SEE insurers pocket record high earnings, premiums despite challenging market

by Siana Mishkova

Supported by a robust macroeconomic environment, stable fiscal conditions and buoyant consumption, Southeast Europe’s (SEE) insurance industry remained resilient to pressure stemming from the persistent record low interest rate environment, financial market volatility, stricter regulatory requirements, and demographic changes. In the words of top insurance managers, 2016 was “once again extremely challenging” for the sector, however, the Top 100 SEE insurers booked the highest combined earnings and gross written premiums (GWP) in the history of our annual rankings. Moreover, the annual growth in premiums was the highest for the last eight years, while the aggregate net profit rose by a substantial 56%.

Romania and Serbia shined with a double-digit growth in premiums and a remarkable improvement in profitability, while Albania stood out with above average performance.

Looking ahead, the sector confronts both challenges and opportunities in the face of ageing population and migrations, regulatory and political interference in view of the necessary changes in the pension and healthcare systems in the region, as well as rapid technological development that requires fast and adequate response to customer needs.

The Top 100 insurers in SEE recorded a combined net profit of 365 million euro for 2016, up 56% from the earnings made in 2015 by last year’s ranking entrants. If we look at the same 100 companies in the 2017 list, their profit growth is even more impressive – 83%. The significant improvement is also evidenced by the higher number of profitable
insurers – 89 companies were in the black last year, reporting aggregate earnings of 408 million euro, versus 83 in the 2016 list with a profit of 403 million euro.

The GWP booked by the region’s 100 biggest insurers biggest insurers reached a record high of 7.2 billion euro in 2016, up 6.3% on the year, the fastest growth rate in at least eight years. Ljubljana-based Zavarovalnica Triglav remained firmly on the top of the ranking also in 2016 with premiums and earnings well ahead of its nearest competitors. The Slovenian insurer with operations across the region, which has been occupying the ranking’s first place over the last decade, collected 593 million euro in premiums last year, up 1.2% from 2015, and made a net profit of 75 million euro, up 29%. Its earnings were more than twice as high as those of its nearest competitor, compatriot Zavarovalnica Sava, which, despite a 16% drop in profit, climbed by three spots in the ranking thanks to a 1.5% increase in GWP to 345 million euro. The bronze medal was grabbed by Zagreb-based Croatia Osiguranje, which lost one place due to a 1.1% decline in premiums.

The improvement in profitability of the region’s biggest insurers was also aided by the lack of the huge losses recorded by two major Romanian players in 2015. The country’s fifth-largest insurer, Bulgarian-owned Euroins, returned to a small profit in 2016 after a massive 66 million euro loss in 2015, when it was forced by Romania’s financial supervision authority, ASF, to implement a financial recovery plan after failing to comply with the Solvency II regime’s capital requirements. At the same time, the net loss of Dutchowned Carpatica Asig, which entered bankruptcy proceedings in mid-2016, was cut substantially.

Romania’s insurance market enjoyed a 10% increase in GWP, to a post-crisis peak of 2.3 billion euro, according to ASF data. The 18 Romanian insurers that entered the Top 100 SEE ranking had combined premiums of 2.0 billion euro, up 10.9% from last year’s list, which is well above the average 6.3% growth for the total ranking. Notably, the premiums of each of the five Romanian insurers in the top 10 saw a double-digit annual percentage growth, with those of Vienna Insurance Group’s (VIG’s) Asirom soaring 76%. The flourishing of Romania’s insurance market is also visible by the considerable improvement in the aggregate profit of its Top 100 SEE entrants to 63 million euro, compared to a loss of 31 million euro by last year’s 19 participants.

Insurance is the only ranking in which Romania, the region’s biggest economy, comes as runner-up. With a 27.8% market share by GWP, it followed Slovenia by 0.1 percentage point. mainly because Slovenian insurers’ operations have spread across the less developed former Yugoslav markets, while the Romanian ones are focused domestically. Slovenia had 14 entrants in the 2017 list with GWP of 2.0 billion euro and net profit of 145 million euro, the largest by country. Compared to last year’s ranking, the number of Slovenian participants rose by one, while their premiums grew 6.5% and earnings climbed 7.7%.

The third biggest insurance market in SEE, according to our ranking, is Croatia with a 15.5% share by GWP, followed by Bulgaria with 13.3%, and Serbia with 9.8%. The number of Croatian entrants remained unchanged at 14, while their premiums edged up 2.4% on the year and their earnings fell 1.2% to 65 million euro. At the same time, the number of Bulgarian participants decreased by three and their assets shrank 0.1%, but their profit jumped 36% to 32 million euro. Serbia achieved the biggest growth in GWP among the top five markets – by 11.1% – with two new entrants, boosting the total number to 13, and a profit of 44 million euro, up 45% year-on-year.

Of the smaller markets, Albania shined as its five entrants recorded premiums of 87 million euro and a profit of 3.0 million euro, up from 80 million euro and 1.3 million euro, respectively, reported by last year’s four participants. The number of Bosnian entrants remained unchanged at 11, that of Macedonian rose by one to five, whereas that of Montenegrin fell by one to one. Bosnia’s GWP rose 2.3% to 226 million euro, but its earnings edged down 0.6%, Macedonia achieved a remarkable 23% GWP growth, accompanied by a disappointing 9% profit drop, whereas Montenegro’s bottom line improved to a breakeven, but its premiums shrank 26%.

The biggest gainer in the 2017 Top 100 insurers ranking was Bulgaria’s Dall Bogg Zhivot i Zdrave, which climbed 44 places to number 48 with a 166% rise in premiums, after entering the list last year with a striking 848% jump. On the opposite end, Bulgarian DZI Life Insurance, a unit of Belgium’s KBC Group, was the biggest loser, shedding 24 places to 89th position, as its GWP plummeted 47% from the result reported last year due to a selfmade correction in the 2015 figures. The company reclassified two major products from ‘insurance’ to ‘investment’, thus severing roughly 10 million euro from its 2015 GWP. In February 2017, Bulgaria announced the results of an asset quality review and stress tests of local insurers and reinsurers, saying that the sector is adequately capitalised and stable.

There were eight newcomers to the 2017 ranking, with Serbia’s Societe Generale Osiguranje at number 98 standing out with a 224% growth in premiums. The entry threshold increased to 11.8 million euro from 11.2 million euro last year.

On the M&A front, Vienna-headquartered VIG was an active player, strengthening its position as a leading insurer in the region. In the summer of 2016, VIG announced the purchase of the Romanian life and savings insurance operations and the Serbian life and non-life insurance operations of France-based global insurer AXA Group. At the beginning of 2016, it finalised the acquisition of Bulgarian bank insurance company UBB AIG. In March 2017, the group said it plans to expand its health insurance portfolio
in Romania, Bulgaria and three other European countries.

Another ambitious player, Euroins, which aims at a market share of 6%-10% in the non-life insurance sector in Central and Eastern Europe, agreed at the beginning of 2017 to buy the non-life insurance portfolio of ATE Insurance Romania, a subsidiary of Greece’s Piraeus Bank. Over the previous three years, it purchased several businesses in Bulgaria, Romania, and Ukraine, and plans to look for more opportunities on the markets where it is present as well as on new ones in the region.

In Croatia, the top insurer Croatia Osiguranje completed in 2017 the acquisition of the local unit of French BNP Paribas Cardif Insurance and that of reinsurer Croatia Lloyd. Its efforts for more than a year to get a third of Zavarovalnica Sava remain, however, fruitless.