The development of the financial market has been defined as one of the priority directions of the economic development of Uzbekistan. Accordingly, special attention is being given to the insurance services sector, as one of the main segments of the financial market.

The specialists of the Department of Financial Analysis and Rating of the SAIPRO Company have prepared the "Review of the insurance market of Uzbekistan for the 1H 2007 and future outlook". Full version of the review in Russian is available for download in PDF format in the "Insurance" section of the UzReport.com website. Below is the excerpt of the main points from the report.

Key figures

The number of insurance contracts signed in January-June this year exceeded 2.2 million, according to the State Insurance Inspectorate of Uzbekistan. Compared to the first half of 2006, the figure has increased by 4.6%.

In the same period, the volume of insurance premiums collected by the companies increased by 70.5% to over 38.9 billion soums. Of these, the premiums for voluntary types of insurance made up 94.2%, and for obligatory insurance types correspondingly - 5.8%.

SAIPRO analysts have estimated that the growth of the insurance market in the first half of this year was the highest in the past five years.

In absolute values, in the first half of 2007, the highest growth was observed in the sector of voluntary liability insurance, which has grown by 76.6% compared to first half of the previous year. The total volume of insurance premiums collected for voluntary property insurance has increased by 76.3%, and aggregate premiums received for voluntary personal insurance – by 52.2%. Obligatory insurance premiums have grown by 25.2%.

Also in the reporting period, the highest was the market share of the property risk insurance, which made up 79.1%. The share of personal insurance constituted 6.4%, of liability and obligatory insurance – 8.7% and 5.8% respectively. Comparison with the preceding year indicates that the share of property insurance has grown by 2.6 percentage points, whereas that of voluntary liability insurance – by 0.3 percentage points. The shares of other insurance types have shrunk. Small shares of voluntary personal insurance and liability insurance reflect their unused potential in Uzbekistan.

Coverage payouts made to corporate and private clients comprised over 3.5 billion soums, up 10.1% against first half of the year 2006. The payments made within the frame of voluntary insurance have grown by 7%, and those for obligatory insurance – by 33.8%.

Also, in the reporting period the proportion of coverage payouts to premium revenue has decreased about 1.5 times to 8.9%. In the section of voluntary insurance, this ratio constituted 8.1% and in obligatory insurance – 21.8%. In general in Uzbekistan the ratio remains rather low, compared to the world average, which makes the insurance market attractive for investors.

The breakdown analysis of the coverage payouts made in the reporting period indicates that 72% of all insurance payouts were made for voluntary property insurance, 13.2% - for voluntary personal insurance, 0.6% - for voluntary liability insurance, and 14.3% - for obligatory insurance.

A distinguishing feature of the first half of 2007 compared to the same period of previous years is the fact that the premium revenue grew 1.2 times faster than insurance obligations taken by the companies. Thus, the size of the companies’ insurance obligations totaled over 23.8 trillion soums as of 1 July 2007, up 36.4% compared to the figure at the end of the first half of 2006.

About 58% of the insurance obligations undertaken by the companies are voluntary liability insurance type, 36.4% - voluntary property insurance, 3.3% - voluntary personal insurance, and 2.3% - obligatory insurance.

At the end of the reporting period, insurance companies’ investments exceeded 195.9 billion soums, which exceeds the previous year’s showing by 15.8%. The companies continue to make most of their investments in stocks and bank deposits. More precisely, about 56.6% of the companies’ investments were made in stocks, though their popularity appears to decline: the share has decreased by 5.1 percentage points from the first half of 2006. At the same time, the share of investments in bank deposits increased by 5.9 percentage points to 35.2% of all investments.

Market players

According to the official reports of the State Insurance Inspectorate of Uzbekistan, currently 25 insurance companies operate in the country. Of them 24 provide general insurance, and only one – life insurance services. Also, there is one company specialized in reinsurance and two insurance brokers.

The concentration of the insurance market of Uzbekistan remains high. Thus, the share of five leading companies of the market (with the highest premium revenue) – UzbekInvest, UzAgroSugurta, UVT Inshurans, Kafolat and Standard Insurance Group, together get about 78.2% of the total market’s premium revenue. Moreover, the leading companies (among the top five) in which the state has a stake get about 51.6% of the total market’s premium revenue, though down by 4.3 percentage points compared to the first half of 2006. The undoubted leaders of the insurance market in terms of the size of the premium revenue are the companies co-owned by the state – UzbekInvest with 27.3% of the market and UzAgroSugurta with 18.8% of the market).

Whereas the top five list has suffered practically no changes since the first half of 2006, except for the fact that UzbekInvest won back the status of the market leader, the next five companies have changed. Thus, two companies appear to have achieved substantial progress in the first half of 2007 and joined the top-ten list: Kapital Sugurta ranked seventh (previously 13th) and Asko-Vostok ranked 10th (previously 14th). The companies’ achievements are the result of efficient management and wise marketing policy. In 2004 Kapital Sugurta was organised on the base of the former Ark Sugurta Group and the company’s management had changed. Asko-Vostok, although one of the oldest private insurance companies in Uzbekistan, also renewed the structure of the management last year.

Although state-owned companies (UzbekInvest, UzAgroSugurta) still have the highest premium revenue in the market, the revenues of private insurance companies appears to grow faster.

Thus, in the reporting period, an undoubted leader according to the revenue growth rate was Kapital Sugurta. The company’s premium revenue grew 4.9 times compared to its revenue in the first half of 2006.

The premium revenues of Fotis Sugurta and Asko-Vostok grew more than three times. Parvina Sugurta’s and Asia Inshurans’ premium revenues more than doubled. The remaining five companies from the top-ten list – Standard Insurance Group, UzbekInvest, ALSKOM, Unipolis, and Madad observed 1.7-2 fold revenue growth.

The leaders of the market in terms of the coverage payouts made are state-owned companies. The absolute leaders are UzAgroSugurta, UzbekInvest and Kafolat, which together paid out about 79.8% of the total market coverage payments.

Reinsurance

According to the State Insurance Inspectorate reports for the first half of 2007, the participants of the Uzbek reinsurance market earned over 3.7 billion soums in reinsurance premium revenue, which exceeds the previous year’s showings 3.2 times.

In the reporting period, 94% of the reinsurance premiums were received for the reinsurance of property risks, 4.9% - for reinsurance of personal insurance contracts, 1% for liability insurance contracts, and 0.1% for obligatory types of insurance. Meanwhile, the share of reinsurance premiums received for property risks reinsurance appears to decline: it has dropped by 1.8 percentage points compared to the showings of the first half of 2006.

The premiums received for reinsurance of personal insurance contracts, though constitute a small share of total reinsurance premiums, increased 1.6 times in the reporting period. The shares of the premium revenue for reinsurance of liability insurance and obligatory insurance types have suffered practically no changes.

In absolute values, in the first half of this year all types of reinsurance observed intensive growth (up 5 times). The premium revenue received for reinsurance of property risks has increased 3.1 times, for liability insurance – 3.3 times, and for reinsurance of obligatory insurance types – 3 times.

At this time, the Uzbek reinsurance market is concentrated in the hands of insurance companies, which is one of the market’s distinguishing features. Until 2006, the market had now reinsurance companies, and it now has only one. In the first half of 2007, 77.5% of all inward reinsurance premiums were earned by insurance companies. An absolute leader is UzbekInvest Company, with a 70.1% share of all reinsurance premiums.

Following the emergence of a reinsurance company, some positive shifts have been observed. Thus, in the reporting period, the only reinsurance company in the market, Transinsurance, earned 22.5% of all reinsurance premiums and thus ranked second in terms of the market share.

The 3rd-5th rankings are held by Fotis Sugurta, Kafolat and ALSKOM companies with 2.5%, 0.8%, and 0.7% of the market respectively. In the light of all said above it can be claimed that the level of concentration in the reinsurance market of Uzbekistan remains extremely high.

In the reporting period, unlike inward reinsurance premiums, the premiums paid by insurance companies for the (outward) reinsurance of their contracts grew by 93.6% compared to the same period last year; that is outward reinsurance grew 1.6 times faster than inward reinsurance. In general, insurance companies reinsured about 44.8% of their premiums, or 17.4 billion soums.

In outward reinsurance too, the reinsurance of property risks dominates. In the first half of 2007, reinsurance of property risks made up about 94% of all outward reinsurance premiums, down from 95.8% in the same period of 2006. The share of reinsurance of voluntary personal insurance increased slightly (up by 1.8 percentage points).

In the reporting half-year, about 87.9% of all reinsured premiums were reinsured by three major companies – UzbekInvest, Standard Insurance Group and UVT Insurance. The main reason for this is the fact that these companies deal mainly with the insurance of high risks, such as aviation risks, mining and oil and gas industry risks, cargo transportation risks, export risks, production risks, etc.

Outlook

According to the analysts of SAIPRO, in the conditions of the developing insurance market, and given the current pace of the spread of insurance services, the introduction of mandatory insurance types in line with the international practice would assist the popularization of this type of service. Moreover, this would help create an insurance protection for the groups of population and corporate entities potentially highly exposed to risks, and thereby take off a substantial burden from the corporate and private clients, and the state for covering the damages resulting from natural disasters, crashes and catastrophes. This, in turn, would help raise the financial potential of the Uzbek insurance companies. While introducing mandatory types of insurance, SAIPRO experts state that priority importance should still be given to the development of voluntary insurance types.

In the first half of 2007, the share of insurance premiums received by the companies within the frame of mandatory insurance made up only 5.8% of the total premium revenue. Moreover, a downward trend is being observed. SAIPRO experts explain this by the practical lack of mandatory types of insurance which would provide real protection of the clients’ interests and comply with the best international practices (insurance of auto-civil liability, insurance of employer’s liability, etc).

The Presidential Resolution of 17 April 2006 "On measures to speed up the development of the services sphere in the Republic of Uzbekistan in 2006-2010" No. 325 is aimed at solving the said problems. The resolution envisages gradual introduction of mandatory insurance of vehicle owners’ liability and mandatory insurance of employers’ liability in line with the international practice.

It is expected that as a result of the introduction of mandatory insurance of vehicle owners’ liability only, the share of mandatory insurance in total premium revenue will jump up to at least 30-35%.

Besides, according to the abovementioned resolution, organizations providing insurance services are exempt from taxes on revenue and the single tax payment for the period until 2009, which should further raise the potential of the insurance market of Uzbekistan.

In addition, to further intensify the reform and development of the insurance market, on 10 April 2007 the President of Uzbekistan passed another Resolution No. 618 "On measures to further reform and develop the insurance services market". This document approved and launched the Programme of Reforms and Development of the Insurance Market.

The measures envisaged in the said programme will strengthen the stability and reliability of the Uzbek insurance market; they will allow to build an efficient system of mandatory insurance and help create a full-value insurance market infrastructure; and finally they will support market transparency and improve the staff potential of the insurance sector.

The resolution should provide an impulse for the development of the long-term life insurance, as according to the document, this type of insurance will be fully exempt from tax. Tax exemptions are also envisaged for property insurance. These benefits are intended to stimulate the development of the insurance market and encourage companies and individuals to use insurance services more widely.