Czech Republic Insurance Report Q2 2012

At a first glance, the Czech Republic appears to be a medium-sized market for insurance that is growingonly moderately and that could be vulnerable to unfavourable economic and financial developments inthe eurozone. However, this interpretation would be incorrect. The Czech Republic is a rare example of a(moderately) high income country where life insurance is clearly emerging as an important channel fororganised savings. The customers value life insurance, can afford it, and have relatively few alternatives(particularly given the current environment of low interest rates). The market is dominated by large andsophisticated multi-nationals that are well capitalised, can derive economies of scale from their European(if not global) operations, have strong brands and work through multiple distribution channels.

The three Czech subsidiaries of Vienna Insurance Group (VIG) which, collectively, account for about28% of the life market, achieved double-digit growth in life premiums through calendar 2011. The ÈAP,the insurers’ trade association, noted that life premiums rose by around 6% in the first nine months of lastyear (relative to the corresponding period of 2010). Looking forward, we expect that a steady increase inlife density will underpin the further development of the life segment through the forecast period.Currently, the life segment is balanced between current premium products and single premium products.In the recent past, demand for single premium products that are linked to existing policies has beensurging.

Sadly, the current situation and prospects for the non-life segment are less exciting. The ÈAP’s latestnumbers confirm that the long-term trend of a declining non-life penetration remains intact. For the timebeing, we are assuming that penetration will rise – if slightly – in 2012: however, we may have to reviseour projections of premiums downwards once we have hard numbers for the first half of the year. Themain problem remains downwards pressure on pricing in motor-related lines – a challenged remarkedupon by most of the major insurers who have commented on their results for the first three quarters of2011.

Commercial premiums continue to grow (if at single digit rates) in the non-life segment: however,the effect of this is insufficient to offset the impact of the contraction in compulsory motorists third partyliability (CMTPL) cover and voluntary motor (CASCO) insurance. The non-life companies havegenerally benefited from a fall in their combined ratios for the first nine months of the year (relative to theprevious corresponding period) – however, the drop has been less than in other countries in Central andEastern Europe which, like the Czech Republic, suffered substantial catastrophe-related losses in H110.Thanks to past deal making, VIG and Generali, through their various subsidiaries, dominate the non-lifeand the life segments. However, the rankings of the other insurers is far from static. It is quite possiblethat we will see new arrivals to, mergers within or departures from both of the two major segments.