Boston, MA -- (SBWIRE) -- 12/13/2012 -- Key Insights And Key Risks

There are many positive aspects to Estonia's insurance sector. Development has benefited from macroeconomic conditions over the long-term that have, in general, been more positive and stable than in Latvia or Lithuania. The regulator is effective and well regarded. The overwhelming majority of the activity is accounted for by local subsidiaries or branches of major multi-nationals. Examples include Swedbank Life Insurance, SEB Life & Pensions International and Mandatum Life in the life segment, RSA, Seesam, Gjensidige and If Property & Casualty in the non-life segment, and ERGO and Vienna Insurance Group (VIG - through its Compensa operation) in both.

In the non-life segment, a key development through H112 is that the non-life segment has returned to double-digit growth in terms of premiums. This has been substantially the result of higher premiums for compulsory motorists' third-party liability (CMTPL) cover and various property insurance lines. In addition, technical results have improved, thanks to lower claims and expenses. As is the case in Latvia and Lithuania, non-life companies have been investing heavily in market research and new systems (especially for handling of claims) in order to lift their service levels.

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However, there remain a number of causes for concern. One is that the growth has been driven entirely by a (sharp) rise in CMTPL and property contracts in force. Price competition, long the bane of non-life insurance companies in Estonia, remains intense. The numbers published by the regulator in relation to H112 suggest that pressure on prices and rates for motor CASCO insurance has also been in a downwards direction. The fundamental problem remains excess capacity. In early 2012, QBE took the view that it would focus on opportunities in other markets and placed its Estonian operation into run-off: an arrangement was made with RSA whereby that insurer, the largest non-life underwriter across the Baltic states, may approach QBE's former clients. It is possible that other multi-nationals are reconsidering their commitment to the non-life market.

In the life market, the main problem is one of stagnation. The data suggests to us that more or less all Estonians who appreciate the benefits of life insurance and who have the means to buy it are using it. (Interestingly, supplementary life insurance contracts - which are mainly accident insurance riders - account for about 45% of all in-force contracts.) Through H112, premiums for unit-linked products have continued to fall by around 30% (as they did through 2011). As is the case elsewhere in the Baltic states, policy holders suffered as a result of the volatility in financial markets. However, the contraction in unitlinked premiums has been offset by growth elsewhere. Another development over the last year has been an improvement in technical results of the life insurance companies.

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