Under Cover

REGULATION & DIVERSIFICATION

The insurance sector, regulated by the Ministry of Finance, is today developing greater competition, where quality and range of services will be the battleground. The law has sought to enable this, and been revised in light of changing national economic imperatives. Naturally, the oil and gas business remains a large client base. Yet Elshad Aliyev, Chairman of the Board of Directors of Alfa Sigorta, which among others delivers health insurance to the State Oil Fund of the Republic of Azerbaijan (SOFAZ), told TBY that, “We are also negotiating with the Central Clinic and the Central Bank of Azerbaijan (CBAR) for the provision of both medical and property insurance.”

Azerbaijan’s Insurance Law has seen three periods of change, with the first framework introduced in 1993; a revision followed six years later, and the current Law on Insurance Activity dates from 2008. The present law obliges insurance firms to be open joint-stock companies; this is a nod to the securities markets, as such companies should ultimately swell the liquidity of the Baku Stock Exchange (BSE). The market hosts close to 30 insurance outfits, a re-insurance company, over 170 insurance agents, and seven insurance brokers. And to ensure financial strength, the minimum share capital for insurance companies has been raised to AZN2 million.

INVESTOR INTEREST

The sector has foreign investment appeal given Azerbaijan’s young population. Moreover, State Statistical Committee data for January-November, 2013, revealed a 6.5% YoY rise in the per capita personal income, coming in at AZN3,471.7. To that you can add a stable political situation, positive economic prospects, rising public awareness, and a rich spectrum of commercial insurance and obligatory non-life coverage. Where foreign participation in local insurance companies had formerly been capped to holding 49% of share capital, the current law has no Ministry of Finance-stipulated threshold. In 2005, for the first time in the local insurance market, a foreign entity became a shareholder of a local entity when the European Bank for Reconstruction and Development (EBRD) bought a 30% stake in MBASK Insurance Company. The latter, in business since 1992, assumed its current name upon selling a controlling stake to French giant AXA in late 2010, and today is licensed to underwrite 29 types of policy. CEO Yavuz Ölken spoke of the company’s recent AZN5.5 million capital increase in light of upcoming official revision to capital requirements, commenting that, “In order to grow further, a company must show financial strength, and we are very happy to see an opportunity where we are able to increase our capital, which is currently at AZN8.4 million.” he told TBY.

DRIVE TIME

The Compulsory Insurance Bureau (CIB) was established in 2011 simultaneously with compulsory insurance legislation. All vendors of Compulsory Motor Third Party Liability Insurance (CMTPL) are obligatory CIB members, today numbering 12. The law stipulates a AZN5,000 payment for physical damage to a person and to property, and a third party settlement ceiling of AZN50,000 per case. In the first year 917,622 contracts with total premiums of AZN721 million were signed. Meanwhile, in terms of voluntary motor insurance, of the 1.1 million registered vehicles in Azerbaijan just 10%-15% have such coverage, offering fertile growth potential. CIB data reveals that in 2013 its members signed-up over 1 million compulsory insurance contracts generating premiums of close to AZN83 million.

Meanwhile, the government has been pondering the precise mechanism of a compulsory health insurance system (CHI) since the Health Ministry submitted a draft CHI project for cabinet review in 2008. Yet while the legal framework is essentially in place, the mechanism, as well as applicable agencies and medical centers, have yet to be hammered out.

READY RECKONER

For 2013 insurance premium generation was led by PASHA Insurance on AZN53.73 million, followed by AzSigorta on AZN42.10 million, Azersigorta on AZN40.95 million, Ateshgah Sigorta on AZN37.49 million, and PASHA Heyat on AZN34.97 million. The top-five in compensation settlement terms were PASHA Insurance on AZN27.43 million, Ateshgah Sigorta on AZN15.24 million, Azersigorta on AZN13.25 million, AzSigorta on AZN9.42 million, and AXA MBASK on AZN8.23 million.

According to ABC.az data, PASHA Insurance ruled the roost with 13.24% of the total market in 2013, and in January-February 2014 held 27.37%. By year-end 2013, the company had posted premiums of AZN53.7 million and paid out a total of AZN27.5 million. And in the January-February 2014 period it saw premiums of AZN25.1 million and compensation payouts of AZN3.9 million, the highest among its peers.

For the January-February 2014 period, the 10 best performers accounted for 84.01% of total insurance premiums, having written 73.7% in 2013 and 43.6% in 2012, with the top-five generating 62.43% against 51.6% for FY2013, confirming an upward trend. The average premium per insurance company in January-February 2014 was at AZN3.3 million, having stood at AZN14.5 million for 2013, while average payouts rang in at AZN0.7 million, with a 2013 print of AZN4.4 million.

According to the State Insurance Supervision Service, a department of the Ministry of Finance, over the January-February 2014 period the top-10 insurance firms surpassed the AZN1 million mark in premium generation. For the period, total volume registered by the 28 insurers in the country stood at AZN91.6 million, while settlements amounted to AZN19 million.

THE YEAR AHEAD

The Azerbaijan Insurers Association (ASA) has pinpointed key areas of attention for 2014. These include promotion among the public—still largely oblivious to insurance, be it coverage or investment-oriented—and intensified efforts to shore up service standards by extending training to insurers and other industry professionals. The association is making wider use of electronic media to target specific social and age groups. Training is fundamental in reversing public distrust of the financial markets. Local player Buta Sığorta’s internal training center incubates a sales force fresh from college. The results speak for themselves. “Over the past year, we have managed to increase our assets by a factor of three, from AZN2.8 million at the end of 2012 to AZN7.8 million at the end of 2013,” CEO Abbas H. Babayev told TBY. A pioneer in its own right, the company’s gold guarantee insurance coverage for electronic equipment marked a first for Azerbaijan.