Authors : Dušan Mramor PhD Vesna Tomažin Marko Pahor PhD Žiga Hieng

SOUTH EASTERN EUROPE AND

COMMONWEALTH OF

INDEPENDENT STATES:

OPPORTUNITIES AND RISKS

IN FINANCIAL SECTORS

Authors: Dušan Mramor PhD Vesna Tomažin Marko Pahor PhD Žiga Hieng Miha Novak Tim Umberger Mateja Štimec Matija Bitenc

16 November 2006 8th Portorož Business Conference

Studied Countries

Russia

Kazakhstan

Ukraine

Croatia BIH

Macedonia

Moldova

SerbiaRomania

BulgariaMontenegro Kosovo

EU 15

EU 8(EU 5)

EU 25


Population 2005

0

10

20

30

40

50

60

Poland

Czech

Repub

lic

Hungary

Slovak

ia

Lithuan

ia

Latvia

Sloven

ia

Estonia

Roman

ia

Bulgar

ia

Serbia

Croatia BiH

Kosovo

Mac

edonia

Monte

negro

Russia

Ukrain

e

Kazakhst

an

Mold

ova

mil

lio

n

EU 25 457.0 mil

Euro Area 308.2 mil

EU 8 73.0 mil

SEE 49.9 mil

CIS 205.2 mil

Russia 142.7 mil


Slovenia and Selected Countries

0

200

400

600

800

1000

1200

1400

Croat

ia BiH

Russia

Serbia

Roman

ia

Ukrain

e

Mac

edon

ia

Bulgar

ia

Kosov

o

Mon

tene

gro

Kazak

hsta

n

Mold

ova

EU

R m

il

-50%

0%

50%

100%

150%

200%

Export from Slovenia

Import into Slovenia

Export Growth 2005/2004

Import Growth 2005/2004

Total EXPORT of selected countries in Slovenia’s GDP: 11.5%

Total IMPORT of selected countries in Slovenia’s GDP: 5.5%

Andreja Saich

Ne vem, ce so tu barve prave. Izvoz iz Slovenije je moder, uvoz v Slovenijo oranzen, potem pa je rast izvoza oranzna in rast uvoda modra (ne bi bilo bolje ravno obratno, da bi se skladalo s prvim parom?)


0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

Croat

ia

Russia

Bulgar

ia

Romania

Kazakh

stan

Serbia

Mac

edon

iaBiH

Ukrain

e

Mon

tene

gro

Mold

ova

Kosovo

EU

R

-2%

0%

2%

4%

6%

8%

10%

GDP per capita 2005 GDP growth rate

Economic development Slovenija (2005) 18,900 EUR


Unemployment Rate 2005 - ILO

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

BiH

Mac

edonia

Kosovo

Monte

negro

Mold

ova

Serbia

Croatia

Bulgar

ia

Russia

Roman

ia

Ukrain

e

Kazakhst

an


Government Debt and Budget Deficit 2005

-50%

-40%

-30%

-20%

-10%

0%

10%

Serbia

Mont

eneg

ro

Croatia

Mace

donia

Moldov

a

Bulgaria BiH

Ukrain

e

Romania

Russia

Kazak

hstan

Kosov

o

Government Debt in GDP

Budget Deficit in GDP


Foreign Reserves and the

Current Account of the Balance

of Payments 2005

-25%

-15%

-5%

5%

15%

25%

35%

Sloven

ia BiH

Mac

edon

ia

Croat

ia

Serbia

Russia

Kazak

hsta

n

Kosov

o

Ukrain

e

Mold

ova

Mon

tene

gro

Foreign Reserves in GDP

Current Account of the Balance of Payments


Openness of the Economy 2005

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mold

ova

Kazak

hsta

n

Bulgar

ia BiH

Mac

edon

ia

Russia

Roman

ia

Mon

tene

gro

Serbia

Croat

ia

Kosov

o

Ukrain

e

Exports in GDP Imports in GDP


Macroeconomic stability 2005

-5%

5%

15%

25%

35%

45%

GDP growth

Inflation

Budget deficitCurrent account deficit

Unemployment

Russia

Kazakhstan

Ukraine

Croatia

Romania

Bulgaria

Kosovo

Macedonia

Moldova

Montenegro

Serbia

BiH


Agenda

1. Introduction: Dušan Mramor, PhD

2. Banking SectorCorporate Loans: Miha Novak

Retail Loans: Mateja Štimec

Investment Banking: Vesna Tomažin

3. Capital MarketsDevelopment and Efficiency: Žiga Hieng

Mutual Funds: Tim Umberger

4. Insurance Sector: Matija Bitenc

All statements reflect the positions of the authors and not of the institutions in which they are employed


Acknowledgments

Irena Sodin (EBRD)

Ksenija Maver (World Bank)

European Bank for Reconstruction and Development (EBRD)

World Bank

International Monetary Fund (IMF)

Slovene Export Corporation (SID)

Reinsurance Company Sava (Sava RE)

Center for International Cooperation and Development (CMRS)

Nova Ljubljanska banka (NLB)

Chamber of Commerce and Industry of Slovenia (GZS)

Which Countries Offer the Most Opportunities

in Corporate Loans?

Miha NovakZavarovalnica Triglav, d. d.


Level of Current Development

Transition into the market economy

Restructuring of banking system

Privatization

Central banks

Functions

Legislation

Growth of mortgage market


Key Characteristics of Banking Sectors

Poland

Hungary

UkraineMoldova

Croatia

Romania

Bulgaria

Czech Republic

Slovakia

Slovenia

Russia

Kazakhstan

BIH

Serbia

Montenegro

Kosovo

Macedonia

20%

40%

60%

80%

100%

120%

0% 10% 20% 30% 40% 50% 60%

Average nominal growth of assets 2003 - 2005

Ba

nk

aa

sets

in m

il E

UR

Average nominal growth of assets 2003

- 2005Bank assets in mil EUR Number of banks Bank assets in GDP

Foreign share in bank ownership

1. 2. 3. 4. 5.

EU 5 15% 408,228 173 80% 79%

SEE 27% 106,842 216 65% 78%

CIS 35% 347,152 1,659 46% 9%

Euro Area 11% 1,404,900 6,248 224% 20%


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Sloven

ia

Hunga

ry

Slovak

ia

Czech

Rep

ublic

Poland

Bulgar

ia

Croat

ia BIH

Mac

edon

ia

Kosov

o

Serbia

Mon

tene

gro

Roman

ia

Ukrain

e

Kazak

hsta

n

Mold

ova

Russia

Corporate Loans

Euro Area (2005): 42.6 %

Corporate Loans in GDP % in 2005


Factors of Growth

Gross domestic product

Inflation

Loan interest rate

Interest spread

External debt in GDP

Amount of M2 in circulation

Government debt in GDP


10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

500 2500 4500 6500 8500 10500 12500 14500

GDP per capita in EUR

Co

rpo

rate

Lo

an

s in

% o

f G

DP

Expected Rates of Growth?

Real growth Rates2006- 2015

1. Russia 17.47 % 2. Montenegro 17.39 % 3. Ukraine 15.83 % 4. Serbia 14.49 % 5. Bulgaria 14.41 % 6. Romania 13.36 % 7. Kazakhstan 13.30 % 8. BIH 13.15 % 9. Kosovo 11.48 % 10. Croatia 11.47 % 11. Macedonia 10.62 % 12. Moldova 9.99 %

Macedonia

Montenegro

Slovenia

Kosovo

Romania

Slovakia

Poland

Serbia

Ukraine

Moldova

Czech RepublicRussia

Kazakhstan

BIH

Bulgaria

Hungary

Croatia

Year 2005Year 2015


Sources of Opportunities?

Low share of corporate loans in GDP

Size of banking systems

Above-average growth rates

Favorable macroeconomic predictions

Real estates markets

Entry into the EU

Privatization

Concentration

Segment of medium- and small-sized companies


Where are the Risks?

High level of loans in GDP in relation to economic development

Restrictive measures

Macroeconomic risks

Budget deficit

High inflation

Deficit of the current account of the balance of payments

Political risks


Countries with the Highest Potential

Russia

Kazakhstan

Ukraine

CroatiaBIH

Macedonia

Moldova

Serbia

Will Fast Growth in Retail

Loans Continue?

Mateja ŠtimecBOFEX d.o.o. Ljubljana –MERKUR Group


Retail Loans (2005)

34,4

86,4 5,73,3

5,57,4 9,1

17,414,7 14,4 12,7 11,3

52,5

12,614,715,2

23,3

0

10

20

30

40

50

60

Croat

iaBIH

Serbia

Bulgar

ia

Mac

edon

ia

Roman

ia

Monte

negro

Kosovo

Kazak

hstan

Ukrai

ne

Russi

a

Mold

ova

Hungar

y

Slove

nia

Polan

d

The Cze

ch R

epub

lic

Slova

kia

Euro

Area

Re

tail

Lo

an

s in

GD

P (

in %

)

Southeastern Europe CIS Central Europe


Projected Real Growth in Retail Loans

in (%)

COUNTRY 2006 2015 AVG. GROWTH

1. Ukraine 32.37 19.76 23.39

2. Russia 47.09 9.77 22.69

3. Serbia and Montenegro 52.29 11.75 21.17

4. Moldova 58.02 10.57 20.02

5. Kosovo 47.93 10.22 19.78

6. Kazakhstan 23.69 10.53 15.29

7. Romania 22.79 7.41 14.34

8. Bulgaria 20.10 9.26 13.30

9. Macedonia 17.70 8.93 12.85

10. BIH 14.66 9.27 11.67

11. Croatia 8.25 7.17 6.92

Factors of growth in retail loans:• GDP• Inflation


Are Projected Growth Rates Sustainable?

• Importance of institutional factors

• Restrictive measures

are being implemented in Croatia, Bulgaria, Serbia, Romania

are planned in Russia, Ukraine, Kazakhstan, Montenegro

Growth rates are not sustainable in the long run.


Opportunities and Risks

Russia

+ -

Serbia & Montenegro

• largest market in terms of size

• no significant macroeconomic risks

• political risk

• low share of loans in GDP according to projected economic growth

• relatively large market

• low and dispersed concentration

• political risk (status of Kosovo)

• postponed further negotiations with the EU

• macroeconomic risk – external debt

22.7%

21.1%


Opportunities and Risks II

Ukraine

+ -

Kazakhstan

• highest rates expected – very limited access to loans

• institutional development

• possibility of expropriation

• political instability

• macroeconomic (high budget deficit and debt)

• highest projected economic development

• very developed and competitive banking market

23.4%

15.29%

• Unclear democracy

• Investor discrimination

• limits on foreign bank ownership


Opportunities and Risks III

Moldova

+ -

Kosovo

• high projected growth (largest lag)

• expected GDP growth does not ensure the appropriate growth of loans

• political Risk

• least developed country

• largest relative lag• political status

• banking market is small, privatized, non-competitive

20.0%

19.8%


Opportunities and Risks IV

Romania

-

• substantial lag

• entry into the EU

• macroeconomic (relatively high deficit of the current account of the balance of payments)

• fast-changing legislation

15.3%

+

Development Possibilities of Investment Banking

Services

Vesna TomažinFaculty of Economics, University of Ljubljana


FACTORS OF GROWTH OF INVESTMENT BANKING SERVICES

situation in capital markets country’s

macroeconomic situation

banking factors


Average Growth of Investment Banking Services in EU 5

COUNTRY Average Growth Rates 2000 – 2005

Hungary 13.12 %

Czech Republic 6.82 %

Slovenia 5.56 %

Slovakia 3.95 %

Poland -2.72 %


Projected Growth of Investment Banking Services (in %)

COUNTRY 2007 2015 Average

Kazakhstan 52.23 3.38 23.83

BiH 23.23 24.16 23.39

Romania 53.57 2.25 22.70

Macedonia 12.15 11.24 20.67

Croatia 28.60 6.51 20.14

Serbia and Montenegro 15.50 5.40 18.37

Bulgaria 17.85 11.83 15.94

Kosovo 21.36 12.96 13.60

Ukraine 5.43 8.90 8.28

Moldova 13.50 7.74 8.14

Russia 2.68 4.89 4.56

CIS Southeastern Europe


Opportunities (I)

COUNTRIES OF THE FORMER YUGOSLAVIA

1. Underdeveloped area of business in the region (“market

niche”)

2. Provision of other forms of investment

banking services

3. Development of capital market

(primary market)

4. Possibility of long-term borrowing

5. Unfinished privatization

6. Information on markets,

established business networks


Opportunities (II)

ROMANIA and BULGARIA

Some Slovenian financial companies are already present in both markets

EU membership in January 2007

High growth of services in the next ten years

CIS Countries

Ukraine → unfinished privatization

Kazakhstan → foreign investments because of rich supplies of natural resources

Russia → already developed investment banking


Risks and Limitations to the Growth of Services

SEE COUNTRIES

Former Yugoslavia

• incomplete banking legislation

• competition by other banks

• unfamiliarity with services

• underdevelopment of certain capital markets

Bulgaria

• bureaucracy

• constant legislative changes

Romania

• incompatible legislative and regulatory frameworks in the area of FDI

• foreign banks

CIS COUNTRIES

Russia

•presence of bigger players

• legislative restrictions

Ukraine

• underdeveloped banking sector

• corruption

• weak legislation

Kazakhstan

• unfamiliarity with the market

• state’s interference in certain projects


Assessments of Banking Markets

COUNTRY High Growth Privatization and

possibilities of acquisition

Concentration Size Depth

Retail Loans Corporate Loans

Investment Banking

Russia 1 1 2.5 2 2 1 2.5

Serbia 2 2.5 1.5 3 1.5 3.5 1.5

Ukraine 1 2.5 3 4 2.5 2 2

Kazakhstan 3 3.5 1 4.5 2.5 2.5 3

Romania 3.5 3 3 4.5 1.5 2.5 3.5

Montenegro 2 1.5 1.5 5 4 5 4

Bulgaria 3.5 3 3 4.5 3.5 3 3.5

Macedonia 4 4.5 1 3.5 3 4.5 4

Kosovo 3 4 2 5 3 5 3.5

BiH 4 3.5 4 4.5 3.5 4 4

Moldova 2.5 4.5 4.5 4 4 4.5 4

Croatia 4.5 4 3.5 5 5 3.5 5

Estimated Potential

1.711.71

2.21

2.43

2.86

3.07

3.29

3.43

3.5

3.64

3.93

4

4.364.36

Capital MarketsWhere are

Opportunities for Investors?

Žiga Hieng

KD BPD, d.o.o.


Capital Markets

Market Capitalization and Liquidity:

0%20%

40%60%

80%100%

120%140%

Croat

ia

Russia

BIH

Serbia

Ukrain

e

Mac

edon

ia

Bulgar

ia

Romania

Kazakh

stan

Mold

ova

USAW

orld

Market Capitalization/GDP Turnover/Market Capitalization


Past Returns

RUSSIA UKRAINE ROMANIA BULGARIA MACEDONIA SERBIA MONTENEGROBiH 1 BiH 2 CROATIA 1 CROATIA 2 SLOVENIA USARTS PFTS BET SOFIX MBI10 BELEX15 MOSTE BIFX BIRS CROBEX VIN SBI20 S&P500

Countries and Indexes:

Returns from the beginning of 2006:

0%

20%

40%

60%

80%

100%

120%

Russia

Ukrain

e

Romania

Bulgar

ia

Mac

edon

ia

Serbia

Mon

tene

gro

BiH 1

BiH 2

Croat

ia 1

Croat

ia 2

Slovenia

USA


Opportunities in Capital Markets

• Market Inefficiency

• Privatization and acquisitions

• Diversification

• (Institutional investors)

• Opportunities by individual sectors


Inefficiency

• Inefficiency: security prices do not fully reflect all available information

• Methodology: - autocorrelation test - runs test - coefficient of variance test

Conclusion: SEE and CIS markets are not weak efficient!

• Exception: Croatia!

• Consequences:– stock prices do not reflect the stocks’ intrinsic value

– forecasting of stock prices based on past prices


Privatization• combined ownership of companies: state +

private investors• deficits in the balance of payments: state is

forced to sell companies• sale to strategic owner: control premium +

exit option for other investorsShare of Privatized Assets in GDP

0,0%0,5%1,0%1,5%2,0%2,5%3,0%3,5%4,0%

RUSSIA

UKRAINE

MO

LDOVA

KAZAK...

ROM

ANIA

BULGARIA

MACEDONIA

SERBIA... BiH

CROATIA

Pri

vati

zed

Ass

ets/

GD

P (

%)

2000

2003


Consequences of Inefficiency and Privatization

• Potentials for above-average returns! • Above-average return = return that is higher than return appropriate for certain risk• Figure: Average monthly returns in terms of standard deviation of monthly returns for the 1999–2006 period

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

Russia

Ukrain

e

Roman

ia

Bulgar

ia

Mac

edon

ia

Serbia

Mon

tene

gro

BiH

Croat

ia 1

Croat

ia 2

Sloven

iaUSA


Diversification

S&P500, DAX and RTS movement

4

5

6

7

8

9

1/1

/19

99

1/1

/20

00

1/1

/20

01

1/1

/20

02

1/1

/20

03

1/1

/20

04

1/1

/20

05

1/1

/20

06

Na

tura

l lo

ga

rith

m o

f in

de

x's

va

lue

S&P500

RTS

DAX

Correlations:SEE and CIS in relation to USA and WE < 0.2

SEE and CIS < 0.1

DAX in S&P500 = 0.6

RTS and DAX = 0.3

Opportunity for additional portfolio diversification!


Opportunities by Sectors

Natural resources,

Banking, GDRs

Steel, Transport

Tourism

Energy, PIFs

Banking

Banking

SIFs

Holdings

Tourism

Natural resources, Consumer

sector, GDRs


Risks

Weak liquidity:high trading only with

the biggest companies listed on stock exchanges

Risks

Market volatility and exchange rate risk:

standard deviations of returns are relatively high

Political risk

Corporate governance:managers and not owners govern

companies, state intervention

Corruption

Protection of small investors:weak regulation in the areas of

acquisitions and securities markets

Macroeconomic risks

Mutual Funds: Will the SEE and CIS Countries Follow the

Explosive Growth in EU 8?

Tim UmbergerKD BPD


Development of Mutual Funds in EU8 and EU15

NAV per capita,

2000 (€)

NAV per capita,

2005 (€)Average Annual Rate

of Growth

Slovakia 21 596 96%

Slovenia 26 687 92%

Latvia 4 47 66%

Poland 46 480 60%

Estonia 68 613 55%

Hungary 212 544 21%

Czech Republi

c 208 443 16%

Lithuania n.a. 34 n.a.

EU 8 84 431 39%

EU 15 7,050 12,423 12%


Mutual Funds in SEE and CIS Countries at the End of 2005

Neto sredstva (mil

EUR)Net

Assets/GDPNet Assets per Capita

(EUR)

Croatia 1.195 4.02 % 269.0

BIH No funds

Serbia No funds

Macedonia No funds

Bulgaria 45 0.21 % 5.9

Romania 118 0.15 % 5.3

Ukraine 68 0.10 % 1.4

Moldova No funds

Russia 1,934 0.31 % 13.6

Kazakhstan 200 0.78 % 10.1


Development Factors of Mutual Funds

Model I II III IV V VI VII VIII IX X

Constant-307.1***

-594.3***

-512.3***

469.2***

-52.6***

204.5***

-139.5***

-929.0***

-884.8***

1606.0***

GDP per capita 0.100*** 0.097*** 0.095***0.091*** 0.110*** 0.110*** 0.213*

GDP growth 21.7 12.5 18.8 18.8 26.1*** 31.2**

Inflation -17.32* -11.68 -14.27

Short term interest rate -17.36** -17.47** -9.73 -19.39** -.,12 -32.69**

Stock indexes’ return 1.39 2.62** 1.23 -0.27

Market capital./GDP 706.1* 904.8** -224.1 -463.9* -407.4*

Trading volume -13.5 65.2 46.1

F test 22.4*** 21.0*** 20.4*** 19.5*** 4.6*** 3.5*** 4.3*** 17.4*** 20.9*** 23.4***

Corrected R2 0.82 0.83 0.83 0.83 0.44 0.39 0.45 0.84 0.85 0.87


Projections of Net Asset Value of Mutual Funds per Capita in the 2006–2015 period

2005 2015Average Annual Level of Growth

Ukraine 1 479 85%

Romania 5 564 60%

Bulgaria 6 528 56%

Russia 14 967 53%

Kazakhstan 10 261 39%

Croatia 269 1,583 19%

Serbia 0 82 -

BIH 0 0 -

Macedonia 0 0 -

Moldova 0 0 -

Average 31 446 52%


Absolute Net Asset Value of Mutual Funds at the End of 2015

0

5.000

10.000

15.000

20.000

25.000

30.000m

il E

UR

130.485


Attractiveness of Individual Markets According to Various Investment Criteria

Discounted payback period with 0.5% market share (in years)

Market share at which NPV of establishing mutual funds is higher than 0 at the end of 2015

Required managed assets at the end of 2015 (in mil EUR)

Croatia 7.7 0.45% 31.4

Serbia > 9 5.4% 46.1

Bulgaria > 9 1.1% 40.2

Romania 6 0.3% 36.3

Russia 2.6 0.04% 65.2

Ukraine > 9 0.6% 123.4


Opportunities in Individual Markets

Serbia > Croatia

Romania > Bulgaria

Ukraine > Russia


Risks for Mutual Funds Operations

• Limited liquidity of capital markets– low number of liquid securities– legislative restrictions regarding investments in foreign

securities

• Regulation regarding operations of mutual funds– did not exist in the past– highly complicated procedures in some countries – high costs

for management companies

• Protection of small investors– financial scandals discourage investors – important for both mutual funds and small investors in

companies

Development of Insurance Markets Will Be Slightly

Slower.

Does That Mean No Opportunities Exist?

Matija BitencZavarovalnica Triglav d.d.


BG

RO

UKR

CZ

ES HU

LAT

LIT

SLO

SK

EU25

BIH CRO

KZH

MAC

MOL

RU

SMG

PL

0

0,5

1

1,5

2

2,5

3

3,5

4

4,5

0 1 2 3 4 5 6

LIFE Penetration (%)

NO

N-L

IFE

Pen

etra

tio

n (

%)

Development of Insurance Markets (1) – Penetration in 2005

NON-LIFE Penetration:

SEE and CIS 1.8%

EU8 2.0%

EU25 3.5%

LIFE Penetration:

SEE and CIS 0.2%

EU8 1.1%

EU25 5.2%

Andreja Saich

Penetration of Life and Non-Life Insurance in 2005Penetration of Life Insurance (%)Penetration of Non-Life Insurance (%)


CRO

KZH

RU

CZ

ES HU

LAT PL

SK

SLO

EU25

BG

BIH

MACMOL RO

SMG

UKR LIT

0

100

200

300

400

500

600

700

800

0 5.000 10.000 15.000 20.000 25.000

real GDP p.c. (€)

Den

sity

(€)

Development of Non-Life Market (2) – Insurance Density in 2005

NON-LIFE Density

SEE and CIS 56 €

EU8 185 €

EU25 750 €

Slovenia 550 €

Andreja Saich

Non-Life Insurance Density in Terms of Real GDP per Capita in 2005Real GDP per Capita (in EUR)Density (in EUR)


KZH RU

CZHU

LAT

SK ES

SLO

EU25

BG

BIH

CROMAC

MOL RO SCG UKR

PL

LIT

0

200

400

600

800

1000

1200

1400

0 5.000 10.000 15.000 20.000 25.000

real GDP p.c. (€)

Den

sity

(€

)

Development of Life Market (3) – Insurance Density in 2005

LIFE Density

SEE and CIS 10 €

EU8 103 €

EU25 1147 €

Slovenia 272 €

Andreja Saich

Life Insurance Density in Terms of Real GDP per Capita in 2005Real GDP per Capita (in EUR)Density (in EUR)


Institutional Framework of Insurance Markets in SEE and CIS Countries

• Legislative Framework (adapting to the EU legislation)

• increase in minimal capital requirements

• market and price liberalization

• creation of an effective oversight system

• higher customer protection

• separation of life and non-life insurance companies

• Results• decreasing the number of insurance companies

• identification of strategic partners and consolidation

• foreign entry into markets

• increased stability and consumer trust

• Pension System Reform - multi-pillar system


Insurance Products

NON-LIFE:- mainly traditional forms (vehicle, liability, property)- health insurance is underdeveloped (health care system

reforms)- strong price competition (often without the actuarial basis)

future developments: legal protection insurance, work-liability insurance, loan insurance, property insurance based on mortgage loans…

LIFE:- mixed life insurance is prevalent (insurance before death

and savings component)

- Investment insurance is increasing (e.g., Unit-linked)


Structure of Insurance Market in 2005 (Concentration, Foreign Share, Entry)

CROBIH SMG

MAC

BG

RO

MO LUKR

RU KZH

-0,5

0

0,5

1

1,5

2

2,5

-20% 0% 20% 40% 60% 80%

Share of foreign capital

Mar

ket

entr

y th

roug

h ac

quis

itio

n

1

2

3

Andreja Saich

Market Concentration, Foreign Share and Possibilities of Entering Insurance MarketsForeign Share (in %)Possibility of Entering Markets through Acquisitions


171

97

61

43 42 40 37 3527

10

320

167

9584

48

65 64 64

107

18

0

100

200

300

CRO RU BG RO UKR MAC BIH SMG KZH MOL

Den

sity

(€)

Projected Development of Non-Life Market in 2005–2015 Period

Average Growth Rate:

2005–2015(6,5%) (5,6%) (4,5%) (6,9%) (1,3%) (5,0%) (5,6%) (6,2%) (14,7%) (5,8%)

Andreja Saich

Expected Development of Non-Life Market in 2005 - 2015 Period Density (in €)


59,7

11,5 10,05,3 3,8 3,3 1,1 1,0 0,7 0,3

161,8

42,532,5

56,0

16,6 20,113,0

6,814,0

28,9

0,0

50,0

100,0

150,0

200,0

CRO RO BG RU BIH SMG UKR MAC MOL KZH

Den

sity

(€)

Projected Development of Life Market in 2005–2015 Period

Average Growth Rate:

2005–2015(10,5%)(14,0%) (12,5%) (26,7%) (15,8%) (19,7%) (28,4%) (21,5%) (35,0%) (> 40,0%)

Andreja Saich

Projected Development of Life Market in 2005 - 2015Density (in €)


Development Factors and Institutional Risks

DEVELOPMENT FACTORS:

Economic development;

Increasing the number of profitable

ompanies;

State and privatization;

Marketing;

Tax benefits;

Cultural differences;

Healthcare reform;

Pension and other reforms that lower

social security;

Education;

Mandatory insurance;

Consumer distrust.

INSTITUTIONAL RISKS:

Inappropriate legislation;

Lack of supervision

(price competition);

Legislative framework costs;

Inappropriate/slow pension reform;

Market liberalization;

Lack of actuarial knowledge;


Insurance Markets in SEE and CIS Countries – CONCLUSIONS (1)

Development strongly dependent on the economy development (faster development is expected in more developed economies)

Higher potential in the life insurance segment

Short-term opportunities in SEE - Romania, Croatia, Serbia, Bosnia and Herzegovina (privatization)

CIS more attractive in the medium run (Russia, Kazakhstan and Ukraine)

- Moldova less attractive – low economic development- Bulgaria – limited opportunities for entry


Insurance Markets in SEE and CIS Countries – CONCLUSIONS (2)

CIS markets are large for Slovenia Opportunity for entry is now, when life insurance

markets are almost non-existent (it is possible to grow

with the development of the market and finance further

growth)

Integration with strategic partners today After liberalization larger capital investment

Establishing financial pillars is important!

Documents

Authors : Dušan Mramor PhD Vesna Tomažin Marko Pahor PhD Žiga Hieng