Rangam BIR, General Manager, ALLIANZ-TIRIAC Asigurari
From our perspective, delivering profitability towards our shareholders is a commitment which is given by our company towards the shareholders - in this case, both our shareholders, ALLIANZ and TIRIAC. For us it is quite important, because it defines the financial strength and stability of the company, and this is something that will continue to be an important part of our business strategy.
XPRIMM: ALLIANZ-TIRIAC has always put its stake on profitable growth rather than market growth. What targets do you have in terms of profitability?
Rangam BIR: From our perspective, delivering profitability towards our shareholders is a commitment which is given by our company towards the shareholders - in this case, both our shareholders, ALLIANZ and TIRIAC. For us it is quite important, because it defines the financial strength and stability of the company, and this is something that will continue to be an important part of our business strategy. Of course, as a company we have been concerned with the overall profitability of the Romanian market over the last few years, but we continue to streamline our operations in order to generate the level of profit which is expected by our shareholders - which means basically to deliver a profit above the cost of capital. We, as insurers, do not have to go back to our shareholders to request for capital for day to day business, we can sustain our own business and we also have the flexibility to invest in our own development, in our people, in our sales channels, in new products and new projects. From that perspective, of course profitability is one of the keys for moving forward for ALLIANZ-TIRIAC.
XPRIMM: Can you give more details regarding the targets you have until the end of this year, in terms of profitability? Are you looking at a specific number?
R. B.: This year is especially difficult because there have been a lot of changes from the economic perspective. Also, some of the austerity measures which were taken by the Government have had an overall impact which, in turn, will have an impact on our plans - we have now the VAT increase, in the middle of the year, which was not planned for, and that will have an overall impact on our profits; we also had some nat cat claims coming from the floods, which also had certain impact. All these and a few other factors make it difficult this year to predict the results. In terms of the level of profitability, we will also have to adjust our level of profitability in line with the overall evolution of the business volumes. As the business volumes are lower, we expect that will also have a certain impact on the profitability. So, even if we have certain profit plans, which we hope to be able to deliver, it is very difficult under the current circumstances to predict whether it will be a higher or a low level. However, we expect to be profitable at the end of the year.
XPRIMM: How did the crisis affect ALLIANZ-TIRIAC in particular, as a company, and its activity on the Romanian market?
R. B.: Of course, the crisis has had an impact on our top line. Due to the economic crisis, we had a decline in car sales, also on the leasing business. We have seen that car sales have dropped by more than a quarter this year, and that has had an automatic impact on our portfolio, on our top line. Consequently, we have had to adjust some of the things we are doing as part of our business activity. We also had to sympathise with some of our clients in the situation they face. We had to take a look at our product portfolio, review whether our products were in line with the crisis environment. We tried to see if there was a need to adjust some of the products in line with our clients' ability to buy, and we have to be honest: the behaviour of some clients has changed as a result of the crisis. So, we have had to make some adjustments to our product portfolio, we have also had to keep a constant focus on our costs, to make sure that we have a tight control in order to deliver the level of profitability we expect. At the same time, we have continuously looked at our business processes, to insure that we can improve the efficiency and productivity, to be able to deliver the same level of quality of service that our clients expect, but of course, in the current environment and with the certain level of cost-efficiency that we can afford in this environment.
XPRIMM: Regarding the position on the market, ALLIANZ-TIRIAC has a history of being the first on the Romanian insurance market and now it seems that, after the first quarter and second quarter results, ASTRA seems to be the leader and ALLIANZ-TIRIAC has the second position. How can you comment on that?
R. B.: As we see it, we are only in the middle of the year right now, and we still have the rest of the year to go and we will see how the year turns out, in the end. For us, being the market leader is not just a question of boosting the top line we have. When we view ourselves as a market leader, we view ourselves as a market leader in a range of factors. For example, the brand of ALLIANZ-TIRIAC is an extremely strong brand, which defines certain standards, which defines certain expectations the clients have towards us, in terms of what we offer to our clients, what kind of promises we make and what we can deliver. The reputation is also enhanced by our financial strength, our stability and our guarantee, not only towards our clients, but also towards the overall Romanian market, towards the regulators, towards our shareholders, in terms of how we are able to cope with our own financial strength during the crisis. I believe that, when the clients are looking to buy, they look at all of these aspects. The ability to sell is not simply defined by boosting up sales in a big way, but also by the other values that we, as a company, offer to our clients, and I think if you take into consideration these values, ALLIANZ-TIRIAC is still the leader of the market, and will continue to be the leader of the market. That is and will be reflected in the trust our customers have, and in the fact that they will come back to us. Even in these last few months, clients have actually come back in a range of different product lines, they have bought our products and continue to be satisfied with the services we offer. So, from that perspective, we remain very confident that we are going to remain the market leader.
XPRIMM: You mentioned a little bit earlier about the VAT increase, from 19% to 24%, and you said it was going to have a major impact on the ALLIANZ-TIRIAC business. How can you comment on that?
R. B.: The increase of the VAT will for certain have an impact on overall costs, which we as a company encounter on a day to day basis, but that is not the most important aspect. The biggest problem is coming from the claims side; here, we, being a major motor insurer, have to pay higher claims costs coming from the motor claims, the spare parts, the labor and a range of other activities that we have do in order to settle the claims. And all these costs have increased, and that will have a direct impact on our results in terms of increasing claims costs. Naturally, we tried to mitigate those costs with a range of different actions, in terms of addressing the costs base, and so far we have been quite successful in keeping that stable. But we have to see how the whole thing develops during the whole year, that is something we believe will have an overall impact, in terms of increasing costs. Whether that means we need to increase prices is something that remains to be seen. We also have to be aware, as a company, of the overall economic environment, and when we look at our clients, to try to understand to what extent they are able to cope in this difficult environment with these changes, under the level of inflation that we are all seeing. As a company, we will take a realistic approach, we will see to what extent price increases are really necessary and on what segments, and we will take pragmatic step by step decisions, but our intention is not to go with an over the board increase of prices, at this stage, because we believe this will also have an impact on our customers. We are trying to maintain a fair balance between the situation our customers are facing and between the situation we are facing in terms of costs, and we try to have a pragmatic approach.
XPRIMM: Looking at the market in general, do you think that the other players will choose to increase the prices?
R. B.: I would expect that there would have to be an increase of prices, in general. Depending upon the line of business, the percentages might differ, but companies would have to have an increase in prices, because this is anyway coming on top of the overall claims situation on the market, which continues to be quite high. And, if companies want to maintain a certain financial strength and also go back to the path to profitability, they would have to have an increase in prices during the course of the year, especially on the non-life side.
XPRIMM: Speaking about the most important segment on the Romanian insurance market, the motor insurance one, which represents more than 60% of the market, what is your opinion: how profitable is this line? Can you comment on the claims ratio? Is it higher in this period?
R. B.: For us, the claims situation is quite stable. But that is also due to the fact that in the past years and months we have taken some actions from our side to keep a control on the overall claims situation. We don't see any dramatic increase of the claims on the motor side, though I must add with a word of caution that we do see a tendency of increase on the MTPL side, because there is also an increase on the moral damages, towards the European level. This is basically inevitable as Romania becomes more and more closely integrated in the European community. On the MTPL side, the levels of those claims might increase; the frequency will stay at a stable level, but those claims increases on the MTPL should be expected. We see some trends in that regard. But, overall, on a company perspective, because of all the initiatives that we have taken in the market, we have been quite stable with our claims, there is even some improvement in some of the segments where we have taken the necessary action with our pricing together with claims. We are fairly placed on the market, today, on the motor segment, I would say.
XPRIMM: Do you have any restructuring plans regarding the portfolio?
R. B.: I think it is very healthy, from a market perspective, and it comes with the natural development of a market, that as the market matures, the other lines of business grow together with the market, so there has to be more dominance of provisioning, as we say, together with the life business, as clients put aside more of their resources into preparing for the future – so, more life insurance. Also, as the assets acquired by the clients increase with increasing wealth, they need to protect those assets including household, other assets, and so other classes of business, like liability, become more proeminent. So, I think as part of any natural development, there should be a growth in the other lines of business. We hope, following our own efforts and actions that we have taken, to develop these other lines of business, to have a more diversified portfolio - that is going to be a part of the process.
XPRIMM: Regarding the mandatory household insurance, how do you see its implementation for the Romanian insurance market? Will you reconsider the decision regarding AZT's enter in PAID?
R. B.: As a matter of principle, I think ALLIANZ-TIRIAC as a company is very supportive of the whole effort of organizing the insurance mechanism to support the people who are exposed to catastrophic risks. We have a lot of experts that have been working in terms of building up our own information base, regarding the risks which are faced by the Romanian people: earthquake; we have also seen this year, from the negative experience of the floods, which parts of the country have been most exposed, and also the financial losses that the population has suffered. There are some real natural catastrophe risks which the population is exposed to, and from our perspective, this is an essential part of the development of the country and of the economy. However, when it came down to the decision to invest in PAID, we took a look at all the aspects of the whole scheme and the program. We have our own catastrophic modeling, we are a company which really firmly believes in risk based pricing, that is also one of the key elements when we go into Solvency II in terms of the risks which are taken up by the company, how well they are priced and how well can we protect our financial situation, using reinsurance or any other means. For us, this is a key element of deciding what to do in any particular line of business. And we discussed this when PAID was launched, we also had to present the case to our shareholders, because when investing any amount of capital into a public company, we must have a common understanding together with our shareholders. As part of our discussions, we had a look at all the different aspects, and for us it was a difficult business case. We made our recomandations in terms of how the whole structure can be further enhanced, which would make it more viabile for us to participate as part of the shareholding structure of PAID. We would hope that some of these recommandations are taken further and if they are, we would then be willing to reconsider our participation in PAID, for sure.
XPRIMM: This is one of your first interviews as General Manager of ALLIANZ-TIRIAC. What is your message for the Romanian insurance market?
R. B.: I think one of the key elements for the development of the market is always its credibility. And I think, as an industry, all of us, all the players have an obligation to really build up and further develop the credibility of the overall financial sector in the country. We must be honest, I think the financial crisis has had a certain impact on the credibility of the industry, and that is something that we have to work together, to recover and reinstate in the minds of the people, and a lot of the credibility is built up by the financial strength of the companies which participate in the market. During the crisis across the world, ALLIANZ has shown that we are a company which could withstand the crisis and even come out stronger on the basis of our financial strength, and this financial strength builds up the trust of our clients, also builds up credibility, and places the foundation for further development of the industry. As an industry, together, we have to aspire for these values, work together, because this is something that is in the long run going to support the development of the industry in Romania which, in my view, has a very positive outlook.
XPRIMM: Thank you!
| Published on 09.09.2010