INSURANCE MARKET DEVELOPMENT
GENERAL INFORMATION
Market participants
In the year 2005, overall 17 insurance companies operated in Latvia – five life insurance and 12 non-life insurance companies (incl. one mutual non-life insurance cooperative society). At the end of the reporting period, seven insurance companies operated as subsidiaries of foreign insurers (Balta, ERGO Latvija, If Latvia, Seesam Latvia, ERGO Latvija dzīvība, Sampo Dzīvība and Seesam Life Latvia). The proportion of these subsidiaries’ share capital made up 51.4% of total insurance company share capital.
Upon Latvia’s accession to the European Union, within the period from 1 May 2004 to the end of December 2005, 192 notifications from 22 insurance supervisory authorities of European Economic Area countries were received regarding the intent expressed by insurers licensed in said countries to exercise the freedom to provide services in Latvia, including three notifications regarding the intent to exercise the freedom to provide services by opening a branch.
On 31 December 2005, there were 35 insurance brokerage companies operating in the Latvian market.
Premiums written and claims paid
In 2005, a total of gross insurance premiums written on the insurance market amounted to 156 million lats, or 19.1% up from 2004 and total gross claims paid reached 67.5 million lats, or 19.2% more than in 2004 (see Figure 1). The simple claims ratio[1] in the accounting period stood at 43.3% (compared to 43.2% in 2004).
As compared to 2004, the share of direct life insurance in a total of gross premiums written by insurance companies grew by 7% in the reporting period (compared to 5% in 2004).
In 2005, the volume of written gross premiums spent, on average, by each Latvian resident on the purchase of insurance services[2] had grown, namely 68 lats (compared to 56.6 lats in 2004).
Figure 1
GROSS PREMIUMS WRITTEN AND GROSS CLAIMS PAID
(at end of period; in millions of lats)
Investments
At the end of 2005, the amount of investments made by insurance companies grew by 22.3% as compared to 2004, and was 139.9 million lats.
The structure of investments made by insurance companies as of 31 December 2005 was similar to the breakdown of a conservative investment policy (see Figure 2). Major investments were still made in debt securities and other fixed-income securities, 37.5%, and in time deposits with credit institutions, 31.8% of total investments.
Figure 2
STRUCTURE OF INVESTMENTS BY INSURANCE COMPANIES
(as a percentage)
At the end of 2005, of total investments, 85.2% were placed in Latvia, 2.6% - in Finland, 2% – in Lithuania, 1.9% - in Germany, 1.7% – in Estonia and the rest 6.6% – in 21 other countries (see Figure 3). Of total investments abroad, 89% were placed in the European Union Member States.
Figure 3
INVESTMENTS BY INSURANCE COMPANIES, BROKEN DOWN BY COUNTRY
(as a percentage)
LIFE INSURANCE COMPANIES
Performance indicators
In 2005, the volume of gross premiums written by life insurance companies increased, namely by 82.6% as compared to 2004 and totalled 16.4 million lats (see Figure 4). Therefore in the reporting period, the share of gross premiums written by life insurance companies amounted to 10.5% of total gross premiums written on the insurance market (compared to 6.9% in 2004). The amount of gross claims paid dropped by 21.4% as compared to 2004 and totalled 5.7 million lats.
Figure 4
GROSS PREMIUMS WRITTEN AND GROSS CLAIMS PAID BY LIFE INSURANCE COMPANIES
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(during period; in millions of lats)
In 2005, the greater part of the portfolio of gross premiums written by life insurance companies was constituted by premiums written for life insurance and health insurance, 66.3% and 31.6%, respectively (see Figure 5).
Figure 5
GROSS PREMIUMS WRITTEN AND GROSS CLAIMS PAID BY LIFE INSURANCE COMPANIES, BROKEN DOWN BY CLASS OF INSURANCE
(as a percentage)
The amount of gross premiums written for life insurance grew by 65.8% compared to 2004, and totalled 10.9 million lats. The clients of life insurance companies acquired a greater number of health insurance policies than previously, the amount of gross premiums written for this class of insurance increased 2.4 times and reached 5.2 million lats (compared to 2.1 million lats in 2004).
Typically, that upon a dramatic increase in gross premiums written for health insurance, also the amount of gross claims paid on health insurance grew rapidly, increasing 2.3 times and totalled 3 million lats. Gross claims paid on life insurance dropped 2.2 times and made up 2.6 million lats.
The largest amount of gross claims incurred for life insurance in 2005 accounted for 90 thousand lats.
Investments and technical provisions
On 31 December 2005, total investments made by life insurance companies reached 33.7 million lats. For the most part, investments were still made in high-liquidity investments and investments that are in low risk. The amount of investments in debt securities and other fixed-income securities constituted 15.3 million lats or 45.5% of total investments made by life insurance companies (see Figure 6). Whereas amount of investments made in time deposits with credit institutions reached 10.3 million lats, or 30.4% of total investments made by life insurance companies. Overall, the investment policy of life insurance companies in 2005 was comparatively conservative and the amount of investments in shares and other variable-yield securities grew almost 2 times as compared with 2004, totalling 3.1million lats or 9.2% of total investments by life insurance companies.
Figure 6
INVESTMENT STRUCTURE OF LIFE INSURANCE COMPANIES
(as a percentage)
The proportion of the geographical placement of investments in foreign countries kept growing; compared to the end of 2004 when 95.3% of total investments were made in Latvia, an investment share made in Latvia was 75.4% on 31 December 2005, while 8.9% were placed in Finland, 5.4% in Estonia, 3.3% - in Germany, and the rest 7% in 11 other countries. Of total investments made abroad, 97.7% were placed in the European Union states.
In 2005, the return on investments[3] of the average value of life insurance investments by life insurance companies was 7.3%.
At the end of the reporting period, net technical provisions of life insurance companies, which are made to meet obligations under insurance and reinsurance contracts, accounted for 21.6 million lats, and technical provisions were 100% covered by investments in accordance with requirements.
NON-LIFE INSURANCE COMPANIES
Performance indicators
In 2005, gross premiums written by non-life insurance companies made up 139.6 million lats or by 14.4% more than in 2004 (see Figure 7).
The amount of gross claims paid increased by 25.1% compared to 2004, amounting to 43.8 million lats.
In the reporting year, non-life insurance companies conducted transactions mostly with legal persons, i.e. 61.1% of gross premiums written. The share of legal persons prevailed also in a total of claims paid out, i.e. 62% of total claims paid.
Figure 7
GROSS PREMIUMS WRITTEN AND GROSS CLAIMS PAID BY NON-LIFE INSURANCE COMPANIES
(during period; in millions of lats)
In 2005, high market concentration was observed on the non-life insurance market, when assessing the amount of gross premiums written, five non-life insurance companies wrote 71.8% of a total of gross premiums written by non-life insurance companies.
In the reporting period, a major part of the portfolio of gross premiums written by non-life insurance companies comprised premiums written for land vehicle insurance, or 32.4% of total gross premiums written, for compulsory third party liability insurance for inland motor vehicle owners, i.e. 20.6%, and for property insurance - 16.9% (see Figure 8). The share of health insurance constituted 13.7%.
Figure 8
GROSS PREMIUMS WRITTEN BY NON-LIFE INSURANCE COMPANIES, BROKEN DOWN BY CLASS OF INSURANCE
(as a percentage)
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In 2005, claims paid on land vehicle insurance still retained the largest share compared to 2004, i.e. 32.5% of total gross claims, as well as claims paid on motor vehicle third party liability compulsory insurance, i.e. 24.7% (see Figure 9).
Figure 9
GROSS CLAIMS PAID BY NON-LIFE INSURANCE COMPANIES, BROKEN DOWN BY CLASS OF INSURANCE
(as a percentage)
In 2005, in terms of volume, the largest claim, i.e. 487 thousand lats, incurred by ship insurance.
In the reporting period, non-life insurance companies operated with a profit of 7.5 million lats (compared to 4.9 million lats in 2004). In 2005, the combined ratio[4], which characterises performance results for non-life insurance companies, was 99.6% (compared to 97.3% in 2004). Operating ratio[5], characterising the overall operations of insurance companies, taking into account the efficiency of the investment policy implemented by insurance companies, was 92.8% in the reporting period as compared to 93.2% in 2004, mainly due to an increase in the investment return[6].
Investments and technical provisions
On 31 December 2005, total investments by non-life insurance companies comprised 106.1 million lats. In 2005, the investment policy implemented by non-life insurance companies remained unchanged compared to 2004, for investments were mostly made in high-liquidity investments and investments that are in low risk. The amount of investments in debt securities and other fixed-income securities amounted to 37.1 million lats or 35% of total investments made by non-life insurance companies, but the amount of investments made in time deposits with credit institutions reached 34.2 million lats or 32.2% of total investments (see Figure 10).
Figure 10
INVESTMENT STRUCUTRE OF NON-LIFE INSURANCE COMPANIES
(as a percentage)
Just like in 2004, a major part of investments made in 2005 by non-life insurance companies, 88.4% of total investments, were placed in Latvia, while 2.5% were made in Lithuania, but the rest 9.1% in 22 other countries. Of total investments made abroad, 83.2% were made in the European Union Member States.
In 2005, upon implementation of a conservative investment policy, the return on investments[7] was 6.8%.
In 2005, net technical provisions of non-life insurance companies, which are made to meet obligations under insurance and reinsurance contracts, had increased by 29.5% as compared to 2004 and was 78.4 million lats.
Constant 100% cover for technical provisions by eligible assets testifies to the insurer’s readiness to meet its obligations to clients. In 2005, upon applying investment restrictions specified for the cover for technical provisions, technical provisions were 100% covered by investments.
[1] Ratio of gross claims paid to gross premiums written.
[2] According to data published in the Internet home page of the Central Statistical Bureau of the Republic of Latvia at www.csb.lv.
[3] Return on investments = net income from investments/average amount of investments in the reporting period.
[4] Combined ratio = loss ratio (net incurred claims/net earned premiums) + expense ratio (net operating expenses + other net technical expenses).
[5] Operating ratio = combined ratio – return on investments.
[6] Return on investments = net income from investments/average amount of investments in the reporting period.
[7] Return on investments = net income from investments/average amount of investments in the reporting period.
