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Kazakhstan 2015 | FINANCE | REVIEW: INSURANCE

Insurers remain upbeat despite a lack of private individual pickup, with large-scale projects likely to lead growth over 2015.

Kazakhstan's insurance market is dominated by the non-life segment, and with Kazakhstan so close to the faltering Russian bear, insurers are likely to look to their corporate clients and larger projects over 2015 as individuals hunker down.

The insurance market in the Central Asian state continues to suffer from low penetration, coming in at 0.8% at end-2013 according to the Asian Development Bank (ADB). In conversation with TBY, Eurasia Insurance Company Chairman Boris Umanov shed light on market dynamics, suggesting that, “the largest customer is the corporate sector,” while “only the middle class buys insurance.”

Individuals, in that respect, have shown little willingness to get into the game. “The population have not accumulated any wealth or anything they could lose,” continues Umanov, signifying that high growth opportunities and low penetration could eventually give rise to a serendipitous scramble for market share.

Over 2104 revenues fell by 10%, the drop stemming from a move by the National Bank of Kazakhstan to impose a moratorium on the sale of pension annuities, and a number of bank-affiliated insurers ceasing to insure loan borrowers against accidents as competition heats up in the credit market, with lenders keen to reduce rates on loans.

Some mandatory lines exist in Kazakhstan, such as third-party motor vehicle liability insurance, yet, according to Umanov, “compulsory lines of business are, unfortunately, not profitable,” with the insurer instead focused on voluntary lines including “property, property damage, business interruption, machinery failure, aviation, marine, satellite, construction risk, erection risk, and ecology,” highlighting the sector's tendency toward corporate business.

THE SETUP

There were 34 insurance organizations in Kazakhstan as of January 1st, 2014, 7 of which also offer life insurance. There were also 14 insurance brokers, 72 actuaries, and 30 participants in the Insurance Indemnity Guarantee Fund, according to the National Bank. As of the same date, insurance/reinsurance company assets totaled $2.8 billion, up more than 18% on the previous year. In terms of those assets, 51.4% is tied up in securities, while a further 24.5% is in placed deposits. Reinsurance assets were worth 9% of the total, with the following made up of cash, reverse REPO transactions, insurance premiums to be received from insurants and intermediaries, fixed capital, and other receivables and assets. The overall 18% growth in assets can be accounted for by an increase in placed deposits by 22%, securities by 17%, and reinsurance assets by 7%. On the other side of the coin, liabilities were worth $1.45 billion on January 1st, 2014, up 32.4% on January 1st, 2013. Reserves accounted for 89% of total liabilities, with other categories, including loans raised, settlements with reinsurance companies and intermediaries of insurance/reinsurance activity, accounts payable under insurance/reinsurance contracts, and other payables and liabilities accounting for minor shares. According to National Bank stats, on January 1, 2014, total premiums stood at $1.37 billion, up from $1.14 billion at the start of 2013. The mandatory insurance category accounted for 21% of this total, with voluntary personal insurance at 36.4% and voluntary property insurance leading the way at 42.6%.

In terms of the life/non-life split, life insurance makes up just under 25% of total premiums, with general insurance occupying more than three-quarters. Though small, however, the life insurance sector is growing, with collected premiums up 7.9% over 2013 compared to the previous year. Within the life insurance sector itself, life insurance represents 51%, while annuity insurance accounts for the remaining 49%. On the flip side, property insurance accounts for the majority of insurance premiums under the general insurance category, at 17%, followed by compulsory insurance of civil liability of vehicle owners and insurance to cover other financial losses representing 16% each. That is followed by health insurance at 10%, compulsory insurance for employees against accidents and insurance against accidents both at 9%, and insurance of civil responsibility at 7%. Other insurance classes make up the remaining 16%.

In terms of claims, premium holders received $276 million over 2013, down 23.6% from the previous year. Voluntary personal insurance accounts for close to 45% of total claims, followed by mandatory insurance at around 38%, and voluntary property insurance, at 17%.

And if you're looking for some key indicators, it's worth noting that the insurance premiums to GDP ratio stands at 0.74%, equity capital to GDP stands at the same figure of 0.74%, while assets to GDP stands at 1.53%.

REINSURANCE

As of January 1, 2014, the total amount of insurance premiums passed for reinsurance totaled $406 million, or 29.7% of total insurance premiums, according to National Bank figures. And if we dive further into the details, it becomes clear that 24% of total insurance premiums are passed to non-residents for reinsurance. As of the start of 2014, the UK represented 20% of insurance premiums passed for reinsurance, followed by Kazakhstan itself at 19%, the Czech Republic at 19%, Germany at 14%, Russia at 7%, and Switzerland and Ukraine, both at 4%.

THE PLAYERS

According to the latest statistics from National Bank, the five largest insurance companies account for 37.6% of premiums, with the top 10 accounting for 56.6%. In terms of indemnities, the top five represent 35% and the top 10 over 55%. The top five also hold close to 50% of total assets in the sector, as well as almost 63% of equity capital. In terms of market share, number one is Eurasia Insurance Company, with 27.1%, followed by Kazakhinstrakh, at 12%, followed in order by Kaspi Insurance, Kazkommerts-Policy, and BTA Insurance. The Head of Eurasia Insurance Company, Dr. Boris Umanov, has steered a steady ship despite regional economic instability, telling TBY that in order to avoid any fallout over the recent 18.9% devaluation in the tenge the firm has refrained from “putting all our eggs in one basket.” Indeed, the sector is strictly regulated, with firms expected to report every 10 days. When comparing that to Europe, where quarterly reporting is acceptable, Umanov comments that this provides “peace of mind for insurers' clientele. “Every aspect of our operations, including every line of business and claim, is available to the public online… this scenario is impossible to imagine in Russia, or in the US.” Summing up, Umanov asserts that, “these regulations create problems for the insurance companies, but they also create opportunities for people who are interested in buying insurance.”

Kazakhstan sits on the edge of a region that has been plunged into uncertainty following the dramatic fall in oil prices and conflict in Ukraine. But as Astana gears up to host the World Expo 2017, there is optimism in the insurance sector that corporate business will keep things ticking over until the country can continue uninterrupted on its growth story, pushing up average incomes and extending lifespans, both crucial elements for a successful insurance industry.