As markets stumble back to growth, ING is making steady progress towards an initial public offering of its Europe-Asia insurance arm. The business returned to the black in 2010 and that growth has continued in 2011, with first-quarter total operating profits rising 35.5% over the same period in 2010 to €561 million, as management has worked to cut costs and improve investment margins.
ING agreed to split its banking and insurance businesses by 2013 as part of a restructuring agreed with the European Commission after it took $15 billion in state aid during the peak of the financial crisis in 2008. The insurance businesses in Europe and Asia will be listed as a single entity, while the US and Latin American insurers will become a separate entity.
Growth in Asia’s emerging markets has been one of the bright spots for ING’s insurance business recently, but the overall Asia business has had its fair share of pain, too. Sales in the region slumped in 2009 after ING pulled out of the variable annuity market in Japan, but profits are now recovering, helped in part by a restructuring that led to the sale of some of its assets in the region, including a Taiwanese insurer and its stake in a Chinese joint venture, both in 2009.
Frank Koster, ING Insurance’s Asia-Pacific chief executive, is now focused on growing the businesses it retains in the region, in China, Hong Kong, India, Japan, Korea, Malaysia and Thailand. He returned to Asia to head the business in November 2009 after four years in the group headquarters in Amsterdam. Earlier in his career he spent time in Korea and India, where he headed the ING Life business.
ING recently agreed a 10-year extension to its bancassurance collaboration with China Construction Bank in Hong Kong and Macau, and its focus on developing bancassurance relationships throughout the region has helped the business to grow again. It is the third-largest international insurer in the region and has particularly strong market positions in Japan, Korea and Malaysia.
FinanceAsia spoke to Koster about ING’s insurance business in Asia and his outlook for the insurance market in the region, and globally.
How would you characterise Asia’s insurance markets?
We are present in seven markets here and in all these markets there is a trend emerging. What I see are insurance customers who are very concerned about their own lifestyles, and that is a paradigm shift from the traditional way of thinking about insurance. People in Asia are interested in looking after themselves and the lifestyle they lead, and the opportunities they can create for themselves for tomorrow.
Does that apply equally across the whole region?
Every country is a little bit different, but by and large what you see is that people have a great interest in protecting against sudden loss of income and, more importantly, in preserving chances to create the life of their own choosing. We see it in Hong Kong, India, Korea and in Malaysia as well.
That is a change compared to just a few years ago. With rapidly improving income levels people seem to step out of the conventional thinking: ‘We live in a big family and we look after each other.’ It is much more a conscious decision around personal lifestyles.
How does that affect the products they want?
There’s much more need for investment products, for clever and innovative products. They need the return and they are much more interested in clever ways of making money. One of the challenges for us is to make sure that we do that in such a way that there is a realistic expectation of returns. You see in all these markets people are buying these products for a return that enables them to do certain things with their money, as opposed to leaving it behind for the next generation.
What is your strategy for ING Insurance in the region?
I’m here to build ING’s business in the region. We are the third-largest player by gross written premium in this region, so that’s very respectable, but we have an opportunity to make that even bigger and make that a very exciting piece of this new company that’s coming about, which is the European-Asian IPO that ING is preparing.
That’s presumably a big focus right now...?
My emphasis is not so much on the IPO. It’s an important step for the business to become a separately listed entity, but nothing more than that. It’s much more important to build the franchise here, which we’ve been doing very successfully for the past six quarters.
What is your strategy in the more mature markets you operate in?
We have a fantastic franchise in Korea. We are the largest international insurance company in that market and that business is giving us fantastic results both top line and bottom line, although during the past two years we have been undergoing a transformation to restore growth momentum. But we have a great position in Korea. Not many competitors have succeeded there.
In Japan, which is obviously not a growth market, we are one of the leaders in corporate-owned life insurance. That segment alone is probably bigger than most Asian markets. These are small and mid-size companies and owners who have 10 or 20 employees. So, you can do very well if you can find your own space and really focus on what the client wants, even in a big market where there’s little growth.
Do you target SMEs anywhere else in the region?
No, Japan is the only market where we target the SME space. Elsewhere in Asia we’re very much a retail life insurer focusing on families and individuals.
India is another business you know well. How have the restrictions on investment-linked contracts affected your business there?
Interestingly, we have benefited from the changes because we as a company sell, or used to sell, relatively more traditional insurance products. Most of our competitors sold either purely or almost purely investment-linked contracts, and it’s the rules on those contracts that have changed. I think they are very sensible changes, hurting the industry in the short run but creating a better environment for insurance companies and the market in the medium term. However, the result for now is that the industry is going through a lot of pain, or what my Indian colleagues call “de-growth”.
We have done quite well because of our focus on traditional products and, although we didn’t grow as fast as we wanted, we grew. With others shrinking and us growing, we’ve just had the best relative two quarters in India.
Was that luck or good judgment?
Well, put it like this: markets move in a volatile way and if you have a balanced portfolio on the product side and on the distribution side, then you have something to offset against when things go wrong. That’s exactly what happened in India — we were not dependent on any one product.
In general, regulators seem to be harmonising regionally and globally. Will that make it easier to run a business across the region?
Yes, a company that operates in multiple countries has the benefit of seeing what happens in one place and can be better prepared when those changes come to subsequent markets. I see a general trend towards the same things: consumer protection, complete sales, very close scrutiny of solvency regimes, risk-based capital models and so on. There is a broad convergence among regulators; they are all moving in the same direction.
But not at the same pace...
Indeed, there is quite a fundamental change going on globally, in fact. In some areas regulators here in Asia are at the forefront, rather than just looking to the US or Europe as sometimes happened in the past. What happened in India was a big step. The requirements of the Malaysian regulator about disclosure on commissions are very innovative. The regulator in Korea is taking a very proactive stance to make sure there’s proper need-based selling and has gone far in looking after the customer properly, even more so than in Europe and the US.