CEE Insurance Market Trends Jure Kimovec, FRM, CAIA, ERP Insurance Ratings Poiana Brasov, 22. May 2017 Copyright 2017 by S&P Global. All rights reserved.
7,0% Insurance penetration across the region 6,0% 5,0% 4,0% 3,0% 2,0% 1,0% 0,0% Source: S&P Global Ratings Data based on 2015 numbers 2
GPW origination per countries Poland Czech Republic Hungary Slovakia Slovenia Romania Baltic countries Rest of the CEE Source: S&P Global Ratings; Data as of 31.12.2015 GPW Gross Premium Written 3
MTPL Insurance as % of P/C GPW in 2015 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: S&P Global Ratings MTPL Motor Third Party Liability, P/C Property / Casualty; GPW Gross Premium Written BiH Bosnia and Herzegovina 4
Bodily injury claims are rising in CEE Developing court case law practice is increasing amount of compensations paid. In a number of CEE countries pain and suffering damages represent large proportion of bodily injury claims. Only slowly improving road safety does not sufficiently reduce claims frequency. In million PLN 1600 1400 1200 1000 800 600 400 200 0 Source: UFG Bodily injury claims in Poland 2008 2009 2010 2011 2012 2013 2014 2015 2016 5
Technology is increasing competitive pressure in CEE insurance sector Usage of technology solutions mostly seen in the motor line of business. Number of companies are offering driving tracking apps based on which motor price discounts are awarded. Online comparsion portals have risen in popularity in several CEE markets over the past five years which is increasing market competition. Several companies in the region have in their strategies further focus on digitalization of their business. Better IT enables companies to optimize their back-office functions as well as better risk selection. Private & Confidential 6
MTPL sectors' combined ratios across CEE in 2015 70% - 90% 90% - 100% 100% - 105% 105% - 120% Above 120 No data MTPL Motor Third Party Liability, Data for Kosovo and Montenegro is from 2014. 7
CEE Insurance M&A Number of companies already left the CEE markets. Weak market profitability with high competitiveness, lack of scale and only medium growth prospect will lead to further M&A activity in the region. Some of the latest M&A deals in the CEE Insurance Sector Company Sold Country Seller Buyer Year of acquisition Cardif Osiguranje Croatia BNP Paribas Croatia Osiguranje 2017 Merkur Insurance Podgorica Montenegro Merkur Grawe 2017 Bank Pekao Poland UniCredit PZU 2016 Liberty Ubezpieczen Poland Liberty Mutual AXA 2016 AIG's operations in CEE several countries AIG Fairfax 2016 AXA Life Insurance S.A. Romania AXA VIG 2016 BTA Baltic AAS Latvia Private investor VIG 2016 AXA Serbia Serbia AXA VIG 2016 MKB Life Insurance Hungary MKB Bank CIG Pannonia 2016 UBB-AIG Bulgaria UBB Bank VIG 2016 INSIG Albania State owned EUROSIG 2016 AS Nezivotno Osiguranje Serbia KD Group Sava Re 2016 Source: S&P Global Ratings; Data as of 22.05.2017 8
Key trends for P&C insurance across the region Number of regulatory changes affecting MTPL insurance. Solid macroeconomic developments are supporting growth in property insurance. Higher frequency of natural catastrophes in previous years is leading several countries to rethink monetary support for agriculture. Solvency II implementation is leading to some cost saving initiatives and further investments into digitalization. Several country specific drivers. P/C Property / Casualty 9
Key trends for Life insurance across the region Upcoming implementation of IDD directive is fostering changes of life insurance offering in several CEE countries. Low interest rate environment leads insurers to reduce guaranteed rate for traditional products that is hampering demand for them. Cyclically higher amount of maturities of old contracts could lead to premium reductions in the next year or two. Favorable regulatory changes for additional supplementary pension insurance or private life insurance schemes introduced in several CEE countries. IDD Insurance Distribution Directive 10
CEE P/C markets in comparison with Western European markets Countries Industry Risk P/C Profitability P/C Product Risk P/C barriers to entry P/C market growth prospects Poland Intermediate Neutral Neutral Neutral Neutral Czech Republic Intermediate Positive Neutral Neutral Neutral Slovenia Intermediate Positive Negative Positive Neutral Austria Intermediate Neutral Neutral Positive Neutral Germany Low Neutral Neutral Positive Neutral Italy Intermediate Neutral Neutral Positive Neutral Source: S&P Global Ratings; Data as of: 22.05.2017 11
CEE Insurance Research 1. CEE Motor Third-Party Liability Insurance Profitability: The Good, The Bad, And The Ugly; Dec. 12, 2016 http://ratings.standardandpoors.com/article?articleid=1771996&sctartid=410574&from=cm&nsl_code= LIME&sourceObjectId=9835022&sourceRevId=7&fee_ind=N&exp_date=20261212-20:05:53 2. Insurance In Ex-Yugoslavia 25 Years After Dissolution: Is The Gap Closing?; Nov. 14, 2016 3. Insurance Industry And Country Risk Assessment: Czech Life; May 12, 2017 4. Insurance Industry And Country Risk Assessment: Czech Property/Casualty, May 12, 2017 5. Insurance Industry And Country Risk Assessment: Slovenia Life; Sep. 5, 2016 6. Insurance Industry And Country Risk Assessment: Slovenia Property/Casualty; Sep. 5, 2016 7. Poland's Property/Casualty Insurance Sector Carries A Moderate Industry And Country Risk Assessment; Feb. 11, 2016 8. Poland's Life Insurance Sector Carries A Moderate Industry And Country Risk Assessment; Feb. 11, 2016 12
Thank you for your attention! Jure Kimovec, FRM, CAIA, ERP S&P Global Ratings - Frankfurt Insurance Ratings T: +49 173 659 19 14 jure.kimovec@spglobal.com 13
Macroeconomic environment Stable growth prospects for the region Source: S&P Global Ratings; Data as of 22.05.2017 Average expected GDP Growth rates between 2017-2020 1,5% - 2,0% 2,0% - 2,5% 2,5% - 3,0% 3,0% - 3,5% 14
Appendix: GDP Growth Rates GDP Growth Rates (%) Western Europe 2011 2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f Austria 2,80 0,70 0,10 0,60 1,00 1,50 1,50 1,50 1,50 1,50 Germany 3,70 0,50 0,50 1,60 1,70 1,90 1,60 1,50 1,30 1,30 Italy 0,60-2,80-1,70 0,10 0,80 0,90 0,90 1,00 1,20 1,20 CEE Poland 5,00 1,60 1,40 3,30 3,90 2,80 3,30 3,10 3,00 2,90 Czech Republic 2,00 (0,80) (0,50) 2,70 4,50 2,50 2,60 2,30 2,20 2,00 Slovakia 2,80 1,70 1,50 2,60 3,80 2,90 2,90 3,10 3,10 2,90 Hungary 1,70 (1,60) 2,10 4,00 3,10 2,00 2,90 2,50 2,50 2,40 Slovenia 1,20 0,60 (2,70) (1,10) 3,10 2,30 2,70 2,70 2,40 2,50 Croatia (0,30) (2,20) (1,10) (0,50) 1,60 2,90 3,10 2,50 2,50 2,50 Romania 1,10 0,60 3,50 3,10 3,90 4,80 4,10 3,30 2,50 2,50 Bulgaria 1,30 1,90-0,90 1,30 3,60 3,00 3,00 2,60 2,60 Serbia 0,60 1,40 (1,00) 2,60 (1,80) 0,80 2,70 2,70 2,60 2,60 Macedonia 2,30 (0,50) 2,90 3,60 3,80 2,50 2,00 2,70 2,80 3,00 Bosnia and Herzegovina 0,90 (0,90) 2,40 1,10 3,20 2,60 2,50 2,80 2,60 2,60 Montenegro 3,20 (2,70) 3,50 1,80 3,40 2,40 3,30 3,50 2,90 2,70 Albania 2,50 1,40 1,10 2,00 2,60 3,20 3,50 3,70 3,90 3,90 Lithuania 6,00 3,80 3,50 3,50 1,80 2,20 2,60 2,80 2,80 2,80 Latvia 6,40 4,00 2,60 2,10 2,70 2,00 3,00 3,20 3,00 3,00 Estonia 2,30 7,60 4,30 1,40 2,80 1,40 2,40 2,40 2,70 2,00 Source: S&P Global Ratings; Data as of 19.05.2017 15
Appendix: MTPL line Combined Ratio (%) MTPL line combined ratio in CEE countries (%) 2015 2014 2013 2012 2011 Poland 117,1 113,7 104,5 105,6 105 Czech Republic 110,1 109,5 105,1 102,8 100,6 Slovenia 84,9 82,1 81,1 65,1 84 Slovakia* 92,1 101,6 87 87,2 92 Hungary 107,2 112,2 119,5 108,6 104 Latvia 125,8 111,2 110,7 107,7 110,4 Romania 122,5 126,4 133,1 124,7 144 Bulgaria 131 N/A N/A N/A N/A Croatia 97,3 98,4 82,6 80 81,4 Bosnia and Herzegovina (Republika Srpska) 72,9 69,6 80,3 76 N/A Bosnia and Herzegovina (Federation) 86 N/A N/A N/A N/A Macedonia 103,6 102,8 104,2 97,2 N/A Albania 89,2 83,3 138,2 93,7 N/A Kosovo n/a 87,2 92 99,9 N/A Montenegro n/a 76,1 85 85 N/A Russia 101,7 93 N/A N/A N/A Germany 98,8 98,8 98,1 102,2 104,3 MTPL--Motor third-party liability. N/A--Not available. *All data at the mid of the respective year. No administrative cost included. No data was available for Estonia, Lithuania, and Serbia. We take reported combined ratios by local regulators or insurance associations. Where we calculated combined ratios, we used net combined ratios. The lower the combined ratio, the more profitable the insurer, and a ratio of more than 100% signifies an underwriting loss. Sources: Komisja Nadzoru Finansowego, Ceská asociace pojistoven, Agencija za Zavarovalni Nadzor, Národná banka Slovenska, Magyar Nemzeti Bank, Latvijas Transportlidzeklu apdrosinataju birojs, Autoritatea de Supraveghere Financiara, Bulgarian National Bank, Macedonia Insurance Supervision Agency, Central Bank of Russia, Gesamtverband der Deutschen Versicherungswirtschaft, S&P Global Ratings. 16
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