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XPRIMM News No. 109 - June 5th, 2008

No. 109, June 5th, 2008
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The road towards a profitable market

Romania's insurance market potential is nowadays broadly known. But, skipping the double digit growth, one should always bear in mind one of the industry's main issues: the lack of profitability...

Should one only look at the gross written premium's level and at the amazing market growth pace, one could say Romania's insurance industry is an Eldorado. But looking at the profitability... let's just say that the situation is not as bright.

According to the latest data presented by the Insurance Supervisory Commission (CSA) at FIAR - the International Insurance-Reinsurance Forum, the Romanian insurance market posted a net loss of EUR 75.8 million for last year, that means 3,5% of total gross written premiums (EUR 2.15 billion). The industry was in the red for the second year in a row.

Furthermore, the local life insurance market, which used to be more profitable by its nature, posted a shrinking profit of only EUR 19.8 million, compared with EUR 30 million in 2006. In spite of that, CSA President, Angela TONCESCU, said that the insurance industry is not affected by these consecutive losses, as the shareholders are the only parties to decide upon the growth strategy of the company - seeking profit or market share instead.

So why did they choose to fight for market share, at least up until now? The answer seems quite simple, actually: to sell the business. And that could be easily seen in the case of ASIBAN, where one euro in gross written premiums was valued at 2 euro in transaction price.

But now, that the selling deals are over, at least for the moment, the market shows signs of reorientation towards profit. The first results already started showing: many companies, like ARDAF, ASTRA-UNIQA and GENERALI announced turning into the black.

Nevertheless, just like fighting for market share alone brought qualitative misfortune to the market, so could the fight for sheer profit. Cristian CONSTANTINESCU, President of UNSAR, said at FIAR that the simplest way to turn profitable is to increase the premium prices. But such a decision could also imply a reduction in the penetration ratio, which is already agonizingly low by EU standards.

So what can be done? One solution, which could also insure balanced growth for the market, would be a tighter control focused on claims and administrative expenses.

We still have to see what this year will bring, but one should never forget that the road towards profitability is never easy, and some decisions boosting companies' profits in the short term could affect the industry in the long run.

by Mihaela CIRCU

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BCR Asigurari de Viata



Interview with Mrs. Angela TONCESCU
Insurance Supervisory Commission

XPRIMM: It's been more than a year since Romania's accession to the European Union. What did this event mean for the insurance market?
2007 meant the awareness of the fact that we belong to the single European market, where the four freedoms are fully functional and generate new challenges for the Romanian insurance market.

It also meant that the market embarked on a sustained process of training the personnel, diversifying and improving the services they provide to customers, getting involved in adapting the legislation to the new EU regulations.

XPRIMM: How would you describe the evolution of the Romanian insurance market over the past year, both in terms of volume and level of maturity and quality of products and services?
A. T.:
Preliminary data for 2007 indicate that the Romanian insurance market continued to grow, reaching a gross underwritten premium income of approximately RON 7.17 billion, namely EUR 2.15 billion. In relation with the Gross Domestic Product estimated by the National Institute of Statistics for 2007 and amounting to RON 404.7 billion, the insurance penetration rate in Romania is 1.77%, compared to 1.67% in 2006. The insurance density reached about RON 333/capita in 2007, also higher than the previous year, when it was about RON 266/capita.

Because people don't change their mindset overnight, the structure of the two insurance categories did not undergo significant changes, as expected, with almost 80% of the total premiums still coming from non-life insurance. However, considering that the growth rate for life insurance premiums was much higher than the previous year, we can estimate that 2007 meant a re-launch for life insurance.

According to the region distribution of premium underwriting, almost 46% of the premiums come from the region of Bucharest - Ilfov, and the density here was approximately 4 times higher than the national average. Given this context, I expect to see the other development regions create numerous business opportunities for the insurance companies in the years to come. Therefore, it is highly likely that the Romanian insurance market reaches, by 2017, a level of gross underwritten premiums of about EUR 7.5 billion, representing an average annual growth of 13 - 15% in euros.

As for the quality of products and services, the insurance markets are known to have the highest flexibility when it comes to adapting their offer to the existing demand. Thus, as long as there is an insurable risk and a community of insured exposed to that risk, insurance companies are capable of expanding the range of insurance products they offer, the investment requirements being different depending on each company's strategy and distribution channels.

XPRIMM: What do you think the main influences on the insurance market will be next year? Are we going to witness a decrease in the ratio represented by motor insurance, or a re-launch of the life segment?
A. T.:
The motor insurance market continued to grow strongly in the first months of this year, which makes us believe that motor insurance shall maintain the highest share this year. Meanwhile, if we consider the evolution from 2007, we expect to see life insurance continue its growing trend this year as well. In a few years, I think we'll be able to talk about a much higher percentage for life insurance, but a complete reversal of shares for the two main insurance categories, namely life and non-life, is expected to take place on a longer term.

by Mihaela CIRCU

You can read the entire interview in the next Issue of PRIMM Magazine - Insurance&Pensions!

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Mrs. Angela TONCESCU
Insurance Supervisory Commission


A new group on the battlefield...
VIENNA Insurance Group (VIG) announcing it will have exclusive negotiations with UNIQA Group for the sale of Romanian insurance company UNITA took by surprise the local insurance market as the favorites for this deal were MUNICH Re and AXA.
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by, 30.05.2008

AGRAS leaves VIG too...
The Austrian UNIQA takes over, along with UNITA, also its 92% owned insurance company AGRAS.
Most likely, the transfer of ownership will involve only the assets and the license of AGRAS operation, as its portfolio was taken less than one month ago by OMNIASIG VIENNA Insurance Group.
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by, 30.05.2008

UNIQA has reached its strategic objectives in Romania
"Taking over UNITA, considering its 8.5% market share on non-life segment, UNIQA reaches its strategic objectives for the Romanian market. This takes place independently of the outcome of the negotiations we have with ASTRA for more than a year up until now for buying a larger stake", Wolfgang KINDL, Managing Director, UNIQA International has declared for XPRIMM Insurance Newsletters.
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by,, 30.05.2008

Denis ROUSSET: The market will grow and concentrate
Insurance market in Romania will reach a threshold of EUR 10 billion around the year 2020. This is the view of the new CEO of BT Asigurari, Denis ROUSSET, expressed during the workshop organized by the Romanian Insurance Supervisory Commission (CSA) in Cluj-Napoca.
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by, 30.05.2008

Merger between ASIBAN, BT and OTP Garancia Insurance
This autumn, GROUPAMA will strengthen its insurance operations in Romania under a single brand, through a merger of ASIBAN, BT Asigurari and OTP Garancia Asigurari, sources from the French financial services group said.
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by, 4.06.2008

Romanian insurance GWP growth of 16.8% in Q1/2008
According to preliminary data announced by the Insurance Supervisory Commission (CSA) within the first conference of FIAR-International Insurance Reinsurance Forum, gross written premiums in the first quarter of 2008 were RON 2.38 billion (EUR 645.25 million), exceeding the 16.8% recorded for the first three months of 2007.
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by, 20.05.2008

ASIROM started the rebranding process
Insurance company ASIROM starts an ample rebranding, brand communication and brand engagement process. At the end of this program, the ASIROM brand will keep the tradition of the 17 years in which it has continuously been the company in which all Romanians trust, but at the same time will be perceived as an active and modern brand, which keeps pace with its market and clients.
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by, 26.05.2008

EUROINS increased by 26% in first quarter
Insurance company EUROINS Romania posted a 26% increase in the first quarter of 2008, as compared to the similar period in 2007, with gross written premiums amounting to RON 35.36 million.
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by, 29.05.2008

GENERALI puts its stake on profitability
GENERALI Asigurari, the eighth player in the Romanian insurance market, aims at a 19% increase in 2008, estimating an underwriting volume of RON 455 million.
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by, 29.05.2008

OMNIASIG finishes the first quarter with RON 2.93 million profit
Insurance company OMNIASIG Vienna Insurance Group posted a 68.5% increase of GWP volume in Q1/2008, as compared with the same period of 2007, reaching RON 332 million. Also, a very large increase, of 129%, has been reported by the paid claims, which have amounted to RON 154.3 million.
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by, 28.05.2008

Competition Council analyses GROUPAMA-ASIBAN deal
The Competition Council is analyzing the transaction in which GROUPAMA International is taking over the Romanian insurance company ASIBAN, in order to establish the compatibility of the economical concentration with a normal competitive environment, according to the press release submitted by the competition authority.
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by, 5.06.2008

Voluntary pensions attracted 5,500 more contributors during May
5,500 more Romanians started contributing in the voluntary pensions (3rd pillar) system during the month of May, according to a survey by the specialized web portal, based on data published by the pension companies. Those new participants chose the voluntary pension funds managed by ING Life (3,220 new customers), BCR Life, (1,583) and ALLIANZ-TIRIAC Private Pensions (363). The total number of 3rd pillar participants thus reached 87,836 at the end of May, 7% more than in April.
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by, 5.06.2008

The second contribution round could bring EUR 26.6 million to mandatory pension funds
The second contribution round to the mandatory pension funds (2nd pillar) could bring another EUR 26.6 million in their accounts, 10% more than the first round, according to some estimates the specialized web portal, based on data published today by the National Statistics Institute.
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by, 5.06.2008

Best paid mandatory pensions customer in Romania made over 282,400 EUR (gross) in March
The best paid mandatory pensions (2nd pillar) customer in Romania made over 282,400 EUR as growth salary in March and contributes to the fund managed by ING, the market leader, according to the data presented today by Bram BOON, member in ING's pension company board, with the occasion of a conference organized by ZIARUL FINANCIAR.
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by, 5.06.2008

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VIG succeeded a 33.7% growth in the CEE region in Q1/2008
VIENNA Insurance Group reported a total amount of written premiums for the CEE region at EUR 1.020 billion (44.1% of the group's premium), a 35.7% increase in comparison with Q1/2007. Life premium totaled EUR 259 million, up 43.8% while non-life premium amounted to EUR 761 million, a 33.2% increase. The group's profits (before taxes) came to EUR 44 million, a growth of 25.9%.
"Already in the first quarter one billion in premiums originated from the Central and Eastern European region. This confirms our commitment to the CEE region, as we have already witnessed considerable growth rates in the life segment in these countries. Almost a third of total life premiums for the Vienna Insurance Group is now coming from this region", noted Gunter GEYER, CEO, VIG.
CEO In the Czech Republic premiums written grew 15.1% to EUR360 million. Of this amount life premiums represented EUR84 million, a growth of 24.0%, and non-life premiums with an increase of 12.6% to EUR 276 million. Profits before taxes from this country contributed almost 20% of VIG's total profits and amounted to EUR21 million, an increase of 12.1%.
In Slovakia, the group's companies achieved premiums written of EUR 161 million, equating to outstanding growth of 14.1% compared to the first quarter 2008. In the life segment premiums grew 42.6% to EUR 56 million. Non-life premium amounted of EUR 105 million, up 3.1%. Profits (before taxes) increased by 8.0% to a total of EUR 11 million.
Writing premiums of EUR 174 million, a growth of 43.3%, Polish group companies' profit before taxes was EUR 7 million, an increase of almost 104.8%. In the non-life segment, premiums grew by 29.5% to EUR 100 million while the life segment saw growth of 67.3% to a total of EUR74 million.
In Romania group companies generated premiums of EUR 201 million, up by 89.1%, as profits before taxes increased 102.9% from EUR 1 million to EUR 3 million. In the non-life segment premiums grew 84.8% to EUR190 million. In the life segment, premiums grew more then three fold (206.1%) to EUR 11 million.
In the other CEE countries in which VIG operates (Bulgaria, Croatia, Serbia, Turkey, Ukraine and Hungary) premiums amounted to EUR 124 million, an increase of 77.7%. In the life segment, growth of nearly 33.1% was achieved with premiums written of EUR 33 million. In the non-life segment, premiums totaled EUR 91 million, an increase of 100%. Profits (before taxes) from the region were EUR 3 million, an increase of 53.8%.
The consolidated premiums of the Group grew 14.5% in January-March 2008 and amounted EUR 2.311 billion while claims paid increased 14.7% to EUR 1.359 billion.
The group's total investments as of March 31, 2008, decreased 0.4% to EUR20 billion as net investment income decreased 22.2% to EUR 159 million.
by, 26.05.2008

POLISH Re IPO canceled
Warsaw-based POLISH Re, one of the leading reinsurer in Central and Eastern Europe, announced it's decision to withdraw the initial public offering, as a result of the failure to obtain a satisfactory issue price.
Recently reinsurer launched an IPO procedure, aiming to attract about EUR100 million from the capital market. The goal was to buy a controlling interest of POLISH Insurance Company and to overtake reinsurance companies in Central and Eastern Europe, as well as strengthening its position in the region.
As a result, the company is considering alternative measures in order to fund its investment objectives; these will be announced at an appropriate time.
POLISH Re is the only company in Poland specializing strictly in the reinsurance business, founded in 1996. The company operates in 33 foreign markets, where it has 150 out of its 166 clients.
by, 3.06.2008

Increasing competition on the Ukranian life insurance market
Ukrainian life insurance segment faces a transfer of monopolization, from several leading companies to competition, according to INTERFAX.
"The competition on the life insurance industry is increasing, the main influence on the market is transferring to new players", Chairman of the State Commission on Regulation for the Financial Markets Services of Ukraine Valery ALYOSHIN has informed.
In 2007 the number of the insurance companies specializing on life insurance has increased by 10 players.
On the non-life segment, companies from TOP 3 amounted a 12,6% share of the market,
that slightly differs from parameters of 2006. Thus the weight in of retail insurance has increased by 75 % that testifies to stability of the national insurance market, added ALYOSHIN.
The most popular insurance classes which contribute to positive image of the market are MTPL, medical insurance, agricultural risks and property insurance.
At the same tine, the macroeconomic situation of the country, as well as banking and crediting system, will seriously affect the activity of the insurance companies, underlined ALYOSHIN.
By December 2007, there were registered 446 insurance companies, an increase by 35 companies in comparison with the previous year.
by, 3.05.2007

Pozavarovalnica SAVA sets final IPO price at EUR 28 per share
Slovenian reinsurer SAVA Re announced that initial price offering raised to EUR 196 million.
The company which is part of the investment fund SOD, offered a 75% stake at a price of EUR 28, the lower end of the offering price range of EUR 28 and EUR 38, according to Slovene Press Agency reports. The offering attracted total bids of EUR 213 million.
As we announced earlier, SOD and SAVA Re launched the IPO in May in order to finance the company's further expansion. SOD is planning to sell just over 7 million of its shares in the Slovenian company, topped by another 1.5 million of new shares the reinsurer plans to issue as part of a capital increase. Also, SOD wants to retain 25% plus 1 share in the SAVA Re after the IPO.
State-run Restitution Fund SOD controls 99.9% of SAVA Re's shares. In 2007, the reinsurer has written EUR 118.540 million in premiums and paid EUR 70.359 million in claims.
by, 2.06.2008

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Romania's GDP exceeded expectations
Romania's economic growth rhythm amounted to 8.2% in the first quarter, compared to that in Q1 2007, ranking it second in the European Union, behind Slovakia. The data was made public by the National Institute of Statistics (INS). Total investments in the national economy increased 35.2%, totaling EUR 3.4 billion.
The initial effect of this announcement was felt in the reference exchange rate announced by the National Bank of Romania (BNR). This could also lead to becoming more attractive for foreign investors.
Main macroeconomic indicators with appeal for foreign investors are economic growth, inflation, business, and current account. According to the President of the Prognosis Commission, Ion GHIZDEANU, foreign investments are continuously increasing.
The Vice President of the Romanian Association for Foreign Investments (ARIS), Monica BARBULETIU, said that the number of projects increased in 2008. Many foreign investment funds and companies plan to launch projects in.
The main project that ARIS is working on right now is VOESTALPINE, worth over EUR 5 billion. BARBULETIU indicated that the Austrian company is interested in all details, including working procedures, environmental issues and training of future employees.
By, 3.06.2008

Romania posts highest retail growth in April
Romania registered 18 percent growth year-on-year in the retail segment in April, according to the European Union's (EU) statistics office, Eurostat.
This is the third month in a row when Romania tops European Union retail growth. Furthermore, the sector was subject to a drop in both the entire EU (0.8 percent) and the euro-zone (2.9 percent), the Eurostat report shows, which includes statistics from 18 countries.
Romania is followed by Lithuania, with 14 percent growth in retail. Bulgaria registered 10.1 percent growth on this segment.
By, 4.06.2008

International financial crisis might affect Romania positively
The international financial crisis might have a positive impact on Romania by moderating the pace of growth for both credits and the current account deficit, Romania's National Bank Governor Mugur ISARESCU has declared. He added that, if the crisis continues, the only risk would be that Romania's economic growth would moderate.
Isarescu added that, considering the gross domestic product's advance by 8.2% the economy might overheat since the increase exceeds the resources of the society. He said that the economic growth was higher than initially estimated but was not surprising.
Vice governor Eugen DIJMARESCU said that the economic growth of the first quarter seems to be above the potential of the gross domestic product and thus the threat was real. He added that due to this a decrease in the interest rate of the monetary policy is unlikely.
When it comes to the inflation, ISARESCU declared that if there are no supplementary pressures, the inflation might moderate at around 6% by the end of the year and it will enter a targeted path by the end of 2009.
By, 4.06.2008

Romania's national economy to grow by more than 5% per year until 2020
Romania's economic growth will maintain at a little above 5% until 2020 and this year will decrease from 6.5% to 5.2% according to a long term forecast set up by the National Prognosis Commission quoted by Mediafax. The report shows that in 2009, the economic growth will reach 6% but the case is exceptional.
According to the data, the biggest contribution to the gross national product (GDP) will come from the constructions sector while the agricultural sector will have the lowest contribution. The value of the GDP will amount to EUR 442.3 billion in 2020 as compared to EUR 133.8 billion this year.
Romania's commercial deficit will diminish, according to the forecast, from EUR 24 billion this year to EUR 17.5 billion in 2020 due to a fast export increase as compared to imports. Moreover, the weight of the commercial balance in the GDP will register 4%.
Moreover, the long term 2008-2020 inflation prognosis shows that the average inflation rate will stabilize around 2015 at 2% per year and for this year the inflation rate will amount to 7.5%. During 2009-2014, this indicator will have a descending trend, from 4.5% next year to 2.3% by 2020.
By, 3.06.2008

Romania offers cheap labor force
Romania is one of the European countries to offer cheap labor force, a Eurostat report shows on Tuesday. Romania is classed 26 out of 27 with 2.86 EUR/labor hour followed by Bulgaria with 1.65 EUR/labor hour. At the other side of the spectrum, Sweden pays most for its workers with 32.16 EUR/hour.
The Union's average is 20.35 EUR/hour.
By, 3.06.2008

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Sopot Summer Insurance and Reinsurance Days 2008
June 16-18, 2008
Sopot, Poland
Organizer: RESOURCE
Media Partner: PRIMM Magazine - Insurance&Pensions

Life Insurance Securitisation Conference
September 17th-18th, 2008
London, Great Britain
Organizer: JACOB FLEMING Conferences
Media Partner: PRIMM Magazine - Insurance&Pensions

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XPRIMM Newsletters


President: Sergiu COSTACHE CEO: Adriana PANCIU
Business Development Director: Alexandru D. CIUNCAN

Editor in Chief: Mihaela CIRCU
Scientific Advisor: Daniela GHETU
International Column Coordinator: Andreea IONETE
Private Pensions Coordinator: Mihai BOBOCEA
Senior Editors: Vlad PANCIU, Oleg DORONCEANU
Editors: Vlad BOLDIJAR, Oana NECULA
Web Responsible: Costi BORODA

General Secretary: Lidia POP

Accounts Manager: Georgiana OPREA
IT Department: Octavian GRIGOR, Dorin PALADE

Edition Responsible: Costi BORODA


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