Small Big Bang

Another story from the latest issue of The Insurer

The crisis may be over for more developed European emerging markets, like Poland, the Czech Republic or Slovenia – but in the CIS, the effects of the recession are still very visible. Therefore, a sharp increase in the number of players in any of the regional insurance industries has been very rare recently.

Azerbaijan is exactly such a rare case. According to estimations of local companies, early 2011 may see establishment of three to six new life insurers in the country. However, the reason for the surge is more legal than economic:
Starting from March 2011, Azerbaijani insurers will be required to run separate entities for their life and non-life business. Under the law, local life companies will have to have a capital of no less than AZN5 million (EUR5.1 million).

Currently, Azerbaijani clients can buy life policies from five insurers: Pasha Sigorta, Ateshgah Life, Standard Insurance, Ata Sigorta and, most recently Qala Heyat. So far, only two players – Ateshgah Life and Qala Heyat – are specialised L&H services providers. While, under local standards, Ateshgah Life can be considered a seasoned player (the company entered the market in 2009), Qala Heyat received its operating licence only in early December, so it is basically “the child” of the new legal requirement.

By early 2011, two more companies may join the list. As first depity chairman of the board of Standard Insurance, Aidyn Rakhmanov told The Insurer at the VI Moscow conference “World Views for Life Insurance” in mid-November, his company will establish a separating life unit “within the next several months.” In early December, day.az reported that Axa Group, which recently acquired Azerbaijani insurer MBASK, is considering the same move. Top management of Axa was reported to prepare the business plan by the next shareholders’ meeting.

Ayten Huseinova, chairperson of the board at Ateshgah Life, believes that shortly up to four specialised life insurance providers may join the country’s market. By year-end 2011, the figure may reach five to six, Igor Smaga, CEO of Ateshgah, opined in a conversation with The Insurer reporter. “I believe, only the companies that are in for a long-term presence in the segment, will obtain specialised life licences”, stated Standard Insurance’s Rakhmanov. “By long-term, I mean at least five to ten years”.

According to Huseinova, the Azerbaijani life market will presumably grow thanks to the recently adopted requirement on compulsory A&H insurance of employees. “The law that introduced this compulsory class was passed in July 2010. Under it, employers are obliged to provide coverage against workplace accidents and occupational diseases to all of their employees. Minimal rate in the class has been set at 2% of the total salary fund of the company; however, depending on the type of work performed by each individual employer, the figure may vary. According to the legislative piece only specialised life insurance providers may engage in this class“, Guseinova stated to our publication..

Chair of the Ateshgah Life board believes that local players will beging with providing classical products like term and universal life. “It’s still too early to talk about introduction of some other life lines in our market”, she opined.

According to the Azerbaijani insurance regulator, in H1 2010, the local market generated AZN704 thousand (EUR718.4 thousand) in life insurance premiums, up 77% on January-June 2009. Life claims over the same period reached AZN172 thousand (EUR175.5 thousand), demonstrating a 34% decrease on H1 2009. In the first half of 2009, the bulk of the life premium, or 59%, was generated in the death insurance segment, annuity took up another 16%, with endowment accounting for the rest of the premium figure. However, in H1 2010 the premium structure changed significantly: endowment accounted for as much as 66% of the total figure demonstrating a six-fold increase. Death insurance premium, on the opposite, grew only 1%, while annuity business was not written at all. (see a table here) 

Ateshgah Life in H1 2010 wrote AZN480 thousand (EUR489.8 thousand) in premium and paid out AZN10 thousand (EUR10.2 thousand) in claims. The company’s share in the total market premium reached 0.62%.

Authored by my colleague Ksenia Makidonskaya, edited and translated by me.