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 overall Lithuanian economy has fared
better than regional
peers Estonia and Latvia, which are already experiencing markedly negative
year-onyear
(y-o-y) rates of growth. However, the macro-economic
imbalances that developed in the preceding
boom in Lithuania, such as the
extent of overheating in the economy, were probably greater than those in
Estonia and it remains an emerging market dependent upon a Europe which in
general faces a protracted
period of negative and then low growth. The
outlook for Lithuania is then not particularly optimistic in
the short
term and is, moreover, quite uncertain. Over the longer term,
Lithuania’s insurance sector should
change in three ways.
First,
it will undoubtedly be substantially larger than it is at present,
notwithstanding the fact that
percentage growth rates are likely to slow
from the (blistering) rates of 2006. We are looking for
compound annual
growth rates (CAGRs) of around 20% in 2007-2012.
Second, it will
undoubtedly be more sophisticated. The non-life segment is still dominated
by
Compulsory Third Party Motor Liability (CTPML) business, but other
lines (and notably voluntary motor
insurance – or CASCO) are also
growing quickly. Property insurance is rising rapidly from a low base. In
the life segment, it appears that Lithuanians accept the concept of insurance
as an attractive organised
savings opportunity. Unit-linked business has
been driving the growth.
Interestingly, pricing in both segments appears
to have been firm. This is in spite of the presence of a
surprisingly
large number of foreign-owned groups in both the non-life and the life
segments. The
opening of the market to foreigners, and closure of
unprofitable small firms by the regulator, means that
there are no
substantial predominantly Lithuanian-controlled firms. This has implications
for the third
way in which Lithuania’s insurance sector is likely to
change over the coming years. The numbers of
players will likely continue
to contract. It is not clear why the country needs 10 non-life and eight
life
companies. For those insurers who are owned by major foreign groups,
the Lithuanian operations
generally represent a tiny part of their global
– or even pan-European – business. The other insurers are,
for
the most part, subsidiaries of Latvian companies.
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