Monday, May 15 2017 13:43
Karine Melikyan

The insurance market is marking time

The insurance market is marking time

ArmInfo. Interview of IA ArmInfo with Deputy Executive Director of "Sil Insurance" Levon Mamikonyan

How do you assess the development of the insurance market of Armenia in 2016 and how do you determine the growth?

Of course, there are several traditional methods of assessing and characterizing the state of the market, but first of all it is necessary to assess the level of "density" of insurance services among the population, which is calculated according to the size of the collected insurance premiums per capita, it characterizes how actively the population uses insurance services. As an example, I will quote some data: in the United States, the premium paid is $ 3527 per person, in Germany $ 2904, in China $ 158, in Russia $ 297, and on the world scale $ 627 on average. For comparison, I would say that in 2016 this figure in Armenia was only about $ 23. But let us not forget that a few years earlier this figure in Armenia was $ 2, while there were more insurance companies on the market.

The situation in insurance is a reflection of economic development - the worse the situation in the economy, the naturally lower are the market indicators. Last year's growth of insurance premiums by 5% means that the market was tagged on the spot, as the sources of this small growth were mainly CMTPL and to some extent insurance of property and general liability.

Growth in CMTPL can be caused by the importation to the country of about 15,000 cars (the collected premium increased by 600 million AMD), property insurance - several large projects (which allowed to increase premiums by 400 million AMD), started with financing from external sources North-South, a number of reservoirs, etc.), in voluntary health insurance premiums increased by 420 million AMD, and responsibility - due to Armenia's entry into the EEU, Different types of responsibility - customs brokers, warehouses and carriers.

And what are the predictions for 2017 - pessimistic or optimistic?

For 2017 I still have a pessimistic forecast. On insurance premiums, I expect growth at last year's level, maybe a little more - up to 7%, and there is no expected to be a sharp increase even in the perspective of the government's forecast for higher economic growth. And even this 5-7% growth will be provided by point projects, such as alternative energy, the further construction of the North-South road, some road rehabilitation projects (let us say the Vanadzor-Bagratashen segment), and of course CMPTL.

The prerequisites for accelerating growth could be the launching of large projects, for example, the resumption of health insurance for civil servants (the so-called social package) and other major investment projects, but they are only being declared and no specifications on them yet. But in this case it would be possible to assume a probable growth in 2017 somewhere in the range of 20-25%.

What main trends in the development of the insurance market would you single out?

First of all, I would call the increased attention of the government to this segment of the economy and the financial market both from the point of view of the market itself and risk management in the economy as a whole. First of all, this concerns the intention to create a mechanism for insurance of agricultural risks. This is, as a rule, a subsidized type of insurance activity and it needs to be developed with the support of the state. Important are the intentions of the state to strengthen the system of social guarantees of the population through the transition from voluntary to compulsory health insurance (CHI). In the fall of 2017 or in 2018, probably the first stage of the reform will work, and then we will see. In addition, the government they already talking about the introduction of environmental risk insurance. All these steps of the new government are inspiring.

What can you say about the legislative changes in 2016 and those of planned in 2017?

In 2016, they concerned CMTPL - direct reimbursements - they are important, but not global. The Law on Insurance and Insurance Activities included 17 amendments, but they were mostly of a stylistic nature or related to some accounting methods or were of a legal nature for harmonization with other laws or by-laws.

But for one moment I would like to draw your attention - in 2016 the question of insurance against earthquakes was raised. The fact is that for several years insurance companies in the property insurance class from natural disasters also carried out earthquake insurance, but the amount of payments under the policy or the case under the reinsurance contract was limited - for a case a certain amount was supposed to be, say $ 3 million, in case of a serious disaster, the market may face problems. No private insurance company can solve this issue on its own, which means that it needs a state solution. In other words, it is necessary to create a national program to protect against earthquakes and insurance of risks, as for example, it was done in a geographically close to us and located in an identical seismic zone of Turkey, where it is a mandatory component. The Turkish catastrophic insurance pool was established in 2000 after the devastating 1999 earthquake. The pool was intended to replace state obligations to finance the reconstruction of houses after earthquakes.

The program is carried out as compulsory insurance, tied to the registration of buildings. Rates depend on the degree of risk. Standard coverage for commercial enterprises involves co-participation with the insured in risk: 80% is covered by the policy and 20% is paid by the policyholder. A deductible of 2% is applied for each loss.

For frequent buildings, the pool is protected by a limit of - about 100,000 USD, any excess can be reinsured in the local market. The pool is open only to local companies. Insurance premiums range from 30 to 60 EUR per year, which is not expensive. Between 2000 and 2003, about 50 earthquakes took place in Turkey, and the pool paid about 7 million USD to 4,200 building owners. This program is considered the world's best system of insurance against earthquakes.

In Armenia, certain studies and calculations were carried out with the help of the Japanese experts, but we do not know the continuation of this process.

Why is the state prolongs this process?

Apparently they do not want to increase the financial burden in a crisis situation, since this can lead to discontent. In addition, you need the finance and time to develop the project. It is also necessary to attract large foreign reinsurance companies to this issue.

I wanted to ask about the reinsurance business: which countries are the main holders of Armenian risks? Risks are transferred directly by insurance companies or are preferred by reinsurance brokers? How do you assess the overall reinsurance market in Armenia, and what are its main trends?

Our market is small and in a global sense, there is no interest on the part of reinsurers. The lack of interest is primarily due to a small insurance premium transferred to reinsurance. So, for example, CMPTL takes on average 55% of the market, but in this segment there is no sense in reinsurance, as well as in another segment - health insurance (17% of the premium collected). And from the remaining 28%, and somewhere around $ 18.5 million for reinsurance, about $ 9.4 million per year is transferred and this amount cannot cause "agitation" in the reinsurance market.

Today Russian "Ingosstrakh", "Rosgosstrakh" and several other Russian small insurance companies work with Armenia, and German Allianz SE, English Lloyd, French SCOR, Polish reinsurance company, from major international companies, on some deals there is participation of Korean, Swiss and German companies. Somewhere 10 reinsurers work with Armenian insurance companies on an ongoing basis. For example, the French SCOR has been operating for more than 10-15 years. And if your reinsurer does not work for a certain class, then you have to look for another specialized one, as in the case of "piece" risks - construction and installation works, roads, thermal power plants, etc. Some of our insurance companies work directly with the reinsurer, and some - through insurance brokers.

There has recently been increased interest from some reinsurers to major tenders, such as the North-South road project, to professional liability insurance - customs brokers, and to the issue of earthquake insurance. Reinsurers from India and China, who are strategically interested in both large and small markets, regularly tease us but to deal with new untested companies is still risky.

What legislative requirements prevent or hinder the work of foreign reinsurance companies in Armenia?

This is a high rating scale presented to reinsurers - no lower than "A-" rating, and another reservation of a certain amount from an agreement with an Armenian insurer, if the reinsurer has a lower rating.

You forecast for 2017-2018 an increase in the loss ratio from 55% to 60%, against 51% in 2016. What is the reason for this?

My forecast comes from CMTPL, in connection with the introduction of the bonus component and the tightening of the Malus component in the bonus-malus system, as well as in connection with the introduction of the mechanism of direct reimbursements. There will be more losses of companies. There may be costs in connection with the transition to MHI.

Can the number of insurers, as happened with banks, shrink?

I think not - the capital ratio has already been increased from 500 million to 1.5 billion AMD. Now the Central Bank needs to maintain a balance. There are 6 insurance companies left, which are quite enough for the Armenian market. But, it is quite predictable that with the introduction of any new mandatory types of insurance, as the CHI, say, the total capital ratio may be toughened.

POST A COMMENT
Input digits     


News
Wizz Air starts operating Rome-Yerevan-Rome flightsWizz Air starts operating Rome-Yerevan-Rome flights
3rd session of Geographical Indications sub-committee under CEPA  between Armenia and EU took place3rd session of Geographical Indications sub-committee under CEPA  between Armenia and EU took place
Armenia`s GDP growth to be double-digit in 2022 - EconomistArmenia`s GDP growth to be double-digit in 2022 - Economist
 USD 25 million to support the private sector USD 25 million to support the private sector
Armenia`s economic activity increased by 13.9% in 8 months of 2022Armenia`s economic activity increased by 13.9% in 8 months of 2022
Armenia-Italy Textile Alliance Forum started in MilanArmenia-Italy Textile Alliance Forum started in Milan
Dmitry Volvach: Trading volumes of the ruble-dram currency pair  increased more than 1000-fold on the Moscow ExchangeDmitry Volvach: Trading volumes of the ruble-dram currency pair  increased more than 1000-fold on the Moscow Exchange
Armenia`s minister of economy hosts WB Country Manager for ArmeniaArmenia`s minister of economy hosts WB Country Manager for Armenia
EBRD launches climate governance platform for business leaders in  Ukraine, Georgia and ArmeniaEBRD launches climate governance platform for business leaders in  Ukraine, Georgia and Armenia
Another step in promoting the Armenian-Russian decentralized  cooperation: Pashinyan`s address to participants of Armenian-Russian Interregional Forum Another step in promoting the Armenian-Russian decentralized  cooperation: Pashinyan`s address to participants of Armenian-Russian Interregional Forum 
Iran Khodro Company starts supplying cars to ArmeniaIran Khodro Company starts supplying cars to Armenia
Armenia, China are considering  possibility of organizing direct  flights between  countriesArmenia, China are considering  possibility of organizing direct  flights between  countries
Expert: With the stabilization of the military-political situation,  the exchange rate in Armenia will also stabilizeExpert: With the stabilization of the military-political situation,  the exchange rate in Armenia will also stabilize
Gradual softening of the global inflationary environment will weaken  the inflationary impact from the external sector on the Armenian  economyGradual softening of the global inflationary environment will weaken  the inflationary impact from the external sector on the Armenian  economy
CBA significantly improves its forecast for GDP growth for 2022 to  12.9%, but expects inflation at 10.3%CBA significantly improves its forecast for GDP growth for 2022 to  12.9%, but expects inflation at 10.3%
Central Bank of Armenia raised refinancing rate from 9.5% to 10%Central Bank of Armenia raised refinancing rate from 9.5% to 10%
TOTAL opens training center in Etchmiadzin for training specialistsTOTAL opens training center in Etchmiadzin for training specialists
WB stands ready to continue to assist Armenian government in  implementation of priority programsWB stands ready to continue to assist Armenian government in  implementation of priority programs
Armenia`s producers to get 1% tax reduction for recalling spoiled  productsArmenia`s producers to get 1% tax reduction for recalling spoiled  products
FLY ONE Armenia transported over 200.000 passengers in its first year  in marketFLY ONE Armenia transported over 200.000 passengers in its first year  in market
Armenia`s minister of economy visits ski resort construction project  in Aragatsotn Armenia`s minister of economy visits ski resort construction project  in Aragatsotn 
Pashinyan instructs to find new investors for mines that are  currently not being developedPashinyan instructs to find new investors for mines that are  currently not being developed
AMD 4.676.836 to the “Rehabilitation City of Heroes” psychological center: the next beneficiary of “The Power of One Dram” is the 4090 FoundationAMD 4.676.836 to the “Rehabilitation City of Heroes” psychological center: the next beneficiary of “The Power of One Dram” is the 4090 Foundation
ACBA Bank fourth bank to join government-sponsored 10% cashback  programme for pensioners and reliefersACBA Bank fourth bank to join government-sponsored 10% cashback  programme for pensioners and reliefers
Presentation of Jobbit instrument held in Yerevan Presentation of Jobbit instrument held in Yerevan 
New power unit under construction at Kursk NPP could be serve as  standard for Armenia - ministerNew power unit under construction at Kursk NPP could be serve as  standard for Armenia - minister
Diaspora factor in Armenia`s investment portfolio is decliningDiaspora factor in Armenia`s investment portfolio is declining
Foreign investors present existing problems to Deputy Prime Minister  of ArmeniaForeign investors present existing problems to Deputy Prime Minister  of Armenia
Araratbank to put up for sale another tranche of dollar bonds worth  $3 million on September 8Araratbank to put up for sale another tranche of dollar bonds worth  $3 million on September 8
Ameriabank starts initial placement of another tranche of USD bonds  in amount of $10 millionAmeriabank starts initial placement of another tranche of USD bonds  in amount of $10 million
Pashinyan hopes that Moscow will regard relocation of Russians as  movement within EAEU: Putin sees nothing wrong with thisPashinyan hopes that Moscow will regard relocation of Russians as  movement within EAEU: Putin sees nothing wrong with this
Armenia`s premier on secondary western sanctions over intensified  contacts with Russia Armenia`s premier on secondary western sanctions over intensified  contacts with Russia 
Armenia is very concerned with unblocking transport links with  Azerbaijan Armenia is very concerned with unblocking transport links with  Azerbaijan 
Nikol Pashinyan links economic growth in Armenia with EAEU  regulationsNikol Pashinyan links economic growth in Armenia with EAEU  regulations
IDBank issues the first premium class business cards in ArmeniaIDBank issues the first premium class business cards in Armenia
Kerobyan: More than 50,000 Russian IT specialists arrived in ArmeniaKerobyan: More than 50,000 Russian IT specialists arrived in Armenia
Converse Bank has come up with a unique offer to encourage online shoppingConverse Bank has come up with a unique offer to encourage online shopping
IDBank is the first in Armenia to present Visa Platinum Business cardIDBank is the first in Armenia to present Visa Platinum Business card
AraratBank issues and underwrites USD 3,000,000 bondsAraratBank issues and underwrites USD 3,000,000 bonds
Fitch Affirms Armenia`s Sovereign Rating at B+, Upgrades GDP Growth  Outlook to 6.4%Fitch Affirms Armenia`s Sovereign Rating at B+, Upgrades GDP Growth  Outlook to 6.4%
Armenian SRC Deputy Head, Iranian Consul General in Kapan discuss  methods of facilitating customs procedures Armenian SRC Deputy Head, Iranian Consul General in Kapan discuss  methods of facilitating customs procedures 
Armenia to host production of Iranian carsArmenia to host production of Iranian cars
WB to issue a $26.5mln loan to ArmeniaWB to issue a $26.5mln loan to Armenia
Ardshinbank named Retail Bank of the Year by the international magazine Asian Banking & FinanceArdshinbank named Retail Bank of the Year by the international magazine Asian Banking & Finance
Armenia has significantly increased polished diamond exports and  rough diamond importsArmenia has significantly increased polished diamond exports and  rough diamond imports
Armenia significantly increased gold exports in H1 2022Armenia significantly increased gold exports in H1 2022
Armenian-Iranian business forum was held in YerevanArmenian-Iranian business forum was held in Yerevan
Converse Bank offers SME financing without financial analysisConverse Bank offers SME financing without financial analysis
Minister: As a result of relocation, 300 large companies with Russian  capital were registered in ArmeniaMinister: As a result of relocation, 300 large companies with Russian  capital were registered in Armenia
Ardshinbank supports development of Armenian jazz musicArdshinbank supports development of Armenian jazz music
Ameriabank expands branch network in YerevanAmeriabank expands branch network in Yerevan
Winner of Buissup Global Forum 2021 to represent Armenia at  Entrepreneurship World Cup 2022Winner of Buissup Global Forum 2021 to represent Armenia at  Entrepreneurship World Cup 2022
CPC reveals violations in production and sale of bottled  non-carbonated waterCPC reveals violations in production and sale of bottled  non-carbonated water
Orion, BAJ Accelerator launching one more startup growth acceleration  programOrion, BAJ Accelerator launching one more startup growth acceleration  program
Deutsche Telekom AG to launch activities in Armenia Deutsche Telekom AG to launch activities in Armenia 
Armenian, Russian entrepreneurs hold 250 meetings within RF  Diversified Business Mission to ArmeniaArmenian, Russian entrepreneurs hold 250 meetings within RF  Diversified Business Mission to Armenia
Economist concerned over children living in poverty in Armenia Economist concerned over children living in poverty in Armenia 
Neruzh professional repatriation program to be launched in Dilijan in  late SeptemberNeruzh professional repatriation program to be launched in Dilijan in  late September
TVEL JSC, Armenian NPP sign contract for supply of fresh nuclear fuelTVEL JSC, Armenian NPP sign contract for supply of fresh nuclear fuel
Armenia`s share in air tickets booked by Russians for autumn holidays  15%Armenia`s share in air tickets booked by Russians for autumn holidays  15%
Read more


Exchange rates
27.09.2022
RUB7.05-0.09
USD409.82-3.24
EUR394.53-3.78
GBP442.61-0.52
CAD299.47-3.16
JPY28.40-0.24
CNY57.95-0.81
CHF415.13-1.89