- Vera Viktorovna, some of our clients, unfamiliar with financial processes, believe that their contributions stay in the company, is it so? Could you tell, what happens to the money when they get to the account?
- All insurance premiums accumulated in the company do not simply “lie idle” on our bank accounts, since there is the simplest principle - money must work and make a profit. Therefore, the company invests them in profitable financial instruments generating revenue, since even before our clients we guarantee a certain benefit from insurance policies.
- Where the company invests money?
- A company makes deposits in second-tier banks of Kazakhstan, security papers issued by both state and various emitters, domestic and foreign. It is of noted that in this field the company is guided by one more principle - do not “keep all the eggs in one basket”. Therefore, we try to diversify our risks and invest in various banks and security papers. Some part of the money is used to pay commission to agents, pay insurance claims to policyholders and ensure the continuous work of the company.
- Could you describe the way of decision making about where the money will be invested?
- Naturally, as we are responsible to our customers, such significant global decisions are not taken individually, in no case such decisions cannot be made only by the chairman of the board or be me as a financial director. The Company set-up the Asset-liability management Committee (ALMC), a collegial body accountable to the Board of Directors. And only during ALMC meeting we may decide and vote where to invest money. Often ALMC members have highly conflicting opinions. There is no formal approach, someone stands for someone and against, it is necessary to take into account all the opinions and every attendee express its opinion. Here we must take a very balanced and thoughtful decision, because we operate with huge amounts.
- What could happen if any bank has problems?
- I must say that now the financial market of Kazakhstan is really unstable, that is why during the meetings of ALMC we weigh the positions of all banks before depositing money there. A mandatory clause in the agreements on placement of deposits is the requirement that the company can terminate the deposit without lesion to itself provided that the rating of the bank is lower than the limit set for us by the normative values of the National Bank. All this is provided in order to protect both our company and our policyholders. We strive to stay ahead. Our company has a risk manager, who on a daily basis monitors the status and loan portfolio of a particular bank. And if it turns out that there is at least some hint at the difficult situation of the bank, we are trying to withdraw money before the onset of critical moments. So far, we have not had a single case where the company irretrievably lost its funds due to the bank problems, and we did not take such cases into account and took no measures. Naturally, it is necessary to have finger on the pulse for me as financial director, for risk manager and company management as well as for Asset-liability management Committee.
- How does the state regulate the activities of the insurance company?
- There is an authorized body in Kazakhstan, National Bank of the Republic of Kazakhstan, regulating a lot of areas of the insurance company’s activities, such as: requirements to capital, large transactions, diversification of assets, prudential standards of the company, established by the relevant regulatory and legal acts. Compliance with these prudential standards is a guarantee of financial stability and solvency of the company.
Therefore, there are measures of early response to the deterioration of any financial indicators. The company should immediately draw up a plan of action to resolve current situation, when some significant standards are reduced, and submit this plan to the authorized body, and report on its implementation on a regular basis. For us, the state represented by National Bank, is the body restricting the company from excessive initiative, which may cause harm the policyholders, and this is what the regulator’s decisions protect us from.
- Could you describe the reporting process? What shall be reflected there?
- Since 2003, all financial institutions have switched to reporting in accordance with International Financial Reporting Standards (IFRS). Elements of these reporting are a statement of financial situation, a statement of revenue and losses, a statement of cash flows, and reporting on changes in capital. All reporting is necessarily presented in comparison with the same period of the last year. In such a way we can observe a tendency of any indicator to increase or decrease, and it is always possible to track the growth of assets, profit, stockholder equity of the company.
- Are there any requirements to the reporting?
- There are several forms approved by the authorized body - the National Bank, and mandatory for use. The requirements are the same as the principles of accounting. This is the principle of correspondence, reliability, continuity, neutrality, etc. All reporting should reflect these principles.
- What is the difference between financial management in an insurance company and, say, a manufacturing company?
First of all, the insurance company is a financial organization, and, accordingly, there is a completely different approach to the financial activity. We even believe that the activity in the field of investment is gaining more importance for the insurance company, and it should be equal in revenue collection over time.
In my opinion for the manufacturing company, the development of production is more important and, as a rule, free cash is spent on this - for the purchase of new equipment, for the purchase of some new materials, for the modernization of manufacturing process. Whereas all free money supply should find a way out in some new financial instruments, the more profitable and reliable they will be, the better it will be for the Company and for our insurers.
- In a particular situation a client may ask an agent - “What will happen if the Company will stop to work?” What is your answer on this question?
- I think our clients should not worry too much about this, because our authorized body will never let any insurance company leave the market without transferring its obligations to someone. We have an example when the life insurance company was liquidated, but, nevertheless, all its obligations were transferred to another LIC. No client was put out into the street with the words: “Sorry, our company does not exist no more”.
- Why is it possible not be afraid to entrust money to the insurance company for a long time? How do you think, what is the difference between endowment life insurance and a bank deposit?
- As far as I know there are no deposits for more than 3 years in any bank, and the banks do not carry a risk component. Your money will be returned to you with interest, but no more. The product line, in particular of our company, is increasingly diverse every year, for example, we have a new product - “Currency Plan”. In 2015 all of us saw our “jumping” tenge and therefore the population had a somewhat distrustful attitude to our national currency. In order to increase interest our customers somehow this program was introduced, with reference to the US dollar. Thus, the client has a unique product which cannot be provided by any bank, or any single bond. This product is an insurance cumulative component and plus the currency envelope of the product, which also gives some additional guarantees and advantages, because, as a rule, endowment insurance products are long-term in their nature - 5,10,15 years. Where, in which market can you get a similar product? Perhaps, only in life insurance company.