August 20 (SeeNews) - Southeast Europe's top insurer, Slovenia's Zavarovalnica Triglav, sees the ageing of the population and falling birth rates affecting the region as a big opportunity for financial institutions, a senior company executive said.
The income structure of future pensioners will differ from what it is at the moment as they will receive the majority of their income not from mandatory pension contributions but from other sources such as pension annuity and life insurance, Triglav managing board member Igor Stebernak told SeeNews in an emailed interview.
According to him, the insurance markets in Southeast Europe (SEE), and especially in the Western Balkans, are rife with opportunities for growth and development, particularly over the long term.
Across the SEE region, Triglav (www.triglav.si) has units in Croatia, Bosnia and Herzegovina, Serbia, Montenegro and Macedonia.
The Slovenian government, through several state-owned funds, owned 62.53% in Triglav as of December 31, 2009.
Triglav, which is also active in reinsurance, pension insurance, wealth management and bancassurance, reported a consolidated pre-tax profit of 2.1 million euro ($2.67 million) last year on consolidated gross insurance and co-insurance premium income of 1.022 billion euro.
Here is what Stebernak told SeeNews:
Q: How did the Slovenian insurance sector perform in 2009 and what is your outlook for 2010, judging from the market trends in Q1?
A: The major factors that influenced last year’s performance of the insurance companies present in the Slovenian insurance market were the extensive weather-related damages and the economic and financial crisis. The latter had a severe impact on the value of investments made by insurance companies and to an extent reduced the demand for some insurance products.
Due to the expected continuation of last year’s trends, Zavarovalnica Triglav has adopted a series of measures to mitigate the negative impacts of the financial crisis on the operating results, such as streamlining of costs, especially those not directly related to insurance acquisition.
Q: How did the life/non-life segments in Slovenia perform in 2009 and what is the near-term outlook for their development? Which of the two segments offers a better growth potential?
A: The Slovenian non-life insurance market accumulated 1.442 billion euro of gross premiums written in 2009, which represents a 5.0% nominal growth. Due to the high nominal growth and a significant decrease of GDP in the same year (-8.0%), we also experienced a 14% increase in non-life insurance penetration (4.2%).
The global financial crisis - and the real economy jolt that followed, is expected to have a profound impact on the Slovenian non-life insurance market in the following years. Although Slovenia's insurance penetration is quite high (also due to the decreased GDP), non-life premium rates are on a downward trend. The insurance market still has potential in some areas like liability, accident, legal expenses, travel.
Zavarovalnica Triglav has managed to sustain its life insurance sales at the pre-crisis level despite the downturn experienced by the wider insurance market on this particular segment. Currently, term life insurance also represents a great opportunity for individuals, with the supplementary pension insurance segment also expected to grow.
Q: In February, Triglav forecast it will collect 1.04 billion euro in consolidated gross premiums this year. Are you sticking to this estimate?
A: The financial plans for the end of this year have not been altered; therefore, the forecast remains the same.
Q: What, in your view, is the growth outlook for the health insurance market in Slovenia and SEE as a whole? In particular, on markets where Triglav operates but does not yet offer health coverage?
A: It is expected that health insurance and long-term care insurance will undergo substantial changes in the years to come. The voluntary health insurance market in Slovenia is currently dominated by supplementary health insurance. The future development and growth of this market will also be influenced by the private medical practitioners’ offer and possible changes in rights covered by the compulsory health insurance, which is now under debate.
The situation in Croatia, where there is a well developed network of private medical service providers, is similar to that in Slovenia. Penetration into this segment of the Croatian insurance market presents quite a challenge.
Our company is currently participating in a national project in Montenegro, whose goal is to establish and launch voluntary health insurances. In Serbia, the sector of private medical service providers is very strong; whereas, there is a lack of specialised insurance offers.
Macedonia is currently carrying out reforms, while Bosnia and Herzegovina is dealing with major fragmentation preventing the penetration of insurance companies providing voluntary insurance onto the market. The situation in the health insurance markets in SEE is therefore very diverse, however interesting in the long term.
Q: What are the challenges facing the pension insurance market in Slovenia? How is Triglav positioned on this segment and what is your growth strategy?
A: Slovenia is no exception when it comes to the unfavourable demographic trends that are putting a strain on pension schemes across the EU. To ensure adequately high and safe retirement allowances that can be maintained from the public and the financial point of view, the existing pension system must undergo some changes.
At the moment, the Slovenian Pension and Disability Insurance Act has reduced the rights stemming from the compulsory pension insurance and restricted conditions for retirement. The second pillar of pension insurance, which will stimulate the population to make supplementary savings for future retirement allowances, was also introduced.
According to the above-mentioned problems of the Slovenian pensions scheme, a new proposal for the amendments of the Pension and Disability Insurance Act, which will further restrict conditions for retirement and foresees lower retirement allowances within the compulsory pension insurance - raising of the retirement age, reduction of pension rating base for calculation of old-age pension, is currently under public debate. This is foreseen to enter into force at the beginning of 2011.
Retirees can no longer count only on their income provided by compulsory schemes and, going forward, people that retire will receive the majority of their income from other sources like pension annuity and life insurance. Therefore the current demographics, however, represent a big opportunity for financial institutions, especially for life insurance companies and pension fund providers.
Q: Triglav has signed a letter of intent to acquire Albanian peer Albsig and earlier this year said it was buying a 9.9% stake in the company. Could you provide an update on the process? In late 2009, Triglav said it also planned to enter Kosovo. Could you provide a tentative timeframe for your market entry there?
A: The penetration into the Albanian insurance market is being examined through the purchase of a minority equity stake in Albsig, one of the smaller Albanian insurance companies. The time and method of entering the Kosovo insurance market have not yet been finalised and partially depend on the success of the project in Albania.
In all SEE and Balkan markets where insurance activity is less developed – Kosovo and Albania included, there are many opportunities for growth and development, especially in the long term. As far as potential goes, there is still a vast area for premium growth in the field of life and property insurance, as well as health and pensions insurance.
Q: What are you market share targets for each of the SEE markets where Triglav operates (Croatia, Bosnia, Montenegro, Macedonia, Serbia) or plans to expand to (Albania, Kosovo)?
A: The market shares of affiliated insurance companies differ immensely – Lovcen, for example, has a very high market share in Montenegro of 55.7%; whereas, in Croatia and Serbia our market share is somewhat lower, at 4.3% and 3.3%. Here and in some other countries we wish to increase our market share. Our first goal is profitability together with security. We focus our work on quality, not quantity. From the group’s perspective this means that we actively focus on the transfer of Triglav’s standards to its subsidiary companies.
Q: Most of the SEE markets where Triglav operates are seen to be headed for a period of sustained weak economic growth. How much of a challenge will such an economic environment pose to the premium growth plans of insurance companies in the region?
A: The financial and economic crisis will cause the competition among insurance companies in the market to further intensify, since insurance companies are aware of the importance of the quality range of their portfolio for a successful operation.
Q: Slovenian Finance Minister Franc Krizanic said earlier this year that the European Bank for Reconstruction and Development will enter Triglav either through a capital increase or through a deposit to help its expansion in the Balkans. In May, Krizanic said the talks with the EBRD were in the final stage. Could you provide an update on this process?
A: The successful operation of our subsidiary companies in the Balkan countries is the goal we are currently investing all our efforts in. Our new strategy is based on the assumption that the Triglav Group will be able to have at its disposal enough capital to realise all its strategic projects. The introduction of a strategic partner to our projects carried out in the Balkan countries is only one of the methods of ensuring the necessary resources.
Q: How do things stand in terms of insurance density across SEE? How do you expect density rates in the region to develop over the medium term?
A: The insurance density indices show a major difference between EU27, Slovenia and the Western Balkan markets where we operate. The EU27 insurance density per capita is 2,009 euro, in Slovenia it is 1,015 euro, while the Western Balkan markets show a substantially lower insurance density – from 51 euro in Macedonia, 88 euro in Serbia, to 302 euro in Croatia. The insurance density index in Slovenia for property insurance is comparable to that in the EU.
In the field of life insurance, the premium per capita in Slovenia is substantially lower than those in the developed European countries. In Slovenia, for example, the life insurance premium amounts to 309 euro per capita; whereas, in the developed European countries this amounts to 1,226 euro. The figures for the Western Balkan countries are far lower.
The expected development of regional insurance density is closely linked to the development of the local economies, measured in GDP per capita, as well as an improvement of the institutional environment.
($=0.7868 euro)
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