Insurance companies merge to fight market slowdown

TALLINN - After Hansapank and Hoiupank merged, their insurance subsidiaries decided they will follow suit with a merger of their own. The two largest Estonian life insurance companies, Hansapank Insurance and Eesti Elukindlustus, will consolidate their insurance portfolios in the beginning of 1999.

Eesti Elukindlustus is a life insurance branch of Hoiupank's subsidiary Eesti Kindlustus. The bank's subsidiary also has a non-life insurance division, Eesti Varakindlustus.

Eesti Elukindlustus with its 43 percent market share and Hansapank Insurance with its 22 percent share plan to collect 175 million kroon ($12.5 million) premiums in 1998. They have also decided to cut costs on collecting premiums from 0.5 to 0.3 kroons per one collected kroon of premium.

Eesti Varakindlustus in its turn has planned to collect 240 million kroon premiums and cut costs by 0.1 kroons to 0.32 kroons per one collected kroon.

In most countries the share of life insurance premiums in an insurance company is half of all the collected premiums, and specialists predict the same tendency for Estonia in a couple of years.

Today premiums from life insurance form only 30 percent of the total premium portfolio. Premiums from life insurance in Eesti Elukindlustus increased by 130 percent in the first half of 1998. Life insurance service is becoming more popular due to the new pension insurance law.

Life insurance is also the only service for which tariffs have not been raised during the second half of the year. However, most Estonian companies are about to raise their tariffs, which were lowered earlier under pressure from competitors. .

According to Mart Einpalu, Eesti Kindlustus board chairman, the decrease of activity on the insurance market is caused by changes in the economical situation in Estonia. Einpalu cites the decline in optimism, rise of unemployment and the problematic situation on the Estonian financial markets as some of the contributing factors.

In order to work more efficiently, Eesti Elukindlustus merges with Hansapank Insurance. After the merger the companies will control close to two-thirds of the market in terms of premiums.

Both companies ended last year with losses. Hansapank Insurance incurred an 0.2 million kroon loss, while Eesti Elukindlustus's loss was about 14 million kroons.

According to Mart Magi, financial manager at Eesti Kindlustus, high level of costs and unprofitable investments caused the negative results. The strategies worked out for the year 2000 should bring about more profitable results.