Last week, HANFA held the latest Council session. In it, they discussed the influence of the Euro introduction on the insurance sector, the UCITS funds, the Stock Exchange as well as the influence of the Russian invasion of Ukraine on the financial markets thus far.
The regulator said that during the meeting, the Council was presented with the results of the market exercises to assess the impact of the euro introduction, which were held by the insurance companies in 2020 and 2021 according to HANFA’s instructions and methodological approach. Due to the introduction of the euro, insurers will have to adjust the methodological approach for calculating the SCR (the ratio of eligible own funds and required solvency capital). This means that the insurers will have to take into account the assumptions in the Eurozone, which are in many ways different from the assumptions currently used by the insurance companies. The change in these assumptions will automatically lead to a change in the own funds as well as the required capital for the solvency of these companies.
After these market exercises were done, it was concluded that the introduction of the euro will reduce the solvency ratio of the insurance companies. Considering that at the end of 2021, it stood at 209%, (meaning that the insurance companies held more than 2x the required funds to be solvent), it is expected to drop somewhat but still remain just above 200%. Insurance companies that would be more directly affected by the euro change have already defined their plans for the improvement of their solvency position for 2022, and HANFA will continue monitoring their progress in this regard.
Changes to UCITS funds were also discussed. The regulator intends to incorporate the EU UCITS Level 2 Directive and AIFMD Level 2 Regulation, which would mean that in the EU, the assets of inv. funds and retail investors will no longer have to pay excessive costs. The regulator also points out that it is monitoring the costs of investments into UCITS funds, through the national 3.5% limit on costs of the average annual net asset. On this point, it was recognized that there was a lack of documentation of the pricing process itself, as well as the lack of internal acts that regulate and prescribe the process. Therefore, the framework and control of the prevention of excessive costs towards investors will additionally be determined through amendments to legal acts and drafting of Guidelines on costs and fees to inv. funds.
The impact on the ZSE was also discussed. Firstly, there would be increased costs due to the introduction. Secondly, the reactions of the market on the start of the settlement of the CCP transactions, of which it was said that the system is functioning properly, but should also expand to include the lending of securities and increasing the volume of trading in shares on the domestic market.
Finally, the Council discussed the impact of the Russian invasion of Ukraine on the financial market. According to the first analysis, sanctions against Russia and Belarus, as well as previous investment, do not affect the current financial stability of the non-banking sector (mostly consisting of pension, insurance and investment funds). Because of the existing legal restrictions, mandatory and voluntary pension funds do not have direct investments in Russian, Belarusian or Ukrainian debt securities and money market instruments. Also, pension funds invest long-term, meaning that short-term shocks shouldn’t affect them in the long run, especially after the situation normalizes.
In February 2022, GWPs increased by 6.2% YoY. GWPs in Non-life insurance grew by 9.3%, while at the same time, GWPs in Life insurance decreased by -4.4%.
The Croatian Insurance Bureau has published its monthly insurance report for February 2022. In the report, we can look at how the insurance sector has developed during February. In total, GWPs increased by 6.2% (or HRK 132m), continuing the positive trend from last year.
The total amount of GWPs collected amounted to HRK 2.26bn (this number includes both the insurers located in Croatia as well as insurers operating in Croatia but which are based in other EU countries). This growth was driven by the increase in Non-life insurance, which offset the decrease in the Life-insurance sector.
Total Croatian GWPs and Croatia osiguranje GWPs in February 2022 (HRK bn)
Turning our attention to these sectors, Life insurance decreased by -4.4% (or HRK -21.3m) YoY and amounted to HRK 460.8m. The largest Croatian insurance company, Croatia osiguranje, has a market share of 20.6% in this sector, an increase of 8.56 p.p. YoY, which would also amount to a yearly increase of HRK 36.75m. VIG, the 2nd largest insurance company by market share (at 18.02%), lost -1.36 p.p. (or HRK 10.2m) YoY. In absolute terms, the largest decrease was experienced by the 3rd largest insurance company, Allianz, whose market share reduced from 28% to 12.59% (a drop of -15.41 p.p.) and a decrease of HRK -76.4m. The only other company to have a change of more than HRK 10m was Generali osiguranje, which had an increase of 5.37 p.p. (or HRK 23.5m), and ended February with a market share of 10.7%.
At the same time, the largest segment of the collected GWPs in Croatia, the Non-life insurance (which accounts for 79.6% of total GWPs), increased by 9.3% (or HRK 153.3m) amounting to HRK 1.8bn in February 2022. Looking over to the insurance companies, Croatia osiguranje has the largest market share in this segment, at 29.29%, a decrease of 0.2 p.p. compared to February 2022. However, the Company also grew with the rest of the market and increased its Non-Life GWPs by 10.2% (or HRK 48.1m). The 2nd largest insurance company in this segment, Euroherc osiguranje, grew by 4.9% (or HRK 10.4m), while the 3rd largest insurance company, Allianz, grew by 9.9% (or HRK 19.9m). On the flip side, the only insurance company that experienced a decrease in the total number of GWPs it has in this sector was HOK osiguranje, whose GWPs decreased by -7.9% (or HRK -3.65m).
Looking at the largest increases by segments of the Non-life insurance, in absolute amounts, Insurance against civil liability in respect to the use of motor vehicles increased the most, growing by HRK 32.1m (or +7.3%) YoY, followed by loan insurance with an increase of HRK 23.9m (or +65.3%) YoY. Next up, we have Vehicle insurance (casco policy) and Health insurance, which grew by HRK 20.5m (+8.86%) and HRK 18.5m (+13.12%) YoY, respectively. At the same time, the largest decrease in absolute amount was recorded in Insurance against accidents, which decreased by HRK -2.8m (or -3%), and Guarantee insurance, which decreased by HRK -2.1m (or -49.6%) YoY.
Turning our attention to Life insurance by segments, the largest increase was recorded in the Life or rent insurance in which the insurance contractor takes on the investment risk, which grew by HRK 34.9m (or 88.7%), while at the same time, Life assurance decreased by HRK -56.6m (or 13.6%), offsetting the aforementioned increase and leading to an overall decline in the Life insurance sector.
Looking over to the Croatia osiguranje, it currently holds 24.5% of all GWPs collected, a decrease of -0.57 p.p. YoY. In total, Croatia osiguranje’s GWPs amounted to HRK 2.94bn, an increase of HRK 232.9m YoY.
Croatia osiguranje market share (November 2010 – February 2022, %)