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Business Connections #11/2008

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Feature Article -
Review of the Uzbekistan insurance market

As a result of first nine months of the year 2006 cumulative insurance premiums, collected by the insurers of Uzbekistan, exceeded the level of 2005 year by 11.4% and represent 34,4 billion Soum. At the same time insurance market penetration is still at a low level and represents less than 0.28% of GDP, premium density per capita is circa $1.5. The main type of insurance services in the portfolio of national insurers is voluntary property insurance, which represents 75% of all receipts from insurance premiums, of which a fourth of receipts from property insurance refers to aircraft insurance. Receipts from voluntary liability insurance 11% and personal insurance 7% still remain at a low level. There is a tendency of decreasing compulsory types of insurance, from 6.9% in 2005 to 6.7% in 2006. Constant trend on decrease of insurance tariffs, during 1Q2006 insurance obligations increased by 5.4% while insurance premiums decreased by 2.6%.

In spite of the fact the rate of insurance premium per capita increased by 5 times for the last 6 years, per capita spending is still very low, less than two US dollars.
By the end of the year 2006 there are 25 insurance companies possessing licenses to operate in the country, 23 non-life and two life insurance companies, including:

■    Three state owned companies with strong regional presence and government support (Uzbekinvest, Agrosug`urta, Kafolat);
    Captives of large quasi-state companies and ministries (UWT Insurance, Alskom);
    Big private companies (Standard Insurance, Fotis).

Five of the biggest companies collect 84% of the market premium. Excluding the lines UzAIG does not participate in (i.e aviation, compulsory lines, crop insurance, motor and life insurance), the rest of insurance receipts of $10 million are too little for the insurance market. UzAIG slipped to number 7 in terms of premium income and collected more than 3% of insurance market premiums.
During the first nine months of 2006 insurance companies issued more than 3 million policies with total insured liabilities of more than 20 trillion Soum, insurance premiums received for the total amount 34.3 billion Soum and more than 4.6 billion Soum was paid in claims.

The main indices of the insurance market of Uzbekistan  

Table 1 (in UZS Millions.)

At the end of year 2005 the volume of aggregate insurance liability was 18.9 trillion Soum, which exceeded the level of the year 2000 by 11 times (figure 1). The increase of insurance liabilities shows an expansion of local insurance market. However, if the growth rate of insurance liabilities substantively higher than the growth rate of insurance premiums, it will cite to solvency problems of appropriate insurers.


Figure 1. The dynamics of aggregate insurance liability (level of the year 2000 is considered equal to 1).

In this connection there is the dynamics of changing of average insurance rate (average insurance rate is the relationship between aggregate insurance premium and total insurance liability), illustrated at figure 2. The portion of average insurance rate as the result of year 2005 declined for more than two times in comparison with year 2000 and more than three times in comparison with a peak point in year 2001. In 2001 the first solvency regulation was introduced in Uzbekistan insurance market.  

Figure 2. The dynamics of changing of average insurance premiums in the insurance market (underwriting rate is indicated in percentages) 

Declining of insurance tariffs on the one hand could be favorable for insurers as it means the declining of costs of insurance services. On another hand this situation could have an influence on the solvency and financial stability of the insurers: at the dynamics of insurance claims in a similar manner to the dynamics of insurance premiums declining of insurance rates means the declining of underwriting income of insurers. Analysis in table 1 shows how during the years from 2000 to 2005 aggregate insurance premium increased by more than five times while aggregate insurance claims increased by less than two times.

Industry loss statistics for the year 2005

Table 2.(in UZS millions)
Industry loss ratio did not exceed 15% for the last 3 years (table 2).

This is a rather unique situation, which directly implies that insurance industry is not operating properly.

Main aspects of such a market:

■  Liability loss ratio is very low - 1% as the country is not litigious.
■  Normally better qualities of assets tend to be insured as they are owned by businesses that maintain certain safety standards and procedures.
■   Country did not experience any catastrophic (earthquake, flood, etc.) or major fire losses in recent history.
■  Personal lines of business (personal motor, homeowner’s, etc.) are very underdeveloped, where loss ratios traditionally tend to be at the higher end.
■  Among other factors we would point out, ambiguity of wordings, customers not knowing their rights, underdeveloped legal system, bureaucracy and lengthy claims procedures imposed by insurers, etc. that results in less claims filed and paid overall.

The level of development of insurance market defines the position of reinsurance activities. In the country, currently, reinsurance activities are mainly held between local insurers.  Insurance market has changed since May 2004, when solvency requirements for insurers were cancelled. Insurance companies began to take liabilities without necessary reinsurance protection or creating necessary reserves. This has resulted in a rapid drop of rates, and insurance companies with safe reinsurance protection could not compete with dumping pricing policy of local companies.

Local insurance companies, with some exceptions such as Uzbekinvest and Standard Insurance, continue to ignore solvency requirements of legislation and insure without appropriate reinsurance coverage and necessary reserves. Having little or no underwriting expertise most companies can write anything at any price. Absence of common reinsurance coverage of local insurance companies, not to mention about reliability of each reinsures and excess of loss treaties against catastrophic, make a threat not only for insurers and their shareholders but for their insured customers also.

UzAIG Insurance Company provides the highest international standards of security and service to many of the leading foreign and local companies. Having the most reliable reinsurance coverage (AA+) in all insurance liabilities makes our company in solvency beyond comparison in the Uzbek insurance market. 

Reinsurance market is changing especially for the last two years. Inspite of the rising of prices in global insurance market UzAIG does all it can possible to keep prices at the same level or even decrease, while at the same time all reinsurers follow the requirements of AIG in the financial stability aspects, with the strong rating of AA+.  

Since independence in 1991, there has been a slow growth of the insurance market and it is foreseen that it will remain small for a considerable time due to the absence of insurance culture, public awareness of insurance concept and low real income of population.

Prepared by Oybek Khalilov, UzAIG, AmCham Vice-President

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