Insurtech - Think Safety, Think "DRIVESUNG"

There is a growing view in local fintech circles that insurtech will be the next big thing in SEA. The main advancements so far have been in delivering efficiencies (price comparisons, product aggregators, digital brokers) thereby reducing costs for insurance companies and facilitating cheaper coverage for consumers.

ZENSUNG Singapore Pte Ltd has developed something more. At its core it is about promoting safer driving and targeting some of the highest road fatality rates globally - which are in emerging and developing markets. DRIVESUNG calculates a safe driving score for every trip calibrated from parameters identified during extensive discussions with insurance risk specialists, supplementing traditional risk measures. So it delivers the insurers benefits - but goes a lot further on value add for consumers. This mobile app has been successfully tested by Android and IOS users in multiple markets.

DRIVESUNG just been released as a free download from the Apple store in Singapore. I have been helping to trial this in Singapore for the last few months and can vouch that it has dramatically increased my awareness of driving faults and encouraging corrective action. Don’t just take my word for it try it yourself!

The awareness and usage of DRIVESUNG is growing rapidly through:

• safe driving competitions (India, Sri Lanka, Mauritius)

• white label insurance offering (Indonesia)

• 250k+ hits on adverts, 30k + downloads

https://www.youtube.com/watch?v=jaFrhqoaM7Q

…..and yes, I am advising on capital raising!

US GSIB FY2018 results- a tough act to follow for UK & EUR GSIB's

The US GSIB’s have emerged stronger and faster from the North Atlantic Financial Crisis than the UK & EUR GSIB’s. The US GSIB’s were the first to release their FY2018 results last week and on the other side of the pond there will be UK & EUR GSIB CEO’s and CFO’s wishing to avoid peer GSIB results comparisons.

So how high has the bar been set …too high, by a long way. See link for analysis

US GSIB FY2018 Earnings pdf

Key highlights:

• Returns on Equity and Tangible Equity are above Cost of Equity (≈10%) for all US GSIB’s who are benefitting from continuing domestic economic growth, lower effective tax rates and strong core business focus.

• Core Equity Tier1 ratio’s peaked in the last 2 years and are above med term target levels with room for minor downward adjustments

• Supplementary Leverage Ratio’s are >6% for all US GSIB’s ahead of this years CCAR stress tests

• Efficiency is being improved by all US GSIB’s and for those with Cost to Income Ratio’s > 65%, it is arguably their highest priority

• Net Payout Ratio’s remain high but in some cases below medium term targets as new investment opportunities are seized.

North Atlantic Financial Crisis, not Global Financial Crisis

There is increasing evidence that what has been commonly referred to as the Global Financial Crisis - should be renamed the North Atlantic Financial Crisis. Just because the epicentre was in the west, does not make it global. Think of the baseball World Series….

There is now 5 years of externally published data on the global bank systemic risk indicators for each of the 30 global banks classified as GSIB’s. (2013-2017).

The key trends in systemic risk indicators can be examined by grouping the banks into 5 regions (US, UK, EUR, CHI, JPN) and computing year on year variances by region. (see link)

GSIB 2013-2017

The key points are:

Size - The North Atlantic Financial Crisis bifurcated GSIB growth - declines in the west, advances in the east

Inter-connectedness - Asian GSIB’s have become more inter-connected and important to the financial systems in which they operate

Substitutability - Asian GSIB’s are playing an increasingly important role in transactional and investment banking

Cross-jurisdictional - China and Japan GSIB’s have significantly increased international activity

The North Atlantic Financial Crisis has been a massive opportunity for Asian GSIB’s and DSIB’s.

Local Currency Liquidity - Repair the roof when the sun is shining

It was my honour to conduct 4 sessions at the Risk Asean ALM workshop 2018 in Bangkok, Thailand in May 2018, excellently hosted by Risk.net. There were senior practitioners from local and foreign banks and corporates as well as from the Indonesia financial sector.

One of the areas that came up in the interactive discussions was concern on a potential shortage of local currency liquidity. This at a time when local currency interest rates have been "low for long" and softening further and banks are achieving some success on getting NPL's off their books.

So what are the drivers of concern - not just in Thailand but around Asean:

1) The dominant local banks are getting an even greater share of the available base of low cost, stable retail deposits leaving the rest scrambling for higher priced, more flighty deposits. Post global financial crisis and regulations the "winner takes all" trend has strengthened.

2) Basel III liquidity rules are extremely favourable for retail deposits and very punitive for some types of short term wholesale deposits - in some cases widening relative stability assessments far more than internal risk models. This has led to a crowded market pursuit of deposits that receive favourable regulatory treatment.

3) There has been a massive move from fixed term deposits into non maturity current and savings accounts with the very low rate environment and statistical analysis gives the facade of price insensitivity to these balances. When rates rise the reversal of this flow and the spike in price sensitivity could be truly historic

4) In some markets the regulations negate the liquidity value of longer tenor retail time deposits by enshrining the right of a customer to uplift a deposit and overriding the liquidity interests of the bank in being able to decide on the permissibility of uplift. A rational customer would break a long term deposit if rates rise and place it at higher rates.

5) Challenger bank, shadow bank and FinTech e-wallet providers are capturing an increasing share of customer deposits and this is likely to accelerate further when rising rates destabilise the bank deposit base. Banks will try to hold the line on slow paced deposit price rises but competition will force their hand.

6) Many ALM practitioners today have no personal career experience of the last global rate up-cycle in 2004. Some have only experienced low, benign rates. The learning when it comes may be brutal.

We discussed many responses to these and other drivers of anxiety on local currency liquidity - to get more information contact me on nick.wood@fintorque.sg