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Interview of the week


Franz FUCHS, Member of the Managing Board VIG, President of the Supervisory Council of ASIROM VIG

I think that when it comes to the MTPL business our objective is the security of our insured because, if we are leaking money due to highly insufficient premiums, sooner or later the financial solidity of the insurance company will become questionable.

XPRIMM: Has the financial crisis changed the way in which VIG approaches the CEE markets and especially Romania?
Franz FUCHS:
No, not at all. We have faced in various countries a certain political and economical impact and we are used to being in similar situations. The Romanian situation is tougher and, by the size of our investment here, a more potent one. We are not happy about the overall development, but we know that this country is undergoing severe changes on this economic environment. We know it will take time, and we don't believe that in 1-2 years the recovery will be done. This is not feasible. It will take time, but time is something that we have. We have enough experience to deal with difficult situations and we have started these strategic and structural changes in our group in Romania - the merger, for example, so we have been a little bit prepared for this situation, but, like everybody, we have underestimated the magnitude of this economic drop. In 2-3 years these things will calm down and I see a positive outlook for the CEE countries.

XPRIMM: We have recently seen the financial results of the VIG Group and in Romania you reported a 16% decrease...
We don't see Romania as a black sheep. We have invested in more than 50 companies and, so far, during its life cycle, a company in a country goes up and down. Unfortunately it seems to go more downward in Romania than we have expected. If you have a portfolio like ours, with 50 companies, you balance something - we have companies where we have much better results than what was expected. We have an extremely solid financial background and we are not changing our strategic approach because of problems in one country. We are doing nothing else but insurance and only in the CEE countries. Romania is an important country in the long run and in 5 years we will look back and we will see that we have gained momentum out of this situation. Unluckily not everybody is treating this country professional enough and cares for necessary changes. So we have the market involvement, on the one hand, the political situation, on the other - plus that the insurance industry itself is not fighting shoulder to shoulder to get on the right direction... We also have a fierce competition: a price war in the current economic situation is completely stupid. And that is why we have taken our hands off the MTPL motor pricing fights.

XPRIMM: What are, in your opinion, the 3 main issues which affect the development of the market?
The first is the economy as such - if profit is not invested in projects, wealth is not growing and people take money out of the country. All in all, this is affecting the insurance market. The second element is that we have not so solid legal environment in the insurance industry. The treatment of claims, the bodily injuries - we cannot foresee easily enough how much we have to pay, sooner or later, for any claim. We are suffering from foreign claims, because there are millions of people living abroad, having claims there, and, this is not a surprise, the transport is pretty much relocated in Romania - the European transport industry, because it is so cheap: the insurance industry is selling policies for a few hundred or few thousands RON as compared with a few thousands EUR in Europe. There is a real price war in the motor insurance field. This situation is really bullshit! To have a contract of 150 or 250 RON on motor insurance doesn't make sense at all.

XPRIMM: Do you encounter these problems in other CEE markets as well or is the Romanian market special?
The economies dropped in a couple of countries, but not as much as here. The problem of increasing foreign claims is a solid one in Romania and visible in the other countries, because in CEE we see much more tourism. We have this phenomenon: the transport industry has shifted from the old Europe to the new Europe in emerging countries. So we have low prices, high commissions - these issues appear in all countries. There are two different reactions if you want to resist on the market - one is to restructure and to reduce your expenses to get the economic benefit within the company, and the second one is start a fierce competition, but fierce competition does not work. If all the environment in the insurance industry would be fine from the claims point of view, foreign claims and bodily injuries than you can start a war.

XPRIMM: During the XPRIMM Forecast Meeting most of the CEO stated that the MTPL tariffs will increase in 2013. Can you comment on that?
I think that when it comes to the MTPL business our objective is the security of our insured because, if we are leaking money due to highly insufficient premiums, sooner or later the financial solidity of the insurance company will become questionable. And what is worrying us is that we took hands off this price dumping in MTPL and saved the insured but now we have with three companies a concentration of MTPL business of 75%. Considering this, if anything happened, the whole industry would suffer, so our interest is that the authorities undertake all the steps to protect all the insurance companies - this is not playing with one's money, is playing with the money of all people and then all the other insurance companies suffer. Others that pay solid claims will suffer, so this scenario is far too negative to risk and, in Europe, the European rule says that the market concentration is about 30-35% and more is not allowed... so the Competition Council should act because 75% is an extreme market concentration. And I appreciate very much the initiative of the CSA saying that we have to have over 90% combined ratio in the calculation. But I would like to see the calculation from the others.

In MTPL, the clients say "I don't care for the prices because if a third party gets damaged the insurer has to pay". If the insurance company cannot pay, is there a danger that I myself, causing the claim get liable? And the damaged part might say: "I come to you because you didn't pay enough for your insurance". I think CSA imposed the right direction but than we have to prove that those things are ok. Then there is the question of reinsurance. We are covering everything ... but I don't know the reinsurance policy of the other companies. If they have a prudent reinsurance policy and the reinsurer is paying all these huge losses, then I say all my statements are taken away.

Maybe we are too prudent in these aspects and we are too conservative and pay too much for reinsurance, but there are also companies that act quite the opposite of this.

XPRIMM: Was your multibrand strategy affected by the economic crisis? Was the merger between OMNIASIG and BCR Asigurari part of the plan?
We don't need more companies. We saw that we started all the sales a bit lower than it is necessary and that we have to be careful not to cannibalize too much in your own companies. In bigger markets we have a maximum of two strong companies. If they had been small, focused on certain client segments or targets, certain target groups, we would have kept them. But in this case we had very similar, big networks and two companies. We managed this but it does not compensate the negative results on MTPL at all.

As far as the management's performance in Romania is concerned, it is always the question of how one perceives these things. We are not happy with the overall performance in Romania; we can't be, because we expected something different. If you look at how the management is performing versus the market we can see that this is quite well done, how the managers have managed the merger of the two companies in one year - it was heavy, but we did it - even though we had many hundreds jobs to handle, we moved two organizations together. We don't know many countries that have managed this in one year, so from this point of view it was done extremely good. We hope the results will come back to place in non-life as in life insurance we perform quite well thanks to our own networks.

XPRIMM: Regarding the mandatory household insurance scheme, there have been a lot of legislation changes - nothing is certain at the moment. Is VIG interested in joining PAID?
No, we have no interest to become a shareholder of PAID, especially given these "in and out and new and old and allowed and not allowed" messages that are completely irritating the clients as well as the potential investors - like we would be. We are supporting the liberalism. If it is really a Nat Cat Pool like it exists in other countries and that is organized by professional insurance calculations with professional insurers behind - this is something we would do. We need very clear rules where we are investing, not for half a year but for many years.

For the insurance industry, it is very clear that the financial solidity is most decisive for the future, price war never helps this is a short 2-3 years it is short term temptation and long term losses, heavy losses. It would be good if we get more professional in all the statements towards the clients. This discussion about PAID is an extremely negative example. This is an example of how not to do it, because sales and clients get completely confused and I cannot imagine that any agent is able to explain to the client what happens there, and then, even if one can explain it, there are 50 pages of conditions. I think that we have to invest in the quality of our people and also in order to get credibility back from our clients - because we have lost credibility in the last 3 years. We wish the economy start growing and support all this development. If the environment is different, more people will stay and will have a different development in this country.

XPRIMM: What are the main things that you would like to happen in the Romanian market in 2013?
I want the Authorities to consult the books of all insurance companies and make clear what must be done in the next 2-3 years in order to have financial stability in the industry. I wish Romania gets back to industry development, maybe to use more the European support if possible. I guess politically it gets more stable and this is positive, and that the economy started growing again and stopped declining and people return in this country and contribute to development.

I think 2013 is key for our industry. We reached the bottom and I know a couple of shareholders that would say never ever go for any other losses on MTPL.

| Published on 17.04.2013

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