Evolutia pietei de asigurari din Republica Moldova in S1/2008 (engleza)

High dynamics, concentration and consolidation tendencies, poor density of insurance products and of the GDP penetration rate - these are just a few features of the insurance market in the Republic of Moldova. However, local market recorded one of the highest annual growth dynamics from the CIS States, marking a 29% increase in 2007. Is this emerging market a new "promise land" for the western investors or just another last hope?

We invite you to analyze its trends in the first six months of 2008 and see what insurance company managers think about these results.

Looking towards the future

Despite unstable social-economic realities on the foreign exchange and mutual funds markets, during the first semester of 2008 the insurance industry showed however an upward trend. The insurance sector has become competitive, although it hasn't reached high levels.  

In the first semester, the gross written premiums of all 33 insurance companies amounted to approximately 25.7 million EUR, a 33% increase compared to the same period of the previous year. In addition, the GDP penetration rate reached the highest level in the history of insurance in the Republic of Moldova, 1.6% to be precise, explained Oleg VEREJAN, Chairman of the Moldavian Association of Actuaries. At the same time, although the inflation rate was high (of over 15.6%), the underwritings achieved a real growth of "merely" 15.1%. Given all these facts, it is only normal to ask ourselves weather this growth is solely quantitative or it also reflects in some qualitative development. Thus, this growth is not enough to meet the needs for insurance services of the national economy and it is generated by several factors, such as: financial deficit, low investment flow in terms of foreign and local resources, as well as of companies and human resources, thinks Eugeniu SHLOPAK, General Manager, ASITO. His view is shared by Boris GHERASIM, General Manager of MOLDCARGO, who thinks that the insurance market growth is not a qualitative one, because it doesn't come from a rise in the living standard, but from factors like: Romania's EU accession, repatriation of hard currency, more popular leasing sales etc.

Rules and their impact

The legislative reforms run in 2007 in the area of insurance didn't have a significant impact on market dynamics in the first semester of 2008, except for the requirement to increase the statutory capital up to almost 245,000 EUR. Nonetheless, this rule brought in a 29% capital growth of the overall market. Market recapitalisation, followed by a rise in the reserves (23%) and in the gross written premiums resulted in market assets of over 70 million EUR. Still, the rise in assets is the lowest of all first semester rises from previous years (H1/2006 versus H1/2005, around 46%; H1/2007 versus H1/2006, around 36%).

Also, the problem of companies recapitalization (a good part of the profits made by the companies could be used to increase the statutory capital) and competition for the market share led to increased financial results for total market by 79%, recalling a level of 5 million EUR (18 companies recorded profits and 13 received a negative financial result). Claims reserves increased twice, due to consignments of NCFM on unfairness to create and maintain this category of stocks of some companies. At the same time, although the claims reserves almost doubled, their value is still too small compared to the risks taken.

The increase of the IBNR claims reserves and unpaid claims in due time are major issues calling for urgent measures, thinks Vitalie BODEA, General Manager, MOLDASIG. Moreover, as long as there is no claims value-correlated analysis, the computation of IBNR claims reserve relies on the simplest methods (1% of written premiums), without taking into account previous claims at all, remarks Oleg VEREJAN. In fact, Moldavian insurers are the last ones in Eastern Europe to work out the IBNR claims reserves using non-actuarial methods.

Motor insurance to the detriment of life insurance

Although the life insurance growth dynamics at the end of the first semester (56%) prevails over non-life insurance (32%), they didn't impact significantly the dynamics of the overall market as the share of life insurance is quite small, namely 7% of the overall market (1.8 million EUR). We have to mention that two companies run a life insurance business: GRAWE Life Insurance - sector leader, and SIGUR-ASIGUR, holding a 7.6% share of all the underwriting on this market segment or 8.6% of GRAWE company sales.

At the same time, the non-life insurance segment represented 93% of the total market underwriting, namely 24 million EUR, a 32% rise compared to the results reached last year over the same period. Totalling 17.5 million EUR, 73% of all gross written premiums respectively, the class of motor insurance, with rising tendencies, has the biggest share in the non-life segment, being twice as high as the European average (European average - 32% in 2006) and recording a 37% growth compared to the same period of the previous year.

The main issues remain people's mentality and the lack of Western-like business traditions. Due to lack of information, especially in rural areas, the concept of insurance is mainly associated with Third Party Liability insurance, Green Card and Motor Hull, as the main clients of the companies, namely individuals, are those who own a car and/or go abroad, says Alexei TOPOROV, Chairman, GARANTIE.

Moreover, the fierce battle for market shares, especially on the motor insurance segment, inevitably leads to unfair competition, as most insurers use pricing strategy to the detriment of product quality, thinks Octavian LUNGU, General Manager, VICTORIA Insurance.  

Thus, the rise of registered vehicles, increased competition based on significant price discounts and benefits offered to the insured as a client-drawing policy brought about an increase of Motor Hull and Green Card written premiums.  

As far as personal property insurance is concerned, their share of the overall non-life insurance market dropped (from 41% in H1/2000 to 15% in the first semester of this year). This clearly shows that the people are more inclined to spend money to cover car-related risks and less concerned about personal health or business risks.

Who pays the claims and how?

At the end of the first semester of 2008, approximately 94.6% (116 million MDL) of the total paid claims of 7.5 million EUR went to non-life. As to gross written premiums, the biggest share (88%) is held by motor insurance, rising by 7% compared to the similar period of the previous year. In the context of increased company portfolios, the claims rate for Motor Hull insurance rose too (45% of all non-life paid claims), compared to the other classes of insurance. Still, this rate is significantly smaller than in other European countries, either because the companies manage to avoid claims payment or because the premiums are too high. Moreover, the claims payment rate of the leading companies is much smaller than the rate of the companies holding a smaller market share.

Given that the class of motor insurance continues to hold a considerable market share, insurance companies, as well as the National Commission for Financial Market must take into account any other technical and financial changes when setting market prices. The rise of repair costs, of spare part costs, the introduction of the bonus-malus system, as well as the rising trend of compensations paid to car accident victims have a significant impact on claims costs, which could result in ruling out substantial discounts, explains Oleg VEREJAN. In the same context, the supervisory authority should get more actively involved on the market to avoid liberalism and the inertial evolution of the related segment, states Teodor UNGUREANU, General Manager, DONARIS Group. Moreover, the supervisory authority must see to a better market regulation in order to avoid dumping practices, mentions Vladimir PEYCHEV, Deputy General Director, CARAT.

Market growth sources

Most insurance company managers from the Republic of Moldova are aware of the market realities, and they try to spot out the best ways to guarantee business development and efficiency. Obviously, everything depends on the strategy and the set goals of each company. Thus, some sources of market growth and stimulation are "local and foreign investments and an increased risk-management responsibility of the companies", says Eugeniu SHLOPAK. In addition, "the increasingly popular leasing sales next to frequent catastrophe risks will bring in a higher demand for goods and property insurance products", thinks Alexei TOPOROV. Moreover, life insurance is an insufficiently exploited segment. I am sure that in the near future the people, too, will feel the need to get this type of insurance, points out Viorica PETROV, General Manager, IPB DELTA Insurance.  

At the same time, the companies are optimistic about the imminent pension system reform and private pension funds market regulation.

The existing private pension rules don't match reality, and the reform of this sector will stimulate private pensions and life insurance development, thinks Vitalie BODEA. Boris GHERASIM agrees: Private pension funds and life insurance companies will do great in the future and they have a huge growth potential.

In this context, the market leaders think that the arrival on the market of new players holding international experience is quite beneficial. I hope that, in the near future, the foreign investors' share will rise and that competitive products will be promoted. Our company is majority foreign-owned and I can say that we don't have any legal problems, states Viorica PETROV. In addition, foreign capital is the only one that can generate a major investment flow and can improve financial security for all business branches, declares Eugeniu SHLOPAK.

Concentration and consolidation

The market concentration trend was steady in the first semester of this year. The leading five companies (representing 15% of all 33 companies) totalled almost 72% of all gross written premiums and 62% of all market assets. Moreover, two insurance companies alone (ASITO and MOLDASIG) accounted for 51% of all premiums volume and 46% of assets, respectively.

As far as the top leading insurance companies are concerned, MOLDASIG and ASITO continue to be leaders on the non-life insurance market, with a market share of 28, 2% and respectively 21,9%. CARAT Company is third-ranked (8,7% market share), with a volume of gross written premiums of more than 2 million EUR, followed by MOLDCARGO (EUR 1.8 million, 7% of the market) and DONARIS GROUP (EUR 1.6 million, 6,2% of the market). It is remarkable that the top 10 companies reached an average gross written premiums rise (in MDL) of over 40% in the first semester of 2008 compared to the same period of 2007.

In the first semester, the insurance industry of the Republic of Moldova had a positive evolution, showing slow maturation trends, but also specific difficulties that still need to be addressed (related to a strong orientation towards motor insurance, small financial power, lack of information and the issue of uneducated population with regard to choosing some types of insurance etc.). We have to particularly point out the market globalisation and internationalisation trends as foreign capital groups enter the national market. Their presence will bring forth, in the near future, more competitiveness and market maturity, and will also contribute to capital market and overall economy expansion. According to forecasts, by the end of 2008, the gross written premiums will rise by almost 30% compared to 2007.

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