Monetary and Capital Market Exclusive, March 2004

Monetary and Capital Market in Iran

Insuring Increasing Success

Our services include various commercial and personal insurance products ranging from car and home insurance to fire, marine, engineering liability and property insurance.
	Mohammad Asudeh, Managing Director of Alborz Insurance Co.

Ever since the monetary and capital markets have taken center stage in Iran’s economy, insurance companies have also assumed a greater role. Even though the role of insurance companies may be overshadowed at times, they hold a key position amongst the financial   institutions of the country. One of the country’s leading insurance companies is Alborz Insurance Co. That is why we decided to speak with its Managing Director, Mohammad Asudeh, about the role insurance companies play in the economy of Iran, with particular focus on its capital and investment markets.

1.   Can you give us a brief history of Alborz Insurance Co and its main activities?

Alborz Insurance Company (AIC) was established in 1959. Our initial capital was 750 million rials which is 260 billion rials today. The company is well established in the Iranian insurance market and has grown to become a dynamic and successful company. AIC has a well-earned reputation for high quality insurance services.

As a general insurance company, we offer both life and non-life insurance. Our services include various commercial and personal insurance products ranging from car and home insurance to fire, marine, engineering liability and property insurance. We also offer individual and group life and accident covers as well as heath insurance. But this does not mean we don’t pay individual attention and professional services to all our clients big or small.

Our headquarters is located in Tehran. We have 43 branches throughout the country and employ more than 1000 people. Most of our employees have university degrees and professional qualifications. We offer our services through a nationwide network of branches, 674 sole agents and utilize 201 official brokers.

For risks above our retention capacity we obtain reinsurance from Central Insurance of Iran and also approach international reinsurance markets.

2.   What is your assessment of the recent economic climate of Iran, and how do economic reforms affect the insurance sector?

Insurance is part of the financial services business and of course we receive premiums before paying any claims, so we have resources for investment just like other insurance companies around the world.

Iranian economy is moving rapidly towards privatization. This trend is felt in all economic sectors and the financial and services sector is by no means left aside. During the Third Five Year Economic Development Plan we witnessed the birth of six private insurance companies which were permitted by the Central Insurance of Iran (CII) our national governing body and our regulating body the Higher Council of Insurance (HCI). This created an outlook of competitiveness for all of the government-owned insurance companies, among them AIC.

Since we experienced high inflation rates in our economy, and due to other factors in the Iranian economy, investment in real estate has always been a very good opportunity for both insurance companies and banks. This year we had a very good return on our investment. As part of our restructuring we also re-evaluated our assets and now we have a total capital of 260 billion rials. This further assisted our capabilities for underwriting and risk acceptance also. Since we also have hard currency liabilities, now we can balance our liabilities with our assets and show the results clearly.

3.   What are the plans for AIC’s privatization? Do you foresee any joint venture cooperation with foreign insurance companies? What are the obstacles to privatization and liberalization of the Iranian insurance market?

It is planned to privatize all three state owned-insurance companies, which means selling Asia, Alborz and Dana. Bimeh Iran, the other major state owned insurance company will probably remain state owned. Required legislation is proposed to the Islamic Consultative Assembly or Majlis and after ratification of such legislation shares will be offered in Tehran Stock Exchange (TSE).

Recently, TSE index has risen considerably. In the long run, the government will sell more stocks on TSE to balance the supply and demand. As part of this process, it seems our shares can and will be offered. Once we have a more balanced supply and demand in the stock market, the return on investments made may decrease, but the interest rates will decrease even more so we can have a healthier economy over all.

This is why insurance companies will be very active in the TSE. Of course, we will not make all our investments in the TSE since we need both liquidity for covering our payments (including claims) and diversification of our investment portfolio.

As for Joint Ventures with non-Iranian insurance companies, we need to have appropriate regulations. There are very good opportunities in the Free Trades Zones (FTZ’s) for such co-operations, but we have limitations on the mainland.

Last year, AIC along with other interested insurance companies established a reinsurance company called Amin Reinsurance Company (ARC) with an initial capital of 370 billion rials. Through this company we can accept more risks and have some shares to offer interested foreign investors as well.

The Fourth Five Year Economic Plan will grant foreign ownership of such operations on the mainland, provided the Majlis approves proposed legislation. If such permission is granted, there will be very good opportunities for JVs with foreign insurance companies. This will be a win-win situation not only due to capital injection but also because of management, new products, and improvements in our over all technology, which we expect to receive from our partners overseas.

4.   What will be the priorities of Alborz under private management?

Of course the priorities are reducing costs and increasing profits. We have a ratio—like costs over premium—instead of cutting costs, you can increase the denominator of the ratio, increase the premium on insurance policies. This year, which is my second at Alborz, we had an approximate 60% increase in the premium, compared to 22% last year. This significant progress was indeed achieved with the strife and effort of our own existing staff and we did not recruit even one new employee last year. This relieves us of any concern about lay-offs.

Some might believe in curbing costs and overheads. But I think if we have a bigger cake for our employees, it is better than having a smaller one for a smaller number of people. This is what I am working on in this company. And there is one more positive point for Alborz.

As manager, I’m also aware of my social responsibility. I am not thinking about short-term gains. I think if we stop hiring, which we have already, and increase our premium, we might face a shortage of staff. One feature which distinguishes Alborz from other insurers is that we have the lowest number of employees—close to 1000 people across the country.

5.   As our last question, can you tell us more on your alliance(s) with other insurance companies?

Besides ARC, we have formed a consortium made of Bimeh Iran, Asia Insurance, AIC and Dana Insurance where AIC holds a 20% stake. This consortium is for petrochemical risks. The members reinsured themselves internationally for about 80% of the total risk. In other words, non-Iranian insurers have taken 80% of the risk through reinsurance.

No. 3, Sepahbod Gharani Ave., Tehran - Iran

Tel: +98 21 880 38 21-9 / 890 32 01-9

www.alborzinsurance.ir