Leadership & Success

When it comes to much of modern literature on leadership styles, I am a sceptic.  I do not believe in servant leadership, for example: it is a modernist fad.  No real leader is always authoritarian: that is simply bullying.  Transformational leadership is another incarnation of personality cults.

True leadership has no set form.  It is not broken up into labels.  It is like water in a container.  Whatever shape that container is, that water fills it.  If a leader has ossified into a certain style regardless of the realities of the situation, it is as if that water has frozen into ice, and the container breaks.  If a leader has no values, it is like that water has turned into vapour, and no longer fills the container.  Leadership always considers three things: the goal, the values and the resources.  It is whatever is required to fulfill the goal, to adhere to the values, and to maximise the resources, including human resource.

Consider Napoleone di Bonaparte.  He is thought by many to be an epitome of leadership, and to an extent he was.  A man born to lesser nobility, who rose from a minor artillery officer to Emperor of France.  And yet, I consider him a failure.  He is a man who won numerous battles, but lost the war.  He died in exile, in St. Helena.  He left France bankrupt, still surrounded by enemies; and with an entire generation of sons and fathers lost to the nation.  Carl von Clausewitz understood this.  He was a Prussian general who fought in the Napoleonic Wars, including the famous Battle of Borodino.  In his famous treatise on military campaigns, Vom Kriege, he wrote, “War is the continuation of politics by other means.”

Napoleon understood only war, and had no clear goal.  And that is a mistake many leaders make.  They get involved in the process.  They get emotionally attached to the product, the vehicle, or the institution.  It is like a man who enjoys cycling so much that he forgot to pay attention to where he is going and finds himself lost.  I never set out on anything without having an idea of where it will be several moves later.  I play chess, on the board and in the real world.  We make a move by thinking seven turns ahead.

Napoleon Bonaparte said that a leader is a dealer in hope.  In insurance, we are merchants of hope.  But selling hope alone is fraud.  There has to be a basis for it, and there has to be a consideration of ethics, values and principles.  Leadership is not about merely espousing values, but living it.  That requires a certain sense of certainty and emotional strength.

Where Napoleon excelled, was in his utilisation of resources.  He famously said that an army marches on its stomache.  Since he began as an artillery officer, he understood it intimately.  He pioneered innovative tactics using field guns.  He paid a lot of attention to the logistics of running an army.  Most importantly, he understood his greatest resource: his people.

The contention here is that people are, by their very nature, emotive and emotional.  This cult of personality is a double-edged sword.  Whilst his men fought like lions for him, particularly his famed Vieille Garde, it also meant that the entire institution, the edifice of state collapsed and created a vacuum when he was defeated.  That is a failure in leadership because there was no viable succession plan.

A leader is only as good as the people around him.  That requires either building them up, or recruiting the best, or, a bit of both.  The consideration with having competent people is that they are also leaders.  This means that we are not just supposed to be leaders of men, but leaders of leaders.  This requires leading, not from the front, but from the rear.  A successful leader always has a great lieutenant, or several.

Coming back to our theme, for Napoleon, that man was Charles-Maurice de Talleyrand-Périgord.  Talleyrand rose from Agent-Generale of the Catholic Church in France, to First Minister of France, Napoleon’s chief diplomat and spymaster.  He eventually turned on Napoleon, and survived him to have a long and rich career.  Unlike Napoleon, Talleyrand understood the winds of change, and rode them successfully.  Whilst the public remembers Napoleon, students of leadership, and the arts of war, remember Talleyrand.

This brings me to my conclusion.  Success is not synonymous with fame.  From the stories of the Bible to the Epic of Gilgamesh, to Beowulf, to modern television, many characters, many of our heroes and idols are famous because they tried, they succeeded and they failed.  Elvis Presley and Bruce Lee are immortalised more for their unfulfilled potential than their successes.  That romance of the tragedy, our collective yearning for what ifs.  That is not what leadership is to me.  Leadership is quiet efficiency in achieving goals, quiet belief in our principles, and quiet confidence in what we have, resources and people.

Summary of Changes to the Integrated Shield Plan

The following is an edited version of what I wrote to my clients a few months back to explain changes to the Integrated Shield plan.

I understand that there has been some anxiety regarding the proposed changes to the integrated shield hospitalisation plans by the Singapore government in consultation with the six major insurers to address spiraling costs and the subsequent increase in premiums.  As you would have no doubt noticed, there gave been some increase in your annual premium.  The following is an explanation from AIA’s perspective and how it affects you. 

What are the new guidelines from Ministry of Health (MOH) about?

In accordance with the MOH’s guidelines announced on the 07^th March 2018, all integrated plan riders available for sale from the 01^st April 2019 are to incorporate both co-payment and co-payment cap, and will no longer cover 100% of the deductibles and co-insurance of integrated plans moving forward.

Why is this necessary?

Aligned with the recommendations from the Health Insurance Task Force (HITF), these changes encourage everyone to play a more active role in managing their medical care costs, and are part of collective efforts to ensure that healthcare and health insurance remain available and affordable in Singapore.

What is a co-payment feature?

With a co-payment feature, policyholders will need to pay out-of-pocket of a minimum of 5% or more on their hospitalisation, outpatient treatment as well as day surgery bills, net of any rider cash benefit payout.  This means the integrated plan and rider will no longer cover 100% of the bills.

What is a co-payment cap feature?

The aim of the co-payment cap feature is to protect policyholders against large bills by limiting the out-of-pocket amount we have to pay per policy year if we seek treatment from one of our insurer’s preferred healthcare providers or if the treatment has been pre-authorised by our insurer.  The minimum co-payment cap insurers can apply is S$3,000.

How do these changes affect the existing AIA Max Essential Rider?

Riders purchased before 08^th March 2018:

Those with riders purchased before the 08^th March will continue to enjoy the current benefits under their existing AIA Max Essential rider.

AIA will continue to monitor and review the claims experience from time to time, and should there be a need to incorporate the co-payment and co-payment cap features, please be assured that AIA will inform the client on any changes affecting their coverage at least 31 days prior to the change taking effect.

Riders purchased from 08^th March 2018 up to the date on which AIA introduces the new riders based on the new guidelines:

Those with riders purchased from the 08^th March will continue to enjoy the current benefits under their existing AIA Max Essential rider.  However, in accordance with the Ministry of Health guidelines, their AIA Max Essential rider will be revised to incorporate both the co-payment and co-payment cap features, upon you’re their A Max Essential rider renewal from 01^st April 2021.

Please be assured that AIA will reach out to inform the client on any changes affecting their coverage at least 31 days prior to the change taking effect.

How do these changes affect any reinstatement or upgrading of existing AIA Max Essential Rider; or any Mid-Term add of AIA Max Essential Rider?

Upgrading/ mid-term addition or reinstatement request before 08^th March 2018:

The AIA Max Essential rider will be based on the current benefits.

AIA will continue to monitor and review the claims experience from time to time, and should there be a need to incorporate the co-payment and co-payment cap features, please be assured that AIA will inform the client on any changes affecting their coverage at least 31 days prior to the change taking effect.

Upgrading / mid-term addition request from 08^th March 2018 up to the date on which AIA introduces the new riders based on the new guidelines:

The AIA Max Essential rider will be based on the current benefits up to renewal from the 01th April 2021, upon which date co-payment and co-payment cap features will apply.

Please be assured that AIA will reach out to inform clients on any changes affecting their coverage at least 31 days prior to the change taking effect.

How do these changes affect any Downgrade of existing AIA Max Essential Rider?

Downgrading of AIA Max Essential is not considered as a new business, hence the downgraded AIA Max Essential rider will be based on the current benefits.

AIA will continue to monitor and review the claims experience from time to time, and should there be a need to incorporate the co-payment and co-payment cap features, please be assured that AIA will inform the client on any changes affecting their coverage at least 31 days prior to the change taking effect.

Does AIA Singapore do pre-authorisation?

Yes.  In 2017, AIA launched the AIA pre-authorisation service for AIA policyholders who are insured with AIA HealthShield Gold Max A and AIA Max Essential A or AIA Max Essential A Saver.

Pre-authorisation assesses prospective claims based on diagnosis, planned procedures, the estimated length of hospital stay and hospitalisation and surgical charges before the actual surgery or admission.  This currently applies to inpatient admissions at Mount Alvernia, Gleneagles Hospital and Thomson Medical Centre, or any day surgeries performed with a clinic under the AIA Quality Healthcare partners and we will be continuously reviewing this.

Prior to the planned surgeries or hospital admissions, our specialist partners and customers will need to submit the pre-authorisation form for AIA’s review.  A Letter of Guarantee (LOG) with the approved amount will be issued within about 3 working days to the participating hospitals or clinics.

Will there be a reduction of premium since the benefits are reduced?  How much impact would the changes have on claims management and insurance premiums?

In general, premium rates are adjusted from time to time based on the client’s age, individual insurers’ claims experience, medical inflation, as well as general cost of treatment, supplies and medical services in Singapore.  These rates are, therefore, not guaranteed.  The measures proposed by the HITF are introduced with the long-term purpose of ensuring sustainable access to quality healthcare.  The impact of these changes may take some time to realise.  However, we believe that in the long run, alongside our efforts to ensure quality healthcare is delivered to our customers and that these measures will benefit them in managing the level of claims inflation, and, therefore, moderating the level of integrated plan and rider premium increases each year.

It appears that riders are “guaranteed renewal”.  How does the rider policy contract permit AIA Singapore to make changes to my existing rider?

The AIA HealthShield Gold Max and Max Essential riders are guaranteed renewable in nature.  This means that AIA will not terminate the plan at any time, except when there is fraud.  However, given the evolving medical landscape, continuously changing healthcare landscape, it is common for health insurers to vary the premiums, benefits and / or cover or amend any privilege, term or condition of health insurance policies.  Please be assured that AIA will inform policyholders on any changes to their policies, at least 31 days via letter before the effective date of any changes.

How can I be assured that AIA Singapore’s doctor panel will have a sufficient spread of doctors, and uphold good quality of care?

In January 2017, AIA introduced AIA Preferred Healthcare Providers, a network of over 250 trusted, well-qualified and experienced medical professionals.  AIA is the first insurer to establish direct partnerships with the medical community to deliver quality, affordable healthcare together.

AIA Healthcare Partners (private specialists) are chosen based on a strict review on the following criteria:

a.         Minimum of 5 years of specialist experience;

b.         Professional track record;

c.         Claims History;

d.         Appropriate choice of treatment; and

e.         Consistent charging behaviour.

AIA Preferred Healthcare Providers collectively cover over 26 medical specialties, ensuring that our clientele will be able to find a doctor with the expertise needed.  You can view the full list here: AIA Specialist List.

Does AIA Singapore think these changes are sufficient to manage claims?  If not, what else will AIA Singapore be doing?

AIA Singapore continues to work together with all stakeholders in the industry, including MOH and the Life Insurance Association of Singapore (LIA Singapore), to manage healthcare and claims costs in Singapore.  Together, we believe that we can be effective in ensuring quality healthcare is delivered to our customers and managing claims costs to keep health insurance affordable and accessible for all in Singapore.

As an industry leader, AIA Singapore is committed to proactively playing our part to implement the HITF recommendations, including:

a. Establishing a network of AIA Quality Healthcare Partners, making us the first insurer to establish direct partnerships with the medical community to ensure quality, affordable healthcare is delivered to our members;

b. Launching AIA Max Essential A Saver, an alternative rider option for AIA HealthShield Gold Max A policyholders seeking affordable coverage for treatments specifically in Government / Restructured Hospitals, or with any of our AIA Quality Healthcare Partners;

c. Introducing our AIA pre-authorisation service which provides a fuss-free process for pre-approval of treatments for AIA policyholders covered under AIA HealthShield Gold Max A integrated shield plan and AIA Max Essential A or AIA Max Essential A Saver riders; and

d. Beyond the HITF recommendations, AIA are also constantly enhancing our pioneering AIA Vitality wellness programme which inspires individuals to take action and make real change to their health by rewarding them for the small steps they take to become healthier every day.

3rd Quarter 2018: Thoughts on Market Outlook

I write quarterly updates for my investors and high net worth clients, in my capacity as a financial services consultant at AIA.  It is a long, technical read, but it explains how my client’s funds have been doing, and market projections for the next quarter based on where their funds are placed.

When there are changes, or challenges in the market, or when there are market opportunities, I write this to explain the issues and the opportunities.  I understand that the nature of most people in the industry, from wealth relationship managers, to brokers, to financial services consultants, is to go to ground, and hope the client does not pay too much attention to what is happening to their investments.  A professional relationship is based on trust and competency, and that can only be demonstrated through open communication and honesty.

For those of you who have been with me for a few years, you would note that the last few years, - last year, in particular – have been exceptional.  Equity markets ended 2017 on a high note, and this momentum carried into 2018, with January witnessing one of the best months in recent years, as reflected in your fund activity statements.  In fact, we fully expected this year to have record growth in the markets on the back of developments last year.

Unfortunately, no one could predict Donald Trump, and his self-destructive protectionist tendencies.  When he spoke about tariffs and threatened a trade war in January, the market slowed in February, but we still provided value.  In that time, there have been a series of new tariffs by the US, many of them specifically targeting their largest trade partner, China.  The Chinese are all about dignity – “face” – and no one who understands China, expect them to back down anytime soon.  What we have is an undeclared trade war.  The Chinese have retaliated with their own, strategic tariffs.  This market turbulence has lead to other consequences of a belligerent US policy, including the weaponising of the US dollar, emerging-markets turmoil, the bear market in Chinese stocks, and a possible oil shock.

As a result of this, and other factors, global growth has slowed.  Equity markets have corrected, bond yields have retreated and the USD has strengthened because it is the preferred reserve currency.  The global equity markets proxy, the Morgan Stanley Capital International (MSCI) World Index was virtually flat from the end 2017 to June 2018, giving up only 20 basis points in USD terms.  The US and Japanese economies, which had underperformed in 2017, were the relative outperformers with modest single-digit returns over the period.  The Asia markets, excluding Japan, suffered with a total market weighted loss of 5%, partially erasing the spectacular gains recorded last year.  The benchmark MSCI Asia Pacific Index has fallen about 5 per cent in recent weeks.  That is almost US$700 billion wiped out this year.

Within Asia, no market was unscathed.  The North Asian markets suffered considerably less compared with their South Asian counterparts.  Southeast Asia is mixed.  In many of the worst performers, losses were exacerbated by pressure on their currencies.  Countries such as Indonesia made stupid decisions such as raising tariffs instead of merely deferring payments to keep their current accounts robust.  Malaysia suffers from a lack of investor confidence because Mahathir, specifically, insists on relooking or tearing up existing contracts with major trade partners.

As the market adjusted, in the beginning of the third quarter of 2018, and improved, the bond markets became concerned with the threat of further policy normalisations by major central banks, meaning a change of interest rates.  The 10-year US Treasury yield rose by 70 basis points to a year-to-date high of 3.11% in the middle of May.  This reduced to 2.86% at end of June as the fear of additional US tariffs on China imports gathered pace, leading to investors moving their capital to safer investments.

In light of the above, investment-linked insurance policy funds registered negative returns in the last few months.  Asian-themed and emerging markets funds are the worst hit over the last six months.  None of my clients have investments in emerging market funds.  There are far too many political variables for me to consider these funds viable for you.  As such, whilst others have had losses of up to 20%, none of you have been hit as hard.  The worst performer is a 9% year to date loss.  Most of you have funds that have made slightly less, dropping from 11% to just over 1%, or making a loss of between 2% to 4%.  These are all paper losses, and are not realised.

When we consider the three-year period, every single one of your funds generated positive returns.  This is a testimony of our investment strategy over a long investment horizon since this volatility is temporary.  Not only will we ride it out, but we will be in a very good position to recoup the losses and make up on gains.  You would note that flagship funds such as AIA Acorns of Asia Fund and AIA Regional Equity Fund continue to do very well.  They have returns exceeding 8% per annum over the three-year period.  The AIA Global Technology Fund, for example, returned 15.2% over the first six months.  A combination of strong corporate guidance for 2018, along with an outperformance of 3.3% from stock selection by the fund manager have provided value in a difficult market.  Over a 3-year period, this fund returned 20.8% per annum.  It is funds like these that will lead the way in providing value to your portfolio.  Fixed income funds such as AIA Regional Fixed Income Fund returned -0.6%, as US Treasury yield rose along with widening of corporate bond spreads.  This has helped to mitigate some losses.

We are in the beginning of the third quarter of 2018.  We have weathered the very worst of this market turbulence, and it is only a matter of time before market sentiment catches up with market fundamentals.  What I want to do here is reiterate some of these market fundamentals, so that we all understand the cause of our optimism.

In August 2018, Singtel issued USD$500 million in corporate bonds, at 3.875%.  Singtel is not in need of that money.  However, they are viewed as a proxy for Singapore incorporated.  This is the Singapore government sending a message to institutional investors and fund managers that they are aware of the pressure on regional currencies and the capital flight.  This bond issue just locked in USD$500 million for the next decade, which helps both liquidity and the shores up the SGD.  This is also why the Singapore currency has appreciated as much against regional currencies such as the MYR.  This translates well for the AIA Regional Equity Fund and AIA Regional Fixed Income Fund.

China has suffered in the short term because of the tariffs.  However, this does not change the fact that they are still the factory of the world, and have other markets to pivot to, whether in Europe, South America and Asia.  China is also making huge inroads into Africa, and positioning themselves for the next half a century.  They are playing the long game, and so should we.

This downward valuation of Asian equities will eventually lead to a correction.  Their valuations will become attractive.  Funds will circle picking up the best bargains, and the best bargains are found in East Asia and Southeast Asia.  ASEAN, South Korea, and the Greater China Region are still growth regions.  Growth has slowed, not stopped.  The market, as usual, has over-reacted, and that is what short-sellers and short-term investors do.

None of you are short term investors.  The average investment horizon is from 7 to 15 years.  Now that stocks are due for a rebound, the correct action to take is to actually invest more into the correct funds, and take larger positions so that greater gains can be made on the rebound.  This will see funds such as the Greater China Equity Fund, Greater China Balanced Fund, and technology and manufacturing counters grow.

For those among you who are more adventurous, you might consider greater weightage into AIA Global Technology Fund.  The MSCI Asia excluding Japan Index is dominated by the big technology names such as Tencent, Alibaba, Samsung and Taiwan Semiconductor.  Almost 32% of the index is weighted to just one sector: information technology, and Chinese companies make up seven out of the top ten holdings.  The index has a higher allocation to two tech stocks: Tencent and Alibaba, at nearly 11 percent.  People are not going to stop buying new handphones or stop using social media anytime soon.  This slowdown affected manufacturing and traditional industries.  Technology has been virtually unscathed.

We must understand that individual country indices track large-capitalisation stocks, which tend to be the big, state-owned players.  These include Temasek Holdings, the Government of Singapore Investment Corporation, and their subsidiaries and special-purpose vehicles.  Economies are distinct from their stock markets, particularly for East Asia.  When investors want to capitalise on fast-moving industries in the region, they are unlikely to be able to access them through established indices.

Beyond the current belligerence of the Trump presidency, the trade cold war and the emerging markets turmoil, there are major structural shifts transforming Asia underlying all this.  There is the migration from traditional retail to online, which has led to the dominance of e-commerce giant Alibaba.  There is a growing middle class that is changing its shopping habits and moving up the value chain.  The future market is the millions of new middle class in places like China, India and Indonesia.  An American slowdown in consumer purchase will eventually be irrelevant.  There has also been a surge in entrepreneurship, from fintech and online retail to innovative enterprises in the gig economy, all piggybacking China’s growth.  What this means is that a current slowdown on indices and stock markets does not reflect the economic reality.  These smaller, nimble businesses will eventually have an impact on the market indices within the next five to ten years.

The funds that I have recommended for you are involved in some of these growth areas.  As I have mentioned before, to many of you, in the California Gold Rush, it was the people who sold the shovels and pans who made the most money.  None of the funds I recommend are “sexy”.  I recommend shovels, not panning for gold.

For example, the companies on some of the funds are involved in the manufacture and sale of smartphones.  China is the world’s largest market for smartphones.  Every quarter, over 100 million units are shipped.  This has been so in the last few years.  Chinese smartphone manufacturers now account for nearly a quarter of the global smartphone market and they continue to grow rapidly.  Smartphone camera component makers, such as Sunny Optical Technology which recently reported a pick-up in handset-camera module shipments, reflects the considerable growth opportunities in China’s smartphone market.

Another areas is banking.  This is solely due to underpenetrated markets.  In 2008, for instance, India and Indonesia had nine and seven commercial bank branches per 100,000 adults respectively. By 2016, the number had increased to 14 in India and 17 in Indonesia and we expect this growth to continue.  Private banks with strong and experienced management teams will benefit as financial service penetration continues to increase.  And with the growth of local banking to service a wealthier, more sophisticated clientele, services will also grow exponentially.

Yet another area is infrastructure.  The logistics industry in India is worth around US$160 billion and is projected to rise to US$215 billion by 2020.  This means it is projected to grow at a compound annual growth rate of 10.5 percent.  Indonesia, the Philippines, Vietnam, and Myanmar are countries that are investing heavily in infrastructure growth, funded by export credit.

In summary, this trade war is not going to last simply because the US cannot afford it.  When Trump attempted to weaponize the USD in his crusade against Iran, it shook investor confidence in the status of the US as the preferred reserve currency.  Whilst there have been attempts to walk that back, funds are already moving to alternatives, primarily the Euro and the Renminbi.  Capital is flowing back into the region, and once funds start picking bargains, the value of funds will rise again.  Those who persevered in this market will be rewarded.  This is the value of long-term investing.

I understand that this is a long, and technical read.  However, I hope that I have adequately summarised the market cycle, and explained why your money is in good hands, and that long-term growth is assured.