CEE Insurance the story of uneven recovery

Transcription

1 CEE Insurance the story of uneven recovery May 2014 Andreea Moraru, Senior Banker, EBRD

2 Table of content 1. EBRD Mission and Operations 2. Insurance and Financial Services at EBRD 3. Prospects and Challenges in CEE Life Insurance 4. Prospects and Challenges in CEE Non-life Insurance 5. Prospects and Challenges in CEE Pensions 2

3 EBRD Promoting Open Market Economies Founded in 1991 and headquartered in London Owned by 64 countries (incl. USA, Japan, Russia, France, Germany, UK) and two intergovernmental institutions (EU & EIB) Promotes transition to market economies in 34 countries from Central Europe to Central Asia Recent additions of Egypt, Morocco, Tunisia & Jordan Over 2000 Staff in a Network of 34 Offices around our region EBRD has 22 years of investment experience across Central Europe, Russia, CIS, Western Balkans and Central Asia The largest single investor in Central and Eastern Europe and the Commonwealth of Independent States Reported portfolio of EUR 37.8 billion (EUR 10.8 billion undrawn) AAA rated International Financial Institution 3

4 Where We Operate 02 4

5 EUR Billion EBRD s 22 Year Record of Signings 90 Cumulative Gross Signings*: All sectors Debt EUR 69 billion Equity EUR 16 billion EUR 84.7 billion invested in over 3,900 projects Financial Institutions EUR 29.8 billion invested in 1,592 projects 10 0 Debt EUR 26 billion Equity EUR 4 billion *Unaudited data as at end 2013 FI is the largest industry sector in EBRD s portfolio 5

6 EUR Million Insurance and Financial Services Portfolio and Products Products Equity and debt financing for the following non-bank financial activities: Insurance Pension & Asset Management Leasing Factoring Consumer Finance Stock Exchange Other: - Brokers - Purchase of Non-performing Loans (NPLs) Structured Finance (ABS, DPR, RMBS, Covered Bonds, SWAPs) Local Capital Markets Support - Active interface with the LC2 strategic initiative - Policy dialogue support Current Portfolio December equity and 61 debt projects Insurance and Financial Services Portfolio: EUR 1.4 billion at end ,600 1,400 1,200 1, Insurance Leasing Structured Finance Pension & Asset Management Consumer Finance & Other Stock Exchange 6

7 Insurance and Financial Services Key Deal Parameters Debt EUR Million Short to medium-term Subordinated or senior debt Reputable local or strategic partners Finance mature financial companies to near-greenfield Local or foreign currency Equity EUR Million Medium to long-term Reputable local or strategic partners Invest in mature companies to near-greenfield Different exit mechanisms are available (IPO, sale to strategic or financial investor) Subject to availability 7

8 Selected Insurance Investments & Financial Services Investments Insurance Investments Countries EBRD % 15% Investment (exit) Slovak Republic EUR 49m equity Countries Turkey EBRD % 9.99% Investment current TRY 51m equity Countries (exit) Poland, Hungary & Czech Republic EBRD % 15-30% Investment EUR 115m equity (exit) Poland, Hungary, Countries Czech Republic & Croatia EBRD % 15% - 30% Investment EUR 46m equity Countries 2013 current Slovenia EBRD % 6.22% Investment EUR 10m equity In 2002, the former monopolist state insurer was sold by the Slovak state and consequently acquired by Allianz in partnership with EBRD. The Bank partnered with Sompo Japan, part of NKSJ Holdings, Japan's 2nd largest insurance company, to make its first direct equity investment in Turkey In 2006, Winterthur, a regional CEE player since 1995, in which EBRD was an early investor, was acquired by AXA. EBRD exited in 2010 With a strong presence in CEE, UNIQA capitalised on the market turmoil by entering into a framework agreement with EBRD. EBRD exited in 2012 Investment in the shares of SavaRe, a publicly listed Slovenian insurer/reinsurer, to purchase the remaining 40% interest in Maribor, the 2 nd largest state-controlled Slovenian non-life company Pension Investments Countries EBRD % 20% Investment current Slovenia, Serbia, Kosovo and Macedonia EUR 5.8m equity EBRD acquired 20% of the Company in 2007 to actively support the development of the pension reform in the region Countries Estonia EBRD % 34.8% Investment (exit) EUR 1.1m equity EBRD s involvement bolstered LHV AM s reputation allowing it to compete for customers with more recognised but nonspecialised banks 8

9 EBRD Mission and Operations Insurance and Financial Services at EBRD Prospects and Challenges in Life Insurance Prospects and Challenges in Non-life Insurance Prospects and Challenges Pensions 9

10 Life Insurance in the CEE - Challenges Growth is uneven in the region and is highly dependant on economic conditions in Western Europe. o In 2013 CEE premiums actually declined by 1.2%, driven by a strong decrease in the single-premium savings business in Poland, the largest market in the region o The sluggish recovery in Europe still weighs on the sector low demand for life insurance partly due to bancassurance volumes Underdevelopment of domestic financial markets remains an obstacle for insurers: o Local markets lack liquidity and diversity of products o Difficult to match duration of life insurance liabilities with domestic products 9,000 7,000 5,000 3,000 1,000 (1,000) Poland Czech Republic Hungary Slovakia Romania Bulgaria Source: Local Regulators and Industry Associations GWP EUR mn Growth % -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% Romania Bulgaria Hungary Czech Republic Slovakia Poland 10

11 Life Insurance Penetration Life Insurance in the CEE - Prospects Opportunities from pension reforms: Recent nationalisation of second-pillar pensions should demonstrate to consumers the importance of privately funded old age protection solutions, such as life insurance products, and ultimately benefit the life insurance companies. Current penetration rates in CEE remain low compared to Western Europe and clearly demonstrate a potential for growth. Further growth in life insurance premiums worldwide is forecast to accelerate to 8.5% in 2014 from 6.2% in CEE is expected to see the biggest improvement. Life Insurance Penetration vs. GDP per Capita in Europe 9% 8% 7% 6% 5% 4% 3% 2% 1% Bulgaria Poland Hungary Czech Republic Slovak Republic Spain Source: Swiss Re Sigma, Axco, Local Industry Associations, Eurostat Italy UK France The Netherlands Germany Romania 0% 10,000 15,000 20,000 25,000 30,000 35, GDP per Capita (EUR) 11

12 Non-Life Insurance in the CEE - Challenges The non-life markets in CEE remain highly competitive and price focused, which affects both premium and underwriting profitability: o Premium rates decreased by 5-10% in many countries, putting pressure on profitability; o The margin pressure is particularly strong for motor lines and property business. 14% 12% 10% 8% 6% 4% 2% 0% Romania Real Premium Growth Rates for Non-Life Insurance Advanced markets CEE MENA Emerging Asia e Breakdown of 2012 Total Non-Life Premiums 67% 1% 19% 4% 10% The growth in the non-life sector has been inconsistent. In 2013 the growth rate in the CEE was lower than in the advanced markets. Bulgaria Hungary Czech Republic Poland 40% 54% 55% 70% 2% 4% 2% 3% 44% 31% 20% 20% 2% 5% 5% 9% 7% 4% 7% 16% EU 30% 25% 20% 7% 18% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Motor Health Property General third-party liability Other Source: Swiss Re Sigma, Axco, Local Industry Associations 12

13 Non-Life Insurance in the CEE - Prospects Economic recovery in Europe, albeit at a slow pace, will benefit nonlife premium growth, particularly in the highly export-dependent markets Non-Life Insurance Penetration Rates (% of GDP) 10% 9.2% 9% Significant lag in penetration rates reflects room for growth: o The penetration rates of non-life insurance in the CEE, although slightly higher than for life insurance in most countries, are still much lower than in the developed markets and even the world average. 8% 7% 6% 5% 4% 3% 2% 1% 0% 4.2% 3.7% 3.6% 3.6% 3.1% 2.9% 2.8% 2.5% 1.8% 1.7% 1.6% 1.4% 1.3% 1.3% 1.1% Source: Swiss Re Sigma, Local Industry Associations 13

14 Pensions in the CEE - Challenges Recent nationalisations have reduced the assets under management of companies active in the pensions sector. Hungary was the first country to effectively nationalise the system in 2010 by tapping into the second-pillar private pension funds. Bulgaria attempted to tap into the second-pillar assets in Poland followed in 2013 with a similar plan to transfer funds from second-pillar open pension funds (OFE) to the state social insurer (ZUS). Negative impact on functioning of local capital markets: Reduced appetite of important investors (pension funds) affects market liquidity and ability of corporates to issue new debt; A vicious circle of underdeveloped local capital markets creating a difficult operating environment for pension funds. Other countries in the CEE may decide to take similar approach in the face of budget constraints to reduce the Debt/GDP ratio. Returns on pension assets in the CEE have been lagging compared to the advanced markets and selected emerging markets. 14

15 Pensions in the CEE - Challenges Pension fund asset allocation for selected investment categories, 2012 (as % of total investment) United States Australia Belgium Finland Poland Estonia Netherlands Norway Canada Austria Iceland Italy Luxembourg Portugal Turkey Denmark Sweden Romania Bulgaria Spain Hungary Germany Serbia, Republic of Slovenia Latvia Czech Republic Slovak Republic Albania Shares Bills and bonds Cash and Deposits Other Pension fund nominal and real 5-year average annual returns in selected OECD countries over (%) Country 5-year average return Nominal Real Turkey (1) Denmark Mexico (1) Netherlands Iceland Hungary Germany Norway Slovenia Italy Czech Republic Finland Luxembourg United Kingdom Belgium Greece Spain Switzerland Poland Austria Slovak Republic Australia Portugal Estonia Source: OECD 1. Data refer to personal pension plans only. 15

16 Difference in growth rates of pension assets and GDP Pensions in the CEE - Prospects The highest average growth rates differentials among OECD countries over the period were seen in Poland, Mexico, and the Czech Republic albeit from a low base. Positive reform examples (creation of second pillar in Czech Republic in 2013). Capital market reforms and development of new capital market instruments in some markets (e.g. ABS issuance in Poland) supporting improving performance of pension funds. Pension Assets in 2012 vs. Difference in Average Growth Rates of Pension Assets and GDP Over the Period in Selected OECD countries SWE 0 HUN BEL PRT -5 NOR CZE ITA ESP POL MEX AUT DEU DNK NZL JPN IRL ISR CAN USA FIN GBR AUS assets as a % of GDP CHE ISL NLD Source: OECD 16

17 Thank you! 17