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Insurance in Mongolia, a premium investment oportunity

Interview - January 20, 2014
With rapid economic development and the growth of the mining sector, Mongolia's insurance sector is set to take off. It is expected that its contribution to GDP will from 0.4% to between 6% and 8% in the coming years. Ms. Chuluuntsetseg Ard Daatgal, CEO Ard Daagtal Insurance, talks to Worldfolio about the growing industry and opportunities for foreign investors to get involved
Mongolia’s economic growth spurred by mineral resources revenues is expected to create a rolling demand in the private insurance market. The Mongolian insurance industry registered a CAGR of 26.7% during the period 2008-2012. However, the industry is relatively small and in its developmental stages. 
Mongolia’s insurance industry is growing really fast with an average growth rate of 20% per year. However if we take a look at the trajectory of Ard Insurance: in 2008 we didn’t have any branches and our human capital could be counted on one hand. In 2010 we tripled our income and in 2012 we doubled it with a growth rate of 40%.

Our impressive performance during the last few years has made us generate a premium income of 10 billion Mongolian Tughrik (US$5.85 million); this has allowed us to establish 28 branches throughout the country and to have 100 employees. 
The transformation of the insurance market could not have been possible without the establishment of a supervisory body in 2006. Before that, there wasn’t any specific legal framework.

One of the main factors that have exponentially increased the opportunities for growth in the sector has been the Law on Insurance for Bank Deposits (Deposit Insurance Law), which was introduced in January 2013. The Deposit Insurance Law requires all Mongolian banks licensed to carry out activities for deposits and payment settlement services to join the deposit insurance scheme upon the payment of the applicable premiums.

This law has made the possession of insurance policies compulsory in a wide range of areas so the pie of the business is huge. 
The government has driven a process that will consolidate the pillars for further growth of the sector. There is big potential for investment, the sector will move from the 0.4% of GDP to 1% in this year. That shows the big potential of the sector. This is just the beginning of more compulsory laws that will place the market in accordance with the standards that Mongolia’s economic growth requires. 
Regarding the different sectors of Mongolia’s economy such as mining, agriculture, industry, infrastructure or real state, which are going to be the sectors that will require more insurance services?
Without any doubt, it will be the mining sector. Once a foreign investor comes here, the first thing that he does is ask for insurance coverage. However, it is not going to be easy to get access to those international mining companies as they have their own corporate insurance policies.

Our insurance law establishes that all insurance interests located in Mongolia should be insured first locally. Once the company is insured here, the local insurance company goes to the reinsurance international market. However, no one follows this insurance law intentionally or unintentionally.  So there is big potential in mining but unfortunately the local market is really only targeting the local businesses with a special focus in the area of agriculture, especially livestock. 

What will be the role of foreign investors in the new Mongolian insurance scheme? 
Foreign investors and big international brands are always welcomed to Mongolia. The United States market has a very impressive insurance market with world renowned companies that could bring their expertise to Mongolia.

If we can import the professionalism from abroad and apply it in our flourishing market where we have a good reputation and deep knowledge, then no barriers will interrupt the sophistication of our industry.

However, I would like to emphasize that it is our trajectory during the past few years that has consolidated our position in the local arena. We want to keep our position in the market and the government and investors – both locals and foreign – should prioritize choosing local insurance companies.   
There is always a way to balance incoming opportunities from abroad with the protection of the local sector. What type of synergies could be traced between the domestic and international companies?
You have to take into account that Mongolia’s market still small and the competition within the sector has increased recently.

There are some companies mature enough to absorb the needs of the market in a profitable way and giving the best services. There will be always opportunities for joint ventures with foreign partners, a process that will take place once the market is audited, but right now is too early to talk about this. To date, the reinsurance model is the one that is allowing the penetration of foreign companies in the local market.

Even though we say there is no FDI into the market, we already have all the big players with shares with the local sector. We are reinsuring our business with the big players. Our risk is really spread throughout the international market. So that’s why maybe they are happy to have some shares in the market.
Talking about ARD, the company recorded impressive growth during the last five years. Would you please tell us what have been the driving forces that made you achieve such results? 
The introduction of compulsory insurance laws and the rise in personal wealth have helped boost the demand and fuel the company’s exponential growth. Besides this, I also believe that Mongolia’s booming mining industry will help to keep this momentum for insurance into the foreseeable future, especially as many players are hopeful that Mongolia’s current premiums-to-GDP ratio of around 0.4% can reach figures closer to 6-8%. In 2004 Ard Insurance pioneered the industry’s first joint venture when it partnered-up with the Wittington Group of the U.K. 
Do you believe the local market is mature enough for main foreign enterprises to come in and invest their money and what is, in this regard, the philosophy of Ard Insurance?
The Mongolian insurance market is still young. However, it is experiencing rapid development. When the market has grown quite mature, then of course the big players will come in, and in this situation we can discuss joint venture together with the foreign companies. I strongly believe that our door will open to further partnerships with large foreign insurers once the market has become more developed and greater regulation has been established. 
Joint ventures with foreign companies are already happening in the auditing market. We can see the big four have come in and taken over the small companies by buying or acquiring them, or entering joint ventures. Right now it is too early to discuss. If you ask me why the big companies aren’t coming into the market, then I tell you that, there is also another way to come into our market, which is reinsurance, a sector in which Ard Insurance excels.