The FINANCIAL — “It is difficult to predict the pace of development of the Georgian insurance market in the coming years, but trends such as the outcome of the actual European Union Donors Conference are positive signs, however offset by geopolitical instability and the actual crisis in the international financial industry,” Klaus Schmidtke, Munich Re Group, told The FINANCIAL. “Within this context, each insurer has to assess the chances and risks of an investment against its own development strategy. Munich Re is constantly monitoring the situation.”
Munich Re AG (in German Münchener Rück) is the world’s largest reinsurance company with over 5,000 customers in 160 countries and has its headquarters in Munich, Germany.
Vienna Insurance Group (VIG), the leading insurance company in Eastern European Countries (EEC) and the CIS, recently raised its shares at the Georgian international insurance company Irao from 51% to 90%. Private shareholders to whom the 10% of Irao belongs are top-management of the Irao Company.
“The market potential of Georgia in general is very interesting for VIG. We believe that the Georgian market is safe and strong enough to keep expanding. Despite the war the Georgian economy is fast developing and stable. Our goal is to always grow faster than the market. Irao shows very interesting growth potential, the management from our point of view is performing very well. The premiums attracted by the company in 2007 equalled USD 10,923,776. In 2008 this amount increased to USD 13,950,637. We have used this opportunity and decided to increase our shares,” Christoph Wolf, Member of the Board of Executive Directors of TBIH, told The FINANCIAL.
TBIH Group is one of the largest financial companies in Eastern Europe, which holds and manages insurance and pension companies in Bulgaria, Romania, Croatia, Slovenia, Serbia, Ukraine and Russia. TBIH is 60% owned by Vienna Insurance Group.
The revenues of Irao in the following years were:
2006 USD 4,551,402 (GEL 6,435,682)
2007 USD 10,878,969 (GEL 15,382,862)
2008 Q1 USD 13,969,070 (GEL19,752,265)
Net incomes in 2007 and 2008:
2007 USD 324,206 (GEL 458,428)
2008 Q1-2 USD 623,730 (GEL 881,955)
“The Georgian insurance market is fast developing. According to the figures of 2008 Q2, the health insurance market showed a 300% growth compared with previous years,” Aldagi BCI’s representative told The FINANCIAL
“Aldagi BCI made the strategic decision not to take part in the insurance programme for the population below the property line. This enabled the company to balance and improve its portfolio. According to 2008 figures of Insurance Monitoring Agency, Aldagi BCI holds 32% of the market share (excluding the governmental program).”
“During the post-war period insurance has been connected with high risks. However, the war condition is a standard exclusion in all insurance contracts as force-majeure circumstances, meaning that none of the damages caused by war can be considered as a reimbursement situation. Threats are extremely high when war risks are included in the contract, but this type of risk became expensive after the recent conflict,” General Director of Irao, Vasil Akhrakhadze, told The FINANCIAL.
According to the representative of Munich Re insurance of war risks is generally impossible, with a few exceptions such as for marine transport and aircrafts.
As the representative of Aldagi-BCI said, the company has an insurance packet for its corporate clients, which includes war risks cover. It is sold as part of a standard property insurance packet.
“There are a number of organizations that had purchased this packet, but fortunately none of them had encountered direct losses during the war. The goal of Aldagi BCI is to permanently increase the quality of its service and increase the range of its products,” said Aldagi’s spokesperson.
“Those insurance companies which are owned by banks are losing their market share. The problem is caused first of all by the difficulties that banking and construction industries currently have. Other insurance companies including Irao which are backed by professional international insurance groups have continued expanding. This can clearly be seen from the figures of 2008 according to which market share of Aldagi BCI decreased from 40% to 30%,” said Vaso Akhrakhadze.
“Aldagi BCI has lost a significant part of its market share in the first half of the year. This is a sign that on their side there were changes,” commented Christof Wolf.
The Vienna Insurance Group holds 50% of GPI’s shares, which has the second largest market share of the Georgian insurance market.
“As for property damage or loss of life, our company did not suffer any. It’s very difficult to assess the financial loss. However there is a trend of sharp decline in sales volume in August, September data is still not exact. Compared with the data of August 2007, sales dropped by 30%. If we consider the overall increase of written premiums as far as the insurance industry is concerned this is a serious decline,” a GPI representative told The FINANCIAL.
“This is natural that companies have become more cautious after the conflict. We have of course re-evaluated the situation and considered a new reality in our prognosis for the coming quarter as well as next year. In general our plans have not changed dramatically though we have an eye on developments in Georgia as well as in the world’s financial markets.”
Currently Aldagi BCI has over 250,000 individual clients and more than 2,000 large and small corporate clients.
Aldagi BCI recently made investments in the pharmaceutical sector by acquiring 19.5% of GPC. As General Director Nikoloz Gamkrelidze told The FINANCIAL, this deal will help to develop GPC drugstores. The insured people of Aldagi BCI will be able to buy medicaments in the branches of the ‘My Family Clinic’ in case of need, where GPC drugstores will be located.
Today over 300 people are employed totally in Aldagi’s clinics. Currently 4 clinics of Aldagi-BCI are working, among them 3 are in Tbilisi and 1 in Batumi.
Aldagi was the first Georgian insurance company established in 1990 and since that date had been playing the first fiddle until it merged with BCI at the end of 2006. Established in 1998, BCI was considered one of the fastest developing insurance companies, 100% of which was purchased by Bank of Georgia. In 2004 BCI, prior to the merger with Aldagi, was the first company to hit the retail market.
“Itera is still our client and we’ve submitted new offers for the coming 2009 year. Therefore our partnership has not been changed and is growing up. The Embassy of the Russian Federation is still our client too. Despite the fact that there are limitations in the work of the Embassy in Georgia, we have not cancelled our contract. The contract will be valid till the beginning of 2009,” said Vasil Akhrakhadze.
Itera is a Russian success in energy, gas processing, and construction works projects in Europe, Asia, and the USA. The Company also deals with real estate and the insurance business.
Today the market share of Irao is 14.8%. According to the General Director of Irao the presumable increase of the market share of Irao will be 20-25% in 2009. Irao’s Market Share per Product (2007) is as follows: Financial Risks – 37.39%; Civil Liability -25.35%; Properties -20.53%; Medical -7.9%.
Irao is the exclusive insurer of Baku-Tbilisi-Ceyhan (BTC). The Russian-Georgia conflict erupted just a few days after an attack and explosion along the Turkish section of the BTC pipeline. Russian jets bombed the pipeline near the town of Rustavi, creating more than 50 craters as missiles landed as close as one hundred meters from the pipeline itself. According to the General Director of Irao, even as a result of the bombing the pipeline had not been damaged. This means that the insured accident did not take place. Accordingly there was no need for compensation. Moreover damage caused by any warlike operation is standard exclusion. During the war other significant insured accidents have not been fixed by Irao.
Currently Irao has more than 200 corporate clients. Among them are: National Bank of Georgia, Patrol Police, DHL, Basis Bank, Saqcementi, Itera Georgia, Elit Electronics, Geocell and others. One of the biggest clients is company Lapidoth, as well as energy objects of Inter RAO.
As it seems the already famous bailout has created significant difficulties for the world’s biggest insurers. Troubled insurance company American International Group is reportedly planning to sell some of its UK operations in a bid to repay its debt to the U.S. Government. AIG, the world’s largest insurer, was saved from the brink of collapse by an USD 85 billion loan from the U.S. Government last month. The group has already put three of its Japanese life insurance companies up for sale to pay off the massive debt.
It is now thought it may sell off some of its UK operations as well.
According to Mr. Klaus Schmidtke, like the insurance industry as a whole, Munich Re has not been left unscathed by the market developments. But as things stand at present, no fundamental impacts on the Group are to be expected. Munich Re's capitalization is solid.
“The Munich Re Group will emerge from the crisis stronger in relative terms. That is because risk expertise, risk management and financial strength have increased in significance as a result of recent developments. And that is exactly where our core competence lies. The re-evaluation of risks will be reflected in greater demand for cover from financially strong insurers and re-insurers like us, and in a markedly higher overall price level for reinsurance protection,” Klaus Schmidtke, Spokesperson of Munich Re Group, told The FINANCIAL.
Munich Re is one of the international re-insurers of Irao.
As for the conflict areas (Abkhazia, S. Ossetia) Irao was not able to provide insurance services before the Russia-Georgia conflict. As a company representative claimed nowadays it is also not possible to perform any insurance activity in these areas. Irao will keep operating in those regions that are not occupied by Russian troops.
The Georgian Insurance industry has been developing rapidly especially after 2004.
Written By Levan Lomtadze