Abstract
The most striking change since the last report has been the rapid development
of the now worldwide
credit crisis and the subsequent recession following
on from it. The Latvian general economy is already
experiencing markedly
negative year on year rates of growth. So, the very considerable
macro-economic
imbalances that developed in the preceding boom which were
greater in Latvia than the other Baltic
states, mean that Latvia looks
destined for a very hard landing with as much as two years of negative
growth. More generally it remains an emerging market and Europe in general
faces a protracted period of
negative and then low growth. Nonetheless,
the following features which make Estonia attractive for its
stability
will also tend to insulate it from the more severe effects of this crisis.
Over the longer term, the prospects for the Latvian insurance sector are
dictated by a variety of factors –
some good and some bad. On one
hand, there is much to be positive about. The overall country risk
compares quite favourably with that of other countries in Central and Eastern
Europe and, indeed
elsewhere. Demand for insurance – in both the
non-life and the life segments – is booming and should
grow at
double-digit rates throughout the forecast period. Quite unlike, say, Poland
or Lithuania,
insurance is not dominated by a former state-owned monopoly.
Indeed, a surprisingly large number of
multi-national insurers (most
– but not all – of whom are associated with financial services
groups that
have ambitions in Scandinavia and the Baltic States) have
established or bought operations in Latvia or
have, at least, set up a
branch office in Riga.
However, not all the insurers are subsidiaries of
pan-European (or at least Scandinavian) giants. The nonlife
(especially)
but also the life segment includes local groups who do not have large foreign
backers.
This is important, because Latvia is headed for challenging
economic times. Economic and monetary
convergence with Euroland, to which
the government of Latvia (as a full if new member state of the
European
Union) is committed, will require tough decisions. Until very recently these
concerned how to
deal with mounting inflationary pressures. Now Latvia
seems destined to experience very severe
deflationary pressures.
Either way, it is reasonable to suggest that the competitive landscape will
– over the forecast period –
change in two ways. First, it is
likely that at least one of the foreign groups who is active in Latvia
will
decide that the market is too small to warrant further commitment
(especially if the macro-economic
environment is difficult) and will pull
out. Second, it is even more likely that another of the foreign
groups
will be able to take advantage of the woes of one of the various local groups
to buy market share.
Indeed, already, in 2008, Seesam has been acquired by
the Austrian, Vienna Insurance Group, marking its
entry into all three
Baltic state insurance markets.
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