Astra insurance was this year found to have a lower liquidity quotient than permitted by law. It now says restructuring and cost slashing has helped it recover.
"Our liquidity quotient was indeed below the limit, but that was true only for a brief period. In the meantime, cost cutting and a 1.25 million cash injection pushed the quotient back up to 1.07," said businessman Dan Adamescu, who controls Nova Trade, the majority shareholder in the company.
The Insurance Supervision Commission monitored the restructuring process. "Astra reports in June and July showed the liquidity quotient had deteriorated. The Commission demanded that it take steps to comply again with the legal requirements. It seems that the actions of the majority shareholder, that is the streamlining of the company and the management improvements, were carried out in pursuance of this specific goal," commented Nicolae Crisan, Insurance Supervision Commission chairman.
The liquidity quotient is the ratio of liquid assets (government securities, banking deposits, cash etc.) to the firm obligations of the insurer. This, according to the law, should have a value that is equal or greater than 1.
Another insurer, Ardaf, experienced a similar situation early this year, but managed to recover meanwhile, doubling its shareholder equity since that time.
Adamescu explained that the important element in this case is that Astra underwent a streamlining process. "The number of employees went down, the company became more dynamic, decisions are easier to make. We will now be ready to sustain an increase in the claim settlement rate by 2006," Adamescu said.
He estimates the claim settlement rate will reach 75% in the next few years and that insurers will therefore have to make do with expenses, profits and fees crammed into no more than 25% of their revenues.
A team of consultants from McKinsey, the world's leading management consultancy firm, devised the restructuring process. Three McKinsey consultants worked with Astra over a two-month period.
"Restructuring became necessary because at one point we noticed that the number of employees was going up instead of down. We used to have 1,148 employees, but now, due to the restructuring, we have 870. To come into line with our normal business volume, this should go down to about 600," Adamescu explained.
He added that the company had also implemented a new salary payment system and a new programme to make claim settlement more efficient.
The company is currently looking for a new chief executive officer (CEO), preferably a foreign national. Dan Adamescu is Astra's interim CEO until a replacement is found. Until September, the company was headed by Dan Domnitanu, who left to pursue personal projects.
sorin.pislaru@zf.ro
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