Insurance Industry Must Create More Awareness on Benefits of Transferring Risks Through Insurance

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26/11/2014

Protocols

I am deeply honoured to be the Guest Speaker at this public lecture because I see it as a forum that will enhance public awareness of the existence of risk as a natural phenomenon to human existence.It should also draw our attention to the fact that we all — individuals and governments — have a responsibility to manage risk, for the betterment of our lives and those of the people we serve.

We are often impervious to the risks we face on a daily basis. Risk here being the probability or the threat of damage, loss, injury or any other negative occurrence that is caused by external or internal vulnerabilities, the consequences of which may be avoided through preemptive action.

In other words, it can simply be described as the probability of losing something of value for example physical health, property or social status. Risk management refers to the steps we take to mitigate or eradicate the risk.

As a government, we are responsible for the well-being and welfare of the people we serve. We have a responsibility to provide social security for both the young and the elderly; a responsibility to provide security of life and property and also a responsibility to ensure that the Infrastructure put in place are properly maintained in a way and manner that the State can be described as having a ‘developed economy status’.

Where we fail to take pre-emptive steps to attend to the risks that come with the responsibilities that have been placed on us, we would be failing in a part of our duty as Government.

The Lagos State Government has always been in the vanguard of identifying risks and taking steps to mitigate/eradicate those risks, as much as possible. To list a few, the Climate change risks which could expose the State to flooding and other natural hazards but which we have successfully mitigated in the past few years; Health Risks such as that recently posed by the incursion of Ebola Virus Disease to Nigeria, against which prompt steps were taken by the State Government to curtail the spread of the disease.

We also face security challenges: kidnapping, ritual killings, armed robberies etc. These are threats to peaceful co-existence of inhabitants of the State. To mitigate those risks, the Lagos State Government equipped the Rapid Response Squad and other Law enforcement agencies.
Our youth and the elderly are exposed to social protection risks which if not addressed could result in poverty, and other security hazards in the community.

Furthermore, risks of danger to lives and property of the citizens exist where, due to unprofessional practices on the part of those involved in construction, substandard materials are used in construction.

On this front, the Lagos State Government realized that the risk faced is in two folds: i.e. risk to life and property and secondly the risk of the construction being delayed or never completed due to a variety of reasons which would have an ultimate negative effect on the environment.
The Lagos State Government’s risk mitigation response to this was the establishment of agencies to regulate/supervise building projects in the State. In order to ensure that delays in construction projects do not create severe adverse occurrences, it embraced Insurance as a risk transfer mechanism.

The business of Insurance, simply put, is to ensure that full or partial financial compensation is made for loss or damage caused by events beyond the control of the insured.

It is a contractual agreement between two parties i.e. the insurer and the insured, under which the insurer covenants to indemnify the other party against a specified amount of loss, occurring within a specified period, provided that the premium is paid. It is designed to put the insured back in the position, or at least as close as possible, in which he or she was before the occurrence of the loss.
In essence, it is expected that gains are not made from Insurance arrangements and to be able to insure a risk, the insured must have insurable interest over the tangible or intangible asset.

In Lagos State, largely based on the Nigerian Insurance Act 2003, certain insurance policies are specified as compulsory insurances that must be arranged and these are:
• The Group Life Assurance Scheme in line with the 2004 Pension Reform Act.
• Builders Liability Insurance
• Occupiers Liability Insurance
• Motor Third Party Insurance
• Health Care Professional Liability Insurance under the National Health Insurance Act of 1999
On the issue of pensions, you will agree with me that before the Pension Reform by the Federal Government in 2004, our pensioners faced the risk of a life of penury due to the unfunded nature of the Pay as you Go Pension Scheme in the public service and the lack of provision of pension arrangements for employees in the private sector.

The risk of the elderly not having financial independence and dying in poverty was real and to eradicate this risk, on the 19th of March, 2007, the Lagos State Government subscribed to the fully funded Contributory Pension Scheme.

It imposed on us a huge liability as we needed to pay of 7.5% of basic salary, housing and transport allowances as monthly pension contribution; fund the Retirement Bond Redemption Fund Account with 5% of employees monthly total emolument figure to provide for accrued pension rights, being entitlements for years spent in service before the commencement of the contributory pension scheme. monthly; pay the annual premium to guarantee the life assurance cover as stipulated in the Law and which is intended to provide a death benefit of at least 3 times the annual total emolument of each employee.

We are, however, committed to making Lagos State Government a government that cares for the welfare of the people, and is prepared to stand with them through difficulties that are occasioned when certain risks crystallise.

We remain resolute in our desire to identify areas that may hinder the peace of mind of the populace and hence we have invested Billions of Naira towards ensuring that the retirees receive monthly income as pension from their pension provider who could be the Pension Fund Administrators or the Life Assurance Companies who provide annuity for the lifetime of the retirees.

The Lagos State government has also sought to support the growth of a viable insurance industry by ensuring that it keeps its own insurance policies current and settles its premiums as and when due.

But beyond our role as government, in order to ensure that more people embrace insurance, even beyond the compulsory, the Insurance Industry needs to do a lot more to create awareness of the benefits of transferring risks through Insurance.
A lot of trust also needs to be built and this will only be achieved where the principle of utmost good faith and duty of disclosure, which are key Insurance Principles, are practiced by the Insurance Companies.

Conclusion

In conclusion, I wish to commend the National Association of Insurance Correspondents on this 1st Public Lecture on Insurance & Pensions.
This I believe is a step in the right direction and should be sustained. The Industry needs the awareness; the people need to develop the confidence; the Industry needs to rise more stoutly to her responsibility as risk bearers; we need a re-orientation and a re-definition of core values for which our society will be the better.

Thank you for listening.

Eko o ni baje o.

Babatunde Raji Fashola, SAN, Governor of Lagos State

ADDRESS DELIVERED BY HIS EXCELLENCY, MR. BABATUNDE RAJI FASHOLA, SAN, GOVERNOR OF LAGOS STATE, AT THE 1ST PUBLIC LECTURE ON ‘THE ROLE OF GOVERNMENT IN MANAGEMENT OF RISKS IN THE SOCIETY’ ORGANIZED BY THE NATIONAL ASSOCIATION OF INSURANCE CORRESPONDENTS AT THE ABORA-MAZONIA SUITE, EKO HOTELS & SUITES, VICTORIA ISLAND, LAGOS ON TUESDAY, 28TH OCTOBER, 2014.

Ebola: The Insurance Effect

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26/11/2014

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The Ebola Virus Disease (EVD) pandemic has gripped the world like no other scourge in decades. For medical experts, what makes Ebola more dangerous than others before it is the high fatality rate and ease of spread, which results in rapid death of infected persons and multiple transmission between individuals.

And for the global insurance industry, Ebola represents yet another scourge on the balance sheet of insurance companies as claims could arise rapidly to provide succour to families of victims.
In this report, we present various angles of the effect of EVD on the insurance industry.

• Insurance Industry Ramifications of the Spread of the Ebola Virus- Dr. Steven N. Weisbart, CLU

Current Situation

• As of October 10, the Ebola virus has infected at least 8,399 people and killed 4,035, according to the World Health Organisation. This includes 4,762 confirmed cases, 2,196 probable cases and 1,652 suspected cases.
• As of October 10, all but four of the cases were in four countries in Africa (Guinea, Liberia, Sierra Leone, and Nigeria). One was in Senegal, one in Spain, and (as of October 12) two in the United States.
• There are five known strains of the Ebola virus. The one causing the illness and deaths noted above is the Zaire strain, which was identified in 1976.
• There is currently no cure and no vaccine for this virus. Treatment is isolation (to prevent spread) and focus on symptoms—mainly dialysis and fluids to prevent dehydration and reduce fever.
• The mortality rate of infected people to date is roughly 50 percent.
• Unlike influenza viruses, the Ebola virus is transmitted only by contact with an infected person’s bodily fluids (e.g., blood, saliva, sweat, diarrhea, vomit, etc.) during the incubation period or shortly thereafter. Contact with the fluids could be from contact with sheets, mattresses, medical equipment or any other surface to which the fluids were transferred.

Expected Near-term Health-care Situation

• In the U.S., the Centers for Disease Control and Prevention (CDC) does not expect the Ebola virus to infect people other than a small number of health-care workers and others who have had direct contact with the bodily fluids of an infected person.
• However, the CDC is investigating the confirmed case (on October 12) of a health-care worker in Dallas who had treated an infected person, because it does not know how the health-care worker acquired the virus, and this might suggest weaknesses in the isolation/prevention protocols.

Worst Case Scenario

If the number of cases in Africa continues on its exponential ascent, the number of people who might carry the virus elsewhere around the world will also grow. The number of cases in Africa is likely to grow if isolation of the sick, tracking their contacts, and careful procedures followed by health-care workers, proves to be inadequate. An especially concerning scenario is the travel of infected people from Africa to India,
China or other heavily populated countries, where there are billions of people living in many densely-populated cities with relatively weak health-care systems.
Another element of a worst-case scenario would be screening systems at U.S. and other ports of entry that are ineffective in identifying people carrying the virus. This was how both the U.S. and Spanish cases gained entry into their respective countries. If improvements in screening are not completely effective, additional infected individuals could enter countries around the world, potentially leading to the spread of Ebola in the developed world and beyond.
Another threat is the possibility that the virus could mutate into one that is more virulent—producing a higher death rate. This might also increase the ease of spread of the virus.

Effect on Life and Health Insurance

• The effects on the Life and Health insurance industries will clearly depend on whether the infected people are insured. Some of those who have died up to now were children and almost certainly did not have life insurance.
• Even if the Ebola virus spreads to infect tens or even hundreds of thousands of adults in Africa, it is not likely to trigger many life insurance or health insurance claims there. Life insurance coverage in the three most affected countries—Guinea, Liberia and Sierra Leone—is extremely low. Indeed, in Swiss Re’s most recent report on life premiums per capita (for 2013), the calculation for all three of these countries are so small that none makes the list.
• Even in the unlikely event that the Ebola virus spreads to infect tens of thousands of adults in the United States, the financial impact will likely be quite manageable. This is because perhaps one-third of adults in the U.S. have life insurance only through their employment, and the amount is typically equal to one year’s income. Another one-third have individual life insurance, with the average death benefit in the $200,000 range. In a typical year life insurers pay about 2 million death claims, so another 100,000 would be only 5 percent more than typical. Moreover, most life insurers are well capitalized, and even the largest life insurers have reinsurance to prevent a surge in death claims from imperiling their solvency, so that the net effect would likely be, at most, a reduction in the profit they would otherwise record.
• The cost of caring for Ebola cases would likely be at the high end of health insurance claims, and the effect on health insurers would depend on the number of people suspected of being infected. Many people would need to be tested to see whether they have contracted the virus, and the cost of isolation of those affected could be substantial. Note that some individuals may have no health insurance, as was the case with the index (first) patient who died of Ebola at a Dallas hospital on October 8. In such cases, treatment costs will likely be borne outside the private health insurance system.

Effect on Property/Casualty Insurance

• The main effect on the Property/Casualty insurance industry would likely be on companies writing Workers Compensation insurance because health-care workers could be most directly exposed (as happened in Texas and in several African countries). Workers Compensation pays for the cost of medical care and lost income for people who become ill in the course of their work, and pays death benefits if they die from a work-related cause. As with life insurance, it is unlikely that many workers in the main affected African countries have workers compensation-type coverages; the latest Swiss Re report indicates that the level of premiums per capita for all non-life insurance coverages combined (not just Workers Compensation) in the three most-affected countries is so low as to not be listed. In the United States, in contrast, Workers Compensation coverage is nearly universal, but the likelihood of claims is low, assuming that employers and their workers take CDC-recommended precautions. As with life insurance coverage, reinsurance will help mitigate the financial effect of a surge in claims, which are likely to be very costly in the event of actual work-related infections.
• Other possible effects might be on various liability insurance lines. These include General Liability, Directors & Officers (D&O) Liability and Medical Malpractice (Med Mal) Liability. General liability and D&O claims might be filed asserting that the policy owner was negligent in failing to prevent transmission of the virus. For example, a claim might be filed alleging negligent disposal of contaminated waste, pursuing either General Liability or Med Mal recovery. Med Mal claims might assert that proper medical protocols were not followed, resulting in infection by the Ebola virus, or that the disease was not properly diagnosed or diagnosed in a timely manner or that the treatment protocol itself and/or care rendered was somehow negligent. At this stage it is impossible to forecast the precise number of such claims or the amounts of damages that might be sought. That said, assuming the CDC’s protocols are successfully followed, the number of Ebola cases should be small, thereby limiting the number and likelihood of tort actions that can impact various liability coverages.

Life Insurance Marketing: Company Materials Must Focus On Consumer Perception

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26/11/2014

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Life insurance marketing and sales materials go through many internal hoops before consumers ever see them. That starts at point of creation and continues on through legal and compliance review, production and distribution. What’s more, all must be done within budget and on time. But what happens once consumers see the materials?
Scott Kallenbach, Research Director, LIMRA Strategic Research, posed that question during a workshop recently at LIMRA’s Annual Meeting in New York.
Sometimes, people just draw a blank. That may have something to do with all those internal hoops.
To reach consumers, company materials “need to focus on outcomes,” Kallenbach said during an interview in advance of his talk. That is, they need to focus on how consumers perceive the content and meaning, instead of focusing on the output.

Focus on Consumer Understanding

What’s important is the customer understanding that comes from reading and seeing the materials, he indicated.
Agents need to focus on this too, he said. For instance, “it’s important that they explain a piece they are presenting to a customer in layman’s terms.”
To increase this understanding, companies and agents need to shift their focus in four key communications areas, Kallenbach said. They need to:
–Put attention on the information that consumers retain, not on the amount of information delivered.
–Provide disclosure in a context that people can understand rather than concentrate on providing complete disclosure.
–Make the content “intentional,” in the sense that it tells consumers what they need to know in language they can understand, not just on making the content defensible in a legal sense.
–Take a one-to-many “sharing” perspective which highlights how insurance enables people to share risk with many others, as opposed to a one-to-one perspective, which presents purchase and ownership as disconnected, singular activities.

Opportunity to Connect

When consumers can’t understand or retain the messages from their insurers, the industry loses the opportunity to connect, Kallenbach indicated.
To illustrate, he pointed to what happens when men go to buy an engagement ring. Most men walk into the jewelry store already knowing that the value of the ring should be equal to two or three times their monthly salary, the LIMRA executive said. Men know this because of a successful consumer-focused marketing campaign by the famous diamond cartel, De Beers.
That company put the purchase of a diamond engagement ring into “a context — the pay check — that people can understand,” Kallenbach said.
LIMRA is currently talking with insurance executives about doing something similar, he noted. The discussions are exploring what message will instill a sense of confidence and comfort with insurance.
The industry does have rules of thumb for, say, withdrawal percentages from retirement accounts and for recommended multiples of salary for life insurance, he allowed. But the discussions now underway are looking beyond multiples for an overriding message.

Make it Understandable

A point he kept revisiting during the interview is that the language the industry uses in many of its consumer materials is not understandable for a lot of people.
Life insurance content can be very formal and often includes jargon, he said. It would be more effective if it were conversational, with the focus on “telling the customers what they need to know.”
Too many times, industry communications do not align with that consumer perspective, for instance about protecting the family. In fact, he said, “our language can be intimidating.”
About his one-to-many suggestion, Kallenbach pointed out that the concept of sharing is popular today. Consumers like the idea that everyone “puts in a little bit” so that someone with a need can be helped.
That’s what people today call “collaborative consumption,” he said. It was the insurance industry that came up with the concept a long time ago, he added, but “we don’t get credit for it.”
Kallenbach suggested the industry highlight the concept now. For example, it could focus more on how adopting a healthier lifestyle helps not only the individual, who gains better health, but also the insurance pool that shares the risk.
Sometimes stories help, he noted. He recounted how two brothers whom he knows were planning to apply for life insurance. They decided to compete to see which one would get a better insurance rate. Their means of competition was adoption of healthier lifestyles — diet, exercise and the like. In the end, one did get a better rate than the other, Kallenbach said. But both brothers are continuing their healthier regimen to this day. It’s been two years now, and counting.

About legal and Compliance

Will use of more conversational language and context-guided disclosure put insurance communications in the crosshairs of insurance company legal and compliance teams?
“It would be great if marketing, compliance and legal could work together early in the process, to help consumers understanding together,” he said.
It’s important for everyone to follow the rules and the laws, he added. “But we need to put this into context for the consumer.”
A recent study of 1,500 consumers that LIMRA did jointly with Maddock Douglas found that the words, images and messages the industry uses to explain financial products don’t seem realistic or relatable to many consumers. What’s needed, the researchers found, is “authentic communication” that is easy to understand, down to earth, memorable, positive, credible and relevant.
According to Maria Ferrante-Schepis, Managing Principal-Insurance and Financial Services Innovation at Maddock Douglas and a Co-presenter with Kallenbach at the workshop, internalising authentic language provides a major innovation opportunity.

VIEWS FROM ABROAD

Question: What is the top life insurance trend or issue that will dominate the business in 2015?
“The top issue is the agency field force and our inability to attract new talent. Everyone is talking about how this is happening due to changing demographics. Well, the demographics are not changing. They have already changed. The changes include increased diversity, cultural shifts, the growth in women who have more spending power, and the way Gen- X and Gen-Y communicate and buy, and what their expectations are.
The life insurance industry needs to address the change or sales will continue to decline. Specifically, we need to change the way we sell to adequately address these changes.”

— Barbara Turner, CEO of Onesco and Chief Compliance Officer for Ohio National Financial Service, Cincinnati, Ohio.

The top issue will be finding efficient ways to reach the middle market with the goal of selling more insurance to this market. The reason is, the middle-market is severely underinsured and uninsured. I served in product development, agent training and marketing roles for insurance companies for 26 years, so I know that we tried as an industry to reach this market by advertising, but that didn’t work.
We need to change the experience so that we draw the middle-market buyers in. We have to change the process to something they will like so that they will ultimately buy. Too often, buying life insurance is a long process. You have to learn about it, make a choice, fill out pages of questions, ask your doctor to send the reports, and wait for things to happen; sometimes you have to wait two or three months. Many carriers are experimenting with this right now. For the last six months, I’ve been with a data analytics company; we’re bringing solutions that could help the carriers with this.
In a general sense, we need to find the right way to reach the middle market at the right time with the right message.”

— Denise Olivares, Director-Marketing Insurance, LexisNexis, Alpharetta, Ga.

“In view of all the changes we are seeing in technology, distribution, and decreased sales of life insurance, the top issue will be how to engage the consumer. We have difficulties in connecting so that consumers can access products and services in new ways.
This is a problem in my country, Canada, as well as in the United States. Consumers today connect on the web, and the legacy systems don’t impact them. The industry needs to connect in different ways that draw them closer.
A lot of this LIMRA conference is about thus issue. We need to access the middle-market in a cost effective way, whether that involves phone, internet, or changing approaches that make it so that insurance is not sold but rather bought. We need make changes so that people want to buy.”

— Alec Blundell, Vice President-Individual Insurance, The Co-Operators, Regina, Saskatchewan, Canada

Global Leaders Commit $8bn in Major Development Initiative for Horn of Africa

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25/11/2014

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• UN Secretary-General, WBG, IsDBG Presidents, other Agency Heads Visit Region to Link Peace Efforts with Economic Progress
Leaders of global and regional institutions today begin an historic trip to the Horn of Africa to pledge political support and major new financial assistance for countries in the region, totaling more than $8 billion over the coming years. UN Secretary-General Ban Ki-moon, the World Bank Group (WBG) President, Jim Yong Kim, as well as the President of the Islamic Development Bank Group and high level representatives of the African Union Commission, the European Union, the African Development Bank, and Intergovernmental Agency for Development (IGAD) are combining forces to promote stability and development in the Horn of Africa.

On the first day of the joint trip, the World Bank Group announced a major new financial pledge of $1.8 billion for cross-border activities in a Horn of Africa Initiative that will boost economic growth and opportunity, reduce poverty, and spur business activity.
The initiative covers the eight countries in the Horn of Africa — Djibouti, Eritrea, Ethiopia, Kenya, Somalia, South Sudan, Sudan, and Uganda.
“This new financing represents a major new opportunity for the people of the Horn of Africa to make sure they get access to clean water, nutritious food, health care, education, and jobs,” said World Bank Group President Jim Yong Kim. “There is greater opportunity now for the Horn of Africa to break free from its cycles of drought, food insecurity, water insecurity, and conflict by building up regional security, generating a peace dividend, especially among young women and men, and spurring more cross-border cooperation.”

Leading the trip to the Horn of Africa, the United Nations Secretary-General, Ban Ki-moon said “The countries of the Horn of Africa are making important yet unheralded progress in economic growth and political stability. Now is a crucial moment to support those efforts, end the cycles of conflict and poverty, and move from fragility to sustainability. The United Nations is joining with other global and regional leaders to ensure a coherent and coordinated approach towards peace, security and development in the Horn of Africa.”

The European Union also announced that it would support the countries in the region with a total of around $3.7 billion until 2020, of which about 10 percent would be for cross-border activities; the African Development Bank announced a pledge of $1.8 billion over the next three years for countries of the Horn of Africa region; while the Islamic Development Bank committed to deploy up to $1 billion in new financing in its four member countries in the Horn of Africa (Djibouti, Somalia, Sudan and Uganda).
The Horn is diverse, with some of the fastest growing economies and huge untapped natural resources. However, it also has many extraordinarily poor people and populations that are now doubling every 23 years. Unemployment is widespread among growing numbers of young people. Women, in particular, face huge obstacles because of their gender, including limited land rights, limited education, and social customs that often thwart their ability to pursue economic opportunity, and improve living conditions for their families and communities.
Countries in the region are also vulnerable to corruption, piracy, arms and drug trafficking. Terrorism, and related money flows are significant and interconnected threats in the Horn of Africa. People-trafficking is also a growing problem in the region. However, there are commendable efforts being made through regional cooperation in parts of the Horn to tackle the root causes of these problems.
The new financing announcement will support those efforts and comes on the first day of the trip led by UN Secretary-General Ban Ki-moon, to discuss peace, security, and resilience. In addition to the UN Secretary-General, other leaders making the trip are World Bank Group President Jim Yong Kim; Islamic Development Bank Group President Ahmad Mohamed Ali; African Union Commission Deputy Chairperson Erastus Mwencha; Intergovernmental Agency for Development (IGAD) Executive Secretary, Ambassador Mahboub Maalim; African Development Bank Group Special Advisor to the President, Youssouf Ouedraogo; Deputy Director General for Development and Cooperation, European Commission, Marcus Cornaro and European Union Special Representative for the Horn of Africa, Alexander Rondos.
The World Bank Group said its new $1.8 billion packaging, which is in addition to its existing development programs for the eight countries, would create more economic opportunity throughout the region for some of the most vulnerable peoples, including refugees and internally displaced populations and their host communities. Wars and instability have generated more than 2.7 million refugees along with over 6 million internally displaced people. The Bank Group will also help the region build up its communicable disease surveillance, diagnosis, and treatment capacity.
Many of these diseases are associated with or exacerbated by poverty, displacement, malnutrition, illiteracy, and poor sanitation and housing. Increased cross-border trade and economic activity in the Horn of Africa will necessitate simultaneous investments in strengthening disease control efforts and outbreak preparedness.
The Bank Group will also support greater regional links between countries with regional transport routes, stronger ICT and broadband connectivity, more competitive private sector markets, increased cross-border trade, regional development of oil and gas through pipeline development, and the expansion of university and other tertiary education.
The Bank Group’s pledge includes $600 million from the IFC, its private sector arm, which will support economic development in the countries of the Horn. IFC investments under the new Horn Initiative will include a regional pipeline linking Uganda and Kenya; greater investment in agribusiness expansion in storage, processing, and seeds; possible public-private partnerships in pharmaceuticals, renewable energy and transport; and financial advice and support to government and companies to improve business confidence and investment, access to markets, and access to private finance. Another $200 million is for guarantees against political risks from the Multilateral Investment Guarantee Agency.
A new World Bank Group paper forecasts that the Horn will undergo dramatic and lasting change when oil production starts in Kenya, Uganda, and possibly Somalia and Ethiopia.
For its part, the European Union’s Horn of Africa approach is based on a strategic framework adopted in 2011. Support programs for 2014-2020 will be guided by the same analysis that underpins the World Bank’s Horn of Africa Initiative and will focus on the development challenges that must be tackled to unlock the region’s considerable potential. EU support will mostly target the three pillars of the Horn of Africa Initiative: boosting growth, reducing poverty by promoting resilience, and creating economic opportunities.
“The EU stands ready to further deepen its long-standing partnership with the Horn of Africa – helping to build robust and accountable political structures, enhancing trade and economic cooperation, financing peace keeping activities and providing humanitarian assistance and development cooperation,” said European Development Commissioner Andris Piebalgs prior to the trip.
Other leaders on the trip said that the Horn of Africa region needs new development assistance in order to secure peace and opportunity to thrive and prevent future conflicts.
The Islamic Development Bank Group said its new financing for Djibouti, Somalia, Sudan and Uganda over 2015-2017 would focus on critical infrastructure development, food security, human development, and trade. A further $2 billion could be provided by the Arab Coordination Group over the same period.
Commenting on this announcement, Islamic Development Bank Group President Ahmad Mohamed Ali said “The Horn of Africa is an important gateway to Africa and a bridge to Western Asia. Bringing stability and sustainable development to the Horn of Africa will undoubtedly significantly contribute to stability across the entire African continent. The Islamic Development Bank Group salutes this renewed focus on the Horn of Africa and stands ready to work with all partners, including the Arab Coordination Group, to support regional cooperation and the economic revival of the Horn of Africa, especially in its four member countries.”
“Given the complexity of the environment prevailing in the region, we must convince ourselves that it is not the financial means that will win in the Horn of Africa region, but our commitment and determination to act under the leadership of the countries in a united and coordinated manner,” said African Development Bank Group Representative, Youssouf Ouedraogo, Special Advisor to the President.
African Union Commission Deputy Chairperson, Erastus Mwencha, added, “Our efforts to create peace and stability must be reinforced by investments in the peoples and countries of the Horn.”
A new WBG regional study on the Horn of Africa released today at the start of the trip found reasons for hope for the region: “Despite the challenges the Horn of Africa faces, there are encouraging signs of political momentum for enhanced regional economic interdependence. Increasingly, Horn of Africa countries are members of the East African Community, IGAD in Eastern Africa, and the Common Market for East and Southern Africa. Some countries are showing strong political will to solve both security and development issues through increased cooperation—for example, many have sent troops to participate in peace-keeping efforts and have participated in diplomatic initiatives.”
“This mission is the apex of an ambitious partnership approach that will provide the necessary instruments to strengthen the resilience agenda in the IGAD region,” said IGAD Executive Secretary, Ambassador Mahboub Maalim.
For the UN’s Ban and World Bank’s Kim, this is their third trip in 18 months together to Africa. In 2013, the two travelled to the Great Lakes and Sahel regions, drawing attention to the need to promote both peace and development. During the two previous trips, Kim pledged $2.7 billion for regional projects for programs to improve health, education, nutrition, access to energy, and job training.

Experts: Online, Personalised Service to Shape Future of Insurance Distribution

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25/11/2014

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The future of insurance distribution was discussed at the CPCU Society’s annual All Industry Day in California, USA recently.

The day-long conference at the Sportsmen’s Lodge in Studio City included panels on the economy, business interruption and cyber liability.
During a panel titled “The Future of Insurance Distribution: Severe Disruption or More of the Same?” moderated by David T. Russell, Director of the Center for Risk and Insurance at California State University, Northridge, several experts offered their thoughts on the changing face of the independent agency system and how insurance will be distributed.

“The future of brokers I think will require much more transparency,” said Alexandra S. Glickman, Area Vice-Chairman and Managing Director for Arthur J. Gallagher.

Glickman said that to compete with a the growing internet presence of direct writers agents and brokers will need to offer personalised expertise and do so in a way that reassures consumers they are being dealt with honestly.
Jim Darling, Senior Vice-President and California Branch Manager for Chubb Group of Insurance Cos., emphasised the continued importance of agents and brokers.
“We are 100 percent dedicated to the independent broker and agent,” Darling said.
Darling noted that there’s a lot of business to go around in the Golden State.
There are 42,000 technology companies in California, and 13,000 ultra high net-worth individuals, he said.
He added that all of the business for Chubb comes from agents and brokers and that the sort of business Chubb does will likely continue to require local experts who can speak directly to customers.
With continued consolidation and companies looking for ways to reduce expenses he posed a question to make his point: “Will the high net worth customers deal with somebody in Kansas or Chicago or will they go down the street and find someone to take care of their risks?”
John Lindemann, Director of Home Office Agencies for Farmers Insurance, said the value the exclusive agent brings to the giant carrier will continue on into the future.
“The exclusive agent is our bread and butter and it’s going to continue to be our distribution system,” he said.
Despite the talk of the continued importance of traditional insurance distribution models, the panelists agreed that the Internet and social media represents the future of how insurance will be sold to individuals and companies.
Casey Preston, Co-founder and Chief Operating Officer of Stratosphere Marketing Solutions, drove home that point.
He noted that the modern consumer has become tech savvy, device heavy and desires instant gratification. The latter point is one he likes to make to his some 500 agency clients in trying to dissuade them from practices like putting long quote forms on their websites. He also likes to push the mobile trend with his clients.
Preston cited studies showing the average smartphone user looks at his or her device 150 times per day, which means producers should consider embracing technology like push notifications, which are sent to phones to alert users to breaking information.
Preston, a former consultant for myspace.com, offered up some compelling statistics to make his argument:
More than 75 percent of Internet users use social media; 71 percent of consumers conduct research on the Internet before purchasing insurance; more that 40 million insurance quotes were given online in 2013; and a J.D. Power study shows 62 percent of consumers are likely to engage with an agency that leverages online technologies.
He also advises his clients to improve their websites, to create mobile versions of their sites, to brand firms well online and to make sure the firm’s name shows up on a web search.
Many of his clients’ firms did not pop up right away when searching their names online, which Preston himself used as a selling tool to convince managers that his services are needed, he said.
“You’d be surprised how many companies I’ve signed up just by googling their name,” Preston said.

A.M. Best: UK Non-Life Insurers’ Profits under Pressure

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25/11/2014

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Profit margins in the U.K. non-life insurance sector are under pressure this year as companies fight to maintain pricing discipline in an extremely competitive market, according to a new A.M. Best Special Report. Premium rates are falling in personal lines and most notably for motor business.
“Non-life insurers have made significant progress toward compliance with Pillars 1 and 2 of Solvency II, covering its financial requirements and risk management and governance standards”
The Best’s Special Report, titled, “U.K. Non-Life Insurers Compete Fiercely, Brace for Solvency II Implementation,” also states that regulation continues to consume considerable management time. Preparation for Solvency II, the proposed regulatory and capital regime for EU insurers, has gathered pace after the approval of Omnibus II in March this year. U.K. insurers will be subject to the Solvency II regime from 1 January 2016.
“Non-life insurers have made significant progress toward compliance with Pillars 1 and 2 of Solvency II, covering its financial requirements and risk management and governance standards,” said Catherine Thomas, Director of Analytics and author of the report. “
However, there has been a relative lack of progress on the reporting and disclosure requirements of Pillar 3, and companies will need to devote significant resources to this pillar if they are to meet the demanding requirements of the new regime by 2016.”
Other key findings in the report include:
• Motor: this sector has reported underwriting losses in each of the past five years, due to inadequate pricing and poor claims experience linked to the escalating cost of third-party bodily injury claims. However, the implementation of legal reforms in April 2013 is expected to have a positive impact on claims experience.
• Property: Accident-year results improved in 2013, reflecting a lower level of weather-related claims despite significant flood and storm losses in December. The frequency and severity of weather-related events are the main drivers of performance in the U.K. property sector. There have been significant advances in flood risk management and forecasting in recent years, along with improved flood risk models.

CTO calls for specific goals and targets for ICTs in post-2015 development agenda

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21/10/2014

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Venue: LONDON, Time: 20 OCTOBER 2014

Following consultations with its members, the Commonwealth Telecommunications Organisation (CTO) has issued a statement calling for ICTs to be explicitly reflected in the post-2015 global development goals.

“Formal discussion over the new goals to be adopted by the international community in the period after 2015 has so far placed insufficient emphasis on the potential of ICTs to transform development.” the statement says.

“The failure to have targets relating to ICTs more widely embedded in global thinking on the post-2015 goals is cause for considerable concern, particularly in the light of the significant efforts to build on the conclusions and recommendations of the 2003 and 2005 World Summit on the Information Society (WSIS).”

To ensure ICTs are reflected in the new development objectives being drafted, the CTO statement suggests the following goal is included: “Relevant ICTs are universally accessible and are used effectively for development interventions.”

To achieve this proposed goal, targets should be established to reflect the following:

Percentage of households or individuals connected to the latest technology by a given date;

Percentage of people using the Internet for ‘development’ purpose, such as education, health, or rural development

Percentage of members of particular marginalised groups actively using digital technologies.

For more information, click here to contact us.

The Case for Re-authorization of US Ex-Im Bank

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20/10/2014

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The charter which authorized the existence of Export – Import Bank of the United States (U.S. Ex-Im) was due for renewal at the end of this past September. Its re-authorisation required congressional approval. But the renewal of the charter seemed to have fallen due at the wrong time. Bipartisan consensus on virtually anything has been difficult to come by for some time now, for reasons that could very easily be linked to the mid-term election in November, 2014.

This had made the U.S. Ex-Im to teeter on the brink of dissolution until its charter was extended for nine months pending long-term re-authorization.
I had expected the renewal of the charter of the Bank to be a seamless exercise. But it wasn’t. Instead, the debate became rancorous and polarized along party lines in the most awkward way. For instance, President Barack Obama lent voice support to the renewal of the charter. He said every country has an institutional framework like the Ex-Im Bank to support its exports. He also noted that, if the U.S. Ex-Im became defunct, U.S. companies would struggle to compete abroad.

This position is a marked departure from when in 2008, as a Democrat senator, Mr. Obama criticized the Ex-Im Bank as a government programme that doesn’t work and “little more than a fund for corporate welfare.” In another twist of irony, the Republican-dominated House of Representatives has stood in the way of the renewal of the U.S. Ex-Im charter. Whereas it is the Tea Party, mainly conservative Republicans, that traditionally supports business — the very businesses that U.S. Ex-Im is set up to provide funding support to. This tends to demonstrate the fluidity of policy positions that are established be partisan considerations.

Nevertheless, the debate has actually helped to shed more light on the activities of the Bank. Otherwise uninformed U.S. business owners, who want to sell in overseas markets, now know about the specialized bank, which some commentators had described to be ‘little-known outside Washington DC.’ A similar case of institutional obscurity was made, with validity, against Nigerian Export-Import Bank (NEXIM Bank) before I came into office and until we rolled out what remains a robust communication strategy. Inadequate corporate communication might have led to the accusation that the U.S. Ex-Im was little transparent and accountable. This provides an important learning experience that highly specialized institutions of the state nevertheless need to share information about their activities with the general public.

The U.S. Ex-Im Bank is a Development Finance Institution (DFI) which was chartered to act as the Export Credit Agency (ECA) of the United States. The objective of the Bank is to help U.S. businesses access foreign markets. There are a few tools that have been developed to achieve this objective. They include provision of guarantee, export insurance and buyer credit. Together, they help make U.S. products to be competitive abroad, since exports of other countries are similarly incentivized, if not subsidized, by their governments. It is this same objective that informs the creation of the ECOWAS Trade Support Facility by NEXIM Bank to assist Nigerian exporters gain more access to the West African market where we compete with exports from China and the European Union. ECAs help to mitigate the risk of entry into a foreign market. They also help to provide funding to build capacity for export. Thereby, local businesses are able to achieve higher profit and employ more local people. The virtuous cycle that is created by an ECA also entails helping the country to move towards a positive current account position, by reducing trade deficit. By helping to create export markets, an ECA invariably helps in boosting domestic economic growth.

The US Ex-Im has a rich history of performance. The Bank is more than 80 years old. It has since its founding, till now, funded $567 billion of U.S. exports. The Bank has raised its intervention in the past few years, partly because Africa has come under the radar of some U.S. companies. Its intervention in U.S. export amounted to $37 billion in 2013 alone. The aggregate funding has supported over 1.2 million U.S. jobs over the years. More than 80% of its funding has benefitted small and medium scale enterprises (SMEs). The US Ex-Im also funds big U.S. businesses including General Electric, Caterpillar and Boeing. Funding by the Bank has helped U.S. businesses to innovate and compete in new technology, including renewable energy. What’s more, the bank has been profitable, placing no burden on tax payers in covering its cost of operation. Considering its good purpose, positive performance, and setting aside politics, one may ask: “why should U.S. lawmakers be reluctant to keep the Ex-Im Bank going?” Some of the answers reveal very little understanding of the unique role an export credit agency plays.

Some people have argued that the U.S. Ex-Im is in competition with the commercial banks. Not really. ECAs usually fund businesses or operations which are considered to be too risky by commercial banks. The businesses might be at an early-stage of growth and exploration of export markets. Without much institutional track-record and operational experience in a foreign market, most businesses cannot expand through conventional bank financing. They would be dogged by high risk evaluation that will either deny them funding or the price of credit would be too high for their affordability. In Nigeria, an additional obstacle which conventional finance would pose to the businesses is the predilection of commercial banks for short-term lending. But, a specially mandated DFI like the U.S. Ex-Im or NEXIM Bank would take on these risks and back the businesses on the strength of its balance sheet and sovereign mandate (not necessarily involving issuance of a sovereign guarantee).

Funding by ECAs can prepare a business and help it through the difficult early stages until it is capable of attracting or affording commercial loans. This process can work the other way round at the later stages of the corporate development of a business. A growing business, which had accessed commercial lending from the banks, may nevertheless need a specialized bank to help it access a foreign market. Therefore, the role of an export credit agency is very supportive of both commercial banks as well as local businesses.

Some detractors have talked about excessive risk-taking by ECAs. This claim is based on generalized risk evaluation. Such assessments do not always take into account that ECAs have special risk management tools that are suited to the kind of risk they bear. For instance, NEXIM Bank makes the point of understanding specific risks of its clients. We follow our clients to the market to understand the peculiar variables that constitute risks to them. We then develop specific products to help address the risks. Regarding the U.S. Ex-Im, its track record is strong enough to denounce any accusation of excessive risk-taking. Since its founding, the Bank has witnessed episodes of serious financial crises in the domestic, emerging and global markets. Yet, the U.S. Ex-Im has been unscathed in any of them. Its recent non-performing loan is 0.2% of total portfolio.

The accusation of cronyism also derives from a misunderstanding of the role of an ECA. For instance, NEXIM Bank is designated as the Official Trade Policy Bank of the Federal Republic of Nigeria. This means the operations of the bank must necessarily be in alignment with the trade objectives of the government.

In this regard, NEXIM Bank has been pushing the programme of economic diversification in the non-oil sectors as enunciated under the Transformation Agenda of President Goodluck Jonathan. The programme entails the broadening of the export base in order to generate more foreign exchange for the country and create more local jobs. Local industries which are capable of scaling up to help deliver on this policy objectives are naturally supported by NEXIM Bank.

The allusion to giving loans to some beneficiary big U.S. companies to establish cronyism accusation is not well-founded. Between 2007 and 2014, loans to SMEs accounted for 68% of the total portfolio of the U.S. Ex-Im. While a few organisations have dominated the list of beneficiary big firms, it is not without justification. Companies like Boeing and Caterpillar are manufacturers of expensive heavy duty equipment and machines. The equipment and machines are very much needed in the delivery of public works and infrastructure projects in Africa and in other developing regions that are witnessing an economic renaissance.

Accordingly, these firms are bound to generate big-ticket transactions which will require some of the financing tools at the disposal of the Ex-Im Bank to consummate. The same argument more or less holds for the involvement of General Electric which, in recent times, has shown interest in the investment opportunities of sub Saharan Africa’s infrastructure and electric power. The proactive investment of GE in the SSA power sector ensures it is a reliable vehicle and partner for the delivery of President Obama’s Power Africa Initiative.

To be fair, the U.S. Ex-Im Bank has discharged its mandate creditably. The institution has inspired establishment of similar export credit agencies around the world. The Bank seems to have entered a new phase whereby it would play a more active role in boosting trade between the U.S. and Africa in general, and U.S. and Nigeria in particular. NEXIM Bank is in a collaborative relationship with U.S. Ex-Im and several other ECAs with the aim of sharing knowledge and capacities.

This will require strengthening the U.S. institution after its charter has been renewed for long-term.

Roberts Orya is Managing Director / CEO, Nigerian Export-Import
Bank

Mobile Broadband Subscriptions Top 2.4bn in Q2 2014

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24/09/2014

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Mobile broadband technology continues to reach more people all around the world, with global mobile broadband subscriptions reaching 2.4 billion in Q2 2014, the latest update to the Ericsson Mobility Report reveals.

Total mobile subscriptions reached 6.8 billion in Q2 2014. Of these, 80 million new subscriptions were added during Q2 2014, with around 12 million coming from China, 5 million from Russia and 5 million from India, the three countries to show the fastest growth in the quarter.

Many subscribers have multiple subscriptions, so the total global number of subscribers is estimated at 4.6 billion.

An estimated 40 million new LTE subscriptions were added during Q2 2014.
The interim report also shows that data traffic grew 60 percent from Q2 2013 to Q2 2014.

Mobile Internet Contributed to 31% of Global Service Revenues in 1Q 2014

Meanwhile, in 1Q 2014, the worldwide mobile service revenue increased 0.58% year on year (YoY) to USD264 billion according to ABI Research, and the aggregate service revenue for 2014 will grow 2.9% YoY to US$1.01 trillion, mainly driven by the robust growth of the mobile Internet market.
Proliferating mobile data subscriptions and enhanced network capacity will drive global mobile Internet service revenue to USD456.7 billion by 2019-44.7% of total mobile service revenue.

Despite global service revenue growth, the Western European market is declining: 1Q 2014 service revenue declined 5.2% YoY.

“Facing continued price pressure driven by the competitive mobile market, mobile carriers have had to take on higher subscriber retention and acquisition costs to support their market positions. This has affected profitability,” commented Marina Lu, research analyst at ABI Research.

According to ABI Research’s Market Data, the major European carriers such as Vodafone, Telefónica, T-Mobile, and Orange all suffered from gross profit decreases in 1Q 2014, whereas in North America mobile carriers are still demonstrating a positive outlook for gross profit.

In ABI Research’s profitability analysis, Verizon Wireless beat China Mobile for the first time, carrying the top position for most profitable mobile carrier in aggregate for 1Q 2014, followed by China Mobile and AT&T respectively.

Strong growth in retail postpaid subscribers, increased smartphone customer base, enhanced 4G LTE smartphone line-up, and attractive pricing plans have contributed to Verizon’s profitability. In addition, Verizon also moved up one position to second in the ranking for quarterly gross profit per subscriber, at US$77.1.

There is no doubt that fast-growing mobile data consumption has helped to mitigate the declining voice and messaging ARPU trend.

“Japan and South Korea mobile operators have spared no effort to boost mobile data usage, expecting monthly data traffic per wireless subscriber will reach 12 Gigabytes in 2019,” noted Jake Saunders, VP and practice director, core forecasting. “Global mobile data traffic will reach 260.8 Exabytes by 2019, nearly a six-fold increase on 2014.”

Inclusion Must be a High Priority in Commonwealth ICT Agendas- says Professor Tim Unwin

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24/09/2014

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Professor Tim Unwin, Secretary-General of the Commonwealth Telecommunications Organisation has warned that the growth of ICTs is causing greater inequalities, further excluding the poorest and most marginalised.

Unwin, who was speaking at the 32nd National Information Technology Conference of Sri Lanka on the 25 – 27, August said the same phenomenon is also taking place in some of the richest societies.

All stakeholders, especially governments, have an important role to play in helping to empower marginalised groups through more accessible and affordable ICTs, he said.

To address this challenge, countries could focus their efforts on:
• Developing appropriate multi-stakeholder partnerships to achieve common goals for poverty reduction;
• Addressing more rigorously crime in cyberspace by implementing the new Commonwealth Cyber-governance Framework adopted by Commonwealth ICT Ministers in March 2014;
• Committing to technical solutions that focus explicitly on the needs of the poorest and most marginalised.
He proposed seven key agendas for computer scientists:
• Concentrating on inclusive design, and ensuring accessibility for all;
• Designing “with” rather than “for” the poor;
• Combining technology with wider socio-political agendas, and developing innovative regulatory models;
• Identifying better ways of delivering affordable access;
• Focus on low power devices and better batteries;
• Development of poverty relevant software; and
• Creating more sustainable and renewable technological solutions.

“I am impressed to see how long this event has been going on for. It shows how committed Sri Lanka has been in using ICTs for the economic and social empowerment of Sri Lankans and this serves as a good example to other Commonwealth countries”, Professor Unwin said.

The event has been organised annually by the Computer Society of Sri Lanka since 1982.

African Aviation: Tackling Challenge of Ebola on Air Travel

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19/09/2014

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The International Air Transport Association (IATA) African Aviation Day emphasised the need for intra-African air connectivity to spread economic and social prosperity across the continent.

In particular, IATA noted that the liberalisation of air rights for intra-Africa flights could yield significant benefits in both jobs and GDP growth.

Africa is well-placed to enjoy sustained economic growth thanks to a young, expanding and urbanising population, combined with abundant natural resources. But because intra-African aviation connectivity and the economic health of its airlines are weaker than they could be, opportunities for job creation, business growth and innovation are being lost.

African airlines are expected to return a profit of just $100 million in 2014, on a net profit margin of 0.8%, the lowest of all aviation regions. “Increased intra-African air connectivity is essential if Africa is to seize the opportunities for growth promised by its demographic and resources advantages.

Aviation in Africa supports nearly seven million jobs and $80 billion in GDP, but it faces challenges in terms of liberalisation of markets, safety, costs, infrastructure and regulation. Only through industry and governments working hand-in-hand can these challenges be overcome, to the benefit of everyone across Africa,” said Raphael Kuuchi, IATA’s Vice President for Africa.

Tackling the Challenge of Ebola

The spread of Ebola continues to be a significant medical challenge in the region. IATA is liaising closely with the World Health Organisation (WHO), which is taking the lead in tackling the disease.

The WHO has consistently stated that travel restrictions are unnecessary, most recently in their media note of 14 August, 2014. The note specifically explains that aviation is “low risk” for Ebola transmission, and that the “WHO does not consider air transport hubs at high risk for further spread of Ebola.”

The aviation industry is taking all necessary precautions, such as introducing exit screening at certain airports. Airlines also have well-tested procedures for handling suspected cases of infection, including guidelines for isolation and care for ill passengers, and measures for disinfecting aircraft.

“The WHO is best placed to give authoritative, independent advice on how best to deal with Ebola. They have been very clear that travel and trade bans are unnecessary. Unless this advice changes we hope that countries working hard to eradicate Ebola continue to benefit from air connectivity,” said Kuuchi.

Enhanced Connectivity

To provide African governments with a clearer view of the benefits of intra-African connectivity, IATA formally launched a report showing that liberalisation of air services across 12 African nations would create 155,000 jobs and boost GDP by $1.3 billion.

The report by InterVISTAS, an independent consultancy, calculated the positive economic impact of implementing the 1999 Yamoussoukro Decision, which pledged to open up air transport markets within Africa to transnational competition. The 12 nations in the report are: Algeria, Angola, Egypt, Ethiopia, Ghana, Kenya, Namibia, Nigeria, Senegal, South Africa, Tunisia and Uganda.

“This report is a major step forward in quantifying the benefits of liberalizing air services across Africa. It is absurd that it is possible to travel 13 times a week from Nairobi to London yet impossible to travel directly from Nairobi to Dakar. A potential five million passengers a year are being denied the opportunity to travel, trade, and spread economic and social development,” said Kuuchi.

Improved Safety

The 2012 Abuja Declaration on African Safety by transport ministers of the African Union set out a goal for African aviation to match the average safety levels of the rest of the world by 2015.

“Safety is the number one priority for aviation. Africa has been closing the gap compared to the rest of the world but there is still a lot of work to do to reach the Abuja Declaration goal. The implementation of the IATA Operational Safety Audit (IOSA) by all eligible airlines in Africa is mandated through the Declaration, and IATA is working hard to assist airlines to achieve that,” said Kuuchi.

IATA has identified 20 airlines for assistance in implementing IOSA. The Declaration also calls on states to create well-resourced and autonomous Civil Aviation Authorities and to implement safety management systems.

Competitive Infrastructure and Costs

Improved consultation and partnership between industry and government is the key to ensuring Africa enjoys competitive infrastructure and business costs. In many parts of Africa infrastructure needs to improve, but it is important that improvements are funded according to established international principles. Transparency and consultation are critical.

“The foundation of a successful air transport sector is good physical infrastructure coupled with competitive costs. But governments also have a role to play in encouraging air connectivity through appropriate taxation and enabling regulation. If aviation is treated as a cash cow, its ability to be an economic catalyst is compromised. Aviation is ready to play a much more prominent role in the African economy, provided it is able to operate in a policy framework that values its contribution,” added Kuuchi.

The Global Airlines Financial Monitor: July 2014

Key Points:
• Worldwide airline share prices fell 2% in July compared to June, but in line with performance of the broader market;
• Initial Q2 financial results show strong gains for US airlines’ performance, but declines in Asia Pacific due to cargo weakness and cost pressures for Chinese carriers from the depreciating Yuan;
• Jet fuel prices eased slightly in July as improving crude oil supply conditions in some regions countered concerns over conflict in the Middle East and Ukraine;
• US passenger yields are up after declines in Q1, but weakness continues in other regions;
• Air travel markets continue to expand and air freight demand recorded a small improvement in June, consistent with a rise in business confidence and stronger world trade activity;
• Expansion in available seats showed a seasonal spike in June, stronger than growth in demand;
• Passenger load factors fell on the back of strong capacity expansion, but air freight load factors improved slightly due to a contraction AFTKs.

The Global Airlines Financial Monitor: June 2014

Key Points:

• Growth in the number of international air passengers slowed in June to 2.4%, with first half growth of 3.7%, compared to the same period last year;
• Most of this ‘year-on-year’ growth took place last year – since December, travel has expanded by just 0.7%;
• The travel slowdown has been caused by slower world trade growth and a dip in business confidence;
• However, business confidence has been rising in recent months, pointing to a stronger second half for travel;
• Travel on premium seats grew more slowly in June, at 1.8%, than economy travel, at 2.5%;
• However, the rising trend in the share of premium since late-2012 remains intact;
• Moreover, premium yields have been more robust so the premium revenue share has risen faster, to almost 29%;
• Premium yields have been supported by the relative strength of longer-haul markets, with the strongest growth of larger markets seen on the North Atlantic, Pacific and Europe-Far East;
• By contrast markets connected with emerging markets have generally been weak and some are getting weaker;
• Faster long-haul growth has meant that international RPKs are growing much faster than passenger numbers, at 5.5% versus 2.4% in June.

SUZUKI: The Emerging Driving Brand in Nigeria

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18/09/2014

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Over the years, the Suzuki Brand of Motor Models has continued to generate and earn value for discerning corporate and personal clientele in the automobile industry in Nigeria in terms of driving safety, ergonomic comfort, cutting-edge technology and competitive pricing.

Marketed in Nigeria by C & I Motors Limited, the Suzuki Brand comes in different models to satisfy every segment of the Nigerian market.

According to analysts in the automobile industry, the Suzuki Brand represents the emerging Brand in Nigeria.

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A Climate Change Agreement Is a Global Health Agreement

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18/09/2014

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The World Health Organisation (WHO) kicked off its global high-level conference on Health and Climate Change last week in Geneva. What makes this conference particularly significant is the fact that while the WHO has been working on this agenda for the past 20 years, this is the first time it has led a conference with so many decision-makers involved.

The compelling state of scientific evidence – as documented in a separate chapter of the Intergovernmental Panel on Climate Change’s Fifth Assessment report – has lent a certain urgency to the climate change agenda in the health community. The audience for this conference included around 300 senior level participants from various WHO member countries, mostly from the health sector, including a number of ministers.

WHO Director-General, Dr. Margaret Chan opened the conference with Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change, accompanied by video messages from the heads of the World Bank Group, the United Nations, and the UN Environment Program.

Dr. Chan defined climate change as the “defining health issue of this century.” It is a powerful statement about the challenges that lie ahead.

Figueres turned to the state of the international climate negotiations and their importance to the health community. Using the analogy of disease prevention and treatment, she said that climate change is a symptom of a disease that is called dependence on fossil fuels. Unlike the health sector, treatment and prevention are nested in each other in the case of climate change. The treatment is the policies and financial instruments; prevention is the same (hence nested) but it needs scale and speed.

While there is good news on the treatment front, more needs to be done for prevention to take place. Governments are committed to working toward an agreement to be adopted in Paris in 2015 that can do the job of prevention, but only if the actions agreed are ambitious enough. She referred to the expected climate change agreement at the 2015 COP in Paris as “a global public health agreement.”

That set the tone for an engaging first day of deliberations.

There was unanimous agreement among the health professionals gathered in the room that indeed climate change is one of the biggest health threats of the 21st century, however a challenge is to recognise that the past patterns of climate variability and disease cannot be an indication of what is in store for the future.

On the operational front, the main challenges that came to the fore were the need for multi-sectoral engagements and availability of technical and financial resources to undertake the necessary research and interventions to enable effective action. And here they turned to the World Bank.

World Bank Group Director for Climate, James Close highlighted the health benefits of climate action in other sectors. Our recent report Climate-Smart Development: Adding up the benefits analysed the positive impact of clean transportation, energy efficiency and other development projects on both human health and climate change.

Close also discussed the work being initiated by the Bank in collaboration with the Nordic Development Fund to develop an approach to climate and health that is likely to be tested in Mozambique as part of an on-going climate change development policy operation. He also discussed the Bank’s screening tools for health projects for climate and disaster risk and various funding mechanisms for addressing climate change effects on health.

By the end of the first day, everyone around me seemed energised, if slightly overwhelmed by the emerging health and climate agenda. It’s a steep learning curve – and an urgent one for all of us.

Nestlé: Achieving Environmental Commitments in Central, West Africa

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18/09/2014

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• Reduced energy consumption by 20%, cut water consumption by 40% per tonne of product, and increased production volume by 50% over the past six years
• COMMITMENT TO PROVIDE CLIMATE CHANGE LEADERSHIP: Energy efficiency increased from 42% to 74% at its Agbara factory in Nigeria
• COMMITMENT TO IMPROVE RESOURCE EFFICIENCY: Recovered rainwater to be used to water green areas onsite and for use in toilets at its Yopougon factory in Côte d’Ivoire
• COMMITMENT TO PROVIDE MEANINGFUL AND ACCURATE ENVIRONMENTAL INFORMATION AND DIALOGUE: Named leader in environmental sustainability in Nigeria in 2013

Nestlé, the world’s leading Nutrition, Health and Wellness company is making headway in meeting its commitments to the environment in Central and West Africa and across the globe.

The company’s environmental commitments are part of the Nestlé in Society report ‘Creating Shared Value and Meeting our Commitments.’

It has made a total of 35 pledges that cover nutrition, water, rural development, environmental sustainability and compliance, which it aims to fulfil by 2020 or earlier. Six of these primarily focus on the environment.

“We believe that all parts of society share responsibility for the environment,” said Kais Marzouki, Market Head for Nestlé Central and West Africa.

“We are determined to lead and be recognised for our efforts to reduce our environmental footprint by ensuring efficient use of energy in our manufacturing operations, and engage in meaningful environmental dialogue,” he added.

Nestlé’s pledge to the environment is part of its approach to business, which it calls ‘Creating Shared Value’. The company aims to create value in the supply chain, improve livelihoods for the communities in which it operates, and enhance its own activities.

Climate Change Leadership

As part of Nestlé’s environmental commitments, the company has vowed to drive climate change leadership.

It has pledged to lower greenhouse gas (GHG) emissions per tonne of product by 35% since 2005, by improving energy efficiency and investing in renewable energy sources.

The company is already making an impact in its Agbara factory in Nigeria.
The facility is generating electrical power, chilled water and hot water by recovering heat generated from its exhaust gases.

As a result, this has increased overall energy efficiency from 42% to 74%, and has reduced carbon dioxide emissions by 5,000 tonnes per year since 2012.
In its two Nigerian factories, the company has also reduced its direct GHG emissions from 257 kg per tonne of product in 2012 to 186 kg a year later.
Its total onsite energy consumption decreased from 4.4 gigajoules per tonne of product in 2012 to 2.95 gigajoules in 2013, while increasing its production volume.

Nestlé is also boosting climate change leadership at its coffee factory in Abidjan in Côte d’Ivoire. The company has invested CHF 15 million in a new boiler with a target to reduce its natural gas exhausts by 15% using coffee grounds, and cut its carbon dioxide emissions by the same percentage.

Zero Waste

Nestlé in the Central and West Africa region is also aiming to deliver on its commitment to improve resource efficiency.

Over the past six years, it has already reduced its energy consumption by 20% and water consumption by 40% per tonne of product, while doubling its volume in production in the same time period.

The company is making progress at its Agbara factory in Nigeria by exploring ways to recover valuable materials in food processing.

Raw materials such as maize, millet, soya and sorghum are being processed as ingredients for its food products. The spent grains are then collected and sold to farmers to be reused as livestock feed instead of going to landfill.

In Senegal, Nestlé is treating and reusing waste water for its gardens at the Dakar factory.

The company is implementing a project to use recovered rainwater to water green areas onsite and for use in toilets at its Yopougon factory in Côte d’Ivoire. It looks to do this long term and cut the use of potable water in sanitary use.

A process to filter waste water at its Douala factory in Cameroon is helping to improve the waste water discharged to standards close to potable water.

By 2015, Nestlé across the globe aims to reduce energy consumption per tonne of product in every product category to achieve an overall reduction of 25% since 2005.

It is dedicated to achieve zero waste for disposal in 10% of its factories worldwide in the same time period, in which no waste will go to landfill or be incinerated without energy being reused in the process.

Environmental Accolade

Nestlé was hailed for promoting environmental awareness at its manufacturing sites in Nigeria including the Agbara and Flowergate factories and the Ota distribution centre.

The Social Enterprise Reports and Award (SERA) – Nigeria’s prestigious Corporate Social Responsibility award – named Nestlé as the Leader in Environmental Sustainability in 2013.

The company also received accolade for its key performance indicators in the Nestlé in Society report ‘Nestlé Nigeria Creating Shared Value 2012’.

Why Shale Revolution is Not About to End

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18/09/2014

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Doubts about the sustainability of the North American oil and gas boom centre on rapidly declining output from many shale wells after they are initially drilled.

Shale sceptics point to the need to drill an ever-increasing number of new holes just to replace the declining output from existing wells, let alone expand production. At some point, it will become impossible to keep up, they argue.
The problem has been likened to the Red Queen’s Race in Lewis Carroll’s “Through the Looking-Glass” where the chess piece warns Alice that “it takes all the running you can do, just to keep in the same place.”

Geologists have worried about the problem of replacing declining output from old wells for more than a century. U.S. geologist Carl Beal voiced concern that the “limit of production in this country is being approached” as long ago as 1919.

“Although new fields undoubtedly await discovery,” he wrote, “the yearly output must inevitably decline, because the maintenance of a given output each year necessitates the drilling of an increasing number of wells.”

“Such an increase becomes impossible after a certain point is reached, not only because of a lack of acreage to be drilled, but because of the great number of wells that will ultimately have to be drilled,” Beal explained in a careful monograph for the U.S. Bureau of Mines on the “Decline and Ultimate Production of Oil Wells”.

Ultimate Recovery

Shale’s doubters point to the faster decline rates on horizontally drilled and fractured wells bored into shale compared with conventional wells drilled into more-permeable reservoirs to suggest the replacement problem is much worse for unconventional oil and gas plays.

But there are plenty of reasons to think the focus on decline rates is misplaced and is unlikely to constrain North American oil and gas output in the next decade.

First, oil and gas producers have learned to drill and fracture wells much faster, using mass production techniques borrowed from manufacturing, so the same number of rigs and crews can drill many more wells than before.
Second, the sceptics focus too much on the decline rate rather than the total amount of oil and gas recovered from a well over its lifetime, which is more relevant to the sustainability of the shale revolution.

The relationship between initial production (IP), the decline rate (DR), and the estimated ultimate recovery (EUR) is subject to tremendous uncertainty. It varies significantly from play to play, county to county and even well to well.
But in general, producers want oil and gas wells with a large EUR and high IP, because that means they receive more revenue overall, and more of it in the first few months after the well is completed rather than having to wait for years.

Wells cost millions of dollars to drill and fracture, and all the costs must be paid up front, either by the producer using their own funds or with borrowed money. The faster the oil and gas are produced, the faster the costs are covered and the more profitable the well will be.

Well Decline Curves

From a financial standpoint, rapid decline rates are not a problem. What matters is the EUR. But the relationship between IP, decline rate and EUR is fairly loose and notoriously difficult to pin down.

There is some evidence to suggest oil and gas wells that have high initial flow rates tend to decline fastest but yield the most oil and gas over their lifetime.
“In general, wells of small initial yearly production decline more slowly than those of large,” Beal said of conventional fields. But the more barrels per day a well produced in its first year of production, the more it was likely to produce during its lifetime.

Still, it remains notoriously tricky to predict ultimate production accurately from initial flow rates because there is so much variability and the data is not readily available.

(There is a clear data availability bias in much of the published research. Most analysis uses commonly available data on the total number of wells and average daily production for large aggregates, such as whole states, and then tries to draw conclusions about the sustainability of shale production, even though such numbers are not really relevant.)

For individual wells and plays, forecasters use “decline curves” based on the average of past experience to estimate how much oil and gas a well might eventually produce.

Even so, the forecasts can be out by a wide margin. “Estimates of future production based on the first few months of initial production can differ significantly from later estimates for the same well,” according to the U.S. Energy Information Administration (EIA).

For example, one well examined by the EIA was predicted ultimately to yield 574,000 barrels of oil based on the first year of monthly production data, but that was later slashed to just 189,000 barrels once four years of data was available.

In another case, an initial EUR of 105,000 barrels based on 12 months of production data was raised to 224,000 barrels based on four years of data.
In general, however, it is possible to make a reasonably stable and accurate forecast of EUR after about three years, when almost all wells will have produced more than half their eventual output, according to the EIA (“U.S. tight oil production: alternative supply projections and an overview of the EIA’s analysis of well-level data”, April 2014).

Productivity Boom

There is plenty of evidence that oil and gas production companies are improving productivity and extracting more oil and gas from each shale well.
The EIA analysed EURs from more than 5,000 wells drilled into the Eagle Ford shale formation in Texas . The average EUR was almost 170,000 barrels, but it has been rising, with wells drilled in 2012 (191,000 barrels) and 2013 (169,000 barrels) far more productive than wells drilled near the start of the play in 2009 (57,000 barrels) and 2010 (117,000 barrels).

There is enormous variability in the play, with wells in DeWitt county expected to average 334,000 barrels compared with 226,000 in Karnes and 80,000 in Webb. Even in DeWitt, EUR varies from 98,000 barrels (25th percentile) to 440,000 (75th percentile).

But across the United States there is a clear trend of rising average EUR from shale wells.

Productivity improvements can be traced to several factors. Shale producers are drilling and fracking longer laterals, increasing the amount of shale accessed by each well.

Through a combination of trial-and-error and better seismic work, drillers are increasingly able to target the highest-yielding parts of shale plays, improving average recovery factors and minimising the cost of drilling subpar wells.
Other productivity improvements are in the pipeline. In most sedimentary basins, including North Dakota’s Bakken and West Texas’s Permian, there are multiple oil- and gas-bearing formations, layered one on top of another like a stack of pancakes. The most advanced drillers are experimenting with wells that have several laterals at different depths to produce from different formations all from the same surface hole.

Well-spacing is another area where improvements are being tried. Minimum spacing is set to ensure two wells do not communicate with one another underground (drain the same part of the formation). But the minimum gap between wells is being reduced to cover the whole shale formation more completely as producers learn more about how big an area each well drains.
Individual shale wells are therefore becoming more productive, and plays are being exploited more efficiently and completely. And there are good reasons to think that the shale revolution is still in its infancy, with scope for further efficiency as current best practice is applied more widely.

There are also plenty of other shale plays in the United States, and internationally, with subtly different geology, which makes them harder to produce at present, but which might be brought into successful production with comparatively minor innovations.

For all these reasons, the shale boom are not about to bust any time soon. As long as the oil is needed, and prices remain fairly high, shale production is set to grow.

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