Samir OMERHODZIC: The faster than expected economic recovery of the euro zone in the third and fourth quarter of 2013 manifested itself directly on the development of the country's exports. The overall growth rate of exports for the fourth quarter increased to 5.6% year-on-year. Bosnia and Herzegovina has seen an increased expansion and differentiation of its export goods base in the past few years, where it recorded both good results and growth, which is a very positive indicator of further economic development and competitiveness of its products in the European market. Therefore, it is estimated that the gross investments grew in 2013 by 3% in real terms. Also, the construction industry should end the five-year recession this year.
Domestic demand is very weak due to the high unemployment rate of 27.5% in 2013, lower available income caused by declined net salaries and lower remittances from abroad. Expectations are that the growth of domestic and foreign investments, estimated at 9% in real terms as the overall amounts of gross economic investments, will cause a decline of the unemployment rate to 26.5%, with a slight increase in net salaries. This, in combination with increased foreign remittances and continued positive credit growth, might contribute to the positive growth of public consumption after two long years of depression. With this, the public should finally feel the first effects on the improvement of their purchasing power. Based on real sector indicators, the expected real economy growth of Bosnia and Herzegovina for 2013 is projected to be 1.3% year-on-year.
Parallel to the general recovery of the economic situation in Bosnia and Herzegovina, the insurance industry followed such a trend as well. Although the slowdown was expected in the sector of life insurance, final results in 2013 are showing stable growth due to the more active marketing campaigns of different insurance companiesand to usage of the policies of life insurance as some type of guarantee in obtaining banks' loans. The growth in the non-life sector was only 2% y-o-y, mostly because of the decline in motor Casco insurance.
XPRIMM: How would you characterize the local insurance market's evolution in 2013?
S.O: Mild growth rate of the entire insurance sector from the previous period continued with the proviso that the growth of life insurance was higher than the growth in non-life. This is a consequence of new products within the life and non-life insurance (such as insurance of legal protection but also it is related to individual actions of insurance companies aiming the growth of MTPL).
The growth of the insurance market in BiH is restricted by the economic and political situation, high unemployment rate and lack of investment.
The share of life insurance premium in Bosnian and Herzegovinian portfolio in 2013 was 18.93%, (while in 2012 was 17.05%), and amounted to EUR 51.01 million in GWP. An excellent increscent of 15.80% of life insurance premiums is a sign of positive changes on the insurance market and increased awareness of consumers.
Growth in life insurance in 2013 is a result of the activities of insurance companies in the area of providing retail loans from banks due to the exhaustion of other aspects of providing loans (guarantors, etc.).
Regarding the non-life insurance premiums, total amount increased for 2% in 2013 and amounted to EUR 218.47 million. MTPL and motor hull insurance amounted to EUR 158.97 million what represents almost 60% of total market portfolio (in 2012 was EUR 154.65 million). This is again the confirmation on underdevelopment of BiH insurance market.
Within non-life insurance the growth has been recorded in personal insurance, goods in transit insurance, property insurance, financial insurance and assistance-other types of insurance. Decline was recorded in motor hull insurance and liability insurance.
Within the individual non-life insurance the largest increase occurred in Legal protection insurance by 185.81%, which is a consequence of insurance companies activities related to sales of MTPL policies.
XPRIMM: For the local insurance industry, the year 2014 started better or worse than previous years (2008-2013)? Why?
S.O: The first quarter of 2014 shows that insurance sector dynamically begun register positive results. It is the highest growth in the last 5 years and hopefully it shall continue till the end of the year. Life insurance premium in 1Q2013 was EUR 10.71 million and in 1Q2014 amounted to EUR 13.72 million. The result of such a large growth in the first quarter was caused by new products of life insurance that insurance companies offered as well as the use of life insurance as an instrument of providing the loan at commercial banks.
Non-life insurance in 1Q2013 amounted to EUR 51.20 million and in 1Q2014 was EUR 55.93 million.
XPRIMM: Are there any major expectations for the end of 2014? (Forecast for the local insurance industry)
S.O: Considering the improvement of the economic outlook related to the economic recovery in the euro zone with a projected growth of 1.5% y-o-y in 2014, the expected economic growth rate in Bosnia and Herzegovina this year shows room for an upward correction from the present 1.5% in real terms (after the first indicators for the first quarter of 2014 have been published).
There is a notable increase of life insurance in GWP portfolio. The share of life insurance premium in first quarter of 2014 has increased for 28% compared with the same period of 2013.
Within insurance legislation, new bylaws were passed during 2013. Laws on compulsory insurance in traffic in both BH entities are in process of amending, which are expected to be adopted during 2014.
One can say that the period of recession is over taking into consideration the first results in 2014, but should be careful in expectations as one can see that economy changes fast and unpredictably. However, the life insurance shall surely continue to grow. What might jeopardize base economic scenario is the political uncertainty caused by the election year.
On March 28, 2014, Standard&Poor's, international rating agency, affirmed sovereign credit rating on Bosnia and Herzegovina "B with Stable Outlook".