Life insurance boost

  • 2005-05-11
  • By Kristine Lomanovska, AAS "Sampo Dziviba" Chairperson of Management Board
In spite of positive expectations and some fears regarding accession to the European Union, the life insurance market has not faced severe changes. Although comparably small, the life insurance market is one of the fastest growing in the financial sector.

In 2004, the Baltic life insurance market has grown by 21% compared to the previous year; the fastest growth (39%) was in Estonia, followed by Latvia (27%) and Lithuania (10%). Although the total amount of written premiums in the Estonian life insurance market is 4 times and Lithuania - 5 times larger than Latvia. That certainly indicates Latvia's bigger growth potential.

Both in Lithuania and Estonia, the long term savings market was developing much faster; in last four years the market volume has increased by 3 times, while in Latvia the market has grown just 2 times. How does Latvian population differ from neighbouring countries?

Statistics in private individuals' savings in Latvia shows "short term" thinking regarding investments - 97% of the savings are in bank deposits and only 3% are investment in long term savings products provided by life companies and private pension funds (2004). Traditionally bank deposit is the most popular savings vehicle for private individuals.

After becoming a member of the EU, starting from January 1 2005 Latvia also pegged its currency to EUR. This fact influenced financial market to some extent. The deposit interest rates are gradually falling. At the same time other macro economical risks, as inflation in particular, diminishes real value of such savings in a time perspective. Along with theses changes also the population demands undergo changes in line with them. Especially in the last year the inhabitants of Latvia showed particular interest for other more effective savings types.

As a particular solution to inflation in the middle of 2004 new financial product has been launched in Latvian market - Unit linked. This product provides a possibility to make savings both for privates and employers with predictably higher income level than traditional deposits. In 2004 AAS "Sampo Dziviba" as the first in Latvia started to provide Unit linked product to the market.

Currently Unit linked secures the fastest life insurance market growth in Baltic countries. In Lithuania and Estonia, where this product was launched already in 1999/2000, the volumes of unit linked written premiums has reached 25 millions EUR in Lithuania and 17.3 millions EUR in Estonia (2004). The demand for Unit linked is skyrocketing; in 2004 Unit linked growth has been 68% (comparing with 21% total market growth); growth in Lithuania 25%, while in Estonia 234%! This product forms already forms 1/3 of the total product portfolio.

Sampo is one of the leaders (Nr.3 in 2004) in Unit linked market among 10 life insurance groups operating in Baltic countries. Last year Sampo life companies had the fastest growth among Baltic life insurer groups (48%). The future growth estimation is related to the increasing interest in Unit linked. AAS "Sampo Dziviba" prognosis the rapid growth of Unit linked popularity also in Latvia. That can be justified by the experience of neighbouring countries. Already after half year of providing Unit linked AAS "Sampo Dziviba" client portfolio (technical reserves) has shifted to 22% in Sampo Fondi (Unit linked).

Currently in Latvia AAS "Sampo Dziviba" is the first company actively offered Unit linked. However, other market players and new competitors entering market this year most probably will soon follow.