Milliman Insurance in the CEE Region. Actuarial & Consulting Services in Central and Eastern Europe

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1 Actuarial & Consulting Services in Central and Eastern Europe

2 Actuarial and Consulting Services in Central and Eastern Europe The developing insurance markets in Central and Eastern Europe continue to attract interest from foreign insurers looking to exploit the growth opportunities that exist there. Opportunities The reasons for insurers to consider expansion in Central and Eastern Europe are likely to include: The significant growth potential reflected in the current low levels of insurance penetration and density compared with Western Europe The expected continued strong growth in life insurance, driven by rising disposable incomes Growth in non-life insurance lines other than motor third-party liability insurance where competition tends to be fiercest Further growth in private pensions as a result of pension reforms and demographic change The potential of emerging product areas, such as health insurance and life protection The development of alternative distribution channels to traditional tied-agent networks, such as bancassurance and direct sales Milliman s Experience Milliman s experienced actuarial and strategy consulting team has extensive experience in the life and non-life insurance markets in Central and Eastern Europe. We have supported clients in the region for a number of years; building on this success, we opened offices in Warsaw in 2005 and in Bucharest in Examples of projects we have worked on include: Merger and acquisition transactions involving life, non-life, pension fund, and bancassurance companies in Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Slovenia, and Ukraine Strategy and business planning for start-up life insurers and freedom of services (FoS) providers in Czech Republic, Poland, Romania, Slovakia, and Ukraine Product development and pricing support for life insurers and FoS providers in Czech Republic, Poland, Romania, Russia, Slovakia, and Ukraine Health insurance product development in Poland Actuarial reserve reviews for non-life insurers in Poland, Russia, and Slovenia Feasibility studies in various markets for life and non-life insurers considering entry on an establishment and cross-border basis Statutory reporting and appointed actuary work in Poland and Romania Distribution strategy and life sales force modeling in various markets Country Groupings Within the region, there is a wide diversity of market situations and prospects. Each country is different in terms of economic strength, population size, insurance market penetration, and potential. The most developed insurance markets tend to be those in Central Europe and the Baltic states. The life insurance markets in these countries started to grow strongly in the 1990s, thanks to the improving economic conditions and regulatory reforms, which were introduced in anticipation of EU membership, which was realised in More recently in 2007, Romania and Bulgaria also became EU member states, but the insurance markets in these and other southeastern European countries are at a much earlier stage of development compared to Central Europe. 2

3 Russia is by far the dominant country in the former Soviet Union in terms of economic strength and the size of its population. Similarly, the Russian insurance market is by far the largest in this group. However, particularly in life insurance, official statistics need to be treated with caution; until recently they included significant volumes of short-term tax optimisation business. Generally the insurance markets in the former Soviet Union are still at an embryonic stage of development, offering strong growth potential but probably subject to greater fluctuations in shortterm results. The life market in Ukraine, for example, has been particularly affected by the effects of the financial crisis. Chart 1: Life Insurance Markets in Central and Eastern Europe 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% -100 Turkey Russia Hungary Slovakia Croatia Romania Poland Greece Czech Rep Life Premiums Per Capita (US$) Slovenia Cyprus EU Non-EU Source: Swiss Re Sigma Chart 2: Life and Non-Life Insurance Market Trends in Poland and Romania Premiums Per Capita (US$) Poland Non-Life Poland Life Romania Non-Life Romania Life Source: Swiss Re Sigma 3

4 Actuarial and Financial Reporting Services We have a wealth of experience, expertise, and resources to enable us to provide a high standard of actuarial services to insurance companies, pension funds, and regulatory bodies. Our services include: Financial Management and Reporting We are very active in the following areas: EEV/MCEV reporting; we support several major multinationals in various countries. We use our financial modelling system (MG-ALFA ), which is very well adapted for CEE markets. We also have experience working with third-party systems used by some clients. Asset-liability management (both deterministic and stochastic). Statutory reserving. Reserve variability analyses for non-life insurers. Our consultants advise on a wide variety of financial reporting issues, including GAAP, IFRS, and statutory. Milliman s support is delivered according to the particular needs of our clients, including undertaking financial reporting/management tasks, performing independent reviews, and providing expert resources. Appointed Actuary We can act as independent or appointed actuaries for companies wishing to outsource this function, taking on statutory reporting and valuation responsibilities and providing general actuarial support. Solvency II We are active in the following fields related to risk management and solvency: Solvency II Supporting companies in carrying out internal model and standard (e.g., QIS) calculations and assessing their strategic implications Gap analysis and implementation projects Pillar II (Governance) and Pillar III (Reporting) requirements Assisting with local solvency and risk management requirements (e.g., ICA in UK, ISVAP577 in Italy, and SST in Switzerland) Economic capital modelling Risk management, including financial risk management Reinsurance reviews Milliman is a leading player in the field of dynamic hedging for life insurers and is active in supporting many of the players hedging secondary guarantees on variable annuity products. Development of Internal Actuarial Functions We can help companies to establish internal actuarial functions, develop procedures and systems, and provide related training and development services for their staff. We can provide peer-review to enhance the quality of internal reporting. 4

5 Consulting Services Milliman has extensive experience in the insurance markets in Central and Eastern Europe and can offer a wide range of strategic and actuarial consulting services. Strategic and Business Consulting To support the development and profitability of our clients, Milliman undertakes a wide range of strategic and business consulting assignments to bring insight to their planning and decisionmaking processes. Mergers & Acquisitions For some companies, mergers and acquisitions have been the preferred route to growth in Central and Eastern Europe as they seek to quickly gain access to new markets and new distribution channels. To aid clients in this complex area, we help them evaluate their own position and that of potential targets. This includes a strategic review of the client s existing position, assessing the market and identifying potential targets, advising on offer structure, performing actuarial due diligence, financial modelling of the target, and possible implications for pricing. Strategic Alliances In addition to mergers and acquisitions, Milliman helps its clients to evaluate potential strategic alliances and joint ventures. We aid our clients in developing long-term partnerships, entering new markets, and creating new distribution channels. Our clients are not just the manufacturers of financial products, but also the distributors. We help clients evaluate both the short- and long-term financial effects on their organisation. Feasibility Studies We assist you in assessing and identifying potential new markets, including the strategic entry options on a local establishment and/or cross-border basis, analysing the competitive and regulatory environment, and developing effective distribution and product development strategies. Start-up Operations We have extensive experience in supporting insurance companies in their formative stages, including business planning, project management, and operational support for greenfield and cross-border operations in a range of areas such as administration systems and processes, risk selection and claims procedures, product development, and distribution systems. Distribution Development We help clients to identify and maximize the potential of the available distribution channels. This has included advising on appropriate remuneration system design, key areas of sales force management (e.g., structure, recruitment, and training), and strategic and operational support for companies using bancassurance distribution. Product Development and Pricing We consider product development to be a core competency and can advise on all aspects, from product strategy and opportunity assessment (we have been involved in adapting innovative products for new markets on many occasions) to product design and pricing/profit testing, including stochastic pricing of guarantees and support on technical product literature, contractual documentation, and regulatory issues. We have been particularly active internationally in the variable annuity field, where we have been involved in the majority of launches to date and we are recognised as the leading consultant at a worldwide and European level. 5

6 Products and Tools Software solutions Milliman s leading software is used by top insurance firms around the globe. Designed for ease of use, our programs incorporate industry best practices as well as our ongoing research and hands-on experience in the field. As the industry shifts from formulaic calculations to principlesbased methods, Milliman software can ease you through this critical transition. Used alone or in combination, our systems help you build value in today s fast-changing environment. Life Insurance MG-ALFA Milliman s Asset Liability Financial Analysis system (MG-ALFA) is a dynamic financial modeling tool that dramatically speeds the process of pricing and projection for a wide range of financial products. This user-friendly, state-of-the-art Windows-based system puts Milliman s actuarial expertise to work for you. It already offers the nested stochastic capabilities needed to calculate and project principlesbased reserves and capital values, as required by current and pending regulations. MG-ALFA offers unsurpassed flexibility, audit tools to ensure accuracy, and a powerful calculations capability that will shorten project time. And it can be customized to meet your company s unique needs. Non-Life Insurance Reserving software Milliman reserving systems are powerful and flexible. They are easy to use and easy to integrate with other solutions. They will streamline your analysis process and help you understand the potential variability in your estimates. ReservePro A sophisticated, structured analysis process that s easy to use, ReservePro manages data and calculations and ensures consistency among multiple users. More than 200 standard exhibits are available for underwriting and reserve analysis. Reserve Variability Model Milliman s Reserve Variability Model allows you to move beyond deterministic point estimates. Our new modeling system gives you multiple stochastic models, the tools you need to identify which models best represent and fit your data, and the ability to credibility-weight full distributions of possible outcomes into your best estimate of the distribution. You get valuable information about your booked reserve levels, together with confidence intervals around your best estimate. Distribution information is available for each individual reserve segment and for consolidated totals factoring in the effects of correlation. 6

7 About Milliman Milliman is a leading international firm of consultants and actuaries, providing services to the life, health, general insurance, and employee benefits sectors. Founded in 1947 in the United States, the firm has 56 offices in principal cities worldwide. We have offices throughout Europe, including Amsterdam, Brussels, Bucharest, Dublin, Dusseldorf, London, Madrid, Milan, Munich, Paris, Warsaw, and Zurich. From these offices we service clients in almost all European countries, including markets in Central and Eastern Europe and the Commonwealth of Independent States region. We specialise in the insurance and pension sectors, providing actuarial and strategic support in a range of areas, including strategy and business planning, mergers and acquisitions, product and distribution development, and financial and risk management. For further information about our services in Central and Eastern Europe, go to cee.milliman.com. 7

8 bal Member Firms Milliman in Europe To find out more about how Milliman can help you in Central and Eastern Europe, please contact: Milliman maintains a strong and growing presence in Europe with 250 professional consultants serving clients from offices in Amsterdam, Brussels, Bucharest, Dublin, Dusseldorf, London, Madrid, Milan, Munich, Paris, Warsaw, and Zurich. Milliman Offices in Europe Grzegorz Darkiewicz grzegorz.darkiewicz@milliman.com Beata Gorgon beata.gorgon@milliman.com Marcin Krzykowski marcin.krzykowski@milliman.com Monika Lis monika.lis@milliman.com Anna Mazerant anna.mazerant@milliman.com Olexander Ofutin olexander.ofutin@milliman.com Al. Jerozolimskie 65/79 16th Floor Warsaw Poland tel fax Adrian Allott adrian.allott@milliman.com Diana Dodu diana.dodu@milliman.com Cosmin Gherghisan cosmin.gherghisan@milliman.com 6 Monetariei St, Bl. B, Entr. C, Ap. 12, Sector 1, Bucharest Romania tel fax cee.milliman.com Milliman Offices