FOCUS

Under Watch

Growth in every segment of the insurance sector is attracting attention, as investors circle and the regulator keeps a watchful eye.

Still in its initial stages of development, especially when compared to the country’s quickly developing banking sector, the insurance sector is nonetheless showing signs of robust growth. The premium income to GDP ratio remains low, however, hovering around 1%. Seeing as the same figure in Western Europe comes in at around 10%, there is still much to do to improve public awareness of the sector and its benefits.

Triggered mainly by the government’s introduction of compulsory insurance coverage for corporations, the market has, however, been on a gradual incline for the last decade, except during the global financial crisis when shocks were felt across the board.

In 2010 a 60% growth rate was seen in the non-life segment, while a 10% growth rate was reported in life insurance. This is in comparison to the 19% decline in non-life premiums seen in 2009. The life insurance segment, however, still only accounts for roughly 4% of total premiums. Further drivers include compulsory employee coverage and driver liability insurance, while the presence of foreign players is bringing best practices to the sector. The National Bank of Kazakhstan (NBK) and its regulatory agencies have also been credited with securing the sector against threats with tighter regulations.

While total premiums amounted to KZT113.3 billion in 2009, including KZT104 billion in non-life and KZT9.3 billion in life premiums, industry figures are positive for the future. It is predicted that by 2015 the figures could reach KZT324.7 billion for non-life and KZT25.3 billion for life.

Hopes were boosted by a good start to 2011, with the gross written premiums of insurance companies in Kazakhstan increasing by 22% to reach KZT102.2 billion in the first half of 2011. This is up on the total underwritings in the correspondent period of 2010—KZT83.6 billion. Claims paid by insurers, on the other hand, amounted to KZT18.5 billion, up by around KZT6 billion compared to the same period in 2010. Of this overall growth, however, compulsory insurance accounted for the least, while life insurance saw the greatest growth, with the amount of premiums increasing by 1.5 times. There are currently 38 insurance and reinsurance companies in Kazakhstan, seven of which have licenses to supply life insurance, yet market consolidation seems to be underway and that number could fall by the end of 2011.

THE REGULATOR

Having taken steps to promote the financial sector of the country over recent years, all regulatory and supervisory functions have been transferred from the NBK to the newly established Financial Supervision Agency of Kazakhstan (FSA). The FSA has targeted the growth of life and non-life premiums, and is seeking to harmonize the insurance regime with internationally accepted standards and EU directives.

According to the FSA, the insurance market grew between 10% and 15% in 2010, with this increasing growth leading to calls for the extension of the insurance ombudsman’s powers. In 2011 the FSA predicts 15% growth, with the quality market pushing the expansion instead of the traditional growth engine—compulsory insurance. The FSA really shone following the global economic downturn, restricting agency fees to 10%, and creating a central data system for each company to enter information on all issued policies and insurance claims. Finally, compulsory policies also began to be issued directly from the centralized system, with the target now to add voluntary insurance into the same system.

FOREIGN PLAYERS

The Kazakhstani insurance sector is undergoing consolidation of late, and foreign companies are leading the charge to create a more stable and recognizable sector. “There are now a lot of smaller insurance companies that are potential targets for foreign investors,” Zhanar Kalieva, Chairperson of Allianz, told TBY, adding “Allianz is also growing, and if we grow further we might consider acquiring other smaller successful companies in the market.”

Chartis (formerly AIG) Kazakhstan Insurance Company is a newcomer to the sector, entering in 2010. “We are committed
to the Kazakhstani market, which offers the most promising opportunities amongst all Central Asian republics,” Oybek Khalilov, Chairman of Chartis Kazakhstan, told TBY. It already has a market share of 4% in gross premiums written (GPW) terms, and a 2% share in overall claims. The presence of foreign firms in the sector is also seen as positive across the board, with Talgat Ussenov, Chairman of Centras Insurance, telling TBY, “We would appreciate foreign investment as this would help the industry grow more quickly, and we could also benefit from their experience.” He later added that “the [FSA] is increasing the minimum level of capitalization, so this means that our own resources from local investors could be limited,” and that “the involvement of foreign companies and investors would be a major bonus.”

OUTLOOK

According to industry leaders, the corporate sector offers much potential for future growth, as especially “middle-size corporate entities are not covered”, Ussenov told TBY. “Thanks to tougher regulations, the trust the public has in the insurance industry should also increase,” he added, in a climate where mistrust is high following the collapse of issuers over the 2008-2009 period after it emerged that issued compulsory insurance policies were non-compliant with sector regulations. According to Allianz’s Kalieva “the established regulatory and legal platform is in superb shape,” adding “investors are waiting to see if the new rules and regulations will stay unchanged in the long term.”