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).
