Insurance boom sparks foreign investor interest

  • 2002-02-07
  • Bryan Bradley, VILNIUS
Lithuania's insurance market seems to be exploding in all directions, and foreign players are eager to stake their claim.

Last week Polish insurance powerhouse Powszechny Zaklad Ubezpieczen revealed plans to acquire up to two-thirds of shares in Lindra, Lithuania's biggest locally-owned insurer. Latvia's second-biggest non-life insurer Baltijas Transporta Apdro-sinasana, meanwhile, won permission to buy 99 percent of shares in another large local insurer, LTB Draudimas.

This follows the recent entry of U.K.-based Commercial Union, part of CGNU, one of Europe's largest insurance groups, into the lucrative Lithuanian market. The insurer opened an office in Vilnius in November with hopes to take a leading position in the country's emerging life insurance market.

Also last fall, Germany's Ergo Group acquired Preventa, which it plans to merge with Ergo Lietuva to form a retail and corporate insurance entity with a quarter of the Lithuanian non-life market.

Overall, the Lithuanian insurance market should grow 28 percent to 30 percent in 2002, following an increase of about 8 percent in written premiums during 2001, according to estimates of the State Insurance Supervisory Authority. The regulator predicts non-life written premiums will rise about 30 percent this year, while the life insurance market will grow more than 14 percent.

The non-life explosion is closely linked to the introduction of compulsory motor third-party liability insurance. Policy sales began Jan. 2 under a new law requiring Lithuania's million-plus vehicle owners and possessors to get the insurance by April 1. Lithuania was among the last countries in Europe to enact such legislation.

This should inject some 150 million litas ($37.5 million) of new premiums into the local insurance market this year, according to SISA projections.

But insurance companies should not expect big profits from the new product, according to Tomas Rudzkis, head of transport insurance at Lietuvos Draudimas and chairman of the board at the Motorized Bureau, which oversees the motor-liability insurance system.

"With a fifth of vehicles already insured voluntarily, the new law mandates rates that will bring insurers only 40 percent of the premiums they were getting per policy until now. It broadens the spectrum of claims that insurers must pay," Rudzkis said.

In any case, he added, Lithuania has learned from the experiences of Latvia and Estonia in recent years, and should be able to avoid some of the problems those countries faced when introducing compulsory motor third-party liability insurance.

Booming market

Lithuania's life insurance market started to boom in 2001 with the entrance of serious new companies, said SISA Director Edvinas Vasilis-Vasiliauskas. Written premiums for the first nine months of 2001 totalled 65.7 million litas and rose 18 percent compared with the same period in 2000.

Vasilis-Vasiliauskas said rises in living standards and savings rates among Lithuanian residents were behind the expansion.

Life insurer VB Gyvybes Draudimas announced on Feb. 1 that its premiums tripled during 2001 to 11.3 million litas. Company Director Baiginat Kamuntaviciene said life insurance was gaining popularity among individuals, and Lithuanian companies were starting to buy group policies as a benefit for employees.

At the start of 2002, 31 insurance companies were active in Lithuania, including nine life insurers, three credit insurers and 19 other non-life companies.

Lietuvos Draudimas, controlled by Denmark's Codan - part of the Royal & Sun Alliance group - was clearly the dominant player, with 42 percent of the local non-life market, 75 percent of the life market and 60 percent of the credit insurance market. But it faces growing competition.

Insurance brokers, too, are multiplying and grabbing a fair share of the pie. SISA issued its 100th permit for insurance brokerage activity in early December and has issued several more since then. In fact, only about 90 of the intermediaries are presently active. During the first nine months of 2001 brokers mediated in signing 27 percent, or 95 million litas, of direct insurance premiums in Lithuania.