Taking a glance back at your journey we see you returned to Greece in 2003, to set up BMS Hellas, which coincided with a bonanza period in Greece with the upcoming Olympics in 2004. In 2006 you successfully led the management buyout of BMS to form Matrix, with this happening at the cusp of the growth period in Greece. You strike me as being somebody who confronts challenges face-to-face and turns these into opportunities, but how ready were you for the recession that was about to strike just a few years later?
Mr Tsesmetzoglou: I don’t think anybody could have been ready for something like this. First of all, in 2006 nobody knew what was coming, nor did they know when it was coming. We did not understand the size of the storm as it approached. Eventually we understood that something big was going to happen.
For our company, we made sure to face the crisis with simplicity. In other words, we asked ourselves what did the crisis mean to us and what did it mean to our clients? We examined where the crisis would have a noticeable impact. We identified that the crisis would most likely affect our clients’ balance sheet. As an example, during the crisis, property value goes down. This means that immediately you have a gap in your balance sheet, on your reserves. Another example is that there would be a haircut on the bonds, which nobody expected would come either. Eventually the haircut came, and it hit the reserves of the insurance companies twice. As a result, insurance companies suddenly had a gap which they needed to cover on their reserves of between 15 to 30% which they did not have prior to this.
We had to look at what solutions our industry could provide to these kinds of gaps. This was one of the opportunities we identified. In the modern world there are reinsurance structures. Reinsurance is basically soft capital. Our job is providing soft capital to insurance companies, not hard cash. We examined what kind of solutions existed in the international arena, and how could we tap into them. At this point there was a great market with many solutions with solvency tools. We decided to invest heavily in building a team that could understand and analyze these kinds of products; or in brief, actuaries. We invested in a team of actuaries that made up the centre of excellence, which was based in our Cyprus location. The further we looked into these products, the more we realized we were the pioneers in Greece. We had 100% of the market in Greece until very recently.
We had such insight into these solutions, that it became a very clear competitive advantage for us. Whenever one of our clients wanted to boost their capital base, they came to us. We have primarily two kinds of clients: one is insurance companies and the other is the big corporates, such as the big banks in Greece.
The second area that we invested in is specialized products. During an economic crisis, there are typically many insolvencies, which was the case in Greece. The performance woes of companies tend to be blamed on the management for not handling things well or for not forecasting the negative effects of the downturn. Immediately, products like directors and officers insurance or liability insurance for the management become necessary. During a crisis period crime rates also increase. Therefore we saw a clear opportunity and our company invested in all of these liability areas that result from downcycles. The result: Matrix grew over 250% during the crisis from 2012 until today.
The Insurance sector in Greece has over the last decade, had its ups-and-downs, as expected during such a turbulent and unstable period. However, the latest indicators point to a healthy sector, with short-term growth potential of 3-5% and attractiveness to foreign investors, as seen in the Exin-Ethniki and Eurolife-Fairfax deals? What is your read of the current state of the insurance sector and what kind of growth are you projecting for your company, as laid out in Matrix’s Vision 2020?
Mr Tsesmetzoglou: From 2005 until today, Greece lost over 35 insurance companies. There were 95 insurance companies existing in 2005 and today there are only 60. This was not a result of consolidation. In fact, the Greek insurance sector never managed to consolidate properly. Most of the companies were family owned. When two families are trying to merge, the interests go beyond money. In hopes of there being a different solution than consolidation, these 35 insurance companies were driven into the ground by the families that managed them. Greek businessmen in the insurance sector were not ready for mergers, so the majority were closures and had their licenses withdrawn.
Today, Greece’s insurance sector is comprised of 13 life, 33 non-life and 11 with composite licenses. Last year saw large flows of investment entering the insurance sector, which was in the top 3 recipient sectors for FDI in Greece. More than €2 billion were invested, with €1 billion being the Ethniki-Exin deal. The other million includes the Fairfax deal, the European alliance deal and some smaller funds putting money into the market.
The insurance sector also saw positive growth in 2016 for the first time since the onset of the crisis. The growth reached 4.6%, one of the highest in Europe. The growth is relative, of course, as it matters where you start from, which in our case was low. In 2009 we had a $5.4 billion market and last year 2016, the market was €4 billion. The sector lost €1.4 billion during the crisis years.
Greece has one of the lowest levels of expenditure on life insurance as a percentage of GDP, which is .95% when the European average is 5.3%. Despite the growth witnessed in the insurance sector in Greece, life insurance is still negative. This says something about the state of affairs for individuals in Greece: they cannot afford to invest in long-term planning. This is also coupled with the Greek mentality to focus on short-term goals. The health sector, on the other hand, grew by 17% in the first 8 months of 2017. People are spending a lot on their private health insurance. Life insurance had negative growth of 0.4% during this same period. This data shows the potential that exists in the market today for life insurance.
We understand that one of the key aspects that you value in running your business is providing strong and differentiated customer service. This comes down to investing in technology and human capital to make the difference. Tell us more about your vision for the continued growth and development of your people in Greece and abroad, and the role that technology plays in this?
Mr Tsesmetzoglou: In the service industry, your value is your people. This means, you must keep your people happy and motivated. To enable this, I keep an open-door policy to enable communication to flow freely through the company in all of our 5 offices. There are no machines in our industry; there are people. I have experienced working in multinational companies and understand the dynamics so when I started Matrix, I made sure that the satisfaction and happiness of my people come first.
In 2017 we have decided to invest 30% of our profits into technology. As we work in wholesale and not retail, because that is the nature of reinsurance, our company does not need fintech, but we do need technology that brings people closer, delivers better MIS and gives advantages in managing your business and putting your products and offers together for you clients. We are connecting our clients with our systems so that they have live data. We get a lot of raw data from our clients, and the technology gives us the ability to make sense of all this data. This year we are investing €1 million in upgrading our systems.
We work with technology providers from the UK, as we have strong ties with the UK market. It is necessary for your technology partners to work efficiently because as soon as you implement new software, it becomes a legacy. In our case, as we were the first Greek company to have received the Lloyd’s license, it was important to work with a technology partner that understands the intricacies of the Lloyd’s marketplace. There are a very limited number of non-UK brokers that have licenses to operate in Lloyd’s, only 17 worldwide at the time we received ours. I have over 20 years experience working in the UK market, so we have strong ties and are fully committed to continue in this market.
Tell us more about the synergies for Matrix Insurance Brokers that have resulted since becoming part of the Lloyd’s marketplace?
Mr Tsesmetzoglou: The Lloyd’s market and the London insurance market is the largest in the world. The expertise found in London, and certainly at Lloyd’s, is unique. Lloyd’s is not just a market, but a huge network of support around what we do. Through the Lloyd’s network we can reach markets around the world. Through the Lloyd’s intelligence we have data on how to operate in the global market. Once you tap into the Llody’s network, the world becomes smaller and it is irreplaceable.
Under your leadership, Matrix Insurance and Reinsurance Brokers has achieved remarkable growth since 2008 an average of 19% annually. This year you plan to hit 12% organic growth by year end. You have set yourself the target of boosting revenues from outside Greece and Cyprus from 40% today to 60% in a few years. Is most of this growth coming through the Lloyd’s marketplace? Where else in the world are you currently locking targets to potentially set up a new office?
Mr Tsesmetzoglou: This was our target established in the company’s Vision 2020. However, year-on-year growth for us in Greece has been so much higher than expected, that it is hard to keep up with this target. Here in Greece, an average of 10% of the market has disappeared every year except for the last year that finally brought positive growth.
Every January we enter the year with a market that has lost 10% in size, so this has been a challenge. But we have been successful to accomplish the 17-19% growth rates on average every year have resulted from strategic decisions we have made; we have developed new, innovative products and we have opened new markets.
We have realized since creating the Vision 2020 that there is a huge opportunity in the Greek market right now and particularly in terms of potential consolidation. Practically all of growth has been organic, but in the intermediation market, for brokerages, there is currently a huge opportunity for consolidation. I have not experienced such an opportunity during my last 15 years of working in the Greek market. The margins are down for most players and the size of these is not big. The size of some of the largest brokers in Greece is about equivalent to the size of a regional player in the UK; so not very big. So there will be some consolidation. Timing is an issue and it is ripe for consolidation now and for the next 2-3 years, but this will require capital. It is a unique moment for the brokerage sector.
At Matrix we are open about our intentions and we currently have gained the trust of the brokerage community and the insurance companies. We will build upon this trust, and we intend to build something much bigger.
Around 70,000 Greeks live and work in the UK, while over 10,000 Greek students are enrolled in its universities. Around 45,000 British expats call Greece their home. You are yourself an excellent example of a Greek business leader who has studied and lived in the UK for some. What lessons did you learn during your time in the UK that you have brought with you and best prepared you to launch and lead Matrix Insurance Brokers? Share some advice to the youth of Greece who might now be struggling to find their ways to contribute to their country?
Mr Tsesmetzoglou: There is a misperception that may still exist among the youth that if you go overseas to pursue your education or career, that all your problems will be solved and life will become much easier. In my own experience, when you go abroad to study or work, you will in fact work so much harder than you ever imagined you would prior to going because of how competitive everything is. If you go to a big centre like London, things are even more aggressive. Your life becomes your job. This is your priority. You must make sacrifices in your personal life to achieve your goals.
Some advice to the youth is to rid yourself of this perception: nothing in life comes easy. The international exposure gives you competitive advantages at home, especially in a country like Greece, with its challenging economic climate.
Greece has one of the highest educational levels of Europe. Greeks also have a high work ethic. We have noticed ourselves as we have offices in other countries, that our staff in Greece, for example, works harder and are more committed than their counterparts. So international exposure is a major plus, coupled with commitment to your work and your goals. Here at Matrix, we have staff who entered the company as a secretary or a courier and have now taken the insurance exams to become brokers and have moved up the company. It is a promise we make to all our employees, that there are openings for them if they want to pursue this.
Transparency is also very important, and this is something one can learn more of abroad. Here at Matrix we were the first to open our books.
Ms Vanda / Mr Tsesmetzoglou: Young people need to change their perception of insurance. Unfortunately, it ranks very low in attractiveness as a place to work. But in fact, insurance is a very exciting industry; it is fast-paced; it is international and is a synthesis of all these global markets. Young people tend not to look at insurance sector, which they see as boring, but it is quite the opposite. If you look at our office, you see a lot of young people, whereas most insurance companies in Greece, it is the opposite. So the stigma exists because of this, but we are making our own contribution to change this.
Insurance is a very misrepresented sector in Greece because traditionally there were all kinds of people selling insurance: from your policeman to your hairdresser, everybody was trying to make some extra income selling insurance. A big regulatory change was implemented 3 years ago, so there is a now a new framework and these kinds of people are no longer selling insurance. It is very regulated now.
On behalf of Matrix Insurance and Reinsurance Brokers, this is your opportunity to share a powerful message with the business and investor community of the UK.
Mr Tsesmetzoglou: Currently we can attest there is a lot of movement around Greece in terms of investment. The UK ambassador, Ms Kate Smith, is putting forward a lot of effort to promote stronger ties with the UK. So far, it is the UK who is leading investments into Greece. In our industry, the know-how in the UK is so high, so the investment and money is there. These investors can lead the opportunities that are present in Greece, both in the life and non-life insurance and the brokerage side; but also in areas like Management General Agents MGAs and Third Party Administrators (TPAs). There are satellite structures in the insurance sector which are not yet present in Greece, so we believe now is the right time that investment can happen. In every crisis there is big opportunity. The next two years present a unique opportunity.