In 2009 Romanian GDP registered a fall of 7.1%, its steepest decline for two decades. As a result of the economic downturn GDP per capita dropped EUR1,000 to EUR5,390 and Romania stepped back two years on the road to convergence with Western Europe. The recession continued into the first quarter of 2010, with a return to growth looking likely to be postponed until the second half of the year.

Initially it seemed that the crisis would not have a significant impact on the insurance sector, but after six months it became clear that the industry would be seriously hurt. The Romanian insurance market ended 2009 in the red, both in terms of GWP volume and profitability. Overall underwriting went down by 13% to EUR2.1bn, while market sentiment estimates that the total 2009 financial loss of just the MTPL business will reach EUR150m.

The insurance density value was preserved in lei, but as a result of the national currency’s depreciation when denominated in euros the value dipped below the psychological threshold of EUR100 per capita to EUR97.10, compared to the EUR111.75 seen in 2008. It is worth mentioning that European currency comparisons may give an unflattering picture of the market evolution because in 2009 the leu depreciated by 15% against the euro.

Decrease on all classes, with one exception: MTPL!

The evolution of insurance classes confirms the dynamic seen in the first three quarters of the year. The big loser in 2009 was the Life insurance segment. In euro terms it fell about 22%, meaning a negative gain of about EUR110m, which represents some onethird of the market’s total decline.

With Life insurance GWP amounting to almost EUR390m, the segment lost 2 percentage points of its share of the market portfolio, to reach 18.47% of the total outcome. Non-life insurance fell by almost 11%. The most affected business lines were Motor Hull, which fell EUR790.11m, and Damages to property, which recorded a historic downturn of 28.6% to EUR40.38m. Much of the negative trend for these lines had to do with a dramatic fall in car sales and the collapse of the construction industry. But, beside the crisis-related factors, another Motor insurance market weakness was exposed, namely that apart from leasing contracts that require clients to insure the car for damage and theft risks, the overwhelming majority of Motor Hull contracts were concluded only for new cars. Once the leasing market crashed, insurers had to struggle to replace the easily acquired new business by increasing client retention after a leasing contract termination and to convince other car owners to insure their vehicles.

with a hot spot: MTPL

The only exception to the negative market dynamic was the MTPL insurance line, whose positive evolution was due not so much to an increase of the number of sold policies but to a rise in tariffs. MTPL rose about 6% to EUR530.5m. Consequently, the MTPL portfolio’s share of overall GWP rose to 25%.

Property insurance fell a below-market-average 5% to EUR219.8m. One could say that Romanians continued to insure houses in spite of their financial weakness, but in fact only about 10% of Romanian houses are insured. So only a dramatic change in this respect could produce a sensible variation of Fire policy GWP.

How did the companies react?

In previous years achieving a better ranking was mainly the result of an above-average underwriting performance, but in 2009 it mostly reflected an ability to lose less weight than competitors.

With the exception of only three players – ASTRA, GENERALI and EUROINS – the Top 10 Non-life insurers reported a fall business. ALLIANZ-TIRIAC and OMNIASIG preserved their leadership position in the Non-life hierarchy and thanks to a more than 6% increase in turnover ASTRA gained 1.7 points of market share and climbed two positions in the ranking. Both BCR Asigurari and GENERALI climbed one position while GOUPAMA, ASIROM and ARDAF failed to retain their rankings.

In the Life insurance ranking, only BCR Asigurari de Viata managed to increase business, rising to second place with a 38.5% increase in GWP and lifting its market share by 6.7 percentage points to 15.4%.

MTPL – a battlefield?

But while MTPL was the only business line to show gains in 2009, it is also true that it was the sector that showed the most significant changes and experienced the most disputes. The core issue was tariff adequacy.

According to the Romanian insurers’ association (UNSAR), MTPL policies tariffs have more than tripled in the past five years, while the claims paid by MTPL insurers have multiplied by a factor of 7 to 8. Among the main reasons why MTPL prices climbed were increases in motor parts and labour prices, fleet renewal and an increased frequency of accidents, and the extension of assumed liabilities, said UNSAR President Cristian CONSTANTINESCU.

Consequently, over the last five years, the value of liabilities for MTPL policies has multiplied 6.6 times for material damages (to EUR500,000 in 2010 from EUR76,316 in 2005), and almost 20 times in the case of indemnities for body injuries (to EUR2.5m from EUR127,194). In terms of claims growth, MTPL activity resulted in considerable losses to insurance companies. In 2009 alone, the losses recorded by insurers in this segment could rise to more than EUR150m. In this context, insurers have taken steps to control the costs of products and services provided by repair shops through the negotiation of labour tariffs with each repair shop and through the implementation of systems like AUDATEX, DAT and EUROTAX that are recognised and used internationally.

Nevertheless, despite all the arguments, clients accepted the tariff increase. But to some extent they are also deceived, as the quality of the insurers’ services is often inadequate. More than that, the independent repair workshops that did not meet the standards required to sign a permanent contract with the insurance companies are very unhappy with the situation and are blaming insurers for all the delays in the claims circuit.

Finally, insurance brokers are also unhappy because the Insurance Supervisory Commission put a cap on MTPL fees. This resulted in a visible drop in the revenues of the brokerage companies. All in all, MTPL was the battleground of 2009 and continues to be fertile territory for future disputes. Nevertheless, the main battle is to acquire a larger stake of what is always said to be an ”unprofitable and loss generating” line of business, because at least for the time being it seems that it is the only line generating business volume and a continuous cash flow.