First of all, it is worth noting the Law of the Republic of Kazakhstan “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Regulation and Development of the Insurance Market and the Securities Market, Banking Activities” (Law) signed by the head of state on July 12, 2022. For example, the document provides for an increase in the number of guaranteed types of insurance from 5 to 10, including joint retirement annuities and life insurance under the State Educational Savings System (SESS).
The Chairman of the Board of JSC Life Insurance Company Kommesk-Omir (LIC Kommesk-Omir) Oleg Khanin and the Chairman of the Board of JSC Eurasia Life Insurance Company (LIC Eurasia) Gulmira Ubegaliyeva report that such socially significant products as joint (marriage) retirement annuities and endowment life insurance within the SESS framework in the life insurance industry were introduced.
Oleg Khanin explains that spouses or close relatives can be insured in accordance with the Code of the Republic of Kazakhstan “On Marriage (Matrimony) and Family” within the framework of a joint retirement annuity.
If the amount of pension savings of one of spouses is insufficient, they can combine their savings to conclude a retirement annuity agreement. According to Oleg Khanin, this product implies a redistribution of income in favor of the woman, since their pension contributions are often lower than those of men, and life expectancy is higher.
Azamat Yerdessov, the Chairman of the Board of LIC Freedom Life (LIC Freedom Life), noted that as of November 1, 2022, the total volume of insurance premium on retirement annuity market decreased by 61% compared to the same period last year. The speaker explained that this happened due to the introduction of amendments to the legislation on the early withdrawal of pension savings from the Unified Accumulative Pension Fund (UAPF) for housing and medical treatment at the beginning of 2021.
The Chairman of the Board of LIC Eurasia Gulmira Ubegaliyeva clarified that when concluding a retirement annuity agreement, the amount and payment schedule for each insured are determined individually. Payments will be made regardless of the death of one of the insured.
“If the annuity agreement provides for a guaranteed period for making insurance payments in the event of the insured’s death, then the person specified in the agreement or legal heirs will receive payments according to the schedule during the guaranteed period. Annuity payments are made on a monthly basis and include annual indexation,” the speaker explains.
As for endowment life insurance within the SESS framework, Oleg Khanin, the Board Chairman of LIC Kommesk-Omir, reports that when concluding an agreement, this product provides parents with the opportunity to save money for their children’s education through life insurance companies (LICs). By the time of admission to the university, the LIC pays out insurance benefit, that is, it covers the costs of paying for the child's education.
The insured (parent) at the same time receives percentage bonuses from the state in the amount of 5-7%. And in the event of a parent’s death or loss of the ability to work due to disability of group I or II, the LIC will pay for child’s education regardless of the amount of savings.
Oleg Khanin reports that second-tier banks are already participating in the SESS program: savings are made through deposits. However, banks, unlike LICs, do not have an instrument of parental insurance coverage, the speaker emphasizes.
The Chairman of the Board of LIC Eurasia Gulmira Ubegaliyeva reminds that since its introduction in 2013, the SESS has been operating on the basis of second-tier banks in the form of deposits. There is an additional remuneration, which is subsidized by the state.
Gulmira Ubegaliyeva explains that the main difference and advantage of including LICs in the SESS is insurance coverage in case of death or disability of group I or II. However, the interest is accrued on the insured’s savings both by the insurance company and by the government.
The speaker also mentions compulsory employee accident insurance (CAI), which, in the event of a parent's death at work, provides monthly payments until the child reaches 23 years of age if they receive full-time post-secondary education. Thus, the combination of two insurances practically guarantees education to the child, Gulmira Ubegaliyeva believes.
The Chairman of the Board of LIC Freedom Life Azamat Yerdessov reports that as of November 2022, Kazakhstanis who have entered into a retirement annuity agreement have the opportunity to partially return money from the LIC back to the UAPF. According to the speaker, this function expands the ability of the population to manage their savings. This innovation will affect the collection of insurance premiums transferred from the UAPF to LIC, which will adversely impact the development of retirement annuity and insurance activities in general, summarizes Azamat Yerdessov.
Speaking about this innovation, Gulmira Ubegaliyeva, the Board Chairman of LIC Eurasia, makes a point that the client must keep the amount necessary to ensure monthly annuity payments in the amount of at least 70% of the subsistence minimum.
The speaker reports that as of November 8, 2022, after the law enforcement, LIC Eurasia transferred 315 million tenge back to the UAPF under 38 agreements. Gulmira Ubegaliyeva emphasizes that the number of applications is increasing every day.
It should be noted that an important innovation for policyholders is expansion of the list of insurance classes covered by the guarantee of the Insurance Payments Guarantee Fund (IPGF). Under the Law, the IPGF guarantee also includes joint retirement annuities and life insurance under SESS.
Besides, under the new system, consumers will now be able to receive payments immediately after the license of the insurance company is revoked without waiting for a court decision on its liquidation.
What changes are expected in the market?
The Board Chairman of LIC Freedom Life Azamat Yerdessov emphasized that joint retirement annuities and endowment life insurance within the SESS framework will be finally introduced to the market in 2023.
According to Gulmira Ubegaliyeva, the Board Chairman of LIC Eurasia, as of January 1, 2023, the new standard IFRS 17 Insurance Contracts will come into force, which will replace the current IFRS 4 Insurance Contracts. All Kazakhstani insurance companies will have to provide financial statements (FS) under the new standard as of 1st Q 2023, the speaker said.
IFRS 17 offers a unified policy for insurance contract accounting, which will be based on current parameters and assumptions, explains Gulmira Ubegaliyeva. The new standard also provides that insurance companies will have to recognize the expected profit not immediately, but as services are rendered. In addition, IFRS 17 makes it possible to clearly identify profit drivers (insurance or investment activities), which is also a significant pro for investors when analyzing financial statements, the speaker notes.
“While the transition to IFRS 17 is a positive step for the insurance industry as a whole, many insurance companies may still face difficulties. Starting the next year, all insurance organizations will have to prepare a methodology and refine their software, which is a task of a titanic scale,” says Gulmira Ubegaliyeva.
The new standard includes a retrospective accounting approach. Insurance organizations will be required to review their activities for all prior periods and, if necessary, re-discount insurance contracts in accordance with the requirements of IFRS 17.
“However, the authorized body decided to provide regulatory and prudential reporting in accordance with IFRS 4. In this regard, maintaining double accounting in accordance with IFRS 4 and IFRS 17 will require insurance organizations to allocate additional IT and human, temporary resources,” says the Chairman of the Board of LIC Eurasia.
Since the profit will be calculated according to the new standard as of January 1, 2023, taxation approaches will also be adjusted in the future, notes Gulmira Ubegaliyeva.
“It should be noted that not all authorized bodies have a systematic approach to regulation. Thus, the Ministry of Labor and Social Protection of Population of the Republic of Kazakhstan changed the document calculating the insurance premium for compulsory insurance of an employee against accidents (CAI) twice for the year 2022. By the end of the year, this department had ideas to remove CAI from the market and divide it among government agencies,” the speaker shares.
Let us remind you that on October 3, 2022, the shareholders of Insurance Company Kommesk-Omir JSC decided to change the insurance activity from the “general insurance” to the “life insurance” industry, as well as rename the company to Life Insurance Company Kommesk-Omir JSC. The shareholders decided to give advance consent to the merger of JSC Life Insurance Company Centras Kommesk Life with JSC Life Insurance Company Kommesk-Omir.
On August 27, 2022, Freedom Finance JSC entered into a sale and purchase agreement, according to which it acquired 100% of the voting shares of London-Almaty Insurance Company JSC (London-Almaty). The process of joining London-Almaty to Freedom Insurance was completed on December 19, 2022.
Thus, as of end of 2022, the Kazakhstani insurance sector is represented by 26 insurance organizations, 10 of which are life insurance companies.
Photos are from open sources.