Transcript Presentation

The Eurasian Model for
Development of Ex-USSR
Insurance Markets
Sergey Sarkisov
President and Chairman of Superior Council, Euro-Asian Insurance Union
Chairman, RESO-Garantia and Chairman, RESO Group, Russian Federation
IIS 48th Annual Seminar
Rio de Janeiro, Brazil
June 17 - 20, 2012
General Overview of Regional
Markets
Annual GDP growth
Belarus
Kazakhstan
2000
Russia
Ukraine
10.0%
13.5%
11.4%
0.2%
12.1%
2009
1.2%
-7.8%
-14.8%
2010
GDP Growth
GDP Growth
Over the past decade, all countries of the region demonstrated high GDP growth rates. Until 2020, the regional GDP dynamics
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
added value. As the regional infrastructure undergoes reforms, the vulnerability is set to reduce.
Annual Inflation, Consumer Prices
Belarus
Kazakhstan
61.1%
2001
Russia
Ukraine
21.5%
11.4%
17.2%
7.7%
25.2%
7.1%
2010
6.9%
9.4%
Inflation
Over the past decade, the regional economies saw a significant reduction of consumer price inflation. Further decrease is
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.
Inflation
High inflation in the previous years constrained development of the regional non-life market and had an extremely negative
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 USD
Belarus
5.8
Kazakhstan
2000
9.1
Russia
10.4
Ukraine
3.0
2010
GDP per capita
Between 2000 and 2011, the regional GDP per capita reached a level high enough to ensure stable development of
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.
GDP per capita
Although Russia and Kazakhstan demonstrate GDP per capita at levels comparable to those in a number of CEE countries,
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 USD
Belarus
672.9
Kazakhstan
2001
1,354.0
2010
Russia
22,367.2
Ukraine
2,554,6
Premium
The regional insurance markets vary by size: Russia’s annual premium exceeds $22 billion, in Belarus it is less than $700
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.
Premium
At the same time, the regional market development is flawed as it is based on short-term non-life contracts. Currently, the
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
1.23
Kazakhstan
2001
0.74
Russia
1.21
Ukraine
1.58
2010
Penetration
The regional penetration level is not only below that demonstrated by developed Western European markets, it also lower than
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.
Penetration
In the next ten years, the regional penetration is likely to grow at a faster pace due to lower GDP growth rates and development
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, USD
Belarus
71.0
Kazakhstan
2001
82.4
Russia
156.6
Ukraine
56.0
2010
Density
Density
Regional density levels vary significantly: in Russia it is three times higher than in Ukraine. Such a development is a result
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
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.
Conclusions
Over the past decade, the Russian, Ukrainian, Kazakh and Belarusian watchdogs set the regulatory basis for development
of private insurance services, with the exception of life insurance. If the regulators continue to work actively, over the next
10 years they are likely to complete the challenging task.
Social reforms combined with decreasing inflation are likely to open the way for development of life insurance services,
which currently account for only a fraction of the regional insurance premium. We may expect particularly impressive life
premium growth in Russia and Kazakhstan.
Further economic growth in the region, which is set to exceed that in Europe, will likely support the regional investment
attractiveness despite the fact that the ex-USSR countries will continue to demonstrate high vulnerability to crises. The
European mentality of the regional population, combined with regulatory reforms add to the regional investment attractiveness.
The Russian, Ukrainian and, to some extent, Kazakh markets over the past ten year saw entry of the first strategic insurance
investors. Although success of the investments was marred by the crisis, in the next several years we may expect further
investment inflow due to the ongoing market growth and openness. We also expect to see the Belarussian market open for
Western investments.
Strong ties between the regional markets (in the reinsurance segment, also due to a high level of Russian investments in
the neighbouring markets) make Russia the regional center, although the crisis has somewhat weakened the ties.
Therefore, the most efficient way to invest in the regional insurance is to enter Russia and then expand to other markets.
Infrastructure of the local market continues to develop: the companies are switching to the IFRS, actuaries and surveyors
are emerging as a vital part of the industry. This development is set to lead to the region gradually reaching the
development level of European markets.
Many Russian and Ukrainian citizens already work in Western insurance, reinsurance, brokerage and consulting
companies. This factor will support international investments in the regional markets.
Comparisons to Europe
European Insurance Markets
Penetration
Netherlands
United Kingdom
France
Finland
Switzerland
Portugal
Belgium
Ireland
Denmark
Sweden
Italy
Germany
Slovenia
Austria
Spain
Cyprus
Poland
Czech Republic
Slovakia
Croatia
Bulgaria
Hungary
Romania Greece
Serbia
Ukraine
Turkey
Russia
Belarus
Kazakhstan
Norway
Density
Insurance Markets of CEE and ex-USSR
Penetration
Czech Republic
Croatia
Poland
Hungary
Slovakia
Ukraine
Serbia
Romania
Turkey
Belarus
Russia
Kazakhstan
Density
Regional Dynamics in 2002-2011
Penetration
Ukraine
Belarus
Russia
Kazakhstan
Density
Conclusions
The development path of all European markets is quite similar but due to special features of national economies, the market
of each individual country is at a different development stage. Russia, Ukraine, Kazakhstan and partly Belarus are still
making their first steps.
Overall, the regional insurance market has reached the level demonstrated by the less developed markets of Central and
Eastern Europe (CEE). However, the regional market growth is set to exceed that of CEE due to higher economic growth.
Some markets of the region, most likely Russia, will reach the level of most developed CEE markets earlier.
The development lag demonstrated by ex-USSR markets is a result of the fact that the Soviet model had a longer impact on
their economies, compared to CEE economies, not to speak of Western Europe, which never experienced its negative
effects.
The regional mentality is gradually changing. Over the past years, a whole new generation emerged, which is not familiar
with the Soviet economic and social system. The new generation will likely to have an ever stronger impact on the
consumer behavior and general mentality of the local population.
Social reforms that Russia and, perhaps, Ukraine, are launching, will likely become a long-term driver for development of
the regional private insurance market, primarily the life segment.
High GDP growth combined with negative demographic dynamics will likely result in a relatively stable penetration rate and
a growing density in the first years of the next decade, as it can be seen on the last chart.
The regional investment risks are likely to decrease. As the local economies continue their infrastructural reforms, the country
risks are likely to become less pronounced. Market risks are likely to diminish as a result of decreasing number of Russian and
Ukrainian insurance companies and implementation of new regulative norms: IFRS, anti-trust measures, actuarial assessment.
Key Features of Regional
Markets
Russia: key features
Current environment
Penetration in Russian non-life market, %
Regulation
3,55
3,17
3,02
2,16
Germany
Russia is one of the few sizeable (population of 142
million), under-developed, yet rapidly growing
economies
Western
Europe
France
Czech Rep.
2,11
CEE
1,84
Poland
1,45
1,45
Turkey
Romania
1,21
Russia
Regulation
Russian Insurance Market, by class
MTPL
Penetration
Life
Voluntary
Medical
Financial Risks
Liability
General market
situation:
Cargo and
others
Accident
Competitive
environment
Property
Agricultural
Insurance sector in Russia remains highly
underpenetrated with a GWP to GDP ratio of 1.2 in 2011
(Western European average of 3.1%). Russian life
insurance market is in its infancy.
Venicles
M&A
The cap for the foreign capital level in the market has
been increased to 50%. Full switch to the IFRS is set for
2013.
The market is recovering from the crisis and entering a
new development stage. The main growth driver is the
motor hull segment, although a significant premium
increase is also recorded in the corporate segment. In
2013-15, if social reforms are successful, we may
expect a strong growth of private insurance.
The market is consolidating as the weaker players are
leaving the industry. By end-2013, the profitability is
likely to return to the pre-crisis level. The quality of
insurance services is also growing. However, the market
still demonstrates a strong dependence on sales
channels, primarily in new sales.
2012 has seen a higher level of domestic M&As. Only
one foreign investor – Liberty Mutual – entered the
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, %
3,55
3,17
Western
Europe
Key problems of the market are weak regulation and
low transparency. The two factors help weak and
captive players to remain in business.
Regulation
Market players continue to engage in grey tax
optimization schemes; dependence on state financing
remains strong. Full switch to the IFRS is expected in
2013-15.
Penetration
Ukraine demonstrates a relatively high penetration level
compared to other countries of the region, but this is a
result of Ukraine’s weaker economic recovery. In fact, the
Ukrainian insurance market is less structured than other
regional markets.
General market
situation:
The market is yet to see full recovery from the crisis, it
remains extremely dependent on the banking sales
channel. Profitability of local insurers is affected by
strong price competition. The main growth drivers are
MTPL and personal insurance, i.e. low profitability lines.
2013-2015 should see further market growth.
Competitive
environment
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
dumping. With weaker players leaving the market, we
may expect to see quality competition. Companies with
foreign capital (AXA, Uniqa, PZU) are likely to see
capital increases
M&A
We see no real interest of potential investors in 2012, and
the multiplier in Ukraine is be situated within 0,2-0,8 of
annual premiums. We may expect further foreign
investment inflow in 2013-15 as the market recovers from
the crisis.
3,02
2,16
Germany
Regulation
France
Czech Rep.
2,11
CEE
1,84
Poland
1,58
Ukraine
1,45
1,21
Turkey
Romania
Ukrainian Insurance Market, by class
Liability
Travel
Accident
Voluntary Medical
Venicles
Property
Life
MTPL
Kazakhstan: key features
Current environment
Penetration of Kazakhstan non-life market, %
3,55
3,17
Western
Europe
Regulation
The market has a strong actuarial institute, brokers have
to undergo licensing. The number of players is limited,
with weaker companies under surveillance of the
regulator or in run-off. Guarantee funds have been set up.
Penetration
Insurance penetration is limited to large cities (Astana
and Almaty), most corporate clients are large industrial
and financial groups. The market is strongly dependent
on the banking sales channel and consumer loans
development.
3,02
2,16
Germany
Regulation
The market demonstrates the strongest and the most concise
regulatory system in the region, with key norms necessary for
further development already in force – MTPL, casualty, annuity
and crop insurance norms among them.
France
Czech Rep.
2,11
CEE
1,84
Poland
1,45
1,45
Turkey
Romania
1,21
Russia
Kazakhstan Insurance Market, by class
Voluntary Medical
Venicles
General market
situation:
Accident
The growth drivers are compulsory classes, primarily
industrial risks. Credit insurance, which is vulnerable to
crisis effects, is popular in large cities. In life insurance,
MLM generate a significant part of the total premium.
Agricultural
Property
Financial Risks
Competitive
environment
Liability
MTPL
Life
M&A
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,
entry to the market is limited and business success is
determined by whether an insurer has access to the
financial groups.
In the next several years, robust M&A activity is unlikely.
Moreover, it seems that in the local market, a greenfield
Is a good alternative to an acquisition.
Belarus: key features
Current environment
Penetration of Belorussian non-life market, %
3,55
3,17
Regulation
The market experiences a strong control of the finance
ministry, which sets the development targets and
monitors all indicators. Access of foreign insurers is
limited, although some Russian and overseas investors
are present.
3,02
2,16
Germany
Regulation
Although private insurance companies exist, the state takes up a
significant market share, as government-controlled companies
have the monopoly on compulsory insurance. Recently, the
government indicated it plans to liberalize the market.
Western
Europe
France
Czech Rep.
2,11
CEE
1,84
Poland
1,45
1,45
Turkey
Romania
1,21
Russia
Belorussian Insurance Structure, by class
MTPL
Penetration
Life
Voluntary
Medical
Financial Risks
Liability
General market
situation:
The penetration level is close to that in Russia, but is a
result of strong state control and premiums in
compulsory corporate classes.
Key growth drivers are compulsory classes. Voluntary
insurance is underdeveloped due to the low average
income ($400 compared to $700 in Russia).
Cargo and
others
Accident
Competitive
environment
Property
Agricultural
Venicles
M&A
Competition is strong only among privately-owned
insurers, but even there it is lower than in Russia,
Ukraine and Kazakhstan. The role of the banking
channel is less important that in other countries of the
region. The agency channel is rather more developed
than elsewhere in the region.
M&A opportunities are limited and depend on the state
policy for foreign investors. The government
contemplates opening the life segment for overseas
investors.
Thank you for your attention
Sergey Sarkisov
President and Chairman of Superior Council
+7 (495) 7374455
[email protected]