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Kazakhstan Insurance Report 2010
Business Monitor International, Dec 2009, Pages: 40
Business Monitor International's Kazakhstan Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Kazakhstan's insurance industry.
The Kazakhstan insurance sector remains somewhat idiosyncratic compared with its peers in similar economies: two hallmarks are the tiny size of the life insurance segment with density of just US$3 and the relative unimportance of the compulsory third party motor insurance, usually a key driver in a developing market. After some years of reasonable growth – albeit from a very low base – expansion of the sector appears to have stalled.
In the life segment the publisher anticipates little improvement in terms of density over the next four years, anticipating it to remain flat at US$3 only rising to US$5 by 2013. There are several apparent reasons for the sluggishness of the life segment, perhaps the most important being cultural. The people of Kazakhstan appear reluctant to access long-term savings products, as is evident in the low long-term savings rates and tiny pension funds market in the country. Reforms, both political and financial, have been disappointingly slow and it is difficult to see a dramatic improvement in this situation without the badly needed financial system reforms as noted by the IMF in late October 2009.
The picture in the non-life segment, while far larger than the life segment, is similar in terms of the sluggish growth that has become a feature of the market and is expected to continue. Non-life premiums rose from KZT65,706.4mn in 2005, KZT116,563.2mn in 2006, KZT 142,680mn in 2007 and KZT144,228mn in 2008. On the basis of the Agency's figures for the first three quarters of 2009, the publisher is expecting a 4% reduction in premiums in 2009. As noted above, compulsory third party motor insurance is not the driver for premium growth seen elsewhere in similar developing markets.
The non-life segment is dominated by property insurance delivered through by a small number of local firms, which remain very small by international standards. One of the largest, Eurasia, has total assets, for example, of KZT404.7mn (US$2.7mn), although this has nearly doubled in a year. In terms of penetration, the publisher does not expect a continuation of the declines the publisher has seen in recent years but any improvement will be very slow and incremental. In 2006, non-life penetration was some 1.15%, falling to 1.13% in 2007, 0.95% in 2008 and 0.85% in 2009. The publisher has envisagex 2010 seeing a penetration rate of 0.90%, rise in subsequent years to 0.95% in 2011, 1.00% in 2012 and 1.20% by 2013.
As for the wider economy, the government is predicting small growth in FY09 but most economists disagree and believe the full-year figures will show contraction. Nevertheless, there are signs that it is stabilising. In late October, the IMF announced that the decline in Kazakhstan's economy appeared to had bottomed-out although continued to express concern over bank solvency problems and urged the government and its agencies to address this.
The IMF now expects the economy to contract by 2% for FY09. The fund cited a rebound in commodity prices – particularly of oil – a record grain harvest in October, and the prospect of additional stimulus spending by year-end. The IMF said Kazakh authorities should now focus on restoring confidence in their financial system and a comprehensive strategy to tackle the country's fragile banking system. Also at the end of October, Kazakhstan's parliament cut budget expenditures for 2009 by 1%. The government sees the economy expanding by 0.1% in FY09.
On the upside, the insurance sector continues to attract some interest from cross-border insurers and industrial insurance centred on the country’s large oil and gas industry would appear to offer the greatest opportunities for growth.
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