Market participants Insurance companies
In the second quarter of 2012, the insurance market comprised 28 insurance companies, one more than in the same period a year earlier. Twenty-four companies engaged in insurance activities only and four in reinsurance activities only. Of the insurance companies, seven are exclusive life-insurers, eleven exclusive non-life insurers, while six provide both life and non-life insurance.Breakdown by ownership shows that of 28 insurance companies, 21 were majority foreign and seven in majority domestic ownership.
Non- life insurance premium, in RSD bln 20 2009
Life insurance premium, in RSD bln 20 2009
•Majority state and public ownership •Majority foreign ownership Majority domestic private ownership
Continuing a trend in place smce 2007, foreign-owned greenfield insurance companies (13 since 2005) again recorded a dominant share of90.7% in life insurance premium, and accounted for 57.7% of non-life insurance premium, 67.7% of total assets and 65.2% of total employment.
Other market participants
In addition to insurance companies, the sales network also comprised 19 banks licensed for agency operations, 80 legal entities, 106 natural persons – entrepreneurs, as well as 13,784 natural persons licensed to engage in insurance agency/brokerage 1
Insurance portfolio structures
In Q2 2012, total premium carne at RSD 32.5 bln (EUR 281 mln or USD 353 mln)2 up by 6.2% from the same period a year earlier.
The share of non-life insurance in total premium was 83%, while the share of life insurance rose from 15.4% in Q2 2011 to 17% in Q2 2012 as life insurance premium increased by 17.4% in this period. Total premium according to types of insurance in Q2 2011 and Q2 2012
Property insurance • Molar vehicle liability Full coverage molar vehicle insurance Other non life insurance Life insurance
The insurance premium structure in Q2 2012 resembled that from the same quarter last year, with motor third party liability (MTPL) insurance accounting for the largest share of total premium (29.1%), followed by property insurance against fire and other hazards and other property insurance (26.1%) and full coverage motor vehicle insurance ( 11.3%).
Non-life insurance premium rose by 4.2% in Q2 2012 relative to Q2 2011. Mandatory MTPL insurance premium increased by 5.7%, property insurance premium rose by 2%, while full coverage motor vehicle insurance premium fell further by 3.7%.
Share in total premium by peer group, Q 2
Insurance companies are classified into three groups according to their respective share in total premium. The first group comprises 2 companies accounting for over 15% of total premium, the second includes 6 companies accounting for under 15% and the third comprises 16 campani es accounting for under 3% of total premium. This p oints a decline tn p ortfoli o concentration from the same period a year earlier, when the first group of 3 companies covered 66.5% of the market, the seconci,
Balance sheet total and balance sheet structure
Balance sheet total of insurance companies increased in Q2 2012 to RSD 14 O.9 bln, up by 12.6% on Q2 201 L
Balance sheet total of insurance companies in million RSD as at 30106/2012
Structure of assets
As at 30 June 2012, current assets accounted for 51% of total assets of insurance companies (of which 21.6% referred to short-term financial investments and 13.7% to receivables). Fixed assets made up 49% of total assets (of which 33.4% referred to long-term financial investments and 14.2% to property).
Comparison with Q2 2011, when current assets accounted for 54.1% (of which 24.9% were short-term financial investments and 12.2% were receivables), and fixed assets for 45.9% of total assets (of which 28.8% were long-term financial investments and 15.8% was property), indicates that the trends first observed in Q1 2011 are still in place.
In Q2 2012, long-term financial investments recorded significant growth relative to Q2 2011 (30.4%) and accounted for a dominant share of assets. In the same period, receivables increased their share in current assets from 12.2% to 13.7%.
Structure of liabilities
As at 30 June 2012, technical reserves accounted for 63.6% and capital and reserves for 23.8% of total liabilities.
In Q2 2012 allocations to technical reserves continued to be dominant. Capital increased by 1.2% and came at RSD 32.9 bln. Technical reserves gained 16.2% to reach RSD 88.1 bln. Mathematical reserves increased at a rate of 34.5% and accounted for the largest share of technical reserves.
Solvency
The solvency of an insurance company depends on the size and composition of its liquidity, ratio of its technical reserves to the volume of undertaken liabilities and sufficiency of its guarantee reserve to protect policyholders in the event of unforeseen losses, i.e. to act as a buffer for losses not covered by technical reserves.
On 30 June 2012, the solvency margin carne at RSD 16.5 bln and guarantee reserve at RSD 29.5 bln. The ratio of guarantee reserve to solvency margin stood at 187.45% for non-/ife insurance companies and at 173.32% for /ife insurance companies.
Quality of assets
The share of intangible investments, property, investment m non-tradable securities and receivables (as types of assets difficult to collect) in total assets of companies engaged primarily in non-/ife insurance stood at 38.09% in 2011 and
38.61% in Q2 2012. Thus, despite a rise in share of such assets, companies’ ability to settle obligations did not change to any great degree.
The share of the above types of assets for companies engaged primarily in /life insurance remained at a satisfactory level, declining from 8.01% in 2011 to 6.79% in Q2 2012. The change in the value of this indicator was prompted by a nominal decline in the above types of assets.
Coverage of technical reserves
In order to protect the interests of the insured and third damaged parties and ensure timely payment of damage claims, insurance companies need not only allocate adequate technical reserves but also invest their assets, depending on the type of insurance they provide, taking due account of the maturity of obligations and investment profitability and dispersion.
Technical reserves of companies engaged primarily in non-life insurance were adequately covered in 2011, but Q1 2012 witnessed incomplete coverage of technical reserves. As shown by data submitted by insurance companies, this is a continuation of a trend already in place – the coverage of technical reserves by prescribed types of assets in Q2 2012 stood at 94.27%, while in 2011 it was 99.35%.
In companies engaged primarily in life insurance, coverage of technical reserves by prescribed types of assets stood at 100.82% in Q2 2012 compared to 101.51% in
2011.
Overall, in Q2 2012 technical reserves of non-life insurance companies were for the most part covered by government securities (30%), deposits with banks (23%), cash holdings (13%), investment real estate (9%) and insurance premium receivables (8%). Technical reserves of life insurance companies were covered primarily by investment in securities (85%), followed by deposits with banks (8%).
Liquidity
To be able to settle its obligations, an insurance company must ensure an asset- liability maturity match and make sure its assets are marketable and of adequate quality. As the size and timing of individual damage claims cannot be predicted, an insurance company must carefully plan the composition of its assets so as to be able to meet, first, its obligations under damage claims, and then, all other obligations.
The ratio of short-term assets (current assets less inventories) to short-term liabilities for companies engaged primarily in non-life insurance was 102.89% in Q2
2012 and 105.17% in 2011.
The ratio of short-term assets (current assets less inventories) to short-term liabilities for companies engaged primarily in life insurance was 167.87% in Q2 2012 and 179.77% in 2011.
As movements in this indicator reveal, companies have sufficient liquidity for settling short-term obligations. The decrease in the amount of current assets less inventories was mostly the result of increased investment by insurance companies in government securities. 3. Motor third party liability
In Q2 2012, twelve insurance companies engaged in mandatory motor third party liability insurance.
After declining in late 2011, MTPL premium picked up in Q1 2012. The upward trend continued in Q2 2012, with a rise of 5.7% relative to the same period in 2011.
Portfolio concentration increased in this segment, as in Q2 2012 three insurance companies with the largest share in MTPL premium accounted for 61.3% of the market, as opposed to 58.3% in the same period last year.
Conclusion
Year-on-year comparison points to an improvement of the Serbian insurance market in Q2 2012 relative to Q2 2011:
– Insurance sector balance sheet total rose by 12.6% to RSD 140.9 bln;
– Capital increased by 1.2% to RSD 32.9 bln;
– Technical reserves gained 16.2% and were fully covered in life insurance and incompletely covered in non-life insurance;
– The share of investment in long-term securities increased;
– Total premium gained 6.2% and came at RSD 32.5 bln;
– Non-life insurance continued to account for the largest share of total premium (83%); Non-life insurance premium increased by 4.2%, with MTPL insurance and property insurance rising and full coverage motor vehicle insurance declining;
– The share of life insurance in total premium increased from 15.4% to 17%;
– Market concentration, as measured by the Herfindahl Hirschman index, was moderate and likely to fall further;
– The number of insurance companies rose from 27 to 28, while total employment went up by 2.4% to 11,561.
Insurance companies should focus on the following key areas: corporate governance which, among other things, implies an adequate system of internal controls, improvement of risk management and investment valuation techniques, promoting transparency, good business practices and fair client relations, and efforts to educate potential clients. All this will reinforce client confidence and help develop this segment of the financial system.
It is also very important to ensure consistent compliance with the regulations on compulsory traffic insurance, particularly with regard to timely settlement of claims, insurance administration costs and application of the bonus-malus system.
Also important are education and preparations for putting in place a new methodological framework for risk management, Solvency II. Adequate risk management is vital for the success of insurance business. This has been placed at the core of the Solvency II directive which requires insurers to identify and quantify all types of risks they are exposed to in their operations and to manage them more effectively. It introduces more sophisticated solvency requirements in order to ensure that insurance companies have sufficient capital to offset the risks they are exposed to. According to the new draft of the Serbian Insurance Law, the requirements from the
directive will be applied after Serbia joins the EU.
Source National Bank of Serbia
