It's Bratislava Baby: Erste Enchanted by CEE

The days of Vienna as the financial capital of CEE are numbered – or at least that’s how Andreas Treichl, chairman of Erste Bank, sees it.

It’s bad enough for Austria that New Europe is developing at a very fast speed. “The risks of doing business in Central and Eastern Europe have fallen so much that in 10-15 years from now nobody who wants to invest in the Czech Republic will do it via Austria,” the Erste Bank top manager said in the beyondbrics column of FT (actually, we at WAFT thought it’s already this way. Nobody believes in horrors behind the Iron Curtain anymore).

But, adding insult to injury, fiscal constraints imposed by the Austrian government are making the country lose its regional competitive advantage, Treich said. “In this country we pay the highest bank taxes. Higher than in the UK where you have banks who really screwed up, higher than in the US where you have banks who really screwed up and higher than in Germany where you have banks who really screwed up. We as banks have a very strong interest in the country risk of our country. If Slovakia were AAA-rated I would kiss Austria goodbye,” said Treichl.

It seems we won’t have to wait for long for that historic kiss: sovereign ratings of key regional economies, with the exception of the rebellious Hungary, have closely approached the AAA grade. Slovenia is currently rated at Aa2 (Moody’s) and AA (S&P, Fitch), which is on the same level as Japan and Kuwait. Slovakia and the Czech Republic are at A1 (Moody’s), and A+ (Fitch), like Israel or China. Poland stands at the A2 level – not bad, either.

So when are you guys trading Vienna for Bratislava?


UPD: Apparently, Treich is not the only one to have put trust in Bratislava. Today, Slovakia raised EUR1.25 billion in a reopening of its 2016 bond, with total bids reaching EUR1.9 billion. According to Bloomberg, the bond "was priced to yield 80 basis points more than the benchmark mid-swap rate". The higher-rated Italy paid a spread of 89 basis points in a recent offering of its 2015 bond. Experts interviewed by Bloomberg say this demonstrates investors consider the Slovak economy structurally strong.

Another Insurance M&A in CIS

Not that we are particularly partial to Axa, but recently all M&A rumours in the region are about the French group. Over the weekend, the CIS insurance market mulled over the possible sale of an interest in Ukrainian leader Oranta, and Axa is said to be among the main bidders, with VIG and Uniqa also on the list, our Ukrainian sources state. Russia-based investment group Troika Dialog is reported to organize the deal.

A well informed market professional in Kiev told our blog that Axa is about to sign the agreement to acquire a share in Oranta for UAH400 million, or approximately EUR37 million.

Our sources estimate the total value of the insurer at “no less than USD100 million”. It’s likely that the interest in question currently belongs to Ukrainian mogul Viktor Pinchiuk.

If the information is indeed correct, Axa will become the largest insurance player in Ukraine, leaving other companies far behind.

In the first nine months of 2010, Axa generated a premium income of UAH537.7 million (EUR52.2 million), up 7.8% on 9M 2009. Oranta’s result for the first three quarters was UAH465.2 million (EUR45.1 million), down 13.5%. The two companies occupied the second and the third place, respectively – but together they could easily beat the market leader Kremen, which in 9M 2010 wrote UAH830 million (EUR80.5 million) in premium.

Insurance Capacity of Social Media

It’s a clear sign of recognition. Social media is a power so mighty that one needs insurance against it.

Chartis UK has announced it extends its D&O coverage to include risks resulting from confidential information disclosure in (micro)blogs, social networks and websites.

“The domination of the global news headlines by Wikileaks... is a vivid illustration of the power of social media” David Walters, vice-president for financial lines at Chartis, said. “Although the focus has been on government there is, however, no room for complacency for business. In a recent interview Julian Assange, Wikileaks founder, said that 50% of the leaked material they were holding related to the private sector”.

We are now proud to inform our readers that WAFT (Where Angels Fear to Trade) can now also cause a D&O loss. Anyone willing to share info leading to reputational damage for some company?

PS: With power, comes money. Here’s how much major companies are ready to invest in the next dotcom bubble.

CEE Renewals: Are U Ready For Solvency II?

Last September, KPMG polled over 80 CEE-based insurance companies on their preparedness to introduction of the Solvency II regime. Results of the findings demonstrated that regional players were not too concerned with the looming changes. Little seems to have changed in time for the January renewals.

CEE Renewals: Cat and Non-Cat Pricing Trends

Despite ample capacity, CEE was one of the world’s few regions where experts registered substantial, sometimes low double-digit rate increases. However, harder pricing was limited to segments and layers affected by nat cat losses over 2010. “Based on preliminary results, pricing of loss-affected layers increased by approximately 15%”, Aon Benfield stated. Hannover Re’s Alexander Guerassimenko also estimated the average rate increase for loss-affected cat programmes at around 15%. According to him, especially noticeable increases – as much as 30% – were registered for Polish cat programmes.

In its renewals report Guy Carpenter provided a detailed, layer-by-layer, analysis of regional pricing developments: “Catastrophe excess of loss rates on line were generally down 5% to 10% for loss-free programs, with those affected by losses up by as much as 20% to 30% at the lowest layers”, – exactly the layers that were most affected by weather-related losses. “Middle layers were up around 7.5%, and top layers were flat or slightly reduced. Per risk working layers were also up 5% to 10%, generally as a result of either losses and/or increased exposure. Higher layers were flat to down”.

Rates for non-cat/loss-free programmes tended to reflect pricing developments in the primary market and capacity increases. “Risk excess of loss rates in the region decreased slightly or remained unchanged, depending on the loss experience. Motor third party liability programmes have seen slight decrease as well”, Aon Benfield stated. According to Hannover Re’s Alexander Guerassimenko, loss-free segments registered either flat pricing dynamics or a softening of 5-10%, like in the case of CEE civil and professional liability programmes.

An average reduction across the programmes reached approximately 5%, Guy Carpenter’s Hamish Dowlen told our blog. Aon Benfield registered an average softening of around 2% on loss-free layers and a softening of approximately 3% across the whole regional market.

CEE Renewals: Capacity & Retenions

This week – if nothing really sensational happens in the CEE/CIS (re)insurance markets – we’ll be posting insights about regional trends during the 2011 January renewal season. Today, our experts speak about the reinsurance capacity demand and supply in CEE and changes in retention levels of local ceding companies.

Nat Cats in CEE: USD12 Billion Loss and Little Coverage

During the January renewals in CEE, reinsurance brokers operating in the region noted a previously unregistered trend: extreme frequency of medium-size catastrophe losses. While this in some case resulted in higher demand for cat protection, overall catastrophe capacity purchase in the region remained stable. Why the discrepancy?