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.

Third Quarter 2018: A Market Built on Trump Tantrums & Everyone Else’s Discipline

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.  It also explains, in plain terms, how your funds have performed and where they are likely headed next quarter.  Most of the industry – wealth relationship managers, brokers, financial consultants alike – prefer to go quiet during turbulence and hope the client does not look too closely.  I do the opposite.  A professional relationship survives on trust, and trust survives on honesty, not silence dressed up as reassurance.

The Trump Variable

Equity markets closed 2017 strongly, and that momentum carried into January 2018, one of the best months in recent memory, visible in your fund activity statements.  We genuinely expected record growth this year on the back of that momentum.

Nobody could have predicted Donald John Trump’s particular flavour of self-sabotaging protectionism.  His tariff threats in January slowed the market by February, and a series of new US tariffs followed, targeted squarely at China, the largest trading partner Washington seems determined to alienate.  China runs on dignity, on “face,” and anyone who understands the country knows Beijing was never going to back down.  What followed was an undeclared trade war, complete with Chinese retaliatory tariffs, a weaponised US dollar, emerging-market turmoil, a bear market in Chinese equities, and the growing possibility of an oil shock.

Global growth slowed.  Equity markets corrected.  Bond yields retreated.  The US dollar strengthened, benefiting from its reserve-currency status even as the administration causing the turmoil tried to weaponise that very status.  The MSCI World Index stayed virtually flat from the end of 2017 to June 2018, giving up only 20 basis points in US dollar terms.  The United States and Japan, both relative underperformers in 2017, became the outperformers, with modest single-digit returns.  Asia excluding Japan absorbed a total market-weighted loss of 5%, erasing part of last year’s spectacular gains.  The benchmark MSCI Asia Pacific Index fell roughly 5% in recent weeks, wiping out close to US$700 billion this year alone.

Regional Casualties

No Asian market escaped unscathed.  North Asia suffered considerably less than South Asia.  Southeast Asia produced a mixed picture, with currency pressure compounding losses in the weaker performers.  Indonesia made the baffling decision to raise tariffs rather than simply defer payments to protect its current account, a solution with a considerably lower cost to long-term competitiveness.  Malaysia suffered a separate confidence problem entirely of its own making: Tun Dr. Mahathir bin Mohamad’s insistence on relooking or tearing up existing contracts with major trade partners did nothing for investor confidence in a market that already had enough headwinds to manage.

As the market adjusted into the third quarter, bond markets grew concerned about further policy normalisation from major central banks.  The 10-year US Treasury yield rose 70 basis points to a year-to-date high of 3.11% by mid-May, before easing to 2.86% by the end of June as fears of additional US tariffs on Chinese imports drove capital toward safer assets.

Investment-linked policy funds registered negative returns over the last few months, with Asian-themed and emerging-market funds hit hardest.  None of my clients holds emerging-market funds.  There are simply too many political variables in that space for me to consider it viable capital allocation for you.  While others absorbed losses of up to 20%, the worst performer among your holdings sits at a 9% year-to-date loss, with most funds ranging from a gain of 1% to a loss of around 4%.  These remain paper losses, not realised ones, and the distinction matters considerably more than the headline number.

The Three-Year Picture

Over a three-year horizon, every single one of your funds generated positive returns, a direct result of an investment strategy built for a long horizon rather than this quarter’s headlines.  The AIA Acorns of Asia Fund and AIA Regional Equity Fund continue performing strongly, exceeding 8% per annum over three years.  The AIA Global Technology Fund returned 15.2% over the first six months, driven by strong 2018 corporate guidance and a 3.3% outperformance from the fund manager’s stock selection, and 20.8% per annum over three years.  The AIA Regional Fixed Income Fund returned -0.6% as Treasury yields rose alongside widening corporate bond spreads, still cushioning losses elsewhere in the portfolio.

In August 2018, Singapore Telecommunications Limited issued US$500 million in corporate bonds at 3.875%, despite having no operational need for the capital.  Singtel functions as a proxy for Singapore Incorporated, and this issuance was Singapore’s own message to institutional investors: the government is watching regional currency pressure and capital flight, and has just locked in half a billion US dollars of liquidity for a decade.  This is precisely why the Singapore dollar has appreciated against regional currencies such as the Malaysian ringgit, a dynamic that benefits both the AIA Regional Equity Fund and the AIA Regional Fixed Income Fund directly.

China’s Long Game

China has absorbed short-term tariff pain without losing its underlying position as the factory of the world, with alternative markets available across Europe, South America, and Asia, and a deliberate, decades-long push into Africa.  Beijing is playing a fifty-year game.  Our own positioning should match that horizon rather than react to this quarter’s noise.

This downward valuation of Asian equities will eventually correct.  Valuations become attractive, funds circle, and the best bargains sit in East Asia and Southeast Asia.  ASEAN, South Korea, and Greater China remain growth regions.  Growth has slowed, not stopped, and the market, as it always does, has overreacted, which is exactly what short-sellers and short-horizon traders are built to exploit.  None of you are short-term investors.  Your average investment horizon runs seven to fifteen years, which means the correct action, with stocks due for a rebound, is to increase exposure into the right funds now, not retreat from them.

Technology as the Shovel Trade

For the more adventurous among you, greater weighting toward the AIA Global Technology Fund deserves consideration.  The MSCI Asia excluding Japan Index is dominated by technology names, Tencent, Alibaba, Samsung, and Taiwan Semiconductor among them, with information technology accounting for almost 32% of the index and Chinese companies filling seven of the top ten holdings.  Tencent and Alibaba alone command nearly 11% combined weighting.  People are not going to stop buying handphones or scrolling social media because Washington and Beijing are having a tantrum.  Manufacturing and traditional industry absorbed this slowdown.  Technology walked through it largely untouched.

Individual country indices track large-capitalisation, often state-linked names, Temasek Holdings and the Government of Singapore Investment Corporation among Singapore’s own examples.  Economies and stock markets are distinct animals across East Asia, and investors hoping to capture the region’s genuinely fast-moving industries will not find them sitting inside a headline index.

Beyond Trump’s belligerence, the trade cold war, and emerging-market turmoil, real structural transformation continues underneath.  Retail is migrating online, cementing Alibaba’s dominance.  A growing middle class is moving up the value chain in its shopping habits.  The genuine future market is the coming hundreds of millions of new middle-class consumers across China, India, and Indonesia, a demand base an American consumer slowdown will eventually become irrelevant against.  Entrepreneurship is surging across fintech, online retail, and the gig economy, riding China’s growth curve.  None of this shows up cleanly in a quarterly index chart, and none of it disappears because Washington had a bad month.

Selling Shovels, Not Panning for Gold

As I have told many of you before: during the California Gold Rush, it was the people selling shovels and pans who made the real money, not the prospectors panning for gold.  None of the funds I recommend is glamorous, and that is precisely the point.

Smartphones illustrate this well.  China remains the world’s largest smartphone market, shipping over 100 million units every quarter for several consecutive years, with Chinese manufacturers now commanding nearly a quarter of the global market.  Sunny Optical Technology, a smartphone camera component maker, recently reported a pick-up in handset-camera module shipments, a direct signal of the growth still embedded in this supply chain regardless of tariff noise at the border.

Banking tells a similar story, driven by simple underpenetration.  India had nine commercial bank branches per 100,000 adults in 2008; Indonesia had seven.  By 2016, those figures had risen to 14 and 17 respectively, and we expect that trajectory to continue as financial service penetration deepens across both markets, benefiting private banks with strong, experienced management.

Infrastructure completes the picture.  India’s logistics industry, worth roughly US$160 billion, is projected to reach US$215 billion by 2020, a compound annual growth rate of 10.5%.  Indonesia, the Philippines, Vietnam, and Myanmar are all investing heavily in infrastructure, financed substantially through export credit.

Why This Trade War Cannot Last

This trade war will not last, because the United States cannot actually afford to sustain it.  When Trump attempted to weaponise the US dollar against Iran, he shook global confidence in the dollar’s reserve-currency status.  While Washington has tried to walk that back, capital is already testing alternatives, principally the euro and the renminbi.  Capital is returning to the region, and once funds begin picking up bargains in earnest, valuations will rise accordingly.  Those who stayed the course through this quarter will be the ones rewarded for it.  That has always been the actual return on long-term investing, regardless of which president is currently making headlines.

---

Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code