USD/KZT 459.46  -1.59
EUR/KZT 495.71  -3.61
  KAZAKHSTAN №1, 2015
 Insurance. Market Irregularity
Market Irregularity
The results of last year were highly controversial for the insurance sector. Despite the decrease in the collection of premiums and increased payments, the profits increased considerably. The “war of sanctions" has also its impact on the insurers. This year the experts predict processes of mergers and acquisitions with simultaneous strengthening of competition between the players and increase of the regulator’s requirements.
Compulsory Insurance Is Growing, Unlike the Optional One

According to the official statistics of the Committee on regulation and supervision of financial market and financial organizations of the National Bank, the total volume of insurance premiums collected on January 1, 2015 decreased by 4.7% and amounted to 266,121 million KZT. 236,411 million KZT was collected by direct insurance contracts.

Unlike the previous years, this time the market driver was compulsory insurance that grew up to 8%, to 66,176 million KZT. At the same time, the voluntary personal and optional insurance experienced a decline for 14.1% – to 81,304 million KZT and for 3.7% – to 118,641 million respectively. As a result, their ratio in the structure of premiums by insurance classes changed: compulsory insurance increased from 22% to 24.9%, voluntary property insurance – from 44.1% to 44.6%, while voluntary personal dipped from 33.9% to 30 6%.

According to Oleg Khanin, Chairman of the Board of Kommesk-Omir insurance company, lower insurance premiums in 2014 can be explained by several reasons. First, there have been legislative changes in the pension system. In particular, there was a ban imposed, which was later followed by restricting the sale of annuities (PA) by the life insurance companies, associated with increasing requirements for the minimum pension savings, suitable for PA purchase.

Secondly, the policy was changed by some bank insurers, providing the borrowers' insurance against the accidents. This has reduced the cost of loans and fees in this segment.

In turn, Nazym Tulchinsky, Deputy Chairman of the Board of Eurasia insurance company believes that last year's result demonstrates the insufficient capitalization of the insurers. "The companies with a small share capital or own equity have a small net retention. That is why they can't independently insure even relatively small risks for 1–2 billion KZT". Another factor is a very low percentage of people, who want to insure voluntarily their property. Although it does not add any reasons for optimism, there is a hidden reserve for the future development. In addition, the fall of the insurance market is due to the fact that the amount of premiums for a classic insurance declined, and the business profitability dropped.

If we analyse the changes within the individual classes of insurance, it is clear that the compulsory insurance of 50.8% (33,641 million KZT) of all the  insurance income accounted for the civil liability of the vehicle owners. Last year the growth of the premium collection for this type amounted to 8.4%. The employee insurance against accidents during working (service) time increased for 7.9%. As a result, its share rose to 41.64% (28,550 million KZT).

In the voluntary property insurance, the property insurance made the greatest contribution to the collection of premiums – 43.75% (51,910 million KZT), as well as civil liability insurance – 29.5% (19,159 million KZT). These types rose by 13.2% and 29.2%, respectively. However, financial loss insurance and cargo insurance revenue drop almost 2 times (by 48.1% and 42.5%). As a result, their share in class fell to 13.9% (16,498 million KZT) and 3.66% (4,351 million KZT). However, the voluntary vehicle insurance became the absolute leader in terms of growth of premiums collected last year. Being increased by 37.6%, this type of insurance occupied the share of 14.2% (16,756 million KZT).

In the field of voluntary personal insurance, only health insurance showed positive dynamics, which rose by 15.9 percent to 22,187 million KZT. Revenue from other insurance types fell, while the accident insurance put anti record, which collapsed by 36.1%, to 12,130 million KZT.

In the end, the life insurance industry share of total premiums in the past year fell from 20.3% to 17.7%.
Market Paradoxes

Meanwhile, the decline in premiums collected by insurers in Kazakhstan last year, was accompanied by an increase in payments. Excluding the insurance payments for inward reinsurance contracts, the figure was 62,303 million KZT, which is 19.9% higher than a year earlier.

Compulsory insurance became the leader, as in 2013, where the increase was 32.9%. While its share in the total structure of insurance premiums increased from 38.5% to 42.6%, reaching 26,556 million KZT. Voluntary personal insurance payments rose by 12.6 percent to 25,681 million KZT, and the voluntary property insurance rose by 9.7%, to 10,065 million KZT.
As noted by Oleg Hanin, rising insurance premiums in compulsory insurance, in particular in Compulsory insurance of vehicle owners civil liability, is due to increase of MCI, growth of vehicle fleet and loss development, associated with the adjustment of the tenge rate in February, 2014. In this situation, cost of car repair and spare parts increased. With regard to the increase of payments for employees compulsory accident insurance, Mr. Hanin explained this by the growing coverage by this type of insurance.

Against the background of the premiums collection fall and benefits increase, positive dynamics, shown by the insurance companies net profit, looks somewhat ironic. At the end of 2014, its volume was 43,462 million KZT, which is 48.3% more than the year before. And this despite the fact that income from insurance operations decreased by 1.1%, to 191,131 million KZT, while the cost of payments increased by 21%.

Oleg Hanin explained this paradox simply. According to him, the profit growth was a result of increased insurers investment income by 62% due to adjustment of the tenge rate.

Still, the domestic insurance market is now at a relatively low level of development. The reasons for this are different. According to Nazim Tulchinsky, the main reason for this is the low capitalization of domestic players, not allowing them to be actually the insurers, that is, to hold a substantial share of risk on major projects. "You can say a lot about the so-called low insurance culture population, lack of qualified personnel, and more, but the root of all evils is the low capitalization".

However, Mr. Tulchinsky called to judge on state of the insurance market by how its players carry out their obligations. "In our view, the key indicator is not the insurance reserves, equity, profit or assets, but the amount of insurance payments. The insurance sector is producing only one product, the insurance payments. And the consumers of our products and the media should judge our work only by this indicator. For a client, the most important thing is whether he or she received money from the insurance company or not."

It is noteworthy that, according to Swiss Re sigma, the insurance market of Kazakhstan is evolving faster than that one in India, China, Russia, the Far East and the Persian Gulf countries. The increase in reinsurance premiums, attracted from abroad, became one of the trends in recent years. The Company experts attribute this mainly to the new Kazakhstan players international ratings.

As negative,  the Swiss Re sigma analysts point a significant geographical concentration of ‘growth points’. So, the most developed region in Kazakhstan is the city of Almaty. According to their estimates, it accounts for approximately 50% of the total collected premiums in the country. As for the rest, there is observed weak activity and low level of insurance services understanding. "For this reason, the Asian and American companies do not shown active interest in insurance sector of Kazakhstan, explaining that by the low retail insurance development. But with the development of industrial production, transport infrastructure in the framework of the Customs Union and international projects, Kazakhstan market will become attractive to global foreign insurers."
Why AIG left?

In the meantime, we are seeing the reverse trend. So, one of the most significant events of the past year is the leave of the largest American insurer AIG from Kazakhstan. The company explained the reason for this decision only in very general terms: "As a result of careful consideration and in-depth study of the market, the company decided to close its insurance operations on the territory of the Republic of Kazakhstan”.

The press service of AIG underscored that the company continues to be "a financially sustainable insurer and will continue to honour its commitments by providing complete services to settle insurance claims for all applicable insurance contracts".

Recall that the Russian subsidiary of the insurance group also decided to close its retail businesses earlier. However, even in this case the explanation was very vague: "As a result of a comprehensive market research, AIG decided to continue to provide the only commercial insurance services in Russia, and to stop providing insurance of motor vehicles, personal property, as well as accident insurance and insurance of travelling abroad, starting from October 1, 2014." As the company emphasized, the move was "based solely on an assessment of the existing and future capacity of the Russian insurance market in accordance with the operating and investment requirements of the parent U.S. company and is not associated with the sanctions".

At the same time, market participants do not see anything wrong in so eminent major insurer leave. While they do not rule out that one of the reasons for this decision was the confrontation between Russia and the West. According to Mr. Tulchinsky, as a result of the "war of sanctions" it is difficult to find cheap and quality reinsurance for risks in Kazakhstan today. "So some of the insurers,’protecting’ their portfolios, are trying to delay the insurance payments on insured events occurring or understate their amount. Many insurants in Kazakhstan are unhappy with late or too low insurance payments and are increasingly turning to the courts. Other customers simply refuse to insure themselves in the future. As a result, the whole insurance market is suffering."

On the other hand, EEMA insurers start to go along the path of integration. So, at the end of December last year, Eurasian Economic Commission and Association of Insurers of Belarus, Russia and Kazakhstan signed a memorandum on cooperation. As the Minister for Economics and Financial Policy of EEC, Timur Suleimenov, noted, the Memorandum will make a constructive element in the dialogue of a supranational authority and the insurance industry. "It is significant that we sign the document not with a separate national association, but with all the key associations of insurers of our countries."
Less Optimism

Meanwhile, experts estimate prospects of 2015 without much optimism, believing that the volume of payments will continue to rise. In the short term, this means a higher cost, but in the long run this may be a positive trend.

So, Mr Khanin believes that because of the difficult economic situation this year will be difficult for insurers, particularly because of the fall in oil prices and sanctions against Russia. As a result, decrease in consumer demand for insurance products is expected. Among the possible trends of 2015, he also highlighted the increased competition and improved service for customers, as well as the introduction of new insurance products, market infrastructure and information technology development.

In turn, Mr. Tulchinsky notes that the growth of insurance payments will continue in 2015. This is important for insurers, because it increases customers credibility. However, players expect bad times both from the dynamics of insurance premiums growth and profitability points of view. However, Eurasia IC projected market growth at the level of 3–5%. Speaking of competition, Mr. Tulchinsky looks forward to its aggravation. "This could lead to an increase in market share of companies from the second top ten rankings. Part of the smaller insurance companies will withdraw from the market or join leading insurers. In the end, some leading companies will demonstrate the extensive growth indicators. The most resilient players will be those affiliated with banks or large financial and industrial groups."

A similar view is shared by the Chairman of the Board of Kompetenz Insurance Company JSC, Talgat Usenov, who drew attention to the fact that the insurance market continues to consolidate. "Several potential mergers and acquisitions are obvious even now. It is becoming increasingly difficult to maintain an insurance company. So some ‘accidental’ owners will try to get rid of a heavy luggage. Most likely, there would be insurance assets sale-purchase transactions”.

The Senior analyst of Standard & Poor's, Catherine Tolstova, has moderately pessimistic views on the prospects of the market. "The development of the insurance sector in Kazakhstan in 2015 will be resulted in both internal factors of insurance sector growth and the macroeconomic situation. We expect that real growth will be lower than in the last five years."

While Ms. Tolstova also does not deny the possibility of M&A: further consolidation of the insurance sector will be due to the expected merger of insurance companies as well.

At the same time, the S&P analyst believes that in order to keep clients, the quality of insurance services and the ability to attract customers with additional service will have particular importance for players. "However, there is a possibility of dumping, as well as the growth of acquisition (agency) costs in case of inability to attract clients by the factors mentioned above."
Injections for Market

As for the prospects of insurance in various classes, Oleg Hanin expects  increasing loss of compulsory insurance of vehicle owners civil liability and Avtokasko (due to the cost of car spare parts), as well as in health insurance (due to rising prices for imported medicine). If we talk about innovation, then the insurance community is working on a project to implement online insurance and electronic sales of policies for compulsory classes of insurance. Development of online insurance will reduce the costs of insurance companies and will provide additional services to customers.

A similar opinion is shared by Catherine Tolstova: "Although the initiative to develop a regulator of new insurance products, its implementation is still at an early stage and, consequently, the insurance sector will be dominated by insurance products such as property insurance and car insurance."

The Standard & Poor's analyst expects that the profitability of the sector will gradually decline. "The increasing loss ratios can also serve as a signal for the insurance companies to control quality of accepted risks more efficiently. According to our forecasts, combined loss ratio of the insurance sector in Kazakhstan will not exceed 95% in 2015, which is a positive factor in comparison with Russian insurance sector, where the indicator has reached 100% already. The lower the combined loss ratio, the more ROI, while the ratio of more than 100% means the loss of the insurance operations. Increasing losses in individual segments (especially in vehicle insurance) is partly linked to the devaluation of the tenge”.

In turn, Nazim Tulchinsky believes that drivers of the market would continue to be the voluntary property insurance classes in the corporate sector. "Insurance in a good way is the ‘staff’ of the economy, so the market state depends largely on the situation in the country as a whole. In this respect, the most significant event for insurers, as well as for the whole country, happened on November 11, 2014, when President Nursultan Nazarbayev announced a new economic policy in Kazakhstan, Nurly Zhol, one of the measures of which will be the allocation of funds from the National Fund".

In his view, such a powerful injection of capital will have a positive impact on the economic development of the country and, in particular, will give a boost to the insurance sector. The gradual normalization of the country's banking sector will have a positive impact on the insurance industry, which risks limited the insurers' ratings.

And yet, as the experts say, the domestic insurance market should prepare for more serious tests in connection with the establishment of the EEU. New horizons for development will open for strong players, while the weak ones will have to free their seat to others. As the BTA Insurance press service noted, the conditions for local and foreign insurers will be equalized after the transition period.

The capacity of the market will rise, possibility to access services in the neighbouring states will be given. Russia's leading insurance companies have a greater competitive advantage over Kazakhstan in terms of capitalization, in technical and technological equipment, in promotion of services, in personnel matters. Therefore, our companies will have to make every effort to be competitive on the market, where there will be significant players. Moreover, the process of further globalization and integration is inevitable.

In turn, Eurasia IC encourages successful insurers to consider risk management seriously. And it's not just about insurance risks as such. It is also the capital and entrepreneurial risks, management of financial flows and ensuring the security of customer information. These factors form a huge number of challenges to be faced by already successful companies, and those who only wishes to succeed.

With regard to the possible actions of the regulator, Catherine Tolstova does not exclude that the medium-term trend will be aimed at further strengthening the supervision of insurance companies. Including possibility of further strengthening of the capital requirements. "There is a significant disparity in the level of capitalization of the insurance companies. Small players can hold less risk by their own and therefore have to transfer them to the reinsurance. Starting from January 1, 2015, the maximum amount of net retention will be reduced from 50% to 30% of the available solvency margin, leading to the fact that many insurance companies will have to increase the cost of reinsurance in order to avoid pressure on the solvency margin." As a result of this measure, insurance companies would be forced to raise additional reinsurance capacity and, consequently, spend more on reinsurance.

Aggregate insurance market share, %



Assets of the top ten insurance companies



Equity capital of the top ten insurance companies



Insurance premiums of the top ten insurance companies



Insurance payment of the top ten insurance companies




Insurance sector main indicators



GDP, billion KZT  



Ratio of premiums to GDP,%



Ratio of equity to GDP, %



Ratio of assets to GDP, %



Ratio of insurance premiums per capita, KZT2



1 Forecast data from the Ministry of Economy and Budget Planning of the Republic of Kazakhstan.
2 According to the Agency of the Republic of Kazakhstan on statistics, the population of the Republic of Kazakhstan as for 01.12.2014 is 17,397 thous. people.

Table of contents
· 2016 №1  №2  №3  №4  №5
· 2015 №1  №2  №3  №4  №5  №6
· 2014 №1  №2  №3  №4  №5  №6
· 2013 №1  №2  №3  №4  №5  №6
· 2012 №1  №2  №3  №4  №5  №6
· 2011 №1  №2  №3  №4  №5  №6
· 2010 №1  №2  №3  №4  №5/6
· 2009 №1  №2  №3  №4  №5  №6
· 2008 №1  №2  №3  №4  №5/6
· 2007 №1  №2  №3  №4
· 2006 №1  №2  №3  №4
· 2005 №1  №2  №3  №4
· 2004 №1  №2  №3  №4
· 2003 №1  №2  №3  №4
· 2002 №1  №2  №3  №4
· 2001 №1/2  №3/4  №5/6
· 2000 №1  №2  №3

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