In these times of global financial crunch, analysts are striving to analyze which sectors of the economy will be prone to the adverse effects of the financial crisis. In this regard, economists in Uzbekistan are also estimating to what extent the sectors of the Uzbek economy will be negatively impacted by falling commodity prices, decreasing inflows of remittances, increasing unemployment etc., in order to ensure financial stability in the country. Initial analysis shows that Uzbekistan’s insurance sector will not be affected by the financial crisis. Moreover, the unfavorable effects of the financial crunch hampering economic development in certain sectors will help stimulate further growth of the insurance sector.

BACKGROUND: Past government reforms and development measures have rendered some very successful years for the insurance sector. The developments began after the de-monopolization of the insurance sector, after which a number of private insurance companies started to grow. The state insurance company “Uzgosstrah” was restructured by the presidential decree “On the formation of a State Joint Stock Insurance Company “Uzagrosugurta” ?125 from February 25th, 1997.

The next step was to create large and reliable state insurance companies. In connection to this, the end of the 1990s saw the creation of specialized insurance companies such as the National Export Import-Insurance Company “Uzbekinvest”, specialized in insurance protection of export-import operations; SJSIC “Uzagrosugurta” , specializing in insurance of agricultural risks; and the city insurance company SJSIC “Kafolat”; and IA “Madad”, specializing in small and medium enterprises. The number of insurance companies operating in Uzbekistan in 2008 was 31, of which 29 worked in non-life insurance market and one operated in life insurance. There was also one re-insurance company.

Due to the decrees of the President of Uzbekistan “On measures to foster development of the service sector of the Republic of Uzbekistan in 2006-2010” from April 2006, and the resolution "On measures to further reform and develop the insurance services market" from April 2007, the insurance market witnessed dramatic growth. In figures, total insurance premiums were US$40 million in 2006, US$57 million in 2007 and US$64,5 million in 2008.

Insurance in Uzbekistan is divided into four types: voluntary property insurance, voluntary liability insurance, voluntary personal insurance and mandatory insurance. As of 2008, 91.7% of the premiums of US$54 million was collected on voluntary insurance products. This was a 20% increase over the previous year. It is worth noting that both personal and liability insurance developed actively in 2008. The growth rate of these insurance products made up 42.2% and 42.9% respectively. Premiums on property insurance rose by 14.7% and the share of property insurance in total collected premiums comprised 68.2%. In 2008, the share of mandatory insurance in the total volume of collected premiums rose by a factor of 1.6 and made up 8.3%. Premiums collected on mandatory insurance products doubled to US$5 million in 2008.

In 2008, the payouts volume doubled to US$1.48 million compared to the previous year. The volume of payouts on voluntary insurance products rose by a factor of 1,5, while payouts in the volume on mandatory products fell by the same figure.

In 2008, the five market leaders collected 57.72% of all net premiums for the given period. Uzagrosugurta was the leader of the market with 28.86% of the market share, followed by Kafolat and Uzbekinvest with market shares of 9.75% and 9.57% respectively. Kapital sugurta was number 4 in the hierarchy with a 5.38% market share and number 5 was Asia Inshurans scoring 4.16%.

IMPLICATIONS: As one can observe, there is a large government involvement in Uzbekistan’s insurance sector. This involvement has proved quite handy for the insurance sector to secure further growth while the financial crisis is still ongoing. One of the extended assistances to the sector is that organizations providing insurance services are exempt from taxes on revenue until 2010. Moreover, the government is currently reforming the mandatory insurance sector as well. Recent regulations on Mandatory Auto-Civil Liability Insurance (MACLI), and on mandatory insurance on employers’ responsibility came into force this year. Mandatory insurance products already contributed to the growth through the collection of insurance premiums in the amount of US$5 million, which is 2.1 times higher than in 2007. Furthermore, the financial crisis will positively contribute to the growth of mandatory insurance premium collections. It is certain that the financial crisis already affected Russia and Kazakhstan, where 80%-85% of Uzbek migrant workers are employed. Consequently, returning migrant workers are forced to look for jobs in Uzbekistan. Currently, the only available and more or less suitable jobs are in the bazaars (markets) and in the public transportation sector. There are 2.5 million vehicles registered in Uzbekistan, and figures are expected to rise as more and more people will seek employment in the transport sector. As a result, the insurance sector of Uzbekistan will further benefit from the Mandatory Auto-Civil Liability Insurance.

A closer look into the sector reveals that the largest contribution to insurance premiums comes from voluntary property insurance, which constitutes about 75% of all premiums. The other forms of insurance are not as developed and the mandatory sector started to provide a larger contribution only as an effect of state intervention. The share contributed by voluntary property insurance to the sector will not diminish amid the financial crisis since, although it is called voluntary, the insurance levies are collected on a mandatory basis. Simple arithmetic can help investigate the case. About 3.7 million households make up the 27 million residents of Uzbekistan. Average property insurance levied in 2007 was US$12, equaling a potential of US$44.4 million, which is slightly higher than the US$42.3 million accounted for in official data. Hence, from the calculations it becomes obvious that almost all property in Uzbekistan is insured - a shockingly high coverage of voluntary property insurance in comparison with other CIS countries. According to Dmitrie Nikolai Vyacheslavovich, president of AIG Insurance in Moscow, the share of property insurance in Russia has only reached about 10 to 20 percent of the total market.

CONCLUSIONS: As a result of the government’s attention to the development of this sector, in recent years insurance has become one of the most robust sectors of the economy. Still, the contribution of the insurance sector to the GDP in Uzbekistan is at present only 0.26%, whereas in the EU countries the corresponding figure is 9%. This huge gap implies vast potential in the insurance sector. In the short run, it becomes obvious that the government’s attention is yielding positive results. Additionally, Moody’s recently assigned stable outlook of B1 to the “Uzbekinvest” insurance company also provides extra support for these findings with regard to the growth stimulation of Uzbekistan’s insurance companies during the financial crisis. Finally, we can conclude that in 2009, insurance companies will only benefit from both government interventions and global turmoil.

AUTHOR’S BIO: Hushnudbek Yulchiev is a Financial Analyst at Ansher Holding investment bank, Tashkent, Uzbekistan.