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SCMP Reporter

NATIONAL Mutual has had to face up to some home truths about insurance in the past six months.

   The company's rationale of helping to protect others against the unforeseen has been put to the test at its Gloucester Road headquarters.

   One event that sent reverberations around the mahogany corridors of its executive suites was the defection of chief executive Andrew Yang, along with about 650 agents, to rival group Top Glory.

   Since then, National Mutual has been attempting to convince the market, and its employees, that it is business as usual with the promise of better things to come.

   In May, chairman Sir David Akers-Jones announced that the loss of 24 per cent of his sales force had - apart from a $33 million exceptional loss - had little effect, and that earnings were 49 per cent ahead of last year.

   Sir David also unveiled National Mutual's decision to surrender about 23 per cent of its equity to a strategic investor who could assist in the company's push into China.

   The company has also been undertaking some corporate sandbagging to prevent further leaks, with the appointment of Terry Smith as replacement chief executive and the formation of a new sales and marketing team.

   ''While we are looking to recruit new agents, we are also looking at areas where we can retain our existing staff,'' said John Snelgrove, general manager of employee benefits and corporate affairs.

   Mr Snelgrove said that while National Mutual was recruiting between 20 and 30 employees a month, finding staff remained one of the biggest disadvantages of being in Hong Hong.

   S G Warburg Securities said the company had ''reacted swiftly and positively to put National Mutual Asia back on the offensive''.

   ''Orphan agents and clients have been reallocated; the sales and marketing divisions have been restructured; the stock option scheme has been expanded to cover 457 staff; and hands-on management has limited the fallout.

   ''Although it will remain difficult to recruit agents in a tight labour market, the impact on National Mutual Asia's profits has been overstated; in 1994, profits should be almost twice the 1992 level, even with 20 to 25 per cent fewer agents.''    Morgan Stanley vice-president Karen Udovenya said: ''We believe it is a temporary blip and feel they are coming out of it considerably stronger.''    But according to Raymond Lee, research manager for Crosby Securities, the events of the past six months are indicative of deeper changes within the insurance industry.

   ''Things are no longer what they used to be; National Mutual has less of a free hand to do what it likes,'' he said.

   ''The insurance market place in Hong Kong is likely to become more competitive with an increasing number of players turning more aggressive.''    While there are about 60 life insurance companies in Hong Kong, the three top players - AIA, National Mutual Asia and Manulife - are estimated to account for 75 per cent of total premiums.

   National Mutual Asia's business is divided into two main categories: long-term insurance and retirement schemes; and general insurance.

   Compared with other places, the territory's insurance market is immature. Total premiums, as a percentage of gross domestic product in 1991, was less than a third of Britain's, and lags behind South Korea, Taiwan and Singapore.

   This is partly because of cultural resistance to life insurance, low taxation and little effort to sell life insurance in Hong Kong.

   The number of people in the 20-39 target age group for selling life insurance is expected to rise to about 3.12 million by the year 2000 - an increase of about 44 per cent compared with this year.

   ''Demographics in Hong Kong is working for us,'' Mr Snelgrove said.

   According to S G Warburg, the annual growth in life insurance premiums will be 23 per cent to the end of the decade.

   The appeal for insurance groups is that, by European standards, the market offers high-margin, traditional products and light regulation.

   ''This is the correct way of doing things here; simple policies are easy to understand and easy for us to administer,'' Mr Snelgrove said. ''We are not looking at this stage to complicate them; this market still has a long way to go.''    Mr Lee, however, expects National Mutual's share of this to be increasingly diminished.

   ''We believe the dominant position enjoyed by National Mutual, along with AIA and Manulife, is under attack; the competition for quality agents will intensify,'' he said.

   ''While their premium brand image should offer some protection in the short term, the perceived advantage may soon be whittled away as the more aggressive players gain recognition. The outlook for sustainable growth, which has been taken for granted in the past, seems less certain than 12 months ago.''    S G Warburg disagreed: ''This oligopolistic situation is, as in the retail banking and credit card markets, likely to ensure that competition remains focused on service and distribution rather than price.

   ''The existence of smaller players will, however, keep the dominant parties focused on remaining competitive. Evolution is only likely to be gradual.''    National Mutual is reluctant to reveal with whom it is negotiating on its proposed joint-venture push into China.

   The move - which in the most optimistic scenario is unlikely to have a major impact on the company's bottom line for at lease five years - was announced in May.

   In May last year, it established its first representative office in Beijing and should be allowed to initiate mainland business within three years.

   Mr Snelgrove said the company had been accelerating its plans for the China market since placing a full-time team there.

       However, Mr Lee said: ''At present, everyone presumes that a representative office is a precursor to achieving a full licence. Rumour has it that a period of three years could prove mandatory.

   ''This implies that no returns will emerge for at least five years. Insurance companies and investors are advised to take a long-term view.'' 



Back on the map with designs on China