INSURANCE SECTOR IN SERBIA
Report for First Quarter 2015
2
Contents:
1. Insurance market ... 4
1.1. Market participants ... 4
Insurance undertakings ... 4
Other market participants ... 5
1.2. Insurance portfolio structure ... 5
1.3. Balance sheet total and balance sheet structure ... 7
Balance sheet total ... 7
Structure of assets ... 7
Structure of liabilities ... 8
2. Performance indicators ... 9
2.1. Solvency ... 9
2.2. Quality of assets ... 9
2.3. Coverage of technical reserves ... 10
3. Motor third party liability ... 10
4. Conclusion ... 11
List of abbreviations
mln million
bln billion
Q1 first quarter (1 January – 31 March)
4
Serbia 24%
Austria 20%
Slovenia 16%
Spain 8%
Others:
Italy,France,Cro atia,The Netherlands,US A,Ireland,Czech Rep,Russia
32%
Structure of insurance undertakings 1Q 2015
…
Source: National Bank of Serbia
Serbia 28%
Austria 31%
Slovenia 5%
Italy 8%
The Netherlands 20%
Others:
France,Croatia,USA, Ireland,CzechRep,S
pain,Russia 8%
Balance sheet total of insurance undertakings 1Q 2015
…
1. Insurance market
11.1. Market participants
Insurance undertakings
At end-Q1 2015, the insurance market in Serbia comprised 252 insurance undertakings, down by three3 in year-on-year terms. Twenty-one undertakings engaged in insurance activities only and four in reinsurance activities. Of the insurance undertakings, six were exclusive life insurers, nine exclusive non-life insurers, while six provided both life and non-life insurance.
The breakdown by ownership shows that of the 25 insurance undertakings, 19 were in majority foreign and six in majority domestic ownership.
Since foreign-owned insurance undertakings arrived in the market and obtained greenfield licences, at end-Q1 2015 they continued to record a dominant share of 92.7% in life insurance premium, 62.1% in non-life insurance premium, 72.2% of total assets and 68.3% of total employment. The majority of foreign-owned insurance undertakings came from: Austria, Slovenia and Spain, followed by undertakings from Italy, France, Croatia, the Netherlands, Ireland, Czech Republic, Russia and the USA.
1 The Report is based on data that insurance undertakings are obliged to submit to the NBS. The accuracy of the data was not verified by NBS on-site supervisors. When analysing the insurance market, it should be borne in mind that changes presented in the Report are observed relative to the data of insurance undertakings that held an operating license in Q1 2014.
2 One life insurance undertaking was included, whose operating licence ceased to be valid in April 2015, following the approval of voluntary liquidation by the NBS.
3 In July 2014, the NBS delicensed one non-life insurance undertaking. In September 2014, two insurance undertakings – one non-life and one life-insurance undertaking, obtained the NBS’s consent for status change – merger.
Other market participants
In addition to insurance undertakings, the market comprised 19 banks licensed for agency operations, 97 legal entities (insurance agency/brokerage and other insurance- related services), 107 insurance agents (natural persons – entrepreneurs), as well as 15,438 natural persons licensed to engage in insurance agency/brokerage.
1.2. Insurance portfolio structure
Total premium generated from insurance business in Q1 2015 came at RSD 20.0 bln (EUR 166 mln or USD 179 mln)4which is an increase of 27.2% on a year earlier.
The share of non-life insurance in total premium was 78.4% and the share of life insurance premium 21.6%. The share of non-life insurance rose from 77.8% a year earlier due to a stronger growth in the premium of non-life insurance (28.1%) than that of life insurance (23.9%).
Growth in non-life insurance premium in Q1 2015 was driven by motor third party liability (MTPL) insurance premium and property insurance premium (by 45.8% and 27.0%, respectively), while full coverage motor vehicle insurance premium fell by 1.1%.
The insurance premium structure by insurance type in Q1 2015 resembled that from the same quarter last year, with MTPL insurance accounting for the largest share of total premium (30.3%), followed by property insurance against fire and other
25.1
30.3 7.2
15.8 21.6
Total premium according to the types of insurance in Q1 2014 and Q1 2015
in %
Property insurance Motor vehicle liability Full coverage motor vehicle insurance Other non life insurance Life insurance
Q1 2015
Source: National Bank of Serbia 25.1
26.4 9.3
17.0
22.2
Q1 2014
6
0%
20%
40%
60% 52.2%
33.0%
14.9%
Share in total premium by peer group, 2014
first group - 2 undertakings second group - 5 undertakings third group - 14 undertakings
Source: NBS
hazards and other property insurance (25.1%), life insurance (21.6%) and full coverage motor vehicle insurance (7.2%).
Accident insurance, including, inter alia, compulsory types of insurance such as passenger insurance in public transport and insurance of employees from injuries at work, professional and work-related illnesses, accounted for 5.6% in Q1 2015.
The share of voluntary health insurance premium showed a mild decrease from 3.0%
in Q1 2014 to 2.9% in Q1 2015, despite a nominal growth by 25.2%, which is explained by the already mentioned high growth in MTPL insurance premium. Two insurance undertakings covered more than two-thirds of the market.
Insurance undertakings are classified into three groups according to their respective share in total premium. The first group comprises two undertakings accounting for over 15% of total premium, the second includes five undertakings accounting for under 15% and the third comprises 14 undertakings accounting for under 3% of total premium. Relative to the same period last year, one insurance undertaking moved from the first peer group to the second peer group, accounting for the change in the share of peer groups. In Q1 2014, the first group consisting of three undertakings covered 63.1% of the market, the second group consisting of four undertakings covered 20.9%, and the third group consisting of 17 undertakings covered 16.0% of the market.
The Herfindahl Hirschman index, calculated by summing up the squares of the respective market shares or, in this case, balance sheet totals of all insurance undertakings, points to moderate market concentration. The HHI in Q1 2015 was 1,1365.
5 HHI up to 1,000 indicates that there is no market concentration; 1,000-1,800 indicates moderate concentration; above 1,800 indicates high concentration.
AMS, 3403 AS, 949
Axa non-life, 1749 Axa life, 605
DDOR, 15357
DDOR Re, 1158
Dunav, 32936
Dunav Re, 7331
Energoprojekt, 1081 Generali, 36243 Generali Re, 4176
Globos, 930 Grawe, 17410
MetLife, 371 Merkur, 2151
Milenijum, 3110
Sava, 2864 Sava life, 475
Societe G, 692 Sogaz, 1761
Triglav, 4799
Uniqa non-life, 7317
Uniqa life, 6502
Wiener, 21451 Wiener Re, 4504
Balance sheet total of insurance undertakings as at 31/03/2015 in RSD mln
Source: National Bank of Serbia
1.3. Balance sheet total and balance sheet structure
Balance sheet total
Balance sheet total of insurance undertakings increased at end-Q1 2015 to RSD 179.3 bln (EUR 1,492 mln or USD 1,609 mln)6, up by 19.3% year-on-year.
Structure of assets
At end-Q1 2015, current assets accounted for 50.4% of total assets of insurance undertakings (of which 23.5% referred to financial investments and 8.2% to premium receivables). Fixed assets made up 49.6% of total assets (of which 37.9% referred to long-term financial investments and 10.6% to property).
Comparison with Q1 2014, when fixed assets made up 59.4% (of which 44.4%
were long-term financial investments and 14.0% property) and current assets 40.6%
(of which 16.1% were short-term financial investments and 9.7% premium receivables), indicates that the composition of assets changed in favour of current assets.
The highest share in assets as at 31 March 2015 is still held by long-term financial investments, while the strongest growth was recorded by financial assets within current assets (74.7%), relative to short-term financial investments a year earlier, which was primarily caused by the application of new accounting by-laws, which specified the new structure of financial investments.
8
Structure of liabilities
At end-Q1 2015, technical reserves accounted for 70.6% and capital and reserves for 19.6% of total liabilities.
Capital fell by 1.1% y-o-y and came at RSD 35.1 bln. Technical reserves gained 27.6% to reach RSD 126.4 bln. Mathematical reserves increased at a rate of 22.3% and accounted for the largest share of technical reserves. Mathematical reserves were followed by claims outstanding which were up by as much as 40.8%.
Property 14.0%
Long-term fin. invest.
44.4%
Receivables 9.7%
Short term fin. invest.
16.1%
Cash 5.8%
Remaining 10.1%
Structure of assets as at 31/03/2014
Source: National Bank of Serbia
Property 10.6%
Long-term fin. invest.
37.9%
Receivables 8.2%
Financial investments
within current assets 23.5%
Cash 4.2%
Remaining 15.6%
Structure of assets as at 31/03/2015
Capital and reserves
23.4%
Mathemati- cal reserves 31.8%
Unearned premiums
15.5%
Outstanding claims 15.7%
Other technical reserves 2.4%
Remaining 11.2%
Technical reserves
65.3%
Structure of liabilities as at 31/03/2014
Source: National Bank of Serbia
Capital and reserves
19.6%
Mathemati- cal reserves 32.9%
Unearned premiums
16.5%
Outstanding claims 18.7%
Other technical reserves 2.5%
Remaining 9.9%
Technical reserves
70,6%
Structure of liabilities as at 31/03/2015
2. Performance indicators
2.1. Solvency
The solvency of an insurance undertaking depends on the size and composition of its liquidity, ratio of its technical reserves to the volume of undertaken liabilities and sufficiency of its guarantee reserve to protect policyholders in the event of unforeseen losses, i.e. to act as a buffer for losses not covered by technical reserves.
At end-Q1 2015, the solvency margin came at RSD 17.1 bln and guarantee reserve at RSD 29.5 bln. The ratio of guarantee reserve to solvency margin stood at 173.8% for non-life insurance undertakings and 206.0% for life insurance undertakings.
2.2. Quality of assets
The share of intangible investments, property, investment in non-tradable securities and receivables (as types of assets difficult to collect) in total assets of undertakings engaged primarily in non-life insurance stood at a satisfactory 23.5% at end-Q1 2015, relative to 24.0% at end-2014. The moderate improvement in this ratio was due to somewhat faster growth in total assets than in the above types of assets.
The above share for undertakings engaged primarily in life insurance recorded a decline from 3.1% in late 2014 to 2.8% in late Q1 2015. The change in the value of this indicator was prompted by a decline in the above types of assets.
0%
50%
100%
150%
200%
Undertakings engaged primarily in Undertakings engaged primarily in
non-life insurance life insurance
Ratio of guarantee reserve to solvency margin
2013 2014 Q1 2015
Source: National Bank of Serbia
10
2.3. Coverage of technical reserves
In order to protect the interests of the insured and third damaged parties and to ensure the timely payment of damage claims, insurance undertakings need not only allocate adequate technical reserves, but also invest their assets, depending on the type of insurance they provide, taking due account of the maturity of obligations and investment profitability and dispersion.
In undertakings engaged primarily in non-life insurance, the coverage of technical reserves by prescribed types of assets stood at 101.5% in Q1 2015, compared to 101.4% in late 2014.
In undertakings engaged primarily in life insurance, the coverage of technical reserves by prescribed types of assets stood at 100.4% at end-Q1 2015, compared to 100.3% at end-2014.
Overall, in Q1 2015 technical reserves of non-life insurance undertakings were for the most part covered by government securities (49.4%), deposits with banks and cash holdings (23.3%), investment real estate (8.4%), and insurance premium receivables (6.4%). The structure of life insurance technical reserves coverage was dominated by investment in government securities (91.7%), followed by deposits with banks and cash holdings (5.9%).
3. Motor third party liability
In Q1 2015, 11 insurance undertakings engaged in compulsory MTPL insurance – down by two from the same period last year.
0%
20%
40%
60%
80%
100%
2013 2014 T1 2015
other premium receivables real estate
bank deposits and cash government securities
non-life insurance
Structure of coverage of technical reserves
Source: National bank of Serbia
Source: National Bank of Serbia 0%
20%
40%
60%
80%
100%
2013 2014 Q1 2015
life insurance
MTPL premium rose by 45.8% in Q1 2015 y-o-y.
Portfolio concentration in this segment increased mildly, as three insurance undertakings with the largest share in MTPL premium accounted for 66.8% of the market in Q1 2015, as opposed to 60.0% in the same period last year.
4. Conclusion
The comparison of indicators between Q1 2015 and the same quarter in 2014 points to the following changes in the period observed:
- A total of 25 insurance undertakings operated in Serbia – down by three y-o-y.
Insurance sector employment fell by 2.5% to 11,255.
- Insurance sector balance sheet total rose by 19.3% to RSD 179.3 bln;
- Capital decreased by 1.1% to RSD 35.1 bln;
- Technical reserves gained 27.6% and were fully covered both in life and non- life insurance;
- Total premium gained 27.2% and came at RSD 20.0 bln;
- The share of non-life insurance was dominant in total premium, equalling 78.4%. Non-life insurance premium rose by 28.1%, with full coverage motor vehicle insurance going down by 1.1%;
- Due to strong growth in MTPL premium, the share of life insurance in total premium fell from 22.2% to 21.6%.
- The Herfindahl Hirschman index points to moderate market concentration.
For the time being, insurance undertakings should focus on the following key areas: corporate governance which, among other things, implies an adequate system of internal controls, improvement of risk management and investment valuation techniques, promoting transparency, good business practices and fair client relations, the timely payment of damages, and efforts to educate potential clients. All this will reinforce client confidence and help develop this segment of the financial system.
Also important are education and preparations for putting in place the new methodological framework for risk management, Solvency II. Adequate risk management is vital for the success of insurance business. This has been placed at the core of the Solvency II Directive which requires insurers to identify and quantify all types of risks they are exposed to in their operations and to manage them more effectively. It introduces more sophisticated solvency requirements in order to ensure that insurance undertakings have sufficient capital to offset the risks to which they are exposed.
