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APRIL 25, 2005
How Hartford Insurance Conquered Japan A top exec explains how a little foresight opened a huge door for the U.S. insurer in annuities Japan, the world's second-largest market for insurance, is often called the most overinsured nation. In addition to gigantic domestic insurers such as Nippon Life Insurance, foreign companies like American International Group (AIG ) have spent decades building up a presence in the country. So when Connecticut-based Hartford Life Insurance (HIG ) started selling annuities to the Japanese in 2000, it was seen as a long-shot crack at a mature industry. But the bet has paid off handsomely. Hartford has kept a No. 1 position in the burgeoning Japanese market for annuities -- which has grown to $40 billion in just four years. Greg A. Boyko, executive vice-president in charge of international operations, recently spoke about Hartford's success in Japan's crowded insurance industry with BusinessWeek International Finance Editor Chester Dawson. Edited excerpts of their conversation follow: Q: What led Hartford to start a Japanese business five years ago? A: We studied the market over there, the demographics, and found that about 25% of the population is 60 and older. That'll hit 42% by 2040. It's a little bit like driving through Florida when you look at the demographics of Japan. People were shell-shocked by the stock market, so they were hoarding a lot of cash. Interest rates were near zero, and we felt very strongly that these folks were desperately looking for high-quality, great service, and a great product. Q: How did Hartford get a step ahead of other companies that are more established in Japan? A: The variable annuity was just allowed in 1998 or 1999 as part of Japan's financial deregulation. So with the opening of the door for variable-annuity sales at securities firms, we took a gamble that the banks would also be allowed someday to sell them. We went in to get our license in 1999 and opened up our doors in December, 2000. It was about two years later that the banks were allowed to sell variable annuities -- October, 2002. And that's when the really big [sales] numbers came. We were just there with our catcher's mitt when the first ball was thrown. And we've had a No. 1 position there [ever] since. Q: How did Hartford get distribution in Japan's crowded financial marketplace? A: While everybody loves the [Hartford] stag [symbol] in the U.S., nobody really knows about it in Japan. So we had to get the financial institutions interested in distributing our product for us. We hooked up with Nikko Cordial Securities -- that was our first big distributor. We subsequently signed up 51 distributors, which is about 60% of all the available distribution in Japan, including Tokyo-Mitsubishi [Financial Group and] Nomura Securities -- all the household names in Japan. Q: Deregulation of annuities has led to an initial boom, but is there still room to grow? A: We predicted about four years ago that Japan's market for variable annuities would grow to $300 million to $400 million, and a lot of people thought that we were out of our minds. But the reality is that the market has grown in about four years to more than $40 billion today. And we figure that we're still at the 10-yard line in terms of variable-annuity development in Japan and at the 2-yard line for fixed-annuity development. Beyond that, we sell mutual funds and 401(k)s in the U.S., so we'll be looking at [introducing those in Japan] when we feel the time is right. There's an awful lot of juice left in the orange. Q: What other international markets is Hartford looking to expand in? A: I've been spending a lot of time in Germany and the U.K. As you probably know, we're going to enter the U.K. marketplace in the second quarter. When you look at the population, Japan is about 2% [of the world's total], the U.S. is 4%, and Europe is 6%. That's 12% of the total world population. But when you look at life and pension markets, those three markets comprise about 90%-plus of the world market. So that's where the money is, where the demographic pressures are and where the economies are suffering because of the pressure on their social security systems. All that creates a vast market that most companies in this business haven't really appreciated.  Edited by Patricia O'Connell
BW MALL
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