Be Prepared for All Eventualities! The Central Asian Insurance Market
Almaty hosted the first “Insurance in Central Asia” international conference in late May. The organisers of this event explained its necessity by the significant interest that international investors now have in this region. European companies, which have already set up their businesses in Russia, believe that it is best to start their expansion in the region in Kazakhstan. After receiving experience in Kazakhstan, they will be able to expand further – to Kyrgyzstan, Uzbekistan and Tajikistan.
Kazakhstan is a pioneer in the CIS in terms of adopting compulsory forms of insurance. Experts say that it is precisely this fact that has given the main impetus to the development of the domestic insurance market. At initial stages, compulsory forms of insurance familiarised people with insurance services, and it is these types of insurance that provide the insurer with the first contact with the client. Given that experience in Kazakhstan could be used in other Central Asian countries, Kazakhstan is generating particular interest among partners from CIS and non-CIS countries.
The Kazakh insurance market has been showing high growth rates over the past few years. Per capita premiums stood at only $1-$2 in 2000, whereas they exceed $50 now. Premiums grew by 70% in 2006 alone. The combined own capital of Kazakh insurance companies has been also growing: from 45 billion tenge in 2005 to 80 billion tenge in 2006 and reached 87 billion tenge in the first quarter of 2007. Specialists forecast that our insurance sector will continue to grow by 60% a year on average in the future.
Other regional countries’ markets are very insignificant compared to the volume of insurance premiums in Kazakhstan. For example, the total premiums collected stood at 120 billion tenge in Kazakhstan on 1 January 2007, about 530 million tenge in Kyrgyzstan and only 200 million tenge in Uzbekistan (the latter figure is what a medium-sized Kazakh company collects from only one type of compulsory insurance in one year).
Experts believe that the development of other Central Asian countries’ markets will only be possible when these countries adopt compulsory types of insurance. It seems that this process will start very soon. For example, Kyrgyzstan intends to adopt compulsory insurance of civil liability of hazardous freight carriers, of passenger carriers to passengers, of organisations exploiting high-risk facilities, of employers to employees and of drivers’ civil liability. That is why Kazakh investors are currently looking towards the Kyrgyz market and their expansion to the region will most likely start in Bishkek, especially when the entrance barriers there are low so far. For example, the size of registered capital for a new insurance company has to be at least 13 million soms, or only $0.4m.
There are currently 14 insurance companies operating in Kyrgyzstan. Local capital accounts for 61% of the market, foreign capital 41% and joint capital 8%. The deputy director of the Kyrgyz service for financial market regulations, Chinara Davletkeldiyeva, says that, according to the law On Licensing, there are no restrictions set for foreign investors in this sphere. Foreign insurance companies are also allowed to set up their branches in the country. However, even though the Kyrgyz insurance market has been operating for quite a long time, it is still in an embryo state and has a low level of insurance companies’ capitalisation. The national reinsurance market is not developed either, and government control remains weak. The compulsory insurance of the military is currently the only form of compulsory insurance in Kyrgyzstan.
Despite the fact that many Kazakh insurers are only thinking about entering the Kyrgyz market in the long term, the Oil Insurance Company set up its subsidiary there in May 2007. The deputy chairman of the Oil Insurance Company, Vladimir Shevchenko, said that his company had initially intended to set up a brokerage in Kyrgyzstan, but the company concluded that it was more profitable to set up an insurance company straight away. The Oil Insurance Company’s subsidiary will aim at the retail market, which will be possible after Kyrgyzstan adopts compulsory insurance of drivers’ civil liability.
In general, the Kyrgyz body for monitoring the insurance market is not against Kazakh players entering it and hopes that Kazakh companies will contribute to the development of the insurance sector in this country.
Another deterrent is the unstable political situation in Kyrgyzstan and, consequently, the risk of losing business. That is why the interest of Kazakh insurers bears a rather declarative nature. The managing director of Kazkommertsbank, Askarbek Nabiyev, says that the bank’s strategy is to follow their clients and that if they have significant interests in certain region, the bank and its subsidiaries, including insurance ones, will be ready to follow them to offer a full range of services to them. Some insurers doubt that this sort of investment has good prospects. The chairman of the Premier Strakhovaniye insurance company, Askar Meldebekov, says that while collecting reinsurance premiums, his company has established that the insurance market is small there, which is why it does not make sense to enter the Central Asian markets until they adopt compulsory forms of insurance.
Uzbekistan’s investment climate seems quite favourable for insurance business (again, if political risks are not taken into account). The registered capital of an insurance company in Uzbekistan has to be at least $0.5m. Moreover, new players are exempt from taxes during the first three years. In addition, the shareholders of Uzbek insurance companies are not monitored and there is no need to disclose information about shareholders. The adoption of this position by the state regulator is an indicator of intent. There are one reinsurance and 24 insurance companies in Uzbekistan at the moment, but the top 10 insurers account for the bulk of the premiums. The deputy head of the Uzbek Finance Ministry’s state inspection for monitoring the insurance market, Miradyl Mirsadykov, says that the country’s insurance market is suffering from insufficient capitalisation. Its capacity is small, although the demand for insurance services and the need for new types of insurance are enormous. Only 10%-15% of risks have so far been registered in Uzbekistan. The main source of premiums for Uzbek insurers is the insurance of flights. The first steps are being taken to develop health insurance and private property insurance. Life insurance is in an embryo state too – its share in the total premiums collected does not exceed 2%.
As for the Tajik market’s potential, according to the Tajik Finance Ministry’s state service for monitoring the insurance market, local insurance companies collected premiums worth $20.31m in 2006. This is almost 200% more than in 2005. Interestingly, 81% of premiums are collected from voluntary forms of insurance and only 18% come from 16 compulsory types. At the same time, reinsurance accounts only for a third of premiums in Kazakhstan, whereas Tajikistan reinsures 50% of risks in foreign countries, mainly Russia and the UK. The combined financial assets of Tajik insurance companies totalled $9.5m on 31 December 2006. The state service for monitoring the insurance market says that because of small financial assets local insurers are not capable of assuming greater risks.
There are 14 insurance companies operating in Tajikistan at the moment (there were 12 companies a year ago), of which only two (Tajiksugurta and Tajiksarmoyaguzor) are owned by the state and only one is owned by foreigners – the London-Dushanbe company, of which 80% is British capital.
The Tajik market is highly concentrated: the five biggest players shared 96.5% of total collections (or $19.607m) in 2006. Moreover, the state-owned companies shared 32.7% of the market. Tajik insurers made a profit of $118,800 last year. The share of combined insurance premiums accounted for about 1% of the country’s GDP and per capita premiums stood at $2.9.
By comparison, the share of the insurance market did not exceed 1% of GDP in Kazakhstan in 2006, i.e. in relative terms Kazakhstan is at the same level as Tajikistan. However, in terms of market regulations, Tajikistan, like other neighbouring countries, has a long way to go to catch up with Russia and Kazakhstan.
The main role in this process can be played by common standards of state control that were adopted in the region. Work is currently being carried out to create a single insurance market within the Eurasian Economic Community, and Kazakhstan can, in many terms, serve as an example here. For example, comprehensive control by a mega-regulator – the Financial Control Agency (FCA) – has been established only in Kazakhstan so far. At the same time, a strong regulator makes it possible to protect the interests of local insurers more efficiently. On many issues relating to preserving financial stability, the FCA has a tough position. Kazakhstan adopted requirements set for ratings of foreign reinsurance companies from all the Eurasian Economic Community member countries. However, Russia suggested that requirements for ratings of Russian reinsurance companies should be eased, appealing to the idea of setting up a single insurance market. At the same time, having given a year to Russian companies to receive necessary ratings, the FCA remained firm. This position of the Kazakh FCA is understandable: Kazakhstan cannot ease requirements to the detriment of the financial state of Kazakh insurance market players.
The Brand of Kazakhstan is Being Created Today Birzhan Kaneshev
Where Does the Brand Start? Yevgeniy Zharkin
The Tree of Diversification: Prescriptions for Growth Sergey Gakhov
Our Telecoms Charge Ahead; Kaznet Grinds to a Halt! Alexander Vassilyev
Civil Aviation: Takeoff or Letdown? Sergey Smirnov
Railways. The Quadrature of a Wheel Pair Sergey Smirnov
Atlas Copco. Growth Strategy Hans Hedensjö
Pension Funds. Re-assessing Values Editorial
Securities Market: Six Months’ Figures Tatyana Kudryavtseva
Second Advent. Scheme for Placing SPO Yuliya Feller