Scott Engle, Group Treasurer at AIA is keen to ensure that his treasury team is well positioned to safeguard and drive the success of the organisation. In this exclusive interview, he talks about his career and the work he has done to make AIA an award-winning treasury.
Hong Kong AIA Group is the largest independent publicly listed pan-Asian life insurance group – with a presence in 18 markets across the Asia Pacific region. AIA delivered strong results for the year ending November 30th 2017, with double-digit growth across its main financial metrics.
The key objective of the treasury department is crystal clear in the mind of Scott Engle, Group Treasurer at the pan-Asian insurance giant, AIA. “We are here to provide the Group with cost-effective financial flexibility,” he says. “This means making sure AIA has the appropriate financial resources to take advantage of opportunities as they come along, allowing the business to meet its ambitious growth objectives.”
Engle, it is apparent, is a man set on making history for the firm. And it is his keenness to learn from the past that has set him and his team up as guardians of its future prosperity.
If the past eight years are anything to go by, AIA certainly has a prosperous future ahead. Indeed, since its spin off for AIG in 2010, the company has harnessed the economic vitality of Asia and become one of the world’s largest insurance companies by market capitalisation.
Such rapid growth makes AIA a “fast and furious place to work”, and you must be “fully in”, says Engle. “We joke that working here is like drinking out of a firehose: you can’t have a drink unless you are prepared to get wet.” And he would not have it any other way.
Asia has played a significant part in Engle’s storied career in finance, which began in banking following his graduation from Columbia University. Engle first worked on the corporate lending desk with Bank of America in New York, before receiving the opportunity to move to Tokyo to support the bank’s growing franchise in Japan.
His move to Japan came in the wake of the signing of the Plaza Accords – a multilateral agreement to depreciate the US dollar in relation to the Japanese yen. The agreement led to an incredible change in Japanese purchasing power, which fuelled the country’s ‘economic miracle’ (later known as the Japanese asset price bubble) and saw Tokyo become a major financial centre.
Given all these events, Engle recalls this stint in Japan with fondness, noting that “it was an extremely exciting time working in Japan”. From a personal perspective, Engle’s time in Japan was especially fulfilling. “Culturally, Japan has always been its own place and they do things very differently,” he says. “As a young New Yorker going to work over there, it was a very interesting experience.”
“Treasury will have an increasingly important role in helping the business enhance the customer experience as markets around the world digitise and move away from cash.”
After several years in Japan, Engle made his way back to New York with Citi, heading up its Insurance Client Coverage business. It was then that Engle started thinking about shifting over to the corporate side. “I was spending a lot of time with the corporate treasury departments of my clients as they were the main buy-centre,” he says. “And it became obvious to me that it would be interesting to sit on the other side of the table.”
The chance to move into a treasury role with one of Engle’s clients came about at the turn of the century, and he was quick to accept the offer. “What was most interesting is that I was now the buyer of banking services and on the receiving end of the pitches that I had been giving for two decades,” he says. “This certainly has its advantages when it comes to dealing with the banks.”
Indeed, Engle would recommend that any budding treasury leader gain some experience on the banking side. “It isn’t a must if you want a successful career in treasury, but it certainly helps,” he says. “This is because you are able to speak the banker’s language, understand their messaging, pinpoint gaps in their logic and understand the difficulties in implementing a good idea.”
However, nothing could have prepared Engle for what happened between 2007 and 2009 when he was Treasurer at AIG Consumer Finance Group, a company hit hard by the financial crisis. As a key crisis team member, tasked with maintaining and allocating scarce liquidity across all international bank subsidiaries, he acutely remembers the challenges of this time.
In many respects, the crisis helped shape Engle’s treasury philosophy. He talks about how the difficult period clearly highlighted the important role treasury plays in the success of a company. Most notably, he says that it fully confirmed the fact that “companies must keep a close track of their liquidity because it can never be assumed the markets will behave rationally and credit will always be available”.
Engle took these lessons with him and arrived in Hong Kong in 2010 with a blank canvas to work with and a long to-do list at AIA. The company had just been spun off from AIG, so the first task was to establish new bank accounts and obtain access to external capital. “This was not a simple task, largely due to AIA’s complex organisational structure, comprised of multiple subsidiaries across 18 Asian markets,” says Engle. “We needed to map how we could build credit facilities with different banks that would provide us with the resources we needed in different markets and currencies.”
Despite the challenge this presented, Engle and the team excelled by putting in place multiple funding structures to support the growth of the business. One notable deal that Engle is especially proud of is a backstop facility, which offered a group-wide credit envelope for AIA. This unique facility met the complex requirements of AIA and saw the treasury team awarded a Highly Commended Adam Smith Award Asia for Best Financing Solution in 2014.
At the same time that Engle was providing AIA with access to external capital, he was also working on understanding and optimising the internal financial capacity of the Group. To achieve this, treasury set about building two key functionalities within AIA’s SAP system: an integrated cash forecasting solution and a standardised payments engine. “Doing this allowed us to begin harnessing the data that we held internally to begin optimising our financial flows,” says Engle.
To complete the picture, AIA became a member of SWIFT and began collecting bank balance information from its 3,000-plus bank accounts on a daily basis. “This information is automatically uploaded to SAP in a standardised format and then played through our cash forecasting engine,” he says. “As a result, we are now able to forecast individual subsidiary cash positions for one year in the future. This is vital to understand the cash position of the subsidiaries and gives treasury the ability to deliver financial flexibility to the Group.”
Engle is now excited about the next step in the evolution of the AIA treasury, which he says will take it to the “next generation”. Underpinning this is the movement of several functions, including forecasting, to a new shared centre of excellence. “Once the transition is complete, the business will receive an extremely detailed and accurate cash forecast for the next two weeks outlining individual country positions,” he says. “Then, once we bring everything together, we will have an accurate rolling 52-week forecast of our liquidity across the Group.”
Whilst Engle has spent a lot of time over the past eight years building out AIA’s external and internal financial capacity, he has also positioned treasury as a strategic department working closely with the business to deliver solutions that support AIA’s on-the-ground operations. There are multiple instances of this from across the 18 markets that AIA operates in, but Engle is keen to highlight the success that AIA has had in China as a notable case study.
He notes that demographically China has all the characteristics that make it the perfect growth market for a life insurance company. However, to be successful insurance businesses must tailor their offerings – by which Engle means “be digital”. As a result, over the past few years, AIA has re-engineered its business in China so that it is digital end-to-end – minus the sales process, which is best achieved through face-to-face interaction.
Treasury has been crucial to this, given the importance of collections and disbursements in building a first-class user experience for AIA’s customers in China. “We have had to digitise at the same speed as the business,” says Engle. “This means building seamless digital integration with our banks to drive straight through processing, and enabling collection and payments to be made using popular platforms like WeChat Pay and Alipay. Today, China stands as a shining example of the digital ecosystem we are striving to create in our other markets.”
Digitalising the factory
For Engle, AIA’s business in China provides a glimpse into what the future of treasury will look like. “Treasury will have an increasingly important role in helping the business enhance the customer experience as markets around the world digitise and move away from cash,” he says.
AIA’s work in China also highlights that technology can drive standardisation and automation across the end-to-end flows of the department. “In essence, treasury is a giant factory,” he says. “Every process can be highly standardised and automated using technology and in turn this can provide efficiencies of scale unlike ever before. At AIA we are in the early stages of this journey, but we have a clear roadmap for the future, defined by technology and digitisation.”
Engle admits that it can be hard for corporate treasurers to picture treasury as a giant factory that can be digitalisation. He muses that this may be down to a fear that the treasury profession will die out as a result of such high levels of digitalisation and standardisation. However, in his view, this evolution of the department can only be a good thing. “Using technology in this way makes us much more efficient and ensures we are able to provide solutions to the business that supports its growth,” he says. “And there will always be a need for the treasury team to know how to harness this technology so that it can deliver the most value for the business.”
Banks in transition
Although Engle predicts a bright future for treasury, the same cannot be said for the banks. Engle has some interesting views here, expressing that whilst banks do play a crucial role in the economy they “significantly overvalue their value to a corporation”.
As a result, he thinks the banking industry is currently at an inflection point of change because of the proliferation of technology in financial services and the recent emergence of fintech companies offering cheaper and more convenient ways to pay and collect money. This has put into question the sustainability of traditional banks, at least in their current guise.
“The challenge faced by the big banks is that they have a lot of legacy technology that they have spent billions on over the years,” he says. “Whilst this works, it is often slow and inefficient, especially when it is compared to the solutions being developed by fintech firms. It is like the difference between 3G and 5G in the telecoms sector.”
It is not only the future of banks that Engle is closely following – he is also interested in developments in Asia’s economies and financial infrastructure. For example, Engle is currently following the advances in payment systems and the proliferation of instant payment methods because, as a business that collects and pays to consumers, AIA stands to benefit from these developments. “There is so much change happening in this space that it can be hard to keep track,” he says. “But it is certainly something that treasurers should be paying close attention to.”
Engle is also closely following the development of Asia’s capital markets – developments that he says could be a “game changer” for AIA. “The dollar has been dominant in the region for some time and because of this, local currency capital markets have not developed as robustly as elsewhere,” he says. “However, the importance of the dollar is starting to be balanced by other currencies, notably the RMB. This, tied with increased wealth creation across the region, will lead to the expansion of local capital markets, which will prove incredibly important moving forward from an investing and resource access perspective.”
A place in history
Whilst the future of Asia is a professional interest, it is the region’s past that captures Engle’s personal imagination. Indeed, as a “keen student of culture and history”, Engle is known to take full advantage of the rich cultural history that Asia has to offer. “There are endless opportunities to see and experience new things across the region,” he says. His most recent “quest” has taken him to nearly all 52 UNESCO World Heritage sites in China.
Professionally, Engle’s next “quest” is to position the AIA treasury team to support the company’s future growth. With his readiness for digitisation and determination to bring treasury to the fore, the future of treasury at AIA is assured.