Reduction of premiums and high growth of indemnities squeezing  profits in the insurance market 

ArmInfo.Premiums in Armenia's insurance market have began to decrease while indemnities are still  increasing at double-digit rates. This trend is starting to impact the companies' profits.  (As ArmInfo analysts note, the transition of insurance companies' financial statements to a new format each time conceals more and more important indicators, making it difficult to analyze the state of the market.  

Unlike the previous format of  reports, the new version lacks a standardized approach to publishing  financial statements, allowing insurance companies to selectively  disclose certain balance sheet indicators. That is why IC ArmInfo is  requesting important data from insurance companies that are missing  in the new format, as it has become challenging to analyze the market  situation).

Premiums began to shrink, leading to a decrease in profits

According to data from the  Financial Rating of Insurance Companies  in Armenia as of June 30, 2024, compiled by IC ArmInfo using   published financial reports and missing indicators requested from  insurance companies, insurance premiums decreased by 6% year-on-year  to AMD 38.7 bln ($99.6 mln) in the first half of this year. However,  indemnities increased by 32.4% to AMD 20.6 bln ($53 mln), and net  profit dropped by 65.3% to AMD 948 mln ($2.4 mln). In comparison, it  is noted that in the first half of 2023 premiums and indemnities grew  by 23.6% and 17.2% respectively, resulting in 39% increase of net  profit. At that time, all insurance companies were able to increase  their profits. Currently, only four ICs have been able to keep their  profits at a positive level, two ICs are operating at a loss, and one  more IC (Efes) is still experiencing losses due to its relatively  recent entry into the market. The current decrease in profits has led  to a significant slowdown in premiums growth for three ICs and a  reduction in premiums for another three ICs. Six insurance companies  have managed to maintain high double-digit growth rates of indemnity.  The annual performance of IC Efes is not available due to its recent  appearance in the market, but quarterly data shows strong growth in  both premiums and indemnities. Despite this growth, it is still not  enough to transition from a loss to a profit.

The collection of premiums in all classes of insurance, including the  dominant ones, is "decreasing"

In terms of insurance premiums, the dominant shares remain in MTPL  insurance - 36% and medical insurance - 35%. The other classes show  varying shares in property insurance - 13.2%, hull insurance - 6.5%,  accident insurance - 3%, cargo insurance - 2.8%, travel insurance -  1.7%, general liability insurance - 1.4%.  The dominant share in  indemnities is also maintained by CMTPL insurance - over 48% and  medical insurance - about 38%, followed by property insurance - 7.3%,  hull insurance - 4.4%, cargo insurance - 1.1% and accident insurance  - 1%.  For the dominant classes mentioned  above, there was mainly a  decline premium trends, while claims trends improved. For example, in  CMTPL insurance, there was a slight decrease in annual premium growth  from 7.2% to 6.7%, with a significant increase in claims growth from  5.5% to 29.5%. In health insurance, the decline of the premium trend  from 16.5% growth to 5.2%  decline was accompanied by a slight  slowdown in claims growth from 26.6% to 25.2%. In property insurance,  the premium trend shifted from 60.5% growth to a 26% decline, with a  significant increase in claims growth from 37% to 4 times. In CASCO,  the slowdown in premium growth from 46.6% to 20.8% was accompanied by  a strong increase in indemnities growth from 10.3% to 59.6%.

In casualty insurance, the trend of the premiums deteriorated from  12% growth to a 7.6% decline, accompanied by a shift in the trend of  the indemnities from a 48% decline to a 70.6% growth. For trucking  insurance, there was a significant slowdown in both premiums from  79.7% to 9.7% and indemnities from 2.7 times to 51.2%. General  liability insurance saw a slight slowdown in the decline of premiums  from 41.8% to 30.7%, while indemnities shifted from a 1.5% decline to  an 88.2% growth. Only in travel insurance did the trend for  indemnities deteriorate from a 44.7% growth to a 15.4% decline, with  which premium growth also slowing from 47% to 4.5%.  The dynamics of  premiums and indemnities in other classes appear similar, except for  credit risk insurance.  In this category only two ICs are licensed -  LIGA Insurance and Armenia Insurance, which managed not only to keep  the total volume in double-digit growth, but also to accelerated  rates, with zero indemnities.

In agricultural risk insurance, premiums were at zero, compared to a  2-fold growth the year before, while indemnities reversed the  dynamics from a 21% growth towards a 82% decline. In this class three  ICs  - INGO, LIGA Insurance and Sil Insurance INGO, -are licensed.   They are positioned on premiums.

The dynamics of premiums for aviation transport insurance (including  liability from the use of air transport, and cargo) have also  significantly worsened, turning from a 4,5 times growth to a 4 time  decline, while the volume of indemnities remained at zero. In  parallel, the dynamics of reinsurance for this class also  deteriorated significantly - from a 5 time growth to a 3 time  decline. As a result, the total volume of premiums for aviation  transport insurance has fallen out of the list of dominating classes.  All ICs are licensed for this type, except for REGO Insurance.

Investment income continues to grow at double-digit rates

Against the backdrop of declining premium dynamics, profits from  investment activities continue to grow at double-digit rates.  This  growth has remained steady at 27% for the second consecutive year  following a decline in 2021-2022.  This rate is significantly lower  than a 2-fold jump seen in 2020, then both premiums and  reimbursements were on the decline at 8-7%.  At the same time, the  increased number of employees - from 923 to 1,150 (a 25%), including  the addition of a new entrant to the market, IC Efes with a staff of  101 people, has led to a higher double-digit growth in salary  expenses. The share of salary expenses in administrative expenses now  exceeds 36%, and in total expenses it has reached 10% (against 34%  and 8% a year earlier). However, the average monthly payroll started  to decline due to a significant reduction in this indicator at INGO  with a 41% despite a 37% increase in the number of employees (now at  206). Nevertheless, LIGA Insurance and Nairi Insurance have the  largest number of employees (243 and 254 respectively), holding the  top two positions in terms of salary expenses, administrative  expenses, general expenses and revenues.

Current assets and liabilities turned out to be in decline

In assets, the decline of short-term receivables accelerated (from  26% to 55%), while the dynamics of cash deteriorated (from 20% growth  to 22% decline). There was also some acceleration of double-digit  growth of current financial investments, increasing from 14% to 22%.  In liabilities, there was also a sharp deterioration in the trend of  current accounts payable, shifting from 7% growth to 50% decline.   Additionally, there was a deepening decline in insurance contract  liabilities from 15% to 17%, a deterioration in the trend of  insurance reserves (from 10% growth to 18% decline), and against this  background, a sharp improvement in the trend of borrowings, from a  33% decline to a 93% growth.  As a result, in current liabilities,  the dominance of liabilities under insurance contracts decreased   from 41% to 36%, the share of insurance reserves  also decreased from  24% to 20%, while current accounts payable decreased from 11% to 9%.  Conversely, the share of borrowed funds increased from 17% to 33%. In  fact, IC compensated for a strong decline in dominating liabilities  under insurance contracts with high growth of borrowings (repo  contracts and loans), which prevented current liabilities from  experiencing more noticeable subsidence.

Analysts have noted that the significant growth in borrowed funds was  provided by the INGO company, increasing 15 times. This was  accompanied by a notable decline in more important items, and first  of all, liabilities under insurance contracts. The company sold off  current liabilities resulting in borrowed funds making  69% of the  total compared to  22% previously. A year ago they accounted for a  little more than 3%, and 51% were liabilities under insurance  contracts.  Current financial investments including securities,  government bonds pledged under repurchase agreements, deposits and  loans with banks, continue to dominate current assets - over 85% (vs.  72% a year ago). Short-term receivables (including assets under  insurance and reinsurance contracts) make up over 12% (vs. 25% a year  ago), with cash holding the third position at 2% (vs. 3% a year ago).  INGO has experienced significant growth in current financial  investments (68%), at the same time surpassing the others in the  decline of short-term receivables (90%).  This shift has led to a  change in the structure of its current assets, with a share of  short-term receivables decreasing from 51% to 6% over the year and  the share of current financial investments  increasing from 48% to a  dominant 92%.

Double-digit growth of the equity capital came solely from the  authorized fund

A significant decrease of net profit naturally led to a decline in  the growth of accumulated profit from 48,5% to 15,3% and reduced its  share in shareholders' equity from 38% to 28%, which in fact should  have had a negative impact on the dynamics of shareholders' equity.  However, some insurance companies were able to maintain double-digit  growth in equity capital by increasing their authorized capital  funds. In particular, Armenia Insurance raised its authorized capital  from AMD 968 mln to AMD 1.5 bln, Sil Insurance - from AMD 2.5 bln to  AMD 2.8 bln, and Efes Company, which entered the market in July 2023,  increased its authorized capital from AMD 2 bln to AMD 2.5 bln. As a  result, the total authorized capital in the insurance market  increased by 22.4% year-on-year, with its share in equity capital  increasing from last year's 63% to the reported 69%. LIGA Insurance  leads in terms of equity and authorized capital, while holding the  2nd position in terms of accumulated profit.

The top company in terms of accumulated profit, Nairi Insurance holds  the 3rd position in terms of equity capital, and the 6th position in  terms of authorized capital. INGO holds the second position in equity  capital, while REGO Insurance holds the second position in authorized  capital.  It should be noted that there are already 7 companies  operating in the Armenian insurance market since the appearance of  Efes IC in late July 2023. Some of these insurance companies' parent  structures were included in the Western sanctions lists in 2022,  leading to a reorganization process in the market. In particular,  former companies RESO and Rosgosstrakh Armenia underwent rebranding  and changes in their share capital structure, re- registering as REGO  Insurance and LIGA Insurance. The Armenian subsidiary of the Russian  company Ingosstrakh took a different approach to reorganization by  spinning off its client base into INGO Insurance Company (formerly  INGO Armenia), which later became Efes Insurance Company.  ArmInfo  analysts noted that these two affiliated companies primarily focus on  insurance for banking products (INGO) and  health insurance (Efes).

In the first half of 2024, Efes surpassed INGO in terms of health  insurance premiums with 2.8 bln compared to INGO's AMD 2.4 bln,  taking the 2nd position in this class, securing the 2nd position in  this category.  Just a year ago INGO was the market leader.  Efes not  only managed to overtake INGO, but also claimed the top spot in  property insurance, hull insurance, accident insurance and travel  insurance.  In the Armenian insurance market, 18 out of 20 available  insurance classes are used, excluding liability insurance for railway  transportation and insurance for judicial and extrajudicial expenses.  Only 3 companies operate in agricultural risks insurance  - LIGA  Insurance, INGO and Sil Insurance. Only IC "Armenia Insurance" holds  the license for railway transport insurance. INGO and Armenia  Insurance are licensed for the most classes - 16 and IC "LIGA  Insurance" for 15. The exchange rate of AMD to USD as of 30.06.24 was  388,16 dr./$1).