Magyar Posta stretches out

Magyar Posta Rt, the state-owned postal monopoly, is stepping up efforts to evolve into a financial services center, leading some executives and analysts to express concern that the government is trying to increase its role in the market.
Magyar Posta’s Chairman and CEO István Kalmár told reporters last week that the firm intends to set up an insurance company, targeting civil servants and public sector employees. That is some 780,700 people, who currently work at institutions whose budgets are funded by the government, according to the Central Statistics Office (KSH). They include officials of government ministries and local municipality offices, teachers and hospital workers. Employees of state-owned companies such as Hungarian State Railways Rt (MÁV) are not included.
Magyar Posta’s prospective insurance arm would not limit its scope of clients to state employees, but would also look for other private individuals, according to spokeswoman Katalin Szász.
“Magyar Posta has a unique network with very good infrastructure and well-trained people, but the demand for traditional services is decreasing. New services have to be introduced in order to utilize the infrastructure and human resources,” Szász explained. Magyar Posta has about 3,200 post offices nationwide.
Szász added that no decisions have been made on questions such as the ownership structure of the planned insurance company, the type of insurance services to be offered, and whether to extend favorable conditions to policyholders employed by the state. She said these issues will be decided only after the next government takes office, and stressed that a government decree would be required for Magyar Posta to create an insurance company.
Economic daily Világgazdaság reported that the new insurance company would offer life, health and accident insurance.
Under the thumb
Executives in the financial markets and analysts say they are watching developments carefully.
“It is too early to comment. The plan [for the establishment of an insurance company] has been made public, but no concrete plans, such as how and when, have been seen yet. We are watching developments,” said Péter Walfisch, spokesman of the ING Group in Hungary. The group includes Nationale-Nederlanden Hungary Insurance Rt, the market leader in the life insurance segment.
An analyst of a financial institution, who declined to be named, said that, depending on how Magyar Posta’s insurance companies will operate, competition issues could arise.
“It’s a strange idea, it’s like creating a financial group fully owned by the state,” said the analyst, adding that it would be unacceptable if state employees were forced to choose Magyar Posta’s company when buying insurance.
The analyst said that it would not pose a problem if the government were to subsidize a certain percentage of state employees’ insurance premium payments. But in that case, the analyst said, the government should launch a tender to choose a company to distribute such subsidized insurance – otherwise, fair competition would be in danger.
On the other hand, Zoltán Sulok, an analyst with Economic Research Institute Rt (GKI), argued that Magyar Posta’s insurance company would probably not mean much competition for privately owned insurance companies. Since existing insurance companies – especially major players in the market – offer rather expensive policies, Magyar Posta has room to offer policies with special conditions for civil servants, he said.
Like others, however, he said that the key issue is the strategic plan of Magyar Posta, which he said will largely depend on whether the incumbent Fidesz-Hungarian Civic Party or the opposition Hungarian Socialist Party (MSzP) takes power after the elections.
A company that is currently in the process of being acquired by Magyar Posta has already attracted controversy with the way it handles the government-backed student loan scheme, launched last year.
State-owned Postabank Rt has the exclusive right to distribute the loans, and students drawing them are required to open an account at Postabank. While Postabank does not charge those students if they withdraw no more than once a month, the bank does charge if students have their money transferred to an account held at another bank. Privately owned banks have criticized this practice.
Offsetting losses
The plan to create an insurance arm is only the latest development in Magyar Posta’s bid to become a financial group.
The government decided last year to clear all legal obstacles to allow Magyar Posta to acquire Postabank.
Postabank and another state-owned institution, the Land Credit and Mortgage Bank Rt (FHB), signed an agreement last month under which Postabank will be able to offer mortgage-based home loans, starting in April.
In addition, Postabank has also decided to form its own mortgage bank, according to Kalmár of Magyar Posta.
Postabank will take over the FHB’s role as the state mortgage bank, according to Kalmár.
Postabank recorded Ft 2.24 billion (y9.18 million) in pre-tax losses in 2001, after modest profits of Ft 342 million in 2000. Net interest income grew 18.34% to Ft 15.8 billion last year, while the bank posted operating losses of Ft 1.1 billion.
Magyar Posta currently offers policies of Generali-Providencia Insurance Rt at its post offices. Generali-Providencia has hitherto been the sole insurance company with such a distribution agreement with Magyar Posta, although its contract does not grant the insurance company an exclusive right.
Magyar Posta spokeswoman Szász declined to specify the revenue coming from the cooperation.
Magyar Posta signed a cooperation agreement last week with OTP-Garancia Insurance Rt and OTP Home Savings Bank Rt, meaning products of the two companies will be available at post offices. Magyar Posta already held a contract concerning certain products of their own parent, OTP Bank Rt.
Magyar Posta CEO Kalmár stressed that by introducing non-postal services, the company is aiming to compensate for losses in its main line of business. He said Magyar Posta expects the agreement with the OTP companies to double its revenue from non-postal services from the current level of several hundred million forints.