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Estonia Insurance Report 2010
Business Monitor International, Dec 2009, Pages: 41
Business Monitor International's Estonia Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Estonia's insurance industry.
Estonia’s insurance industry entered a sharp recession during the second half of 2008, as did the wider economy. This recession is ongoing. The publisher expects real GDP to decline by 13.2% in 2009 and by 1.2% in 2010. As in the other Baltic states, the insurance sector has contracted more swiftly than the rest of the economy.
The volume of premiums collected by life insurers declined by 29.7% in 2008, while the volume of premiums collected by non-life insurers increased by 2.9% for the full year, although these fell in H2 2008. Considering the 10.4% increase in the consumer price index (CPI) in 2008, the positive real growth of 29.2% in direct insurance in 2007 was reversed and it became negative in 2008. The real growth was - 19.5%.
Based on the number of contracts, the most popular class of insurance was, as before, endowment insurance, which enjoyed a 40.3% share of main contracts in force. However, the share of endowment contracts has gradually decreased in recent years, while unit-linked insurance has been increasing. That said, policyholders have become extremely cautious due to the decline in global financial markets and the uncertainty over Estonia's own economy, and the sale of unit-linked life insurance fell by 47.6% in 2008. While the premium volume of traditional life insurance contracts increased 15.2%, part of this increase was due to the establishment of the European company Seesam Life Insurance SE at the end of 2007, leading to the inclusion of data of the company’s Latvian and Lithuanian branches to the company's portfolio.
The three major life insurers (AS SEB Elu-ja, Pensionkindlustus Seesam, and Swedbank, the market leader) collected 82% of life premiums. Based on unaudited data, four of Estonia’s five life insurers made a loss in 2008. Total unaudited technical losses in the life sector were EEK310.6mn (US$30mn), with a net loss of EEK297.1mn. This followed net profits of EEK134.4mn in 2007. Most of the losses were from investment activities.
The non-life sector fared rather better. In 2008, the volume of gross premiums in non-life insurance amounted to EEK3.8bn, increasing 3% on 2007 (which had increased 19% on 2006). The growth of premium volume slowed considerably in the second half of the year and the last quarter witnessed a decline. Claims paid amounted to EEK2.2bn i.e. 7% more than in 2007. Growth has slowed in line with the deceleration of the real estate market and the falling sales and leasing of new cars. If Eesti Kindlustus maintained its leading position in the non-life market, though its market share decreased by 3% in 2008. The winners in the redistribution were Swedbank Barakindlustus AS and branches of foreign insurance companies. Swedbank increased its market share from 10% to 14% over the year, catching up and then surpassing Seesam, which placed third in the market in 2007. Branches of foreign insurers formed a remarkable 11% of the total market volume, from 6% in 2007. The market share controlled by the three major life insurers (Eesti, ERGO, and Swedbank) was 63% at the end of 2008.
Looking forward, Estonia remains perhaps the most attractive of the three Baltic states as an investment destination for multinational insurers, given its scope for market development and low political risk. However, it is likely that only those institutions with an absolute commitment to their operations in Eastern Europe will persevere through the current testing environment. This raises the prospect of those who are not so committed – for instance Finland’s Suomi Mutual, which in 2008 sold its interest in Seesam to the aggressively expanding Vienna Insurance Group – selling their sub-regional operations to competitors seeking to lock in economies of scale. This also makes more sense, given that the Baltic states are neither populous nor fast-growing enough to represent more than steady but unspectacular profitability for circling multinationals.
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