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Ukraine Insurance Report Q1 2011
Business Monitor International, Nov 2010, Pages: 59
Ukraine Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Ukraine's insurance industry.
There was a time when Ukraine could be considered to be one of the most promising emerging markets for insurance – and not just in the context of Central and Eastern Europe. It had a large, if shrinking, population; a substantial agricultural base; extensive metallurgical industry; and an indigenous nuclear power industry, which all provided risks that needed to be covered. There generally appeared to be official support for economic reform and increased integration with Western Europe. Up until the end of 2008, the industry was regularly expanding at double-digit rates. In particular, 2007 could be considered a banner year for Ukraine’s insurers, in that non-life and life premiums rose by 30% and 74% respectively (in local currency terms).
The good times are well and truly over. The grim outcome in 2009, when non-life premiums fell by 15% and life premiums stagnated, was obscured by the weakness of the hryvnia. In US dollar and euro terms the market contracted by more than 40%. Ukraine is not alone among Central and Eastern European countries in experiencing a slump in the insurance sector in the wake of the global financial crisis.
However, it stands out for the rapidity of the fall in premiums, the extent of the fall and the lack of faith consumers have in life insurance as a vehicle for their savings.
The strong Q210 real GDP growth number in Ukraine is likely to mark the peak of the recovery. Private consumption growth will slow as fiscal austerity measures start to bite, while the uptick in exports will slow due to a 50% cut in grain exports and weaker demand in key Western export markets. Over the medium term, we remain constructive towards Ukrainian growth, with a mitigation of political risk set to bolster foreign investor confidence. The Ukrainian economy grew by a robust 6.0% year-on-year (y-o-y) in Q210, according to a preliminary estimate from the State Statistics Committee, up from 4.9% in the previous quarter and confirming our core view that a reasonable recovery is under way.
Ukraine’s long-term political trajectory is far from certain, with the coming years likely to be crucial to the country’s convergence prospects through to 2019. Weak institutions remain the greatest challenge to long-term stability, though we also highlight systemic tensions in bilateral relations with Russia and growing demographic issues as additional threats likely to confront future governments. Going forward, the worst case scenario for Ukraine would entail a continuation of the status quo.
For the insurance sector, the best that can be said about 2010 is that it looks as though it will be the year in which premiums stabilised. We forecast steady growth to resume from 2011, but this outcome is far from certain. Assuming that non-life penetration remains roughly constant at about 2.3%, non-life premiums should grow from UAH19,575mn in 2010 to UAH37,828mn in 2015. Even so, this implies that, in foreign currency terms, the five years to the end of 2012 will have been a period of stagnation. The development of the life segment depends on how much density rises from US$2 per capita. For the time being, we forecast that density will reach US$14 per capita in 2015. If this turns out to be the case, life premiums should increase from UAH838mn in 2010 to UAH3,680mn in 2015.
BMI’s proprietary Insurance Business Environment Rating for Ukraine is a low 46.5. The presence of multinationals such as ALICO, Generali, UNIQUA and the Vienna Insurance Group indicates that the market is open to foreign players. Unlike most other reasonably/potentially large insurance markets in the region, there is no entrenched state-owned former monopoly with a large market share. However, none of the foreign businesses in Ukraine are large except – moderately so – in the local context. The fragmentation of a market in which there are hundreds of operators suggests to us that many of the local companies are either effectively captive insurers for Ukrainian corporate interests or not operating on commercial terms.
Key Features Of This Report
The structure of this report is substantially similar to that of its predecessors. We have updated comments and data using information made available by regulators, trade associations and insurance companies over the course of 2010.
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