Compensations suppress premiums in Armenian insurance market

ArmInfo. In the Armenian insurance market, compensation growth continues to accelerate, while  premium growth has slowed, as a result of which market profits have begun to decline, according to the data of the anniversary issue No.75 of the Financial Rating of Insurance Companies of Armenia as of  September 30, 2023, prepared by ArmInfo IC based on published reports  and portfolio data requested from the insurance companies.

Moreover, the deterioration of profit dynamics is observed against the  background of weak trends in premiums to set a new record, with a  very rapid movement of compensations to historical highs.

According to data from portfolios requested from insurance companies,  despite the high indicators, the growth of premiums on y-o-y terms  slowed down from 25.4% to 17.6%, while the upward trend of  compensations accelerated from 5.2% to 26.8%, the volumes of which  based on the results of 9 months of 2023, reached 55 billion drams  ($140 million) and 27.2 billion drams ($69.2 million), respectively.  It is worth noting that the historical maximum of premiums and  compensations was recorded at the end of 2022, when the milestone of  60 billion and 30 billion drams was passed.

Against this background, the dynamics of net profit began to  deteriorate, turning to a 9.4% decline, (from last year's 6.3-fold  increase), the level of which at the end of 9 months of this year was  amounted to 3.2 billion drams ($8.2 million). Moreover, in contrast  to the same period of the previous year, when losses were replaced by  serious profits at three insurance companies, for 9 months of 2023,  ix insurance companies maintained this indicator at a positive level,  but three of them significantly reduced it, the growth rate of the  other two is several times more modest than before, and only one IC  (Armenia Insurance) was able to accelerate its growth. Only EFES, a  new company that appeared on the market, recorded a loss.

Due to the similar behavior of the dynamics of premiums and  compensations, the y-o-y growth of the insurance profit has also  slowed considerably, from 51% to 10.1%, bringing it to the level of  27.9 billion drams ($71 million) within 9 months.

The y-o-y growth of accumulated profit slowed down no less noticeably  - from 90.7% to 17%, but this did not prevent the total equity  capital from accelerating in growth from 11.6% to 27%, which is  explained by an increase in the authorized capital by 20.4% due to  replenishment its three companies (Armenia Insurance, SIL Insurance,  REGO Insurance) and the emergence of a new participant in the market.  As a result, the absolute value of accumulated profit by October 1,  2023 amounted to 8.5 billion drams ($21.6 million), equity capital -  26.9 billion drams ($68.3 million) and authorized capital - 18.1  billion drams ($46 million).

It is worth noting that in Q3 2023 alone, the dynamics of premiums  also continued to deteriorate, deepening into the recession, while  reimbursements also led to double-digit growth quarterly. This, in  turn, led to a more significant quarterly decline in insurance  profits, and as a result further reduced net profit, the dynamics of  which, after growth in Q1, entered a double-digit decline in the Q2,  accelerating the downward movement in Q3.

The leadership in net profit for 9 months of 2023 is held by Nairi  Insurance, which reduced this figure by 19% over the year - to $2.2  million; Armenia Insurance moved to second place - $1.8 million (with  a y-o-y growth of 82.7%), displacing INGO Armenia to third place -  $1.6 million (with a y-o-y decline of 26.6%).  In terms of net  profit, they are followed by: LIGA Insurance ($1.3 million, with a  decline of 41.3%), REGO Insurance ($938.5 thousand, with an increase  of 67.4%) and SIL Insurance ($380.4 thousand, with an increase of  12%). Of these, only Armenia Insurance distinguished itself by a  noticeable acceleration in its upward momentum. Only the newly  established EFES IC registered a loss- $65.5 thousand, which is  natural for a participant who has recently entered the market.

TOP-3 in terms of premiums and compensation: INGO Armenia IC secured  the largest share of total market premiums - 26.6%, followed by LIGA  Insurance - 25.9%, Nairi Insurance - 20.2%, SIL Insurance - 11.9%,  Armenia Insurance - 9.2%, REGO Insurance - 5.1% and the minimum -  1.2% - the new EFES IC.  INGO Armenia also had the largest share in  terms of total compensations - 27.9%, then, as in the share coverage  of premiums, the following ICs were ranked in the same order: LIGA  Insurance - 25.3%, Nairi Insurance - 20.5%, SIL Insurance - 13.2%,  Armenia Insurance - 7.5%, REGO Insurance - 5.6% and EFES with  a  meager 0.01%.

The portfolio of premiums of INGO Armenia is dominated by fees for  medical insurance, property insurance and CMPTL- 34%, 31.6% and  13.8%, respectively; For LIGA Insurance, about 41% of premiums are  for CMPTL, 28.7% for medical insurance and 13.5% for property  insurance; and at Nairi Insurance, CMTPL fees exceed 47% of the  portfolio and another 33.5% comes from medical insurance.  The  remaining three insurance companies also cover most of the premiums  through CMPTL and medical insurance. The new participant - EFES IC  collected most of the premiums for medical insurance - 67.8% of the  portfolio, which is due to the presence of an affiliated network of  Vardanants medical clinics , and the remaining 32.2% were collected  largely for property and accident insurance, CASCO, cargo  transportation, general liability, and to a lesser extent insurance  for traveling abroad and financial damage.

In terms of indemnity, six insurance companies pay the most  significant amounts in both classes, CMPTL and medical insurance,  with 21% to 77% of their total indemnity portfolios for CMPTL,  respectively.

As for compensation, six insurance companies pay the most significant  amounts in two classes - CMPTL and medical insurance - with 21% to  77% of their total indemnity portfolios for CMPTL (REGO Insurance-  maximum and INGO Armenia- minimum) and 15-44% for health insurance  (INGO Armenia- maximum and REGO Insurance- minimum), respectively.  The new participant, EFES IC, from the moment it entered the market  until the reporting date, managed to pay compensation for medical  insurance alone.

CMPTL and medical insurance lead in terms of the volume of premiums  and compensations but other classes are the drivers of growth. Within  premiums, CMPTL and medical insurance dominate in terms of volume -  35.4% and 31.3%, respectively, with a y-o-y increase in the absolute  value of CMPTL by 3.6% and medical insurance by 14%. The same classes  dominate in compensation: CMPTL - 46%, medical insurance - 37%, with  the volume of CMPTL increasing by 13.2% and medical insurance by  28.7%. It is worth noting that, liberalization of tariffs for CMPTL  insurance, which started in April of this year, is at the stage of  pricing formation, the effectiveness of which is still premature to  talk about.

The third place in terms of the share of premiums is occupied by  property insurance - 14.4%, with a y-o-y increase in the volume of  premiums by 56%, and this class closes the TOP-3 in compensation -  10.7%, with a 2-fold y-o-y increase in the volume of payments.  The  CASCO class took fourth place in terms of both premiums and  compensations - 5.7% and 3.3%, respectively, with a y-o-y increase in  the volume of premiums by 44% and compensations by 10%.

Then, there are insurances against accidents, cargo transportation,  foreign travel and general liability with a much smaller share (1-3%  for premiums and 0.1-0.8% for compensations). Moreover, for accident  insurance there was an increase in premiums by 5.7% with a decline in  compensations by 38.6%, for cargo insurance - an increase in premiums  by 44.2% was accompanied by a 3-fold increase in compensations, for  travel insurance both premiums and compensations showed a  double-digit growth - 31.3% and 45%, and for general liability  insurance premiums were in a greater decline by 55.1% than  compensations by 25.4%.

The leadership in most classes is held by two ICs. The leaders in  terms of the volume of insurance premiums of the abovementioned  classes are: LIGA Insurance- for CMPTL, cargo insurance; INGO Armenia  -for medical insurance, CASCO, accident insurance, general liability,  travel insurance . The same insurance companies in these classes also  hold the lead in terms of the volume of compensation: LIGA Insurance  (CMPTL, general liability insurance, cargo transportation) and INGO  Armenia (medical insurance, CASCO, accident insurance, travel  insurance). INGO Armenia records the largest volume of premiums and  compensations for property insurance.

The largest share of premiums for compulsory motor liability  insurance belongs to LIGA Insurance and Nairi Insurance - 29.8% and  26.8%, respectively, for medical insurance - INGO Armenia and LIGA  Insurance - 28.8% and 23.8%, for insurance for traveling abroad and  accidents of cases, 51-48% is held by INGO Armenia, while occupying a  dominant 29-30% in CASCO and general liability insurance; in cargo  insurance, LIGA Insurance now has the largest share - 43.3%. For  property insurance broken down into subclasses, in particular against  fires and natural disasters, the dominant 65.6% of premiums are  retained by INGO Armenia, and for other damages - 39% by LIGA  Insurance.

In support of refugees from Artsakh, all insurance companies are  ready to provide CMPTL policies at a 50% discount. Additions have  been made to the "General Conditions for CMPTL Insurance", approved  by the Armenian Motor Insurers' Bureau and registered by the Central  Bank of the Republic of Armenia, according to which, from November 15  of this year, preferential terms under the CMPTL policy for forcibly  displaced citizens of Artsakh come into force. Moreover, it is  explained that the opportunity to purchase an insurance policy at a  50% discount applies to vehicles entering the territory of Armenia  from Artsakh, CMPTL insurance contracts for which are concluded  online until January 1, 2024. These additions to the conditions for  CMPTL insurance were made taking into account the significant influx  of cars without insurance contracts into the territory of Armenia as  a result of the forced displacement of citizens of the Republic of  Artsakh, and taking into account the readiness of insurance companies  to assist in fulfilling the requirement of CMPTL insurance in the  current social situation.

Railway transport insurance is developing steadily. This is thanks to  one insurance company - Armenia Insurance, the only one who has a  license for this class of insurance, received a year ago. The  portfolio of premiums of "Armenia Insurance" for this class is about  20 million drams, and the agreement is already regularly updated  annually in the third quarter.

Agricultural insurance premiums continue to grow exponentially. It is  noteworthy that an impressive increase in premiums was ensured by all  three insurance companies practicing this class of insurance:  INGO  Armenia, LIGA Insurance and SIL Insurance. The total volume of  agricultural insurance premiums collected by them increased 2-fold on  y-o-y terms, almost reaching 2 billion drams. In particular, SIL  Insurance and INGO Armenia increased premiums for this class  2-2.3-fold, and LIGA Insurance increased premiums for agricultural  insurance a little more restrainedly by 89%. INGO Armenia continues  to hold the lead in this class, with a large gap from the others in  terms of the volume of premiums, despite the narrowing of coverage  over the year from 70% to 69%. LIGA Insurance is in second place,  also with a reduction in its share from 17% to 16%, and SIL Insurance  is in third place, which managed to increase its coverage from 13% to  15%. But in the total volume of premiums on the market, the share of  agricultural insurance continues to remain tiny, despite an increase  from 2% to 3.4% over the year.

The introduction of compulsory medical insurance is taking on clear  outlines. The state budget of Armenia for 2024 allocates 18 billion  drams for the implementation of the universal health insurance  program. The universal health insurance system will be launched in  mid-2024. The compulsory medical insurance system will be fully  operational in 2027. It is planned that in 2024 the majority of  beneficiaries will become its participants, in 2025 pensioners will  join it, and in 2026 - participants in the voluntary health insurance  system. The RA government will also take part in the process of  accumulating funds together with citizens.  For these purposes, a  Fund will be created to manage the funds of beneficiaries. According  to the draft law "On Universal Health Insurance", the annual policy  per policyholder will be 164.4 thousand drams or 13.7 thousand  monthly.

There are organizations in the insurance market of Armenia that are  affected by anti-Russian sanctions. In 2022, the Russian parent  companies of Armenian insurance companies were included in the  sanctions list.  As a result, a reorganization process began in the  market. Already in December 2022, the companies RESO and Rosgosstrakh  Armenia went to rebranding, and earlier to a change in the  composition of shareholders, being re-registered as REGO Insurance  and LIGA Insurance.

The Armenian subsidiary of the Russian Ingosstrakh company is also  going through a slightly different path of reorganization with the  spin-off of its client base. It is not yet known whether Ingosstrakh  intends to leave the Armenian market.