Not insured against payouts

Tighter regulatory requirements stimulate insurance. At the end of the first half of the year the insurance sector collected 18.2% more insurance premiums, but insurance payouts also grew by 48.7%, pushing about a quarter of insurers into losses. Nevertheless, looking at the positive dynamics of premium collection, experts now forecast insurance market growth for the year not of 12–15% but of a full 20%. In the first half of 2011 insurers collected insurance premiums totalling KZT 88.5 billion, 18.2% more than in the same period of 2010, the Financial Supervision Committee of the National Bank reported.

This included premiums of KZT 19 billion in compulsory insurance (up 20.3%), KZT 24.6 billion in voluntary personal insurance (up 50%) and KZT 44.9 billion in voluntary property insurance (up 5.2%).

Insurance premiums in the life insurance sector grew by 29.5% to KZT 11.4 billion as of 1 July 2011, while the share of life insurance in total insurance premiums reached 12.9% (10.1% as of 1 July 2010). According to Arman Zhakhin, Deputy General Director of the rating agency Expert Kazakhstan, the volume of insurance premiums collected in the first half of 2011 exceeded the first half of 2007, when the market collected the largest amount of premiums, by 22%, and the first half of last year by 31%. "We attribute this growth to the general improvement of the economic situation in the country and to rising incomes of businesses and households," says A. Zhakhin. "Looking at the classes of insurance, growth in premiums for annuity insurance, motor third-party liability insurance and insurance of employees against accidents in the performance of their job duties has become a familiar trend in recent years. Insurance against other financial losses has also grown." At the same time, according to Mr Zhakhin, the life insurance sector continues to grow thanks to receipts from annuity insurance, above all pension annuities. "The reasons here are quite clear," says A. Zhakhin. "Future pensioners are attracted by such advantages as earlier receipt of a pension and the opportunity to receive larger payments when buying an annuity."

Insurance premiums on the insurance market grew by 22.2% in the first half compared with the same period of 2010, including voluntary personal insurance by 48.9%, compulsory insurance by 36.2% and voluntary property insurance by 8.7%. In compulsory insurance, significant premium growth was seen in motor third-party liability insurance (24.8%) and compulsory employee accident insurance (85.2%). Premiums in voluntary personal insurance also grew substantially, including life insurance (85.3%), annuity insurance (45%), accident insurance (77.3%) and sickness insurance (36.6%). Despite significant premium growth in voluntary cargo insurance (43.8%), voluntary motor insurance (12.9%) and voluntary financial loss insurance (78.6%), overall growth in voluntary property insurance was modest at just 8.7%, owing to a 40% decline in voluntary liability insurance.

"The insurance market has revived thanks to the fairly high tariffs for compulsory classes of insurance today. This is due to the introduction this year of a single motor third-party liability policy, and also to the fact that over the past six months people have been trying to buy cars because of changes in customs duties. Growth in voluntary property insurance is linked to the revival of banking activity and the resumption of consumer lending by banks." According to Alliance-Polis Insurance Company, the most dramatic growth occurred in compulsory insurance of employees against accidents in the performance of their job (official) duties: market growth was 85% compared with the same period of 2010. Growth is also seen in voluntary health insurance (VHI): the result for the first half of 2011 was 36.6% higher than in the same period of 2010. Voluntary motor insurance shows growth of almost 13%. "One of the main factors affecting the insurance market has been tighter supervision of insurers' work by the supervisory authority, including higher capitalisation requirements for insurance companies. From 2011, legislative requirements came into force under which a vehicle owner's insurance policy carries a unique identification number, assigned from a single database, that confirms the legitimacy of the insurance policy."

These measures have begun to discipline sales processes in insurance companies, especially since this year insurers have been required to certify the activities of agents and keep a register of them. This measure will remove dishonest workers from the ranks of agents and bring order to their activities. In addition, the ban on agents accepting cash in payment of insurance premiums from 2012 may give an impetus to the development of online sales, and the best agents will be taken on as staff. Other legislative changes worth noting include the transfer of insurance companies to the general tax regime from 2012 and the removal of bank restrictions on borrowers' choice of insurer.

With competition on the market intensifying, insurance companies are expected to come up with new service offerings. Payouts, however…

Meanwhile, as the financial regulator notes, insurance payouts under direct insurance contracts in Kazakhstan amounted to KZT 17.4 billion in January–June, 48.7% more than in January–June 2010. This included payouts of KZT 5.6 billion in compulsory insurance (up 24.4%), KZT 9.1 billion in voluntary personal insurance (up 59.6%) and KZT 2.7 billion in voluntary property insurance (up 68.8%).

The significant increase in insurance payouts in the first half of this year was one of the reasons for losses at insurance companies.

Thus, according to the Financial Control Committee, as of 1 July this year 10 of Kazakhstan's 38 insurance companies recorded an uncovered loss. They are:

Of course, the reasons for losses may vary from company to company. For example, Alliance-Polis Insurance Company told "Kursiv" that the loss was due to a rise in the loss ratio under insurance contracts in the first half of 2011, i.e. an increase in the number of payouts across the company as a whole.

It is still too early to talk about the insurance market emerging from the crisis: "Today it is not so much about collecting premiums as about qualitative growth, which means taking the consumer's side."

"As for the possibility of some insurance companies leaving the market or consolidating," the expert continued, "such a need may arise for some of them. This is because the regulator has tightened requirements for companies' equity capital. A situation may arise in which some insurers are unable to meet the requirements for the solvency margin and other prudential standards. This measure will prevent the emergence on the market of dishonest insurance companies that bet on aggressive sales." Reinsurance with a false bottom

According to the Financial Supervision Committee, insurance premiums ceded to reinsurance amounted to KZT 40.1 billion as of 1 July 2011, or 45.3% of total insurance premiums. Of this, 36% of total insurance premiums were ceded to non-resident reinsurers (as of 1 July 2010 the latter figure was 49.1%).

A. Zhakhin believes that the reinsurance situation is ambiguous: "On the one hand, our insurance companies are generally not very well capitalised, and when they accept large risks they cannot cover them on their own," the expert says. "So it is quite natural that they cede them to reinsurance. On the other hand, some companies use reinsurance to withdraw funds."

"We welcome the regulator's efforts to increase the retention of risks in Kazakhstan, including through the capitalisation of insurance companies. Nevertheless, I believe that reinsurance should become of higher quality, with the main quasi-sovereign risks related to oil operations ceded to large international companies with the highest financial strength rating, without jeopardising the domestic insurance market. The future development of the insurance market will depend largely on how insurers find the optimal balance between retaining risks and ceding them to reinsurance." There will be growth!

As for forecasts for the second half of 2011, experts at Alliance-Polis Insurance Company believe that the insurance market will continue to develop steadily with positive growth overall for the year; the increase will be noticeable and may reach 18–20% compared with 2010. The main driver of the market for now is compulsory insurance, while life insurance continues to develop actively and show growth. Among voluntary classes, voluntary property insurance of legal entities undoubtedly remains the flagship.

"If at the beginning of the year we were more cautious in assessing the market's development prospects and expected growth of no more than 12–15%," says Arman Zhakhin in turn, "now, given the current dynamics, growth of 20% is quite possible."

The positive trends in insurance premium growth will continue until the end of the year at 15–20%. "Compulsory insurance will remain the main locomotive of the market, but it should be noted that the emphasis is now shifting to voluntary classes, in particular health insurance," the expert says. Market leaders

The five largest insurance companies in Kazakhstan account for 39.8% of total insurance premiums and 30.7% of insurance payouts. The share of the five largest insurance companies in the total assets of the insurance market was 52.8%. Assets

According to the Financial Supervision Committee, the total assets of insurance organisations increased by 6.3% in January–June to KZT 364.8 billion as of 1 July, and total equity grew by 3.8% to KZT 216.7 billion. Insurance reserves amounted to KZT 126.5 billion as of that date.