Get a life
By : Jeffrey Sparshott
The insurance sector showed significant net revenue gains in 2000 for the second year in a row, although the industry still suffers from growing pains and from the domination of a single firm, according to figures released by the Central Statistical Office (GUS) and comments from industry analysts.
Overall net financial results totaled zl. 644.2 million ($157 million) and the value of all insurance company assets reached zl. 38.2 billion ($9.3 billion), GUS said. Life insurers improved their gross financial results by about 82% and net financial results by more than double.
Meanwhile, property and personal insurers' gross financial results slid by 36%, although net results were up 69% from 1999 to 2000, GUS said, crediting a 50% cut in taxes since 1999 for the net improvement. Even with the tax break, the number of insurance companies with a net loss in both the life and property insurance segments increased.
"A minority of companies are making a profit; a majority of companies are making losses," said Marek Kurowski, an analyst with the Polish Chamber of Insurance. "But you must remember that the market is quite new. It is only 10 years old."
Some win, some lose
Twenty-one companies showed a net profit in 2000, while 44 suffered losses, according to the Insurance Supervisory Office (PUNU).
Part of the difficulty for relative newcomers lies with the huge market share of Powszechny Zaklad Ubezpieczen (PZU), which, according to PUNU, controlled more than 52% of the life insurance market and almost 60% of non-life insurance in 2000.
"The insurance market in Poland is very difficult because of the dominant position of one company PZU," said Jakub Papierski, vice president and financial institutions analyst at Deutsche Bank in Warsaw. "Everyone must consider PZU as a factor."
Kurowski agreed, adding that the company has effectively cornered the market. "It has enormous market concentration," he said. "One could say it is monopolization of the market."
Despite some obstacles and apparently slowing growth in the market, potential for the industry is still high, Kurowski said. "I think it's rather a temporary problem of a slowing growth rate," he said, noting that high unemployment and lower economic growth generally have a direct effect on consumption of insurance products.
The potential of the Polish market led Netherlands-based Eureko to stand fast in a long-running battle with the government over control of PZU. Despite government attempts to dissolve an agreement where Eureko and BIG Bank Gdanski took a 30% stake in the company, Eureko hung in until a resolution was hammered out allowing it to take an additional 21% of the company during a stock market offering.
Other foreign companies are reassessing their positions in the market, while even more are diving in. Finnish life insurer Suomi Mutual Life Assurance Co., for example, this year acquired Cigna, the Polish life insurance operations of U.S.-based Cigna Corp., both companies announced.
"We came to the conclusion that there are good perspectives in the market still," said Jukka Peltola, senior vice president with Suomi. "The volumes (of sales) compared with other countries are poor today. But in the long term there is ample room for the market to grow. Maybe not in the short term, but in the long term."
Peltola said there are more companies operating than required by the market, so mergers are likely. "In the longer term it is clear that some merging activities will take place," he said. "We would like to be one of the companies that is looking for these opportunities."
Suomi changed Cigna's name to Finlife.
Foreign capital needed
In general, foreign companies are taking a majority position in the insurance sector. As the market matures, companies will start turning profits, Kurowski said. In the meantime, lower profits or losses have to be balanced by increased capital, which is best available from foreign companies, he said. Statistics show that foreign capital makes up 59% of the insurance industry, though the real influence is much higher, he said.
Also influencing the market is the high level of automotive insurance that dominates the personal and property sector, he said. Nearly 70% of non-life portfolios are related to automotive insurance, which is not a profitable area, he said.
"Some companies are trying to get rid of motor insurance to improve their financial results," he said.
The industry is still waiting for government reforms in health insurance and voluntary retirement insurance, he added.
The biggest insurance companies based on gross premiums in 2000 were PZU (34.23% of the market), PZU Zycie (21.11%), Commercial Union Zycie (7.77%) and Warta (7.02%), PUNU said, noting that the market share of the three leaders fell compared to 1999.
