Strong economic growth, increased life expectancy and a growing urban population are likely to accelerate the demand for life insurance products in Kazakhstan’s according to a report from Timetric’s Insurance Intelligence Center (IIC).

The report, The Insurance Industry in Kazakhstan, Key Trends and Opportunities to 2018, notes Kazakhstan’s life insurance sector is forecast to more than double from KZT 56.6bn in 2013 to KZT 132.7bn in 2018.

Meanwhile, the personal accident and health segment in Kazakhstan is projected to grow from KZT36.5bn in 2013 to KZT70.7bn in 2018.

In the first place, Kazakhstan maintained steady economic growth during 2009-2013 and expansion is expected to continue between 2013 and 2018.

Kazakh GDP grew at a compound annual growth rate of 6.4% from 2009-2013, despite the financial crisis of 2008-2009. Rising oil output combined with recovered crop production and strong domestic demand spurred economic growth.

According to an International Monetary Fund forecast, the central Asian country’s GDP is expected to record a CAGR of 6% by 2018 and will result in an increase in the written premium value. The Kazakh insurance industry is therefore projected to grow from KZT275.4bn in 2013 to KZT459bn in 2018, at a CAGR of 10.8% over 2013 and 2018.

Demographic factors in Kazakhstan are also favourable for the country’s life insurance market.

Life expectancy in Kazakhstan rose from 67 years in 2008 to 69.9 in 2013, while the percentage of urban population grew from 57.9% in 2008 to 59.5% in 2013. These factors will increase demand for insurance products especially life insurance products such as pension and endowment products over the forecast period.

Life insurance providers in Kazakhstan benefited from low combined ratios, resulting in underwriting profits during 2009-2013.

The combined ratio in the life insurance segment was 43% in 2013, and is expected to remain below 100% from 2013-2018, indicating that life insurance providers in Kazakhstan will remain profitable.
Industry view

Speaking to Life Insurance International (LII), Peter Talbot, director, non-marine international division specialty reinsurance at RFIB Group, which is an international insurance and reinsurance broker, says life insurance is a small element of the insurance market in Kazakhstan by “quite a margin”.

He says this is in part to due to the country being a former Soviet republic where people relied on the state for the provision of their needs.

In spite of the country’s currency devaluation and the drop in oil prices, Talbot says Kazakhstan’s insurance market has strong potential in the long term due to its energy resources.

Despite all the positive growth potential in Kazakhstan, challenges could constrain the industry’s development. For example, the ongoing political crises in Ukraine and Russia, which is putting pressure on Kazakhstan’s foreign policy may adversely affect the insurance industry between 2013 and 2018.

The IIC report adds that political risk in Kazakhstan also remains high due to social unrest in the country as a result of income inequality and corrupt bureaucracy.

Finally, a new regulation relating to reinsurance protection for domestic insurers was enacted in May 2012.
The new law encourages domestic insurers to place their reinsurance requirements with foreign reinsurance companies with a financial rating of ‘A’ or higher.

This will cost more for insurers and will negatively impact their operational costs. Other laws relating to insurers’ minimum statutory solvency margin and minimum retention requirements have also been introduced to strengthen the financial position of the insurance industry. These are also likely to have impact on insurers’ operational costs over 2013-2018.

Restrictions on foreign players

There are restrictions placed on foreign participants when applying for access to the Kazakh insurance industry, including: the limitation of capital share, where permission is required when appointing or electing board members, and the understanding that least one third of any insurance board must have Kazakh citizenship.

The regulations protect the domestic insurance industry, but they generate excessive competition and narrow buyer options. They also limit the expansion of the industry by restricting access for foreign companies.

Currency devaluation challenge

Anastasia Litvinova, a director at Fitch Ratings, says Kazakhstan’s insurance market has been severely impacted by currency devaluation because it has raised the cost of outward reinsurance and also resulted in claims inflation.

She says the number of insurance players has been relatively stable in Kazakhstan because of stronger regulatory supervision compared with some other ex-Soviet countries and this has prevented weaker players from entering the market.

Litvinova notes the government in Kazakhstan did take steps to promote life insurance by allowing people to choose between government pensions and annuities with private insurance companies.

However, this move was deemed to be unsuccessful as some annuity policies had surrender clauses. Many policyholders chose to withdraw their savings, which was not possible under the government pension system.

Competitive landscape

As of October 1, 2014, there were 34 insurance companies operating in the Kazakh insurance industry. Of the 34, six were licensed to conduct life insurance business and 28 were licensed to conduct non-life business.

The Kazakh insurance industry is moderately concentrated. The 10 leading insurance companies accounted for 69.6% in terms of gross written premium in 2013.

Kaspi Insurance is the leading insurance company with 13.1% of the overall insurance premium in 2013. Other leading companies include Eurasia Insurance Company with 11.3%, Halyk-Kazakhinstrakh with 10% and Generali Life insurance company with 5.8% of overall insurance premium in 2013.

A spokesperson at e-kz.com, one of Kazakhstan’s insurance brokers, tells LII that brokers control less than 1% of the insurance market in the country. The spokesperson says insurers are investigating online distribution, in Kazakhstan, but no player is doing anything yet.

Fast facts:

  • The Committee for the Control and Supervision of the Financial Market and Financial Organizations is responsible for control and supervision of Kazakhstan’s insurance industry
  • Composite insurance is not permitted in Kazakhstan’s insurance industry
  • The government of Kazakhstan imposes corporate income tax of 20%, capital gains are taxed at 20% and exempts dividends from taxation