11 May 2023 — Daniela GHETU
XPRIMM: How would you describe in general the insurance market's development in 2022? What were the main challenges and how did Aldagi overcome them?

Giorgi BARATASHVILI: Insurance market grew by 17% in 2022, of which P&C insurance market growth was 13% y-o-y. The insurance industry faced a number of challenges, such as inflation, and increasing reinsurance costs. Therefore, we see greater concentration on individual tariffs. Aldagi proved to be the first company in Georgia to incorporate segment and data-based approaches into its tariff policy. Additionally, 2022 was marked with political instability. The war in Ukraine has put additional pressure on businesses, particularly in our region. Many Georgian insurance companies depended on Russian companies for reinsurance. In case of Aldagi, however, only up to 2% of risks were transferred to Russian reinsurers, which were immediately replaced at the onset of the war. At Aldagi, we have used our experience and expertise to tackle these challenges and we will continue to adapt ourselves to the current market trends. Despite such changing environment, Aldagi continues its track record of being P&C market leader, with market share of 27%.

XPRIMM: Which were the business lines that saw the best evolution in 2022? Apart from the introduction of the mandatory MTPL insurance, do you see other business lines that may play a strategic role in the future development of your company?

G.B.: In 2022, compulsory third-party liability for foreign-registered vehicles crossing Georgian border rebounded back to pre-pandemic level, exceeding 2019 level of premiums by 10%.

Motor insurance grew by 14% y-o-y, where we are observing continued growth of insurance portfolio for micro, small, and medium enterprises. With penetration remaining low at 1.4% and given customers' increasing awareness of the necessity of insurance and financial security, we see the potential of growth of retail and MSME segments.

XPRIMM: In the context of the imminent implementation of the law on mandatory MTPL insurance, how do you asses the market potential of this line of business? Also, what are the main concerns regarding the debut of this new market segment?

G.B.: The draft law of mandatory local MTPL is expected to be presented in Parliament during 2023 autumn session. Georgia is currently the only country in Eastern Europe where MTPL is not mandatory. For our part, we are making institutional arrangements for the implementation of MTPL and believe that this will significantly contribute to greater development of the industry. The launch of mandatory MTPL will be one of the prerequisites for giving the retail market the boost it needs. Less than 10% of cars registered in Georgia are currently covered by auto insurance, which indicates that the rate of insurance penetration is low and the potential for development is significant.

Across the globe, main concerns related to mandatory MTPL insurance are increased fraud risk, inadequately low premium rates and high operating costs. As for the premiums and associated costs, these will be managed centrally, according to the provisions of draft law, and will not be subject to free competition at the initial stage. Since the abovementioned risks will be contained through central management, we expect this initiative to be successful in Georgia, further supporting development of motor insurance market.

XPRIMM: Aldagi has started recently to expand its reinsurance activity, aiming to become a regional player in this field. How has this strategic development evolved so far?

G.B.: By the end of 2022, we made public our intention to start underwriting inwards reinsurance in the region. By doing this, Aldagi sets a precedent for the Georgian industry, being the first insurance company in the market that will also function as a reinsurer. We have signed several contracts with Armenian and Azerbaijani insurers. We are actively holding meetings with insurers, reinsurers, and brokers of neighbouring countries. With this expansion and thanks to its financial stability, the Company's management expects Aldagi to emerge as an important regional player, hereby allowing Aldagi to better meet the needs of both local and regional insurers by reinsuring risks. Aldagi's insurance and reinsurance businesses will be run and managed independently. By entering reinsurance business, the management of the Company plans to capitalize on the existing opportunities in the region.

XPRIMM: The motor insurance segment's success is largely linked, in all markets, to the opportunities brought by digitalization in terms of improving underwriting, streamlining back-office operations etc. How do you asses Aldagi's progress in technology terms? Is your company prepared to offer modern value-added services to its customers by using telematics, IoT etc.?

G.B.: Aldagi went largely digital from the early onset of the Covid-19 pandemic. Already in the beginning of 2020, we were able to fully digitize our services and products and launched a digital insurance application, which is a novelty for the Georgian market. In 2020, Aldagi won Global Compact Georgia's Award for innovation. In 2021, Aldagi launched the first digital insurance app on the market - the "Backapp". The Backapp is an unique approach on the Georgian insurance market, where insurance tariff is set individually for each driver, based on the driver's skills and mileage covered. The process is fully digital and very simple. However, we should note that the benefits of digital services provided by Aldagi will only be maximized when the market is ready for such dramatic shifts. Currently, we observe that the market still prefers the traditional insurance business model. However, based on our digital strategy, we continue to invest in digital services and products that will help us meet our customers' needs and interests.

XPRIMM: An important regulatory change going on in the Georgian market is the transition to the Solvency II regime. In your opinion, is the market prepared for this change?

G.B.: Solvency II fosters more comprehensive approach to risk management and ensures increased transparency. It also sets more stringent capital requirements and calls for optimal capital allocation, which is efficient in terms of risk and return for shareholders. We believe that the market is getting ready, regularly attending required trainings and gaining new knowledge about the subject. Overall, it's a comprehensive program of regulatory requirements for insurers, however it's a positive change that will support more stable insurance market and more risk-based decision-making within the insurers.

XPRIMM: What are your expectations for the Georgian insurance market's evolution in 2023? What would be, in your opinion, the main challenges and the main opportunities?

G.B.: The legal process around introduction of mandatory local MTPL will be in the spotlight. Once approved, this will be the greatest opportunity for the market to develop retail insurance. On the other hand, hardening of reinsurance market will definitely be a challenge for insurance market and market players will need to find ways to retain adequate level of risks.