- What are the prospects for life insurance in the Republic of Kazakhstan? What products are the most promising in Kazakhstan?
- The life insurance sector in Kazakhstan continues to develop demonstrating growth from a very low base of 18% in average over the past three years and maintaining high profitability. The diversification of insurance products continues, while the sector’s exposure to risks associated with insurance products dependent on the interest rate level (for example, insurance products with a guarantee) is lower than in European countries.
Growth prospects for life insurance companies remain favorable amid moderate economic welfare as measured by per capita GDP. We would like to note that in the last ten years, the Kazakhstani life insurance sector has demonstrated high resistance to adverse macroeconomic factors, which is partly due to insufficient maturity of the market.
The level of penetration of insurance services in Kazakhstan is low, which indicates the growth potential against the measures taken by the regulatory body to stimulate the further development and increase of public awareness of insurance products in this sector. The share of gross insurance premium in GDP in 2018 was about 0.2%, which was quite low, for instance, in comparison with most of developed countries in Europe (Germany - about 6%, Switzerland - over 8%). We expect a rapid growth of the sector from a very small base, which will be noted in three segments: life, annuity and compulsory accident insurance.
- Could you compare the Kazakhstani life insurance market with other countries?
- Traditionally, the share of life insurance in developed countries is significant and reaches more than 50% of the insurance premium. However, this process in Kazakhstan has just begun and general insurance prevails in the structure of the market insurance premium. A person in Europe very often has more than 2 insurance policies that include various life insurance programs.
However, in 2018 insurance costs amounted to about $14 per capita, compared to $11 in 2017, which was still lower than in the general insurance sector (about $54). We believe that this indicator will gradually be increasing to about $17 per diem in 2019-2020 taking into account the growth of insurance premiums in this sector and the projected inflation and GDP growth rates. Life insurance costs in Kazakhstan are significantly lower than in developed insurance markets such as France, Italy and Norway (more than $2,000 per capita), but are comparable to emerging markets such as Turkey, Tunisia and Kenya (15 -17 dollars per capita), and still lower than in Russia (about 50 dollars) and countries of Central Europe (more than 110 dollars).
We expect that the return on equity (ROE) in 2019-2020 will be on average 20-25% per year, and return on assets (ROA) for the same period - about 6%, which we estimate as a very high index compared to figures of European life insurance companies. The life insurance profitability indices in Kazakhstan positively affect our assessment: they are higher than in other regions, Western Europe in particular, where the ROE was 8%on average in 2018. According to our estimates, the average ROE for five years (2014-2018) in the Kazakhstani life insurance sector is approximately 38%, ROA - about 8%. In our opinion, sector profitability indicators are less sensitive to interest rate volatility than in some European countries, mainly due to the still developing business structure of life insurance companies that currently offer simple products, universal life insurance and term life insurance.
Meantime, Kazakhstani financial markets, less developed than ones in Europe, limit the life insurance sector's ability to manage the short book by currency, efficient capital distribution and access to long-term sources of investment with exception of government debt instruments and deposits. As a result, the factor remains one of the main opportunities for future market development.
- How do you assess the regulators’ actions on sector development? What legislative amendments should be introduced to develop this market?
- The problems associated with a low level of payment culture and financial literacy hamper development of insurance in Kazakhstan, the life insurance sector in particular. We expect that the initiatives by the regulatory body, introduction of insurance products with an investment component (unit-linked) and possible transfer of some of the functions retirement fund management to life insurance companies, as well as implementation of government education support programs, will stimulate the insurance sector development on a mid-term horizon. A further growth of population and increase in life expectancy provide very good prospects for life insurance development.
We assess the measures taken by the regulatory body to introduce tax incentives for the insurance policyholders as positive; they ensure the further growth of life insurance sector in Kazakhstan, despite the still low level of expenses on life insurance products.
- The press has been writing about the problems of life insurance in the Russian Federation lately. How is the investment insurance market doing?
- The life insurance segment in Russia has shown significant growth rates over the past 5 years being the main driver of the insurance market. However, we are observing a decrease in growth rates of premiums in the 1st HY 2019. The investment life insurance is giving way to the products of universal life insurance.
The important factor affecting the insurance premium structure in Russia was the introduction of the requirements by the regulatory body that determined the procedure for selling life insurance products. For example, an insurance company is obliged to inform the client about the main terms and characteristics of the insurance product in writing. We see that the problems with misselling will be reduced in this regard, which is largely due to the emergence of certain standards of information disclosure.
- Can a similar situation happen in Kazakhstan?
- It is still difficult to judge the further development of this product in Kazakhstan, since at this stage only by-laws and prudential standards have been developed. The Kazakhstani insurance product is similar to the world unit-linked practices, which have a significant share of insurance companies’ business in Europe, about 60% of life insurance. The main issue still open during the segment development is necessary profitability when changing interest rates and investment portfolio structures.
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