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SCMP Reporter

NATIONAL Mutual Asia, Hong Kong's only listed insurance company, is expected to announce an eight per cent rise in sales when full year results are announced next week.

  This is despite losing nearly one in four of their agents through either sackings, defections or wastage.

  The company hopes the results will put the lid on the tumultuous events that have shaken and reshaped it during the past 22 months.

  Chief executive Terry Smith now refers to January 1994's defection to Top Glory of former chief executive officer Andrew Yang and 650 agents as 'the incident'.

  The 'incident' was a swingeing blow to the company's morale and share price, causing it to plunge from $7 to a low of $3.66.

   Mr Smith, an imported Mr Fixit, was given the brief to stabilise and rebuild a demoralised workforce and to reassure clients and the market.

   He has also had to play a pivotal role devising new strategies as the company is integrated into the global network of AXA, its new parent.

   The forthcoming finals will be an opportunity to measure if the reconstruction has been a success.

   Hong Kong's insurance industry is dominated by three insurers - AIA, National Mutual and Manulife - which together account for 75 per cent of the market share in terms of new premiums.

   National Mutual has a portfolio of private and group schemes ranging from traditional whole-of-life policies through to life insurance, pension plans and medical cover.

    The half-year results affirmed the company's recovery from the Top Glory 'event'.

   Its after-tax profits increased 21 per cent to $426 million. Total premium income increased five per cent to $1.98 billion.

    This was in line with expectations but to achieve it the company has to release $61 million from its actuarial reserves to bolster about four per cent real growth.

   Total assets under management rose 29 per cent to $11.44 billion.

   Mr Smith said new written business had continued to grow steadily and that agent productivity had surged.

   'For the year ending September 30 business is eight per cent higher than for the previous year,' he said.

   The performance has been distorted by the walkout of agents and the subsequent period of poor morale among those remaining.

    He said a better gauge were calendar year sales to date. They were 20 per cent up over the same period in 1994.

   'While the eight per cent is inclined to diminish our performance, the 20 per cent exaggerates,' he said.

  'The best indicator is 12.1 per cent, which happens to be the change in the size of our in-force premiums.'    This should put it in line for a full-year new premium target of about $736 million - slightly below the $750 million target.

    Productivity of agents suffered in the first half of 1995 but has since shown clear signs of recovery. 'Following the 'incident', the 2,600 remaining agents were affected, because in many cases their friends had left the company and they did not know whether the company was in trouble,' Mr Smith said.

  'It took a little time for that confusion to sort its way through.'    Each year the company holds sales contests for its agents during March and April and during August and September.

   New business rose 54 per cent during March and 48 per cent during April.

  The August-September period set a new sales high equivalent to $70,000 an agent.

   The performance improved as management reviewed the agency network and sacked more than 330 agents.

   'What was expected by clients was an improvement in the quality of the sales force,' Mr Smith said.

  'We removed lower quality agents.' At the end of September, the company had 2,683 agents, or more than 500 fewer than in January 1994.

   The strategy of concentrating on high-yielding agents rather than high numbers has been understood and accepted by the market.

       Mr Smith reckons the company's calendar year growth has outpaced the rest of the industry by at least 25 per cent.

    The investment portfolio has been hit by the poor performance of Asian equity markets and the fall in property prices.

  During the first half it fell in value by about 0.9 per cent or $329 million. Unrealised gain or loss is transferred to the investment reserves and is booked to the profit-loss account over five years.

  'Second half of the year portfolio performance has been above average,' Mr Smith said.

  'We aimed to achieve five per cent and we have achieved more than that.'    The company's major property investment, its headquarters in Gloucester Road, fell in value in the first half by 17 per cent to $1.07 billion.

  This fall has continued during the second half but at a slower rate.

  Mr Smith said renewal income had been 'satisfactory' and that the anti-twisting provision introduced last year by the regulators had helped to protect existing clients from being poached. 'In the past year we have also contained our expenses to about five per cent,' he said.

  'This is lower than the rate of inflation and in real terms means we are about three or four per cent more efficient.'   Market analysts are generally supportive of Mr Smith's strategy and are recommending a buy.

   Jenny Leung, senior analyst for Seapower Research, said: 'I think they have recovered from the walk-out.

  'Despite the loss in the investment portfolio, the company is definitely back to the normal track of business.'    Warren Blight, assistant manager of Primeast Capital Group, said: 'Despite recent strong performances by competitors CEF Life and Top Glory, NMA is attractive for its potential for consistent growth and reasonable pricing. We maintain our buy.'    The domestic market still offers plenty of scope for strong growth, with only one in three people having insurance cover in Hong Kong. This compares to about eight out of 10 in more mature markets.

   The proposed Mandatory Provident Scheme should also provide a significant boost to revenues if Government plans are put in place.

   According to Government estimates, the workforce would contribute $17.6 billion in year one, rising to $34.8 billion over a decade. Mr Blight said: 'Working on a margin of 1.67 per cent and a market share of nine per cent, NMA can expect addditional profit of $26 million, or an increase of about four per cent on 1994's net profit in the initial years.

  'This number is likely to increase significantly over time as the pool grows and as players make inroads on HSBC's share of about 69 per cent.'    The other major development on the company's horizon is the takeover of National Mutual Life Association of Australia by AXA, the French insurance giant.

   Mr Smith said: 'This will enable National Mutual to take on responsibility within the bigger group for the Asia-Pacific region. This is a major advantage, because it is the fastest growing economic region in the world and it will be the fasting growing insurance market over the next three decades.'    National Mutual Asia will subsume AXA's Hong Kong operation, which consists of about 12 staff and 400 active policies, and take over responsibility for Hong Kong, Macau and the mainland market.

   Mr Smith said: 'Being able to share in the resources of a group which has a presence within 23 countries has hidden benefits that will prove to be very influential.' 



National Mutual back on track