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13.07.2009
Natural Insurance Selection
In Credit-Ratings view, an actual decline in insurance sector was recorded at over 30% as compared with 1Q2008. In the sector of motor insurance (Motor Hull Insurance and Mandatory Insurance of Civil Liability of Drivers), which recently represented key premium generators, the actual decline is around 40-45% by Credit-Ratings assessments. In 2Q2009 the impact of crisis became even more severe.
The review of Ukraines insurance sector in 1Q2009 (russian version)
One of the key trends in the insurance market has been simultaneous decline in 2 basic market features the insurance premiums gained and insurance compensations paid which has not occurred in recent years. These trends are accompanied by rise in unprofitability (shares of payments in premiums) by a number of key products, primarily in the segment of Motor Hull Insurance (to 80.9% from 56.8%) and in insuring financial risks (to 72% from 52.6%).
The negative trend of 1Q2009 has also been a gradual increase in the gap between the amounts claimed by the customers for reimbursements and the amounts actually paid by insurance companies. This gap has been driven by the following factors:
- Original insufficient balance of the insurance portfolio (e.g. high concentrations in motor insurance, which reached 90% at certain companies);
- Insufficiency of payments by a low number of new agreements in order to raise funds for payments on old agreements;
- Unavailability of a considerable share of funds necessary for payments due to their depositing at trouble banks.
Another sectors negative trend in the ongoing year was decrease in the amount of total assets and equities of insurance companies coupled with deteriorating quality of those assets, which may represent insurance reserves pursuant to the legislation. This has an extremely negative impact on solvency and limits capacity of the insurers to meet their obligations in timely and full manner.
Credit-Rating foresees that in 2009 the majority of insurance companies will have to revise thoroughly the structures of their portfolios. The growth of insurance tariffs will occur not only in motor insurance but also in other segments, for it is hard to predict considerable investment gains from placing assets by insurers. In case a customer disagrees to be insured by raised tariffs, the amount of coverage may be offered to decrease, or the list of risks may be cut down.
In the ongoing year the insurance companies will have to further cut their expenses to reduce the number of unprofitable branches, and to cut administrative and operating expenditures. Credit-Rating expects that large Ukraines insurers will more strive to lure the customers of weaker peers than to merge with such peers.
Credit-Rating subscribes to the opinion that recovery in the insurance sector will last considerably. We may foresee that the number of insurance companies will decrease by 2009-end due to closures, mergers or bankruptcies. The insurance sector will also be negatively affected by swindling of a number of owners of insurance companies, who are withdrawing liquid assets and establish new companies, forgetting their previous obligations.
The first half of the current year did not see introductions of temporary administrations by the State Commission for Regulation of Financial Services Markets of Ukraine, though the bankruptcy procedures may be initiated in a number of companies in the upcoming quarter. The delay with introduction of new more severe rules for operation of temporary administrations of insurers may turn out to further growth in arrears of insurers towards the customers.
The velocity of restoring the public confidence will be to a great extent contingent upon regulators actions against unfair companies, and upon creation of consolidated supervisory system over the financial market, which envisages close cooperation between the National Bank of Ukraine, State Commission for Securities and Stock Market of Ukraine, and State Commission for Regulatory of Financial Services Markets of Ukraine.
Information on all credit ratings assigned in accordance with the National Rating Scale may be found in REUTERS and BLOOMBERG information systems.
For more information, please contact:
Information and analytic department
Sergey Rozumyak +38 044 490 25 50
SRozumyak@credit-rating.ua
Denis Rudenko
DRudenko@credit-rating.ua
