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Expert Opinion

27.12.2010

Credit-Rating expects decline in net insurance premiums at around 5% in 2011

This year no substantial positive changes occurred in Ukrainian insurance sector. The sector's key figures still demonstrate downward trend in terms of premiums raised, reimbursements paid, insurance reserves, portion of insurance agreements renewed for next period. Although the declines are not so deep as in 2009, they still display downward trend, notably in the segments of voluntary motor insurance and property insurance.

Also, virtually all insurers’ figures representing performance of their core business also declined. The amount of operating expenditures is stably in excess of 65% of the insurance premiums earned, thus remaining high. The combined loss indicator generally in the market (the amount of gross payments and operating expenditures in earnings) is close to 100%. This fact makes settlement procedures more complicated and longer. This is implicitly confirmed by a considerable portion of reserves for losses in the total reserves, recorded at over 20%.

The share of premiums attracted from the public, has tended to narrow in the past 2 years, although it had not been in excess of 1/3 of the gross premiums in the market. Absence of confidence in the insurance sector remains high, with the primary reason for this remaining the same: insufficiency of trustful information on insurers, which would allow for judging their reliability, predictability of their policy, including settlement procedures.

By Credit-Rating’s estimation, the specific gravity of the so-called ‘scheme’ market will nor decrease in this year, which is implicitly indicated by rising volumes of internal reinsurance of financial and other proprietary risks. Thereat the scale of insurers’ businesses in most cases does not grow.

In Credit-Rating’s view, the systemic approach to resolving problems in the market applied insufficiently. With no explicit signal from the government, which would induce insuring to be carried out as a separate financial service, the performance of the sector could hardly be changed substantially, with the dialog between the market and the regulator being poorly efficient.

Pursuant to the recently adopted Tax Code, in the upcoming year the insurers shall make tax payments by the existing procedure, though including premiums by the internal outward insurance into the taxation base. Starting from 2012, the participants of the insurance market shall pay tax from their profits. These novelties may weigh on amounts of gross receipts and narrow (perhaps temporarily) the portion of ‘scheme’ insurance.

One of the basic elements for development of the insurance market will remain mandatory insurance, specifically the compulsory MTPL. At the same time, the factors that may trigger development of the sector may be following:

  • Renewal of long-term banking lending, specifically with schemes of multiyear life insurance.
  • Creating conditions for non-state pension funds, which may stimulate development of pension insurance.

Generally, Credit-Rating assumes that the impact of the crisis on the insurance sector will last major part of 2011, and the declines in the amount of net insurance premiums will be recorded at 15-20% in 2010, and at around 5% in 2011.

Information on all credit ratings assigned in accordance with the National Rating Scale may be found in THOMSON REUTERS and BLOOMBERG information systems.

For more information, please contact:
Department of Information and Communications 
Sergey Rozumyak +38044490 25 50 
SRozumyak@credit-rating.com.ua 
Denis Rudenko
DRudenko@credit-rating.ua

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