Although the first life insurer licence was awarded to National Life Daatgal in 2008 and premium income has more than doubled every year since, the segment remains minor, accounting for a mere $244,000 in premiums in the first half of 2012, out of the industry total of $29.4m. Established by Mongolian Investment Holding Group, the underwriter has prompted others to announce their interest in launching life subsidiaries. These include Bodi, Mongol, ARD, Tenger and Mandal.
STARTING BLOCKS: Shunning the high operating costs of operating in the aimags, National Life has focused on Ulaanbaatar. With only one branch in the city, the insurer has used its 80-strong agency force as its sole distribution channel, despite signing agreements with two brokers and seeking a bancassurance deal with one of the big-five banks. Premiums grew from $80,700 in 2009 to $357,000 in 2011, of which more than half comes from term-life, endowment and pensions. It cedes 60% of group policies and 40% of individual lines (of up to $35,000) to MunichRe. The underwriter is still running a loss, albeit narrowing from $127,000 in 2011 to $37,450 in the first half of 2012 and it expects to reach profitability in 2014. With 50,000 workers in the mining sector, National Life is focusing on group life and pensions for larger conglomerates and mining groups such as MCS Group, Hunnu Coal and Erdenet Mining Corp (EMC). The underwriter signed up 1800 MCS Group employees to health and group life policies in 2011, offering optional pension cover. In March 2012 EMC concluded a similar deal for its employees.
“We think that 25 of the 120 companies operating in the mining sector are foreign-invested, so these present the highest potential for life cover,” D. Ganbaatar, the deputy director of National Life Daatgal, told OBG. “But Mongolian firms seeking to list securities on a foreign market will also need to show proof of insurance for their employees.” Expecting tenders for group life by large mining firms like Oyu Tolgoi, South Gobi Sands and Erdenes Tavan Tolgoi in 2013, National Life expects to open a second branch in South Gobi should its bid be successful. Non-life underwriters have delayed plans to establish life subsidiaries in 2012 to the next year but are expected to do so in time to tender their bids.
CHALLENGES: While the FRC requires life insurers to operate as separate subsidiaries with over $2.1m in capital, the underwriter still operates in a regulatory grey zone with few specific rules. “Life and re-insurance, which are not included in the Law on Insurance April 2004, are emerging and regulations need to be prepared,” the ADB noted in a 2011 report. Mongolians typically only rely on social welfare when reaching the retirement age, which is 55 for women and 60 for men.
While inflation poses an even greater threat to annuities than to non-life claims, given the longer policy timespan, the sole life insurer faces competition from both non-life underwriters and the Human Development Fund (HDF), which provides state pensions and health coverage. One proposal for reform of social welfare is for employees to have the choice of placing the 10% of salary currently earmarked for the HDF into a private insurance scheme, which would unlock premiums for the life insurer. Mortgage-bundled life cover remains the preserve of non-life insurers. With average mortgage lengths at 5-10 years and repayment periods even shorter in practice, banks have only required short-term sudden death coverage from the near-30,000 Mongolians holding a mortgage. “An initiative from the FRC to stop non-life insurers writing shortterm sudden death policies bundled with credit would create opportunities for life insurers,” B. Batbayar, the business development director at ARD Daatgal, told OBG. “This would support the development of the segment. There is space for four or three life insurers.”
The top non-life underwriters are watching National Life’s progress closely, while on the cusp of establishing their own life subsidiaries. Despite a slowdown in new foreign direct investment in 2012, underwriters expect fresh investment in mining to spur demand for life insurance. This bodes well for the expected triple-digit growth in life premiums in coming years.