2002 - SOA - Dropping Like a Rock: Dealing with Falling Interest Rates and Equity Markets Outside the United States and Canada

  • 2002 - SOA - Dropping Like a Rock: Dealing with Falling Interest Rates and Equity Markets Outside the United States and Canada, Society of Actuaries - 27p
  • (p5) - The whole industry of Asia can actually be placed into three segments.
    • The first segment includes the massive giants.
      • They built up a business over the last 30 or 40 years, and they're huge.
      • They take up maybe 80 percent of the market.
    • Then there is the second segment, the second piece, which includes the foreign companies that went into the market about 10–15 years ago.
      • This segment is tiny, maybe five percent or 10 percent at the most for the market.
    • The last segment includes domestic players who joined in at the same time the markets opened up to foreign players.
      • This happened when local people felt that, with the opening of markets, they too should have a chance at the business. So these players were able to come in as well.
  • All of a sudden, markets were opened, allowing foreign companies to come in and allowing the domestic companies to put together the capital and come in as well.
    • But the problems revolved around not having sufficient human resources, the proper people, to support the management of insurance companies.
  • For example, in China, for all material purposes, there were no actuaries before 1995.
    • Today China has about 200 actuarial-related people.
    • Many of these people are in their early 30s and 20s.
    • Much of their work involves pricing, net premium plus loading-type of work.
    • They're not really inside the management; they're just mechanics doing the supporting work. They're calculating the reserves and all that stuff.
    • But they have not really taken the next step to influence or be part of the management.
  • (p6) - Some History on the Culture and Business
    • A high proportion of the business has been savings-related.
      • Many Asians love to buy savings products.
      • Many don't like to buy anything that's doesn't have a return.
      • Many who give you money for a product want something back in some form.
    • They haven't been interested in term insurance products.
      • Many have wanted that money back, saying, "What do you mean? With 10-year term insurance, after ten years, after all the money that I've given you, I get nothing?"
      • They don't like that kind of product.
      • So it has been very difficult.
    • Many of the companies were selling anticipated endowments or heavy-savings types of products.
      • So the interest risk was and is quite high.
  • (p23) - From the Floor - And we are talking about all these management techniques in managing the insurance company.
    • But in Asia, obviously, you're guided by completely different standards, mainly because most companies want to gain market share.
      • That's all they care about—market share, sales. We want to be No. 1. Who cares about reserve adequacy?
      • If that's not enough, we'll just cut the bonus some more and the policyholders will get even less. That seems to be the strategy.
    • It's shocking to see quite a different practice on the other side of the world, compared to what we do here in the United States or Europe.