HNB Assurance on course to high success

By Cheranka Mendis

HNB Assurance in its tenth year of service has achieved a 27% growth in the first quarter of 2011 over the previous year, recording a Gross Written Premium (GWP) of Rs. 684 million in Life and General insurance.

General insurance, which saw a 30% growth in the first four months of the year, listed the final value as Rs. 398 million, while Life insurance value saw a rise of 23%, listing Rs. 286 million over last year.

The company, which has seen a continuous grow in turnover since inception, has also witnessed a 2% growth in profit before taxes rated as Rs. 29.3 million over the Rs. 28.6 million in 2010, Head of Finance Vipula Dharmapala said on Friday, while profit after tax was valued to be Rs. 24.7 million – a 23% growth from the Rs. 20.1 million in 2010.

 The plan: 2011-2013

With such positivism brimming early on the year, HNB Assurance has its sights set on aiming for higher reach this year, with a target of achieving GWP of Rs. 2,780 million within 2011 as a combined measure of General and Life insurance.

The expectation, which is a 15% growth from 2010, is expected to be followed by increasing numbers for the next two years. Managing Director Manjula De Silva added that if all goes according to plan, the company could even surpass the original 15% growth rate for the year backed by the 30% growth in General and 23% growth in Life experienced in the first quarter of the year.

“We also hope to see a 21% growth of GWP in 2012 followed by a 31% growth in 2013,” De Silva stated.

Outlining the numerical expectation, De Silva pointed out that in 2012 the target is to reach Rs. 3,370 in insurance (General and Life combined) with Rs. 4,416 being eyed for 2013. “We hope to become a benchmark in the insurance industry and will invest in brand building and creating value for our stakeholders,” he said.

Claiming that the numbers listed as ‘what is yet to come’ are ‘conservative projections,’ he noted that the confidence between the higher and higher growth rates was the stock of single policies which would come into maturity within the 2012-2013 period.

“What we intend to do is at the point of maturity to capture and retain large part of it by offering products like ‘MyFreedom,’ through which we can retain the funds that are already locked in with us,” he said. “We have factored in a certain percentage of single premium maturities being retained in the company in addition to new rates. We therefore hope to see fairly steep growth, especially on the Life business.”

On the profit front, forecasts originally noted a 27% increase in 2011 to end with Rs. 337 million before tax and Rs. 307 million after tax. This target too can be surpassed and can go beyond the Rs. 300 million mark, De Silva said.

“Factoring in the rights issue proceeds which we should receive by May, the company will have seven months of use before the money starts getting deployed into various processes. There will also be new kinds of additional investment coming in.”

In 2012 with the new mark into market provision, HNB Assurance will be recognising the unrealised gains – 100% on equity and partially on the bond portfolio as well. “We feel we can achieve an augmentation of profit by 27% in 2011, 21% in 2012 and 22% in 2013.”

Numbers to support the statement show Rs. 410 million and Rs. 371 million in 2012 as profit before tax and profit after tax respectively. In 2013 the numbers are expected to rise to Rs. 502 million and Rs. 451 million respectively as profit before tax and after tax.

“We have always been able to achieve in excess of what was budgeted for the year, every single year,” he expressed. “So we generally believe in going for conservative budgets. In this business we cannot put too much pressure on because that would lead to wrong decisions.”

 All good things yet to come

 The Managing Director of a company which has a market capitalisation exceeding Rs.3 billion, De Silva sees the current timeframe as an era where opportunity outweighs the challenges – an optimistic environment for the company to act in.

On an industrial perspective, De Silva pointed out that the rise in economic activities would lead to greater purchasing power among the people where more money would be in circulation for the industry to benefit from.

“There are also infrastructural developments taking place throughout the country, creating new business opportunities. Unfortunately, we are unable to directly participate in some of the State-sponsored infrastructure projects as under the Government directive, all Government business goes to the State-owned insurers,” he revealed.

However, HNB Assurance has found ways to get around this issue by adapting to work together with the SLIC on a core insurer business. “What we cannot get we collaborate on, so that we can get a share of Government business as well.”

The rising optimism in the growth in tourism, sports, leisure and entertainment industries due to the peaceful environment and active encouragement by the Government will also help the industry up its status, while the increasing participation of the private sector in the education/higher education industry, development in transport infrastructure leading to growth in goods and passenger transportation and growth of motor vehicle sales as a result of import duty reductions will also add support.

He also noted that the low interest rates leading to a growth in demand for housing loans and leases, reduction in the income of senior citizens as a result of the low interest rate environment, growth in foreign currency remittances to Sri Lanka, institutional agents being permitted through an amendment to the Insurance Act as well as the advancement of mobile technology enabling improvements in customer service levels would help paint a rosy picture for the insurance industry.

“I think we can be very positive of the environment unfolding in front of us. From an insurance point of view, there is actually a lot to capture.”

 The flipside

 However, all is not well, he said. Challenges as usual line the way, but the company has successfully come up with certain strategic responses to outweigh the challenges, De Silva assured.

One of the key challenges faced by the industry is achieving underwriting profitability in General insurance. The reason, he pointed out, was that there was too much competition in the field. “The closest you can get to the model of perfect competition regarding economics can be seen in the insurance industry,” he said, adding that it works for the benefit of the public.

“The public isn’t complaining as this is one market where the prices are coming down each year. On one hand the service levels are improving, offering more value but charging less and less. No doubt it’s a challenge to the industry to maintain the margins in such a competitive scenario as investment income is also dropping due to low interest rates.”

De Silva claimed that at one time large underwriting losses were being cushioned by healthy investment yields. Today interest rates are also dropping and insurance companies are compelled to look at their underwriting results much more critically. “Thankfully the challenge is to grow the business, not to worry about the profitability.”

Accelerating the growth of Life insurance business is also a challenge for the industry. Thankfully, the rates are determined by the actuaries. So unlike in the insurance business, the companies do not have to give discounts under pressure from the market or intermediaries. The challenge here is speeding up growth as the more you sell, the more you can add to the bottom line, which is not the case in General insurance.

Enhancing investment income in a low interest environment which should be eased off by starting to trade on bond portfolio and equity portfolio aggressively to generate capital gains to maintain growth and look at innovative opportunities in the investment market, using technology to provide low cost solutions to meet customer needs and obtain productivity gains as well as becoming a strong brand for the company and key products are also seen as hindering factors for the overall growth of the insurance industry.

Immediate focus

 De Silva stated that at HNB Assurance the company has six main areas of strategic focus to up their business: General insurance, Life insurance, distribution network, investments, Information Technology (IT) and brand awareness.

In General insurance the plan is to accelerate growth from retail and small commercial lines, where De Silva is confident that the profitability will be so much more than in the corporate market. Increasing premium rates substantially or scaling down unprofitable corporate business, especially medical policies, and capturing profitable corporate accounts (marine, engineering, liability, etc.) are all part of the game plan. With the progress for Q1 being a 30% growth in GWP and faster growth from target segments, the company is on a roll to grab what it can.

In Life insurance the increasing growth of endowment business, especially those of a non-participating nature (non-par), with its fixed commitment and experiencing good growth along with the accelerating growth of Mortgage Reducing Policies (MRP) business targeted, HNB could look forward for better times, De Silva said.

“New and innovative products, especially targeting those looking for retirement planning tools, are coming up. Sri Lanka, which has one of the fastest ageing populations where 12.5% are over the age of 60 as at now and expected to grow to 25% by 2041, is now more aware of the importance of such products. Products to fit this criterion will be introduced soon,” he said.

Two products titled ‘MyFund’ and ‘MyFreedom’ have already been introduced to the market. More will be added to the portfolio soon.

With 51 branches around the island, HNB Assurance no longer feels the needs to add five to six branches to its name every year. Going along those lines, the financial institution is planning to add two to its list this year. What is being focused on instead is increasing the productivity of branches and field force through closer monitoring.

He observed that facilitated by better MI generated by the newly-upgraded system, this would be an easy process. Development of alternate distribution channels and payment methods such as through leasing companies, motor vehicle dealers and supermarkets as well as new payment methods such as through ATMs and mobiles are areas that are currently being tested and would soon add to its services, expanding its service base.

“On the investment front, we are targeting a gradual increase in equity exposure, more active trading of equities and debt securities (realised capital gains 11% of investment income in 2010), looking into new opportunities such as rated debt instruments, deposits in finance companies and overseas investments. We are also keen on benefiting from the trading investments that will have to be ‘market to market’ from 1 January 2012,” De Silva said.

IT, a key tool of development, is also part of the company’s key strategies for growth. Complete implementation of upgraded core application (TCS Bancs) and Business Intelligence (BI) solution to enhance quality of MI is on the cards.

“We also want to re-launch the website with trilingual capability and have greater use of SMS as a method for customer communication. Capture and immediate transmission of on-site accident visuals through camera phones is another area to improve on.”

Under brand awareness, HNB Assurance will start an aggressive advertising campaign from May focusing on promoting selected brands and the corporate brand. The contracts of Brand Ambassadors Bathiya and Santhush have been extended for two years after its successful integration.

What to expect

“The populace can expect consistent performance in both top and bottom lines, acceleration of growth momentum, more aggressive investment management and innovations to create superior value,” De Silva said. “Benchmark customer service, a stronger brand image and creation of value for all stakeholders are also to be expected.”