The economic crisis that marked 2009 negatively influenced all aspects of economic, political and social life and struck most households in Serbia. Most Serbians believe the crisis has not yet peaked, according to a Medium Gallup opinion poll conducted in January 2010. However, those in Belgrade and South-Eastern Serbia, where salaries and the standard of living are higher, proved to be more optimistic.
After a 4% drop in GDP in 2009, the economy has started recovering. But if the recession has eased, the challenges faced by the Serbian economy have not. This year, Serbia expects economic growth of some 1.5%, a stable exchange rate and inflation under control. But economic analysts say it needs to speed up its EU integration as that would provide it with an additional flow of foreign assets, such as loans and investments, which are necessary to realise an adequate economic growth.
Like many of its peers in Central and Eastern Europe, Serbia’s insurance sector is never going to be particularly large. Still, considering Serbians spend on average EUR76 a year on insurance there is a lot of room for growth. In addition, some potentially interesting acquisitions are possible as only 18 of the 25 players in the market are owned by foreign shareholders. Market leader DUNAV is still a state-owned company and although its management says it will not be privatised before 2013, it remains an interesting target.
In late 2008 and in 2009 three new entities entered the market: two life insurance companies, Societe Generale osiguranje (subsidiary of Societe Generale Group) and Sava Å3/4ivotno osiguranje (a member of the Slovenian Sava Group) and a reinsurer, DDOR Re (a unit of the Italian LA FONDIARIA Insurance Group). The total investment related to their entrance on the Serbian market amounted EUR12m.
Pushing ahead life insurance
The Serbian insurance market managed to stay in positive territory and even posted a double-digit growth rate in the Life insurance segment in local currency terms. However, the 8% depreciation of the Serbian dinar against the euro over the year were unflattering for the market results. Thus, the overall GWP volume fell 5.2% on the year to EUR560m.
The Serbian Life insurance market grew 14.7% to EUR82.4m. But in GWP terms it is still very little, underlining the market’s potential. The current Life insurance density is only about EUR10, but the Finance Ministry has accepted in principle a proposal to introduce a 25% fiscal deductibility on Life policies held for more than five years. Analyst have calculated that if only 5% of the employees will insure their life after the proposal was adopted, more than EUR1bn will be accumulated in assets over the following five years that could be invested in state bonds.
In fact, Life insurance is seen by insurers as offering the main opportunity for the future. In an attempt to realise the market’s growth, DUNAV, which has a 7.5% share of the Life business, and other companies have announced an intention to support a strong campaign to increase the public awareness of the role of Life insurance.
Except for MTPL insurance, almost all Non-life insurance lines posted negative growth in 2009. As a result, Non-life insurance GWP fell almost 8% to EUR477.5m.
MTPL insurance also was the subject of new legislation, the Law on compulsory traffic insurance, issued in December 2009. It establishes a Guarantee Fund, defines its authority and the manner of its financing. The Law also grants official status to the Association of Serbian Insurers to allow it to perform its duties as a national insurance bureau more efficiently.
MTPL insurance was also the subject of a new initiative initiated on 1 September 2009 with the introduction of a bonus-malus system under which drivers are given a no-claims bonus of up to 15% after three years of no claims. However, they will have to pay up to 25% more for the MTPL policy if they prove to be risky drivers.
