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Against the backdrop of rapidly increasing living standards and improving logistical capacity, Azerbaijan’s insurance sector is in full revival following the financial crisis. Changing legislation and demand for underdeveloped products are driving prospec

In parallel with rising household disposable income, insurance premiums increased 30% in 1Q 2011. Premiums per capita reached AZN 17.2 at the end of 2010, reflecting a clear recovery position following a slump in the market across 2008-09.

Azerbaijan’s insurance and reinsurance companies saw an increase in charter capital of eight fold, from AZN18.4 million to AZN150 million. Overall volume for January through May 2011 was AZN86.45 million with compensations of AZN22.19 million.

As of March 1, 2011 the industry was gathering most of its premiums from voluntary real estate (AZN18.38 million for February) and insurance of aircraft (AZN5.12 million for February). These dynamics will likely change considerably, however, with the ratification of a new compulsory insurance law.

Approximately 88% of premiums, or AZN26.1 million, fell in the category of non-life in 2010. Compulsory insurance accounted for 11% of the share, or AZN3.29 million, while a mere 0.85% came from life insurance lines. Many analysts feel that such low penetration rates in life insurance, in concert with changing attitudes and incomes, spell strong stimulus for development. Compensations in 2010 totaled AZN5.39 million.

There are 28 insurance companies in Azerbaijan, including six joint ventures and six foreign investments. There are two public organizations representing the sector—the Union of Azerbaijani Insurers and the Union of Insurance Societies of Azerbaijan—while an Insurance Council made up of seven majors was established by the Ministry of Finance, the regulator of the sector.

Since 1993 Azerbaijan has been an associate member of Green Card, an international system for automobile liability insurance, and TIR Carnet, the cargo transporters’ liability insurance system. The country is expected to fulfill its normative requirements for full membership in the near future.

At the end of 2010 there were 35 types of insurance products on the Azerbaijani market. Nine are mandatory and 26 are voluntary, although that figure—along with market dynamics—will change with the new legal framework.

LEADER BOARD

Azersigorta, the state-owned commercial insurance company, maintained its strong leadership position through the first half of 2011 with AZN11.80 million in premiums. Total premiums for the period equaled AZN98.28 million.

According to the State Insurance Supervision Service under the Ministry of Finance, Azersigorta was followed by Atesgah Sigorta (AZN8.07 million), Azal Sigorta (AZN6.60 million), AXA MBASK (AZN6.58 million), AzSigorta (AZN6.40 million), Pasha Heyat Sigorta (AZN6.29 million), International Insurance Company (AZN6.16 million), A-Group (AZN5.62 million), Xalq Sigorta (AZN 5.38 million), and Standard Insurance (AZN 5.36 million).

In terms of compensation for 1H 2011, the largest was paid by Azersigorta at AZN5.19 million. That was followed by AZAL Sigorta (AZN2.79 million), International Insurance Company (AZN2.96 million), A-Qroup (AZN 2.68 million), and Ateshgah Sigorta (AZN2.40 million). Compensation payments by other insurers did not exceed AZN2 million. Total compensations paid out from January through June 2011 equaled AZN26.74 million.

In 2010, Azersigorta collected premiums worth AZN24.19 million followed by AZ Sigorta (AZN15.63 million), Ateshgah (AZN14.57 million), Pasha Sigorta (AZN13.05 million), Azal Sigorta (AZN12.1 million), and International Insurance Company (AZN10.18 million).

COMPULSORY INSURANCE

On June 24, 2011, the National Assembly of Azerbaijan passed a sweeping new insurance law that will likely be a stimulus for growth in the market. Primarily, the law makes insurance on real estate and vehicles compulsory.

“Citizens who pay an insurance premium of AZN50 per year can insure their apartments for AZN25,000,” Finance Minister Samir Sharifov said at the Insurers’ Forum in Baku on July 7, 2011. “As the regulator of the insurance market, the Finance Ministry is interested in demand for the services of insurance companies. People should realize that they need insurance to protect themselves against risks. In other words, it is not our aim to create business for the insurance companies. The main aim is for people to understand that there are risks in daily life as in business and it is the practice worldwide to use insurance companies.”

The law also calls for the creation of a Compulsory Insurance Bureau to protect the rights of the uninsured. The bureau will be the first of its kind in Azerbaijan, and contributions will be 5% of compulsory insurance premiums across the board.

Additionally, the legislation introduces more streamlined procedures and technology such as electronic signatures in order to increase the speed of insurance payments, particularly to heirs of the deceased.

NEW LINES

Much of the buzz surrounding Azerbaijan’s insurance market is focused on undeveloped and underdeveloped lines, respectively private pensions and life insurance.

According to the State Program on the Pension System Development in Azerbaijan 2009-2016, the legal framework for private pension funds will be set up in 2015. As of July 2011, the Ministry of Finance has released a competitive tender among insurance companies to conduct the final evaluation of the existing pension system and to provide all actuarial calculations and basic parameters of the pension insurance system in Azerbaijan starting in 2015 and covering the next 25-30 years. Funded by a loan from the World Bank, the projection will be complete by late 2012.

Although there is an existing legal framework for life insurance, it is acutely underdeveloped. Considering the country’s per capita economic growth along with the fact that life insurance is the most profitable segment in the developed world, this situation looks likely to change.

In 1Q 2010 life insurance companies underwrote AZN13.19 million. This represents 15% of overall insurance premiums of the period (AZN86.45 million). There are three life insurance companies in the market. The leader, Pasha Heyat, claimed AZN6.1 million, followed by Atesgah Heyat with AZN3.76 million, and Qala Heyat with AZN3.31 million. Compensations were paid only by Atesgah and totaled AZN27,085.

While its still a small percentage of overall premiums, the life insurance sphere in Azerbaijan has grown 410% over the last four years, according to an analysis by Sigma Insurance Group.