Stephie DRACOS, General Manager, Ιnsurance Association of Cyprus

27 September 2012 —
stephie_dracosXPRIMM: How are the trends of the Cypriot economy reflected in the performance of the insurance industry over the first half of the year?
Stephie DRACOS:
As to be expected, the protracted slowdown sustained by the Cypriot economy over the 2011-12 period, has put a lid on growth prospects for the insurance industry. What is commendable, however, is the tenacity of the insurance industry to absorb the impact of the recession with relatively modest losses in business activity. It can thus be safely concluded that both principal lines of business, life and non life, recorded positive growth rates during 2011, despite the anemic performance of the domestic economy.

So far as the first quarter of this year is concerned (no detailed data is as yet available for the first half) the life end of the market exhibited a 2.3% decline in gross written premiums over the same period last year (from EUR 102.3 million to EUR 99.9 million). The figures do not include accident and health business contracted by life insurers. I think it is too early to read into this development a trend for the rest of the year so I would reserve my judgment about the significance of the industry's first-quarter performance for the life business until data for the first six months of the year is also available. In the case of non life activities combined, first quarter statistics show an improved performance on the corresponding period last year, with this year's growth reaching 2.9% compared to just 0.9% in 2011 (from EUR 99.28 million to EUR 102.16 million). Again I think it would be premature to make predictions about how the industry will perform in the non life lines of business over the full year merely on the basis of first-quarter data.

XPRIMM: Which insurance classes remain on a profitable course in the course of the first six months of 2012?
In the absence of underwriting results for this year I will refer to data from 2011. On the basis of non-life technical accounts for 2011 all classes but one, motor, registered positive underwriting results. Accident and Health reported improved underwriting results compared to 2010, to the order of EUR 6.1 million (EUR 5.98 million in 2010) while fire's results were EUR 16.0 million (EUR 17.6 million). Liability recorded EUR 7.6 million (EUR 7.4 million) and Marine/aviation/transport EUR 1.0 million (EUR 1.9 million). Motor, as in 2010, was the only class reporting negative results last year, to the tune of -EUR 10.2 million (-EUR 19.7 million in 2010). Given the slowdown exhibited by the domestic economy in 2012, it looks very unlikely that the various classes would record marked improvements in their results this year.

XPRIMM: Which are the principal changes in the marketing strategies adopted by insurance companies, in response to the economic crisis?
By and large the persistence of the economic crisis has forced insurers to rethink their cost strategies and to return to more traditional life products. In this respect companies have been aggressively striving to save costs over a broad range of expense categories, such as claims, operation and reinsurance. They have also enforced tighter rules for receivables, along with the tightening of their credit and collection policies and procedures. Resources have also been committed in order to curb the growing incidence of fraudulent claims, a phenomenon particularly pronounced in the classes of health and motor. New investment strategies, entailing placements in less risky assets have also been adopted. Last, but not least, life insurers have revised their life products, returning to more traditional ones which are more readily acceptable by their prospective clients and which also involve less of risk for themselves.

XPRIMM: Are there any noteworthy changes in the domestic insurance market with respect to decisions or legislation, over the first half of the year?
While nothing outstandingly novel has taken place over this period, it is fair to refer to the continued preparatory work leading to the implementation of the new regulatory regime. As in previous years, the industry continues in the course of 2012 to work feverishly towards its preparation for the transition to the new EU regime, Solvency II, set to take effect in the European Union by January 1, 2014. Supported by the Insurance Association, and in collaboration with the regulatory authority, the industry has been particularly active in the drafting of legislation that will transpose the EU directive into Cypriot law. The goal is to have the transposition of the directive completed by June 2013.

Another legislative item on the industry's agenda is the harmonization with the 2011 European Court of Justice ruling on the Test Achats case which, essentially, calls upon insurers within the European Union not to differentiate on the basis of gender and to apply unisex rates and benefits. The ruling, which clearly has profound implications for, among others, the insurance of motor drivers and the purchasers of life contracts, will come into effect upon the expiration of a transition period, coming to an end on December 21 this year. The industry, with the support of the IAC, has been preparing the ground for the eventual adoption of this ruling in the domestic market.

XPRIMM: What are your expectations for the industry's performance by year-end?
There is no doubt that in the absence of an economic recovery one cannot be very optimistic about the prospects for an upturn in insurance business activity. Like so many other industries, insurance lies at the heart of economic activity and its performance is pretty much impacted by how the overall economy performs. Still, I think one could reasonably argue that compared to other industries, insurance has demonstrated resilience and flexibility in registering, these last couple of years, by and large positive rates of business activity. I would argue therefore, that the tenacity and adjustability of the industry is such that it would probably absorb the impact of the economic slowdown by turning out a decent performance in the cases of most classes. Of course in the absence of available data for the first half of the year, and with several unknown parameters about the economy, including the details of the new package of fiscal and other reforms to be negotiated by the government with the European Commission, the European Central Bank and the IMF later in the year, one cannot be very specific or to make numerical predictions about the industry. All I would like to say is that hopefully the industry will continue, despite the extremely adverse economic environment, to make a marked contribution to the national economy.

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