Serbia Insurance Report 2010

Like many of its peers in Central and Eastern Europe, Serbia’s insurance sector is never going to be particularly large. Where it differs from many other markets in the region is that the global financial crisis has not caused a collapse in non-life premiums (notwithstanding that premiums in many voluntary lines have actually fallen), while life premiums have grown strongly over the 12 months to the end of June 2009.

The Serbian economy is likely to remain fairly weak through the next few years as the global economic crisis affects key trading partners and the domestic environment waits for households to move beyond this period of saving. However, a changing trade balance, seeing imports reduce faster than exports, gives some hope for growth. The financial account surplus, which has until now been providing a buffer, is narrowing rapidly despite there being no period of marked period of capital outflows from the Serbian economy. Through May 2009, the financial account recorded a surplus of US$1.09bn, down from US$3.70bn through the same period in 2008.

Political risks still rate highly but, although the short-term political risk rating (STPR) of 48.1 out of 100 is discouraging, this doesn’t reflect the significantly divergent outlook on the nature of threats through the medium term. The outlook for 'policy-formation' is much more encouraging.

None of these problems have bothered global multinationals (such as Generali and AIG/ALICO) or regional players (such as GRAWE, Vienna Insurance Group and UNIQA). Of the largest insurers, AIG started operations in Serbia in 2007, Generali acquired Delta Osiguranje in 2006 and Wiener Städtische osiguranje a.d.o. Beograd (Vienna Insurance Group) has been present in the Serbian market since February 2003. The company which seems to be growing despite the challenging environment is UNIQA, which claims the strongest growth in the first three months of 2009 in the non-life segment. France’s Société Générale established a new life insurance operation in Serbia in July 2009. The privatisation of DDOR Novi Sad has ultimately resulted in the entry to the market of Italy’s Fondiaria SAI, which moved to total control of the Serbian insurer at the end of 2008. This deal is interesting because Fondiaria – unlike Generali or the Austrian groups – did not previously have a significant commitment to developing a business in Central and Eastern Europe.

Société Générale’s entry to the market highlights the (arguably justified) excitement in relation to the Serbian life segment, where major foreign groups account for about 90% of the premiums – with stateowned Dunav (a giant in local terms) accounting for the rest. Dunav speaks for over a quarter of total premiums: while it has been losing ground in the non-life segment, it has being making progress in the life segment.

Notwithstanding that life insurance and organised long-term savings are developing rapidly from a very low base, it is difficult to imagine that every one of the 24 companies operating in the Serbian insurance sector are absolutely committed to remaining in the market. The majority of the companies – be they mainly life, mainly non-life or reinsurance operations – are writing annual premiums of less than US$5mn. This includes several subsidiaries of multi-nationals.

In other words, very few players are, or are ever likely to be, able to achieve meaningful economies of scale. Dunav clearly has advantages in terms of brand and distribution network, but would rate as no more than a medium-sized insurer in most countries. According to the National Bank of Serbia, which regulates the country’s insurance sector, total employment increased from 10,732 to 12,288 over the year to the end of June 2009: the obvious implication is that administrative costs for the sector as a whole are rising faster than total premium income.