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The insurer to the nation

Interview - February 13, 2012
Established fifty years ago, Sri Lanka Insurance Corporation is one of the biggest players in its sector. Here, its Managing Director Mr. Mohan de Alwis, discusses growth prospects for both his company, and his country

H.E. President Mahinda Rajapaksae was recently at New York with the United Nations Annual Meeting. He described his experience as very rewarding both for him and for the country. Sir, how do you think that the International Community perceives Sri Lanka today?

Well, I think that the major issues that came from the International Community were mainly due to a lack of understanding and awareness. Also, many of the negative misperceptions were due, largely, to some of the negative reports that came from certain media.

What are the things that His Excellency, spoke of in the Mahinda Chintanaya, to maintain a GDP growth of over 8% and also raise the Per Capita income to $4,000.  Do you believe that this Manhinda Chintanaya is attainable within the time framework, it has been allocated, and what do you perceive as the main challenges in order to attain it?

Absolutely yes. The growth rate of 8% was already achieved this year. With regards to 2011, we are already on the 8% path in the first half and we are confident we will come up to around 8.2%- 8.5%, towards the year end.  Were it not for the drought and the losses that we incurred in the agricultural sector, my personal belief is that it could have been 8.5% towards the end of the year. And even during the period 2009, when most of the economies were running at a minus, we ended up with 3.9%. That shows how strong the economy is and how safely we are driving it.

On the other hand and with regard to the per capital income of $4,000, we are in the $2.000 plus already. Furthermore, with the kind of growth we are seeing, it is surely on the cards that we will achieve $4,000. The ports, the airports, the agriculture sector, infra-structure, banking and insurance sectors are growing, so, all of this would mean that the income comes into the hands of the people. Employment is growing and the un-employment rate is 5% in Sri Lanka. If you look at the infrastructure investments going on, you will see that they are massive. An economy that aims to grow in the future needs to have its infrastructure in place. And I think, we are on the right track.

You mention during our presentation, how Sri Lanka Insurance is involved in the Commonwealth 2018 promotional campaign. When we met with Prof. Peiris, Hon. Minister of External Affairs, he told us about the huge diplomatic campaign that is going on to promote Sri Lanka as the right venue. What message would you send to the world, if indeed, Sri Lanka was chosen as the venue for the Commonwealth Games?

As for Sri Lanka Insurance we very are excited about this. In our policies, in our investment programs, in our future programs, we have planned for a 250 bedroom Five Star Hotel in Hambantota. We have already secured the land which is a 10 acre block and that is already on the cards and the initial plans are drawn up. At the moment, we are in the process of looking to a Management Company; in this sense, we are looking at International operators, because we know that as an insurance company, we do not have that expertise. We are looking at tying up with them and this could be part of a participatory or management agreement.

In addition to this, we are also committed to looking at being the leader in certain funding arrangements that may be required for infrastructure.  So, we would take the lead role and there would be certain participatory private and Government institutions. So if we do win the bid, there will be a lot of activity. 

Looking at Sri Lanka from a regional perspective, we see that Sri Lanka is strategically located but is also surrounded by very dynamic and competitive markets and indeed this, poses a challenge for Sri Lanka when it comes to positioning itself globally.  So, what can Sri Lanka do, how can it maximize its competitive advantages to attract the necessary foreign direct investments for its development?

As a person who has worked for many multi-national companies, I know that any foreign investor will always look at his returns, what his ROI will be. Therefore he will also look at how stable the country where he is investing in: economically, ethically and with regard to any disruptions. In this sense, Sri Lanka is politically and economically stable, we have a very good growth, and even if you look at our interest rate regime, you will see that is quite stable. Take our inflation, for example: it is single digits and going down; our interest rate is also single digit and going down. And of course, we have achieved political stability, which is the most important thing.

In addition to this, the Government in power is a very progressive one. Its development framework included a comprehensive approach that includes all economic sectors of the country. There is a lot of planning under the Mahinda Chintana, and whatever has been put on the drawing boards is being done. There is no question about it. So, and with regards to your question, any investor coming here should see that Sri Lanka is the preferred destination. Besides all this, there are additional features such as our high literacy rate, which is well over 90% of the population. Many of our people are well qualified to compete in the international arena and we have a huge qualified workforce that is already working overseas. For instance, we have many scientists working in NASA as engineers. But we also have accountants, doctors and lawyers working overseas. That shows that the companies got the pool.  In addition to this, you will see that our workforce is easily trainable and very friendly. So for an investor coming here, this is a huge plus.

Finally, when you look at the world today, you see that not many economies are growing at 8%. As a matter of fact, many EU countries are sliding back into recession. So I think, Sri Lanka has a lot of appeal.  It is unfortunate, but there is a lot of turmoil in those countries, whereas here, things are being managed very well and the future looks very promising.

The proof of the pudding is in the eating. If you look at how our economy grew from very difficult stages in 2009, while many economies around the world were reeling, you see that we experienced a jump from 3.9% to 8%. And that was within a year’s time, right after we came out of the war, which channelled many of our resources. Now, we have already done the third quarter and we have seen that we can maintain it this rhythm of development.   Another thing worth pointing out to the corporate sector is that apart from certain tax concessions, the corporate tax rates have been reduced. It used to be 35%, now it has been reduced to 28%. And even though many in the private sector are still fighting for a lower tax rate, and in spite that I agree with that, I believe that it should also be a win-win situation. The corporate tax reduced should not mean externalizing the funds, profits or dividends. A portion of it should be re-invested in the country, so that it continues to benefit Sri Lankans.

Going now properly into the insurance segment in Sri Lanka. 2008 and 2009 were difficult times. However, last year the sector managed to bounce back. Both, general insurance and life insurance segments re-bounded strongly.  So, what are your expectations in 2011? How will the opening of the North and the East, benefit the sector?

Well, from the point of view of the Sri Lanka Insurance, we will complete 50 years in insurance on the 01st of January 2012. 2008 and 2009 were indeed difficult years. The war was always on people’s minds and therefore, disposable income and futuristic thinking were two factors difficult for people to contemplate. That changed in 2010 when there was a big expansion both in Life and General Insurance and that is a trend that we see continuing in 2011.

As for Sri Lanka Insurance, we saw our results stagnated in from 2007 to 2009. SLI recorded its highest ever consolidated profits before tax amounting to Rs. 15.1 Billion and profit after tax of Rs. 13.3 Billion compared to Rs. 2.9 Billion & Rs. 1.5 Billion respectively in 2009. Following on that, we are now already clocking Rs 13.3 billion at the end of September, and we are looking at targeting 18 billion, which is 20% growth, year on year.

So, for insurance, we see tremendous opportunities given the many projects the government is targeting. Infrastructure projects, for example, need general insurance. Also, we are witnessing many imports of motor vehicles, which shows affordability. And
increased disposable income. In Life there is a huge potential as well. With a population of 21 million and an 11% penetration rate, there is a lot of ground for growth.

With regards to the North, prior to 2010, we were operating in Jaffna and a place called Nelliadi. It was a very small operation, as there were so many restrictions due to the war.   But I must say that by the end of 2010, it has experienced a huge change. We now have 5 branches operational in the Northern area and two new ones are being built in Chavakacheri and Mullatiiuv, and I am really pushing hard to get that one finished by the end of October. Business is really good and I am happy to say that the Managers in those areas are above 100% and some above 150%, of their targets.
The thing is that for too long people in this area were starved of these facilities. So when they see that reliable companies –such as SLI, which is a household name and a well established brand, make these available, that it has Government protection, they embrace it happily. There is still work to be done, but the indicators are really good. With regards to the East, we had Branches there, we are re-doing branches and up-grading branches. SLI is  opening in Akarapattau, and we are planning to open another two in the Eastern Province.  So as you can see, these two areas are really growing and therefore there is real growth potential for us, and for other financial facilities such as banking and leasing. Also, there is another area that we have carved out, which is the deep South and that includes Hambantota, and that is going to be very big in terms of both Life and General, given all the investments the government is pouring into it.

Although insurance is vital for economic development, insurance is still very small in Sri Lanka, accounting for about 2% of GDP. What are the underlying factors for this, and is Sri Lanka´s growth sustainable without a strong insurance sector?

When I said low penetration, I meant the Life segment. A few factors are to blame, really. One is your disposable income; with Sri Lanka going towards a higher disposable income and higher Per Capita Income from US$ 2,000 to US$ 4,000, obviously the money in circulation, will be higher. So things will improve. The second one, is the awareness factor. In many countries in the West, people look at Insurance, because in many of these countries, you would not find free health, whereas, in Sri Lanka, the difference is, you got free health, so that is also something, that over the years, contributed towards this. Now, with the awareness campaigns being done, with the money circulation going up, there is bound to be people who will identify insurance as something beneficial. In this sense, we are starting educational programs on the school levels. We are also trying for corporates to cover the employees, as a retention tool. Here is a company that has 2,500 people, for example and 350 or 400 of them are people in the Senior Executive ranks, who are really required and the others fall into different, brackets.  We could promote insurance as a retention tool, because if you have many of your leading or heads of divisions leaving or strategic business unit heads leaving, you have a problem in progressing.

In addition to this, we have to make the insurance products friendlier. Besides our conventional products, we are looking at moving towards investment linked products related to the stock markets. A lot of changes have to be made to bring this in and I always see a very positive regime and I foresee an increase given the next five years.

SLI recorded its highest ever consolidated profits before tax amounting to Rs.15.1 bn and Rs.13.3 compared to 2.9 bn and Rs. 1.5 bn respectively in 2009. This is something that was recognized by H.E. himself who handed the bonus certificate to Mr. Gamini Senarath, Chairman of SLI. On that occasion, Mr. Senarath said that “In 2010 we reamined the largest General insurance provider in Sri Lanka. Our performance during the year has re-affirmed our status as not only the leader but also the most robust in the industry.” To what do you attribute this tremendous success?

It was simple. If you run a business, you have to do it as a commercial venture.  One of the accusations in Sri Lanka is that if the Government owns a business, it is riddled with inefficiency and it is a drain to the Treasury. Before His Excellency invited some of us on board, I had never worked in the public sector before, but we came in, and we set ourselves the target of running these companies professionally and profitably. And prove to the country, that Government can also run businesses efficiently. So we made certain decisions. As you know, worldwide insurance companies have long term contracts; you underwrite an insurance policy and in 10, 15, 20 years, one has to be paid. In this sense, we declared bonuses which had to be accumulated, but at the same time, payments had to be made. So one needs to be very pragmatic and very careful; you need a long term vision as insurance is an investment after all. Now, investment is one of the key things for an insurance company, therefore, we looked at our investment portfolio and made certain crucial decisions and made them at the right time so that we would not only make profits out of our funds but re-invest those profits again. That was the key thing. Not to just turn the situation around but to re-invest it wisely.

In this sense, of the Rs 15 billion we made in profits, we paid the Government back Rs 6.7 billion back in terms of dividends. Also, in the process of earning this income, we had also to pay taxes to the Government because we should also be taxable, even if we are a public corporation: if you make profits, you have to pay taxes. With reference to some of the investments we have made, we bought over a company called Shell Gas Company. We have managed to turn it around and we are happy to say that this year they will end up with a profit.

Now, we are at this stage and we are looking at the capital markets.  The capital markets are not as good as last year, so we got to be razor sharp. In this sense, we may not get as much, but we will be very much closer. Hopefully this year will also be good.

Definitely, the ratings certainly show this confidence in your performance. Fitch Ratings Lanka has upgraded SLI’s National Long Term Rating and National Insurer Financial Strength rating to AA(lka) stable outlook from AA-(lka) stable. This is obvioulsy a reflection of SLI´s improved risk-based capital as well as improved profitability. How does this position you as the benchmark in the national insurance sector?

I see that you really read about us. But what you may not know, is that we have won a  World Award for Total Quality Commitment. 

Again, I think at the front of these results, were our investments. When SLI took over Shell Gas, now called Litro, we had a market share of 72%; we have pushed it up to 75%. And we are now looking at expanding this operation. We are thinking about leasing the Gas Terminal that has been put up by the Ports Authority. Therefore, we are looking at an operator who can work with us closely on LPG to supply at a regional level.

So this is a sector where you are looking for potential partnerships.

Yes. And by setting it up in the South, we could look at high penetration in the Southern areas.  As of today, although we have 75% of the total market share in Sri Lanka, the major part of the sales comes from the Western Province, where people are looking at using gas for convenience. Whereas in the South, there are other fuels used like kerosene and, mainly, firewood. And if we can get more penetration into the Southern areas, we believe that we can do it in the Northern and Eastern areas as well.

So, in a way it is related to the hub status again. As we spoke before, the Government is intent on maximizing the geographic location of the country and basically, SLI is looking to maximize that benefit for the Nations benefit.

Absolutely. And we are managing it in a very economical way. We have been very careful in pricing it profit, but we do not want to fleece the people. As long as we have a decent ROI, that is fine. 

What about the maritime sector, because this is a sector that you are also involved in. With this idea of the hub status, Dr. Wickrama told us how they are positioning all their business opportunities.  Is this also your positioning, do you have the necessary technical expertise, the financial muzzle to back this type of business? Or will you also be interested in looking for international partnerships?

If you are talking of the shipping industry, we are indeed, present there with a 10% stake of Colombo Dockyardsl. .

But again, we will be looking at different companies. We are looking more and more at working like a conglomerate, but also, insurance requires laws that we go public and that is something we are also looking forward to. With the correct strategic partners and going public, I am sure Sri Lanka Insurance can fulfil all above requirements.

Do tell us about re-insurance, because a country positioned in this area has a lot more risks in natural disasters. How did a company like Sri Lanka Insurance Company face the tsunami in 2004?

Well, insurance always looks at spreading the risks. When you work with large numbers, the risk is spread. In addition to this, you need to have the right re-insurance and treaty arrangements. For example, the tsunami was nothing compared to the loss Sri Lanka Insurance suffered when the LTTE bombed the Airport. Luckily, we had the right re-insurance arrangements.

2010 also saw the partnering of two of the strongest and most important financial institutions in the country: SLI and NSB. What positive synergies will come out of this agreement? How will this enhance your capacity to better serve Sri Lanka?

One of the key factors of our of success in such a short period is that we realized that Government organizations have got huge potential. Unfortunately, they usually work in water tight compartments and they don’t look beyond it. So we looked at related institutions that have a huge database,

We have tied up with NSB this year so that both parties can benefit from their strengths.  NSB’s investor data base will certainly be an opportunity to us.

This is a sector where you have to be constantly innovating constantly introducing new products, new necessities, where the economy grows, you will have to adopt.  As you know Steve Jobs recently passed away. One of my favourite quotes from him “Innovation is a king, was a leader, from those who follow”, so, we would like you to tell us, tell our readers, what your innovation philosophy is?

My stay at Sri Lanka Insurance has been rather short; still the 16th month into it.  A lot of these changes that we talked about were all innovative. These were channels that were never been looked at before. We are also looking at products that we would like to bring in, and others that we would like to tailor to our customers’ needs which needs innovation.

Sir, you hold over 30 years experience in the mercantile sector. Your managerial experience in leading corporate institutions both in Sri Lanka and overseas (Coopers & Lybrand – Botswana). Which, do you believe is the greatest asset you bring to SLI? How would you like to be remembered and what would you like your legacy to be??

Well, having worked in many sectors, what I treasure most is working with people. I have worked with many nationalities. I love working with huge work forces. In the last 12 years that I have been working, my workforce has been about 12,000, 13,000 people, in factories and in the end, it all comes down to human relations. The measure of success or failure of an individual leading the company, is mainly about how you handle the personnel. Because after all, whatever you do: service or manufacturing, it is not the machines that make the products that you should develop; it is the manpower that you should develop. With the right combination of qualities, you can make it happen.

Mr. Alwis, you are the MD/CEO of the largest government owned insurer in Sri Lanka, the one with most experienced technical knowledge base in the country. And therefore, in a sense, you have responsibility of carrying Sri Lanka’s name abroad, what associations would you like to come to people’s mind when they see the brand Sri Lanka Insurance?

Well, we would like to be remembered as “The Insurer to the Nation”, and for that reason we need to cover as many people as possible in the most simplified ways. For that, technology is needed to be developed. 

We are going through this report, you are going to be the visionary for this country and for the insurance sector. What will be your final message to the two and a half million readers of the Foreign Policy Magazine, about your country and why they should come and invest in Sri Lanka, at this point of time.

Sri Lanka is a country that is strategically located. It has got a very literate workforce. Our political situation is now very stable; our economy is growing at an unprecedented rate; inflation, interest rates, tax regimes and corporate tax rates have all gone down. The infrastructure facilities are now improving with circular highways coming through, for the first time, so it connects up the investment zones with the main cities.  The Airports and the Ports are improving. We have new Ports being added and the others being improved. The Hotel Sector is also growing and we have another International Airport coming up in the deep South, in Hambantota.

So, I think it is a good opportunity for anybody looking around in this region.