Forbes: Romanian Financial Products for Export: Astra Asigurări, BCR and Banca Transilvania

After more than 20 years of capitalism, Romanian financial and insurance companies expanding on the European markets are still scarce. But the adventure is only just beginning.

When Romanian insurance companies were drawing up their balances for the first three quarters of 2010, Radu Mustăţea, president of the Astra Asigurari Directorate, was establishing the final details of the branch he was to open, in October, in Budapest. The debates on the insurance market decrease by 5.1% in the first nine months of 2010 compared to the same term during the previous year found him commuting between Bucharest and the Hungarian capital.

The launch of the first Romanian branch in the bordering country (coinciding with the premiere of a foreign insurer, as a natural entity, on this market) was the key-event in the life of the company it is leading. Especially seeing as, on the new market, the end of the year coincided with the top sales of mandatory civil liability auto insurance policies. „I do not speak Hungarian, however, in insurance, I spoke the same language as Hungarians, in a very short time”, said Radu Mustăţea smiling.

Hungary was naturally favored by its geographical position, as well as its inclusion in the European Union, however it disputes such benefits with Bulgaria. The difference that brought it the vote of confidence from Romanians was given by the insurance market’s degree of development (the value of the gross premiums subscribed by more than 31 insurers amounted to Euro 3.27 billion in the first semester of last year, compared to Euro 352.7 million subscribed by the 20 companies in Bulgaria during the same interval).

The first five players in Hungary are Allianz (Germany), Generali-Providencia (Italy), Groupama Garancia (France), Aegon and ING (Netherlands), and they concentrate over half the market. The activity on the neighboring auto market, with an auto park comparable with the local auto park (approximately 4 million vehicles, compared to a 5.2 million fleet in Romania) also weighed in on the final decision. “We then considered the highest amount of stolen cars and came to the conclusion that Hungary was a better choice”, said the president of Astra Asigurari on a more or less serious note.

The branch that obtained licenses for vehicle liability insurance, CASCO and home insurance policies is mainly concentrated on the auto segment. During its first two months of operation, 110,000 clients concluded vehicle liability policies. The first average on the auto segment is 5-10% higher than that in Romania. "The value of damages is also higher, however, the frequency of accidents is significantly lower", explained Mustăţea.

According to the Astra Asigurari president, expansion is a step that needs to be as controlled as possible. „It is a sign of maturity for a company that can export its experience." To export, but to also learn at the same time. In Hungary, the 15 employees of the branch lead by Bela Török rely exclusively on the online sales channel, either via the internal online sales website, or via online brokers. Unlike the Romanian market, where the online segment is still struggling to become visible, in Hungary, approximately 50% of the vehicle liability insurance policy renewals are performed on this channel. The local rules of the game impose that the rates be published by all insurers at the beginning of the peak period and that they remain unchanged throughout the year. Money is collected by separate entities, and the insurer notifies the client if it fails to pay its installments on time, and then its policy, suspending the driver’s right to run on public roads. “We brought subscription, client targeting and pricing. Considering the technical level of this insurance policy, we are expecting better results in Hungary than in Romania", said Mustăţea. For 2011, he estimates at least 150,000 clients for the vehicle liability insurance segment, i.e. a value of the subscribed gross premiums of over Euro 12 million. Also during this year, in Budapest, Astra Asigurari will sell CASCO and property insurance policies. The expansion of Astra Asigurari will not end in Budapest. “We are studying the legislation, we are prospecting the market and we will not stop here”, confirmed Radu Mustăţea, without adding any more details.

However, Robert Rekkers, the Managing Director of Banca Transilvania, does not seem as open towards the expansion on other international markets, aside from Cyprus. “We do not currently have plans for other markets”, he said. For the Dutch who has been running the Romanian bank since 2002, Greek is not part of the five spoken languages he is fluent in. However, it will definitely remain a reference language for the business route of Banca Transilvania, both in Cyprus and in Romania. Banca Transilvania opened its first branch in Nicosia in October 2007, it expanded with one unit in Limassol last year and this year, the Nicosian branch will be relocated near the Romanian Embassy.

Currently, the portfolio in Cyprus includes 1,500 current accounts, of which approximately 80% are held by Romanian clients (natural persons) in Cyprus. Moreover, the expansion in this country holding a population of 800,000 inhabitants was turned towards the 40,000 Romanians working there from the very beginning, and not towards attracting Cypriot clients. "I felt I became a part of the community over there extremely fast", said Robert Rekkers. Moreover, Cyprus continues to absorb the Romanian work force, and in 2010 it came in fifth among the most accessed countries. In accordance with the Tjobs.ro statistics, Cyprus came in after Great Britain, Germany, Greece and Italy, with 8,350 jobs held by Romanians.

For the Cyprus Branch, Banca Transilvania did not have any structural change for its Romanian business profile. The connection to the Euro Area (BT Cyprus falls under the jurisdiction of the Central Bank of Cyprus and, implicitly, of the Central European Bank) also implied adapting to the accounting and audit rules that, for the Romanian banks, will only become mandatory starting with 2012.

However, the relation between Banca Transilvania and the Cypriot financial market, that now counts seven employees, did not begin in 2007, but is related to the coming in Romania of the Bank of Cyprus (in 2006). The Cypriots have initially developed their business via a representation office obtaining the status of branch in 2007 (when Banca Transilvania opened its first branch in Cyprus). Banca Transilvania then offered operational support to Cypriots for the development of the business in Romania and the service was returned to it when the Bank of Cyprus provided counseling for the opening of the BT branch in Nicosia, in accordance with the statements made two years later. Joint history continued to be written when in 2009, the strongest Cypriot bank purchased 9.7% of the Romanian bank's shares, a pack for which it then paid Euro 58 million.

In 2010, the Cypriots declared their intention to buy another part of Banca Transilvania, however, the application submitted to the National Bank of Romania was finally withdrawn. Once again surrounding itself with Cypriots, the Romanians in Banca Transilvania also managed to surpass the accusations of its alleged manipulation of the capital market, brought in the second half of 2010.

In terms of the Romanian brokers on the capital market, they did not rush to expand over the borders, as only Tradeville has currently applied such an initiative. The brokerage company, controlled by the Cypriot company Annaliesse Investments, managed by Andrei Siminel, opened two branches in 2010, in Bulgaria and Serbia, in order to first of all attract new clients on Romanian market. The broker does not believe the results can be quantified in such a short amount of time and it remains discrete when it comes to talking numbers.

Therefore, are Romanian financial products strong enough to impose themselves on the European markets? Laurian Lungu, Managing Partner in Macroanalitica, claims that the financial markets are competitive by nature: “First of all, a solid knowledge and expertise base is required in order to export Romanian financial products”. In accordance with the financial consultant, Romanian companies are missing expertise and “scale economy” (editor’s note: economic principle according to which the average unit cost of a product decreases the more the number of units increases), so that presence on a representative market would imply extremely large costs. Therefore, the most accessible expansions have remained in the proximity of the Romanian borders. "Romanian financial companies have gone in the direction they had access to, where they had lower costs or where they were already familiar with the system through the players there. It is extremely difficult to enter a representative market. However, it is not impossible”, concluded Laurian Lungu. The representatives of the business environment do not think the “export” of their products is impossible either.

“Competition for economic increase”, a study of Ernst&Young, monitoring the responses of 1,400 executives worldwide, underlines the fact that Romanians not only want to expand on international markets, but they see it as the best means of development. According to the data of the financial consultancy and audit company, 87% of the Romanian executives believe the sale of services and products on other markets is essential in their development strategy, outclassing, for example, product innovation.