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> The dimensions of the Bulgarian insurance
market are still small, but the growth potential
of the sector in future is enormous, Bulgarian
and international experts say. |
Kalin DIMITROV
Manager of INSURANCE.BG
BULGARIA
Background
In 1946, Bulgarian Government issued a law that ruled the insurance business in the country to be state-owned and all acting insurance companies to be nationalised. This fact made the foreign companies in the insurance sector to leave the country. Until then in Bulgaria have operated successfully 19 Bulgarian and 11 foreign insurers. In the period 1946 to 1997 in Bulgaria there was a lack of insurance legislation, to regulate the insurance business, but there was only a law, regulating the operations of the state monopoly DZI. That was one of the reasons for the absence of an insurance market in Bulgaria and no foreign presence in this financial segment. In DZI merged all nationalised Bulgarian companies. This explains the lack of foreign presence in this financial segment. During 15 years until 1961, when appeared the Bulstrad, that served to the business of the Bulgarian companies operating outside the country, DZI was the sole insurer in Bulgaria. During the communist regime DZI was a monopoly in the domestic insurance, while Bulstrad was a monopoly in the insurance of state-owned companies operating outside Bulgaria. Afterwards, when in Bulgaria the communist regime was destroyed and the country undertook the democratic process, the first foreign insurance cooperatives and companies appeared. In a period of seven or eight years, their number jumped to 120 and one of the reasons for the boom in the sector was the lack of regulatory framework. The first reference for the passing of a law, regulating the insurance activity in Bulgaria, took place in 1993-1994, when some working groups and bills were created. The initial idea of these bills was in the first five years of entering into force of the insurance law the presence of foreign capital on the Bulgarian insurance market to be disallowed. The aim of this limit, according to members of the working groups, was the strengthening of the Bulgarian companies, the development of the market and only then to be admitted the foreign insurers. However, these bills were not approved. After a 50-year lack of a specialized insurance law, the latter was passed in the summer of 1996 but it entered into force on January 1, 1997 as there was not any restrictions for the enter of foreign capitals on the Bulgarian market. Furthermore, there were created decent conditions for development of a free and loyal competition between the insurers.
Bulgarian Insurance Business in the Last 10 Years
In December 1996 in Bulgaria appeared the first foreign insurer AIG, which acquired 100% of the stake in one Bulgarian company.
In accordance to the new law, in 1997 and 1998, all companies that were operating on the Bulgarian market had to be licensed. Only 24 of the 120 of active companies succeeded to fulfill the requirements of the normative document.
After the pioneer AIG in Bulgaria entered new insurers as the German Allianz and the Greek Interamerican. The first bought a majority stake in Bulgarian financial holding, owner of two general insurance and one life insurance companies. The second company started operations in Bulgaria as a new venture and until two or three years ago it was operating very carefully. The impulse for the “opening” of the company to the mass consumer of insurance services was the acquisition of the Dutch Eureko. Now, Interamerican Bulgaria already operates 15 offices nationwide, but it is still far from the results and the market share of the leading insurers in Bulgaria.
In 1999 and 2000, the German HDI, Australian QBE and ALICO, launched operations in Bulgarian market. In this period was privatised one of the state-owned companies Bulstrad. The buyers TBIH are a large Dutch financial group.
During the period of transformation of the Bulgarian insurance market, the number of the state-owned insurers rose to four from two, but after the sale of Bulstrad, their number stood at three. Later, the remaining two, DZI and Armeec were also sold and now 100 % state-owned is only the Bulgarian Export Insurance Agency, which has a special status and it is not planned to be privatised for now.
The interest in the Bulgarian insurance market is not falling, on the contrary, with the arrival of January 1, 2007, when Bulgaria’s EU took place, the interest was constantly increasing. In 2006 alone, two new companies and three branches of foreign insurers were authorized to operate in Bulgaria.
In March 2006, ING Life Insurance received a license. In end-August 2006 a license was received by two other companies (a general and life insurers), that are a joint venture of the Greek Ethniki, AIG and UBB, that is a subsidiary of the National Bank of Greece. Now, the two companies are not operating actively. In December 2006, Cardif, the BNP Paribas Assurance life and non-life insurer, received a license for two of its branches. After 60 years of absence from the Bulgarian market, in 2006 in Bulgaria started operations one of the largest European insurers Generali, that bought two Bulgarian insurance companies and one health insurance company.
Thus, on December 31, 2006 a total of 19 general insurance companies, 12 life insurance, two life insurance cooperatives and three branches of foreign insurers operate in Bulgaria.
In the life-insurance segment, besides the two cooperatives there is only one company with Bulgarian capital - DZI, the rest are owned by foreign shareholders. DZI was also owned by Bulgarian shareholders until two weeks ago.
Analysing the financial results of the companies, it is clear that foreign companies hold 98.5% of this business. It is not impossible for the market share of the two Bulgarian life insurance cooperatives to fall under 1%, taking into account the fierce competition in this financial segment. There is a slim chance these cooperatives will change their owners. According to all specialists, the growth potential of the life-insurance in Bulgaria in the next years is very large. Despite the optimistic forecasts besides the 15 companies only one firm has expressed to the Financial Supervision Commission its desire to develop life-insurance activities in Bulgaria. The most demanded product is the Zhivot (Life) insurance and annuities, whose income account for 70% of the total income in the sector.
The leadership in the sale of life-insurance services in Bulgaria is shared between DZI (that was bought by Belgium’s financial group KBC two weeks ago) and Allianz Bulgaria Life, and each of the two companies holds a market share exceeding 26%. After the leaders rank four companies - AIG Life Bulgaria, Generali Life Bulgaria, Bulstrad Life and Uniqa Life, that account for 8% of the total income of the sector, and the gap between their market shares is less than 1%. The total market share of the six leading companies stands at 89%, while the rest 9 compаnies hold a 11% market share. This means, that Bulgaria has a serious competition in the sector.
In 2005, the income of all life insurance companies in Bulgaria stood at 75 million euro, which means that each Bulgarian citizen spent 10 euro for a life insurance. According to preliminary estimates of www.insurance.bg, the income in 2006 will reach 100 million euro, also a modest result. However, the average annual growth of income is between 20 % and 30 % in the last few years.
It is obvious that the financial well-being of the Bulgarians is constantly improving and they are eyeing alternative bank deposits as the life insurance premiums and the investments in trust funds. The latter are now entering Bulgarian financial market, while the other two options already strengthened their positions and have a history and despite the low profitability are most preferred.
These facts and many other positive indications explain the large interest in the Bulgarian insurance market. Further accelerator of the investors’ interest is the Bulgaria’s EU accession.
10 years ago, the sole foreign investor in Bulgaria, as we already said, was AIG. Now, in the beginning of 2007, 14 of the 21 insurance companies are majority owned by foreign companies.
The expectations of the specialists is in the next one or two years the rest four or five large Bulgarian insurers to be also in the hands of foreign investors. If there is, however, a Bulgarian company, it will seek a specific market niche in order to survive the ruthless competition of the largest foreign insurers. A similar challenge was undertaken by the owners of Еuroins, who decided not to sell it to a strategic investor, but to list its shares in the beginning of 2006. The company is one of the best on the Bulgarian market and the interest of investors to its shares is not by chance (The face of the shares is 0.5 euro, and they selling at about 5.0 euro per share).
The best selling services in the general insurance segment are the car insurance (Motor Hull and MTPL), whose premiums account for 62 pct of the total premiums of the sector.
Property insurance, that provides protection against most risks to property, such as fire, theft and some weather damage, ranked second best selling product.
In the first nine months of 2006, premium income totalled 367 million euro and according to estimates of www.insurance.bg, the total premium income will reach between 520 and 540 million euro. The projected year-on-year rise in the premium income will be between 10% and 15% higher in comparison to 2005, being lower in comparison to the year-on-year increases in the previous years and also under the growth rhythm of the life-insurance market in Bulgaria.
Furthermore, auto insurance premiums account for 60% of the total income. The main reason for the lowest growth in the last years is the decrease in the auto insurance premiums income in 2006. Moreover, it is interesting to mention that 30% of the general insurance income comes from obligatory insurances.
Leaders in terms of premium income in this segment are DZI General Insurance AD with a 17.7% market share, followed by Bulstrad with a 15.9% share and Allianz Bulgaria with a 15.3% share. Thus, the three leading companies hold almost a half (48.9%) of the market, while the rest 18 hold the rest. In Top 10 of the general insurance companies in Bulgaria in terms of income rank three companies with majority Bulgarian participation. However, probably they will not remain Bulgarian for long and they will be bought by foreign investors.
It is obvious that in the next 10 in the ranking are present leading foreign insurers, whose market share is 1%. In fact, only seven of the 21 companies might “boast” with such result. Some may say that they have entered the market late and are still straggling to establish themselves as a company. But there are foreign insurers, that operate in Bulgaria for years and cogent arguments for their fragile performance in Bulgaria are lacking.
Besides the serious uplift of the market, the insurers expect in Bulgaria to enter one of the “sharks” on the insurance brokerage market. Now, in Bulgaria operate with success the world’s largest insurance brokers as Marsh, AON and Willis. Besides them, there are some more small brokers and a number of Bulgarian companies. The total number of the insurance brokers in Bulgaria exceeds 210. Their income accounts for 20% of the total insurance market in Bulgaria, which means that the brokers’ income will reach 115-120 million euro in 2006. However, according to estimates, the brokers’ role in the sale of insurance services will be even larger and their share in the total income will constantly growing.
Analysing the financial results of the brokers, half of the companies in the Top 10 ranking are owned by car importers, that practically insure their core business. The remaining five are the leaders in this segment in Bulgaria - Marsh, Eurolife and three Bulgarian brokers. The first company is well-known name globally, while the second is a Swiss life-insurance broker, that offers its products to three life-insurance companies operating on the Bulgarian market.
According to a market survey and according to practices in the other new members of the EU, as of 2007 in Bulgaria will appear new insurers as well, that will not register new companies in Bulgaria, but they will launch only branches of their companies. This will fierce the competition.
What’s new in New 2007?
36 foreign insurers and brokers want to work on our market. In January, 29 foreign insurance companies notified the Financial Supervision Commission of their request to sell insurance in Bulgaria. As INSURANCE.BG already wrote all insurance companies from the EU countries and the European economy can sell insurance in Bulgaria with no need of any certificate. And vice versa, the Bulgarian companies willing to work on EU markets will not need any foreign certificate. Every European insurance company that wants to enter our market is to address the corresponding supervision institutions which, on its turn, addresses the Bulgarian Financial Supervision Commission. The companies which have notified of such a wish are the new AXA Versicherung Aktiengesellschaft (Koln), Society of Lloyd`s SCOR UK Company Ltd. as well as the already present on our market Allianz and QBE which are to practise via foreign offices. The first company to notify was the Irish Electric Insurance. They submitted their request last year. There was yet another company to address its request in 2006- the French Cardif, having applied for general insurance and life insurance licence. Both companies are currently under reconstruction and are expected to be operational very soon, via the offices of the French insurer. Most companies to have notified are British ,17.5 are German, 4 Irish, 2 French and one is Austrian. Most companies are interested in general insurance. Only Society of Lloyd`s applied for life insurance licence as well. The number of brokers is fewer, 7 have notified by far and they are all registered in the EU. |
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By courtesy of
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COUNTRY BRIEF |
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> Area: 110,910 sq km
> Land Boundaries: 1,808 km
> Border countries: Greece
494 km, Macedonia 148 km,
Romania 608 km,
Serbia 318 km,
Turkey 240 km
> Capital: Sofia
> The highest point:
Musala 2,925 m
> Administrative structure:
28 provinces (oblasti,
singular - oblast)
> Currency: leva (BGN)
> Exchange rate: leva per
EUR - 1.25 (2005)
> GDP: EUR 55.58 billion
(2005 estimation)
> GDP per capita: purchasing power parity - EUR 7,450
(2005 estimation)
> Population: 7,385,367
(July 2006 estimation)
> Ethnic Groups: Bulgarian 83.9%, Turk 9.4%,
Roma 4.7%, other 2%
(including Macedonian,
Armenian, Tatar, Circassian) (2001 census)
> Languages:
Bulgarian 84.5%,
Turkish 9.6%, Roma 4.1%,
other and unspecified 1.8%
(2001 census)
Source:
CIA - The World Factbook (http://www.cia.gov/cia/
publications/factbook) |
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RESOURCES |
Figure 1
Premium income - life insurance 30.09.2006
Premium income - non-life insurance 01.01.2006-30.09.2006
Figure 2
Claims paid - life insurance 30.09.2006
Claims paid - non-life insurance 01.01.2006-30.09.2006
Table
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About Insurance.BG |
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| The specialised online portal- INSURANCE.BG- has been the leading media partner of the Bulgarian insurance business since 2003. The team of journalists provides the readers with impartial and trustworthy information about the domestic and world economy and finance. Readers of ours are individuals as well as leading companies in our country and other EU countries. The number of readers surpasses the number of readers who read the financial press in Bulgaria. INSURANCE.BG is a full member of the The Presse Internationale des Assurances (PIA). The portal is the media partner of the Association of Bulgarian Insurers, as well as the media partner of prestigious forums in Bulgaria and Romania. The team arranges forums, provides professional PR services. The web page is annually awarded with a prise for its solid journalistic ground when reflecting the activities of the insurance business. INSURANCE.BG cooperates with leading foreign media, its database is useful to other fellow journalists as well as for academical research and papers. |
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