Insurance Reviewof Top Insurance Markets of the Former USSR (based upon data of Euro-Asian Insurance Union) October 2012
Annual GDP growthBelarus Kazakhstan Russia Ukraine 2000 10.0% 13.5% 11.4% 12.1% 0.2% 1.2% -7.8% -14.8% 2009 2010 Over the past decade, all countries of the region demonstrated high GDP growth rates. Until 2020, the regional GDP dynamics GDP Growth is likely to remain positive: lower than in the previous years, but higher than in developed West European and CEE economies. The region is likely to be the most dynamically growing part of Europe, with a population of over 200 million people. The region is highly vulnerable to crises as its economy is dependent on exports of commodities and other goods with low GDP Growth added value. As the regional infrastructure undergoes reforms, the vulnerability is set to reduce.
Annual Inflation, Consumer PricesBelarus Kazakhstan Russia Ukraine 2001 61.1% 21.5% 11.4% 17.2% 25.2% 7.7% 7.1% 6.9% 9.4% 2010 Over the past decade, the regional economies saw a significant reduction of consumer price inflation. Further decrease is Inflation likely, as a result of economic reforms aimed at demonopoliszation. If the reforms are successful, by 2020, the regional inflation is to reduce to 3-5% per year. High inflation in the previous years constrained development of the regional non-life market and had an extremely negative Inflation effect on attempts to establish a life insurance market. If the regional inflation drops to 3-5% per year and the inefficient state social funds are reformed, life insurance will gain momentum.
GDP per capita in current prices, 000 USDBelarus Kazakhstan Russia Ukraine 2000 5.8 9.1 10.4 3.0 2010 Between 2000 and 2011, the regional GDP per capita reached a level high enough to ensure stable development ofGDP per capita insurance market. The trend was particularly visible in Russia and Kazakhstan. Insurance markets of Belarus and Ukraine are lagging behind, mainly due to their political landscapes. Although Russia and Kazakhstan demonstrate GDP per capita at levels comparable to those in a number of CEE countries,GDP per capita the economies are very much dependent on exports. The same is true for Ukraine, although the country’s GDP per capita is at a lower level. The Belarusian economy is closely tied to Russian, which makes it rather vulnerable.
Premium, 000 000 USDBelarus Kazakhstan Russia Ukraine 2001 672.9 1,354.0 22,367.2 2,554,6 2010 The regional insurance markets vary by size: Russia’s annual premium exceeds $22 billion, in Belarus it is less than $700 Premium million. At the same time, over the past decade, Belarusian insurance premium grew 7.6 times, Ukrainian 8 times, in Kazakhstan the growth reached 22 times. The Russian insurance market tripled over the period. At the same time, the regional market development is flawed as it is based on short-term non-life contracts. Currently, the Premium markets see active development of new non-life segments: crop insurance and casualty insurance among them. All countries adopted MTPL over the past decade.
Penetration, %Belarus Kazakhstan Russia Ukraine 2001 1.23 0.74 1.21 1.58 2010 The regional penetration level is not only below that demonstrated by developed Western European markets, it also lower than Penetration that of CEE. The reason for it is the same in all countries of the region: over the past decade the economies grew dynamically and the currencies depreciated. Besides, as it is clear from the charts, insurance watchdogs in Russia, Kazakhstan and Ukraine declared war on the so-called tax optimization insurance schemes. In the next ten years, the regional penetration is likely to grow at a faster pace due to lower GDP growth rates and development Penetration of new non-life segments. In case the governments launch pension reforms, life insurance may also gain momentum. By the end of the current decade, penetration levels in the regional insurance markets will reach – and in a number of countries even exceed – CEE penetration.
Density, USDBelarus Kazakhstan Russia Ukraine 2001 71.0 82.4 156.6 56.0 2010 Regional density levels vary significantly: in Russia it is three times higher than in Ukraine. Such a development is a result Density of both economic and infrastructural trends. In legislative terms, the Russian market is at a much higher level. The density level in the Russian insurance market has reached that of CEE markets. If Russia’s inflation rate continues to Density decrease, development of the life market will start growing at a much faster pace. In other markets of the region, the legislative base continues to develop, which creates conditions for a very positive growth of life insurance.
Comparisons of markets of somecountries of the former USSR to the rest of Europe
European Insurance Markets Penetration Netherlands United Kingdom France Finland Switzerland Portugal Belgium Ireland Denmark Sweden Italy Germany Slovenia Austria Spain Cyprus Czech Republic Norway Poland Slovakia CroatiaBulgaria Hungary Romania Greece Serbia Ukraine Turkey Russia BelarusKazakhstan Density
Insurance Markets of CEE and ex-USSRPenetration Czech Republic Croatia Poland Hungary Slovakia Ukraine Serbia Romania Turkey Belarus Russia Kazakhstan Density
Regional Dynamics in 2002-2011Penetration Ukraine Belarus Russia Kazakhstan Density
Russia: key features Current environment Penetration in Russian non-life market, % Russia is one of the few sizeable (population of 142 Regulation million), under-developed, yet rapidly growing economies3,55 3,17 3,02 2,16 2,11 Insurance sector in Russia remains highly 1,84 1,45 1,45 1,21 underpenetrated with a GWP to GDP ratio of 1.2 in 2011 Penetration (Western European average of 3.1%). Russian life insurance market is in its infancy.Germany Western France Czech Rep. CEE Poland Turkey Romania Russia Europe The cap for the foreign capital level in the market has been increased to 50%. Full switch to the IFRS is set for Russian Insurance Market, by class Regulation 2013. MTPL Life The market is recovering from the crisis and entering a new development stage. The main growth driver is the Financial Risks Voluntary Medical General market motor hull segment, although a significant premium Liability situation: increase is also recorded in the corporate segment. In Cargo and 2013-15, if social reforms are successful, we may others expect a strong growth of private insurance. The market is consolidating as the weaker players are Accident leaving the industry. By end-2013, the profitability is likely to return to the pre-crisis level. The quality of Competitive insurance services is also growing. However, the market environment Property still demonstrates a strong dependence on sales channels, primarily in new sales. Agricultural Venicles 2012 has seen a higher level of domestic M&As. Only one foreign investor – Liberty Mutual – entered the M&A market. 2013-15 is likely to see renewed interest of foreign investors in Russian insurance.
Ukraine: key features Current environment Penetration in Ukrainian non-life market, % Key problems of the market are weak regulation and Regulation low transparency. The two factors help weak and captive players to remain in business.3,55 3,17 3,02 2,16 2,11 Market players continue to engage in grey tax 1,84 1,58 1,45 1,21 optimization schemes; dependence on state financing Regulation remains strong. Full switch to the IFRS is expected in 2013-15.Germany Western France Czech Rep. CEE Poland Ukraine Turkey Romania Europe Ukraine demonstrates a relatively high penetration level compared to other countries of the region, but this is a Ukrainian Insurance Market, by class Penetration result of Ukraine’s weaker economic recovery. In fact, the Ukrainian insurance market is less structured than other regional markets. Liability Travel Accident The market is yet to see full recovery from the crisis, it Voluntary Medical remains extremely dependent on the banking sales General market channel. Profitability of local insurers is affected byVenicles situation: strong price competition. The main growth drivers are MTPL and personal insurance, i.e. low profitability lines. Property 2013-2015 should see further market growth. The market continues to consolidate. Technical and real bankruptcies of weaker players are expected in 2012-15 as a significant part of local insurers engage in price Competitive dumping. With weaker players leaving the market, we environment Life may expect to see quality competition. Companies with foreign capital (AXA, Uniqa, PZU) are likely to see capital increases MTPL We see no real interest of potential investors in 2012, and the multiplier in Ukraine is be situated within 0,2-0,8 of M&A annual premiums. We may expect further foreign investment inflow in 2013-15 as the market recovers from the crisis.
Kazakhstan: key features Current environment Penetration of Kazakhstan non-life market, % The market demonstrates the strongest and the most concise Regulation regulatory system in the region, with key norms necessary for further development already in force – MTPL, casualty, annuity3,55 and crop insurance norms among them. 3,17 3,02 2,16 2,11 The market has a strong actuarial institute, brokers have 1,84 1,45 1,45 1,21 to undergo licensing. The number of players is limited, Regulation with weaker companies under surveillance of the regulator or in run-off. Guarantee funds have been set up.Germany Western France Czech Rep. CEE Poland Turkey Romania Russia Europe Insurance penetration is limited to large cities (Astana and Almaty), most corporate clients are large industrial Penetration and financial groups. The market is strongly dependent Kazakhstan Insurance Market, by class on the banking sales channel and consumer loans development. The growth drivers are compulsory classes, primarily Voluntary Medical industrial risks. Credit insurance, which is vulnerable to Venicles Accident General market crisis effects, is popular in large cities. In life insurance, situation: MLM generate a significant part of the total premium. Agricultural Property Financial Risks Competition in the market remains modest, except in the bancassurance segment. Due to strong regulation and the key role of large industrial and financial groups, Competitive entry to the market is limited and business success is environment determined by whether an insurer has access to the Liability financial groups. In the next several years, robust M&A activity is unlikely. MTPL Moreover, it seems that in the local market, a greenfield Life M&A Is a good alternative to an acquisition.
Belarus: key features Current environment Penetration of Belorussian non-life market, % Although private insurance companies exist, the state takes up a Regulation significant market share, as government-controlled companies have the monopoly on compulsory insurance. Recently, the3,55 government indicated it plans to liberalize the market. 3,17 3,02 2,16 2,11 The market experiences a strong control of the finance 1,84 1,45 1,45 1,21 ministry, which sets the development targets and Regulation monitors all indicators. Access of foreign insurers is limited, although some Russian and overseas investors are present.Germany Western France Czech Rep. CEE Poland Turkey Romania Russia Europe The penetration level is close to that in Russia, but is a result of strong state control and premiums in Belorussian Insurance Structure, by class Penetration compulsory corporate classes. MTPL Life Key growth drivers are compulsory classes. Voluntary insurance is underdeveloped due to the low average Financial Risks Voluntary Medical General market income ($400 compared to $700 in Russia). Liability situation: Cargo and others Competition is strong only among privately-owned Accident insurers, but even there it is lower than in Russia, Ukraine and Kazakhstan. The role of the banking Competitive channel is less important that in other countries of the environment Property region. The agency channel is rather more developed than elsewhere in the region. Agricultural Venicles M&A opportunities are limited and depend on the state policy for foreign investors. The government M&A contemplates opening the life segment for overseas investors.