competitors but also because we are in the largest markets. In the UAE, which is the largest market for insurance in the region, we are fronting locally and have a presence; the KSA is the second largest market and we have a strong presence there. The fourth largest [insurance market] is Egypt and we are there and the fifth is Lebanon and we have a presence [here too]. Out of the top five [markets in the Middle East] we are missing Qatar, but Qatar is closed to foreign players.
E How is the split between life and non-life insurance in your portfolio?
In Lebanon we are split 50:50 between life and non-life; in Saudi Arabia we are 75 [percent] non-life and 25 life, because the market is very much into non-life and the size of business in non-life is very big. However, we are a dominant player in life with our small share. In Egypt, it is the reverse: 20 percent property and casualty and 80 percent life. The reason is that we identified opportunities in life when we entered the Egyptian market, which at that time was a virgin market for life insurance and also untapped by bancassurance, which we introduced to this market. We are scaling up this position now and we will continue development in life insurance.
Why are people not buying? Because they have not seen transparency. We have good names [of listed banks on the stock market], but we don’t see the transparency that one would expect from listed companies
E What is your target in terms of the relationship between life and non-life in Egypt?
Our ideal is to have a good balance between life and non-life like we have in Lebanon. Jordan is also an example of this balance as we have 50 percent life and 50 percent non-life. Allianz is a non-specialized company that is targeting all segments of corporate and retail insurance and all lines of business between life and non-life. Allianz is also known as a multi-access, multi-distribution company with our own sales force, with bancassurance, with brokers and with direct sales. That is why we will participate in the upcoming digitalization conference [of GAIF and ACAL in Beirut next month].
E One of your high-end experts participated in the GAIF general conference last year as speaker.
That was Solmaz [Altin], our chief digital officer. This time, I’m bringing our head of market management and distribution officer [Jean-Marc Pailhol] because we want to talk about digitalization from the distribution perspective. Digital for Allianz is a priority and part of our strategy.
E How many banks are you working with in product partnership in Lebanon?
We have [partnerships with] 11 banks.
Digital for Allianz is a priority and part of our strategy
E What is the rationale behind working with so many banks in Lebanon?
The strategy of Allianz is [to offer] multi-access. We need to look at the customer. If he wants to deal with us, we should accept to deal with him [through whatever channel]. We are an insurance risk carrier, not a distributor, and we don’t have any conflict of interest in this. In our opinion, it is the customer who should decide which distribution channel he or she uses and all of the distribution channels have a role and an added value.
E Is it correct that the market position of Allianz SNA in Lebanon has improved in recent years?
Yes, on a composite level we are number one for life and non-life. We aren’t number one in life nor are we number one in non-life, but when you take both combined, we are number one. I think what is making us number one is having this multi-access and multi-segment strategy. Because we want to be multi-segment and offer a comprehensive range of solutions for institutions and for retail, we have been able to become number one on a consolidated base. The challenge for us now is to become number one in each line of business and in each distribution channel.
E Are you looking to roll out services in new markets, like Iraq?
As I said, our priority, if the law and regulations allow us to do so, is [to establish a stronger local presence] in the UAE where we already have a local fronter. Another market that we are looking at is Iran. I visited Iran in 2015 and it is one of the largest markets in the Middle East. However, before having a local presence in Iran, we are still waiting until all sanctions are lifted. It is a process.
E But presence in Iran would be through Allianz SNA, not from Germany, Turkey or France?
Yes. We are working on it out of Lebanon, but we won’t see a local presence before all the sanctions are lifted.
E What is your perspective on the Lebanese market in 2017/18, in terms of growth potential and intensity of competition?
Growth [of the Lebanese insurance market in recent years] has been limited to 3 to 4 percent [per year], and we became number one because we were growing faster than the market. In 2016, we had growth of 6 percent, which was above market. I can tell you that 2017 has started quite well. The market here is a retail market, and retail is very emotional. [To date the positive development in 2017] is linked to the new government, the reconciliation between the parties and the movement toward rebuilding the country. This was extremely well received; January was a great month for us and February also was a good month, particularly if we compare them to [the same months in] 2016. As far as we are concerned, we have confidence that we will have similar growth as in 2016, if not more. We also believe that the market will witness larger growth than in the past two years.
Our priority, if the law and regulations allow us to do so, is [to establish a stronger local presence] in the UAE where we already have a local fronter
E Some insurance CEOs have the perception that there are too many companies and too much competition on price in the Lebanese market and that this extreme competition is damaging the market.
I don’t have this perception. I think that the number of companies and the number of distributors in the country is creating more innovation, allowing the sector as a whole to increase the penetration rate. Although [insurance penetration] here is the largest in the region together with Morocco with 3 percent, we are still a virgin market in terms of percent [of GDP spent on insurance], and we still have a lot of people who are not insured. The number of insurance companies is definitely creating competition, but not to the extent of reducing the premium. The quality of the management of these companies, even the small ones, is [such that they are] competitive, but not crazy. We still maintain a sound level of technicity in Lebanon.
E Were there not, for example, large medical group contracts that were hotly contested and moving from one provider to the next due to price wars?
This is true, but the competition is still not crazy. We have much tougher competition in other markets, and sometimes we see crazy competition [there]. Also [in Lebanon], we are selling to people that were not insured in the past, and we are still seeing that the market is virgin. I’m quite optimistic for this [reason]. Having said that, I think we will gain by having better regulation and fewer companies, with a higher level of capital. This will definitely help, but I’m not sure that the problem is in the number of companies. I don’t have the same position as many of my peers who are saying that it’s bad to have a lot of insurance companies. On the contrary, we need to grow and I would be glad to have 60 very strong companies tomorrow. I’m saying they should regulate themselves and their capital should be stronger.