Vusal ABBASOV CEO, AzRe Reinsurance
Vusal ABBASOV: The Azerbaijan market will have developed by about 35% from 2017 to 2018 attaining EUR 375.000.000 which in foreign currency is very nearly where it was before the two devaluations which halved the value of our currency due to the drop in the oil price. The main driver of the market growth is life insurance, which grew by more than 70% in 2018. However, we expect that the growth of life insurance will slow down in 2019 due to changes in the tax legislation.
Low paid loss ratios in the 40%'s have been maintained in the market throughout. The trend continues as one of a developing market as we still have to experience a major loss, and once we do it will serve as a wake-up call.
Stability is the theme though as part of the initiative to diversify the economy, agriculture insurance will become a target and premiums will be partially subsidized. We estimate that the premiums generated by this initiative will not initially attain more than EUR 15 million.
Current GDP growth is at 2% and we expect that figure will grow even more with the government's strategy of developing non-oil sector, new investments in the oil and non-oil sector, increased gas production from the ShahDeniz field and also a double-digit growth in tourism receipts.
XPRIMM: How would you describe 2018 year for your company - how successful it was in terms of premiums, any big indemnities paid, introduction of new products?
V.A.: As for Az Re, we had another good year returning in excess of 20% after tax to our shareholders, who as you recall are 6 individuals and not the state. AM Best state that we are well capitalized and produce good underwriting results and so our rating is renewed at B+ on the AM Best scale equivalent to BBB- on the ICR scale which is is one notch above the sovereign rating. This a typical level for regional reinsurers, and we estimate such reinsurers have a world market share of about 3% of world non-life premiums.
As for premium income the Az Re Group has a rather stable premium income of approx. EUR 36 million.
XPRIMM: How do you asses the local market's development stage in comparison to other markets? What prospects for international cooperation would you point out?
V.A.: As stated above our market is still in a developing mode and there are 21 companies with 87% of premiums going to the top ten, up from 80% in the previous year. In itself shows that companies are getting stronger and thus demand for reinsurance will drop though we must remember that the country is earthquake prone, so such risks are of course sent abroad as far as is possible. Insurance penetration is still less than 1% but as GDP grows so will insurance awareness and sales.
As for international cooperation, of course, expanding to new territories presents significant opportunities for the growth of companies, however this process is full of challenges as domestic market is different from global markets. Adequate knowledge needs to be obtained and implemented to successfully enter new markets. We are more than skeptical about results to be expected from the international reinsurance market and we maintain our standards at all costs by thoroughly analyzing our target markets. By implementing such careful analyses, we have managed to build a profitable international portfolio in culturally close territories to Azerbaijan, which are CIS and our neighboring countries. We have also managed to build a profitable portfolio in the Middle East and Africa.
XPRIMM: How would you describe the plans and expectations for 2019 of your company and the market as a whole?
V.A.: Our prime mission is to continue to assist the local market in their endeavors and we also have to mention the activities of our group companies, Qala Life and Qala Insurance who complement our business in the reinsurance sector. Our main guideline is to keep a parity of 1 unit of written premium to 1 unit of equity - and thus through generous capitalization to be tong enough to withstand any pitfalls ahead - having run all our stress tests, we are indeed as strong as we would wish and expect that we will grow in line with market growth, and maintain our share of reinsurance at about 40% of market non-life premiums. We will also continue marketing activities for our international expansion.