Back in black
By the end of Q1 2010 the World Bank said that EU newcomers' growth was supported by the upturn in global trade, the low interest rate environment and the EU funds and restocking. As for Q2 2010, the international institution was foreseeing a continued recovery. Nevertheless, the economic upturn seemed week and the World Bank estimated that "it will take until the second half of next year before real output in the EU10 region regains its pre-crisis level. Private consumption and private investment are likely to add to growth only from 2011 onwards. And post-crisis growth is likely to stay below pre-crisis growth in view of reduced capital flows, restrained credit growth and structural adjustments in the economy."
The pace of the recovery also differs widely across the region. According to WB, growth in the Slovak Republic and the Czech Republic is supported by the strong rebound in global trade. The robust expansion in Poland remains on track due to stable domestic demand, a competitive exchange rate and EU funds. After seeing the largest contraction of a country of the euro area in 2009, Slovenia is set for moderate rebound due to the rise in external demand, restocking, and continued policy support. Economic activity in Bulgaria, Estonia, Hungary, Lithuania and Romania is set to stagnate, as the unwinding of imbalances continues. The contraction is likely to remain sizable in Latvia in spite of a sharp improvement in growth performance compared to last year.
A couple of months later, Michal DYBULA of BNP Paribas noted that the economic recovery picked up speed in the CEE region in Q2, but he also questioned the sustainability of the pace of growth for some reasons as the strong contribution to growth from inventory restocking, the expectation that external demand in all major trading partners will unwind or the potential slowdown of the export growth due to the unwinding of base effects as well as exchange rate appreciation in certain CEE economies. Also, the weak consumption and investment spending, mainly determined by the slow or no credit growth, is an important risk for the economic growth in the CEE region.
Two years of ups and downs
The slow, uneven and hesitant recovery process in the region had was strongly reflected by the insurance market evolution as well. Looking back, at the last two years' results, there are some interesting fact to remember.
Hungarian and Estonian insurance markets were the first hit by the crisis, recording y-o-y negative growth rates already in December 2008. The massive drops in life insurance, mainly on the single premium and Unit-Linked insurance lines were the main drivers of the downward trend. Half year later, by the end of June 2009, almost all of the CEE insurance markets entered into the negative territory, reporting massive falls in turnover. The most developed markets in the region - Poland, Czech Republic and Hungary -, where the life insurance market has a significant presence in the national portfolio, recorded an abrupt depreciation of the written premium volume. But besides the loss of popularity suffered by the life insurance products, mainly the ones with an investment component, motor insurance was the other main cause of the turnover reduction. The huge drop in car sales strongly affected the Motor Hull line, while the weakening market of transported goods resulted in a significant reduction of the fleet insurance turnover. On top of that, in many countries across the region, a tougher competition forced down the motor insurance tariffs to almost breakneck limits. As a results, during the first half of 2009 only the very small and young markets, as Albania or Bosnia & Herzegovina were still reporting positive growth rates.
The end of 2009 revealed the first signs of negative trend slowing down. Although still negative, the changes in gross written premium figures were, in most of the countries, less bad than the previous ones. The first half of 2010 confirmed this general trend, many CEE insurance markets managing to cross the "0" barrier, back into the positive territory. The main source of this upturn lies again in the life insurance business, but usually reflects more the public's aspiration to build on the positive developments showed by the capital markets by the end of 2009 and in the first quarter of 2010, by investing in single-premium or Unit-Linked insurance products, than to get real life insurance coverage. Motor insurance market situation remains fragile, with a strong competition on its main segment, the MTPL insurance business, and a continuous contraction in the number of new insured cars.
Still, there are exceptions to the general trend drawn by the main markets in the region. The first notable exception is the evolution of Latvia and Lithuania, the most affected insurance markets in the region. Drastic fiscal consolidation measures taken by the Baltic governments, involving pensions and wages freezing of lowering, as well as the high unemployment rates led to a visible weakening of the populations' purchasing power. According to the insurance market's representatives, this poor economic climate turned into a significant decrease of the number of policies sold and, consequently, into a massive reduction of the motor insurance tariffs. As the general economic outlook is far from being optimistic, the general apprehension is that most probable insurers will not see better times until 2011.
On the other hand, among the main CEE insurance markets, Romania, Croatia and Bulgaria followed the general trend with a certain delay. Thus, while in the first instances it seems they will not experience quite a significant fall in the insurance markets' turnover, now they are lagging behind the overall trend, still below the "0" line. One of the possible explanations is the small share of the life insurance in the national portfolio of these countries, as compared to Poland, Hungary or the Czech Republic. The low penetration of the life insurance preserved them somehow from the initial strong blow, but in second stage the breakdown of the motor insurance lines kept them on a descending trend unmatched by the slight recovery seen in the life business.
Slovenia is the only relevant CEE insurance market who got through the crisis experiencing only marginal negative effects. Its well-developed life segment remained stable. Unit-Linked premiums - the main life insurance business line -, remained virtually unchanged, despite the volatility in financial markets. On the other hand, on the non-life insurance segment, the main insurance lines - as health insurance, CASCO or compulsory MTPL -, registered small positive growth rates or, at least, remained unchanged. As a results, the market continued to grow, even it did it at a lower pace, showing strength and stability.
Beside Slovenia, the only markets who got off almost scot-free until now are the very little ones. Characterized by a very low penetration degree, they have so much room for growth that even the weak economic climate didn't run low insurers capacity of finding new clients.
Small adjustments
All in all, the CEE insurance market shows clear signs of recovery, although the happy times of "double digit" growth rates will probably return only in a couple of years, if they will ever return in the form we were used to in the last decade before crisis. Again Poland, as the main player in the region, is recovery driver. In fact, by placing a significantly above average growth rate, the Polish market starts to regain part of its lost regional weigh. Also the Czech Republics' market improved its share with about one percentage point, while Hungarian one is slowly, but constantly loosing small fractions of its regional weight. Since 2008, Romania also lost almost 1 percentage point of its share.
Ten Polish and Czech life insurers dominate the regional life insurance ranking, cumulating almost 46% of the regional life insurance GWP. PZU ZYCIE is the life insurance leader across the region, with a 12.3% share of the entire life GWP. The following two steps of the podium belong to EUROPA and WARTA, also from Poland.
The non-life rankings' Top 10 includes companies from Poland, the Czech Republic, Hungary, Slovakia and Slovenia, with a cumulated market share of about 40%. The non-life insurance arm of the PZU Group leads the non-life regional market, with an about 11% market share. On the second and third places there are two Czech companies, KOOPERATIVA Pojistovna and CESKA Pojistovna, each of them with an about 5% share of the overall non-life GWP.
