Rupert Spence looks at the continuing transformation of the insurance industry in the Czech Republic, Hungary, Poland and Russia.

Since 1989, the insurance industry in Eastern Europe has undergone and continues to undergo a process of transformation towards a market economy. The initial phase of this ongoing process has been privatisation, demutualisation and the introduction of insurance legislation modelled on the EU system. New companies and foreign owned entities are beginning to make their presence felt. Currently, the Czech Republic, Hungary, Poland and Russia contribute to over 75% of non-life insurance premium (of which Russia accounts for up to 40% of gross premiums).

The premium volume of the Eastern European insurance market amounted to $9.3 billion in 1994 and approximately $12 billion in 1995. This is equivalent to an overall world market share of 0.6% in 1995 based on a worldwide market of about $1.5 trillion in premiums.

Czech Republic

This is one of the most developed markets in Eastern Europe. Forty-one companies now hold licences compared to 31 in mid-1995. Of these, nine are 100% foreign owned, nine are owned by Czech only parents and the rest have a mixed capital base. The most successful foreign insurer has been the ING subsidiary, Nationale Nederlanden Zivotni Pojstovna, which operates through 15 branches.

Total non-life gross premiums amounted to CZK 29.4 billion ($1.05 billion) in 1996 compared to CZK 24.5 billion ($950 million) in 1995. This represented an increase of 20% in terms of CZK, but only 11% in terms of dollars.

The non-life insurance industry posted a net loss of CZK 5.1 billion ($182 million) despite the fact that total premiums and investment revenues increased by 54% in CZK for 1996. The loss was heavily influenced by the 1996 accounting loss of company Ceska Pojistovna a.s. (the largest insurance company in the Czech Republic): a result of additional provisioning to cover investment portfolio risks. Despite the depressed earnings figures for the industry, both registered share capital and technical reserve levels increased, strengthening the overall financial health of the industry.


Hungary was the first of the East European countries to initiate market liberalisation. The transition to market economy began in the late 1980s with the creation of a new legal background designed to facilitate fair competition and led to the eradication of subsidies and market oriented financing structures. This led to the abolition of the monopoly of Allami Biztosito, the former state-owned insurer, and the company was split into two separate entities. Figure 4 illustrates the breakdown of 19 insurers currently operating in the Hungarian market, 12 are completely foreign owned.

Only two companies are 100% Hungarian owned: OTP-Garancia (100% owned by the National Savings Bank) and Maygar Exporthitel Biztosito (the state-owned Hungarian Export and Credit Insurance Company). The total equity capital of the non-life market in 1996 was HUF 36.4 billion ($219 million), of which direct foreign participation was 65%.

Total premium income in the non-life insurance market increased from HUF 83.6 billion ($635 million) to HUF 104.5 billion ($628.2 million) in 1996, which represented an increase of 25% in HUF.

Motor third party is dominated by Allianz's Hungarian subsidiary, Hungaria Biztosito Rt., which held 55% of the compulsory third party motor market.


Prior to 1990 there were two state insurance companies: PZU, for the domestic market and Warta for MAT classes and reinsurance; insurance coverage was mandatory with the government setting the tariffs. As a result of the reforms over the last decade, PZU has been transformed into a joint stock company, but the Treasury still owns shares; Warta has been substantially privatised by dilution of the direct state participation in its equity.

The growth of the Polish non-life insurance industry has been nothing less than astonishing. In terms of PLZ, the non-life industry grew by 51.3% over 1995, which was equivalent to a 21% increase in dollars (refer to Figure 6)

Although the Polish market is the largest in Eastern Europe with the exclusion of Russia, its insurance penetration of 1.9% (1995) is lower than both the Czech Republic (2.8%) and Hungary (2.2%). The Polish market is 74% larger than the Czech market and 191% the size of the Hungarian market based on 1996 gross premium written.

There is no legislative impediment obstructing foreign formation in the Polish economy. A foreign company must be constructed as a joint stock company, not as a mutual. A number of foreign companies have now entered the Polish non-life market: AIG, AGF, Commercial Union, Alte Leipziger, Gerling, Allianz, Azur, Inter-versicherungen and CIGNA. The market leaders in terms of market share of gross premium written in 1996 were:

1. PZU SA (65%).

2. Warta SA (14%).

3. Polish SA (3.7%).

4. Hestia Insurance SA (3.3%).

5. Polonia SA (2.9%).

6. Compensa SA (1.5%).

Of the six companies listed out of a possible 28 companies operating in the Polish market (79% of which is controlled by PZU and Warta), only Hestia Insurance SA is controlled by foreign owners Alte Leipziger and Munich Re; foreign companies are eagerly awaiting the complete privatisation of PZU SA (scheduled for completion by the end of 1998).

In 1995, gross premium written amounted to PLZ 3.6 billion ($1.51 billion) with total outwards reinsurance amounting to PLZ 1.36 billion ($420.4 million or 38.2% of gross premiums written). In 1996, total reinsurance ceded amounted to 37.4% of gross premium income, which was down 0.8%. PZU is one of the heaviest users and cedes over 50% of its gross business.


On the basis of premium volume, Russia represents the most important market in Eastern Europe. Until 1988, Russia had only two state run insurance companies Rosgosstrakh and Ingosstrakh. In 1992 the first Insurance Law in Russia was issued and the federal insurance supervision department was founded, and over the last two to three years companies have begun to establish themselves in Russia. In 1995 the top 10 insurance companies accounted for 20% of the market, while the two state run companies, Rosgosstrakh and Ingosstrakh, accounted for approximately 14%. However, by the end of 1996, up to 32% of the market share (including life insurance) belonged to the top 10 insurers while the two state run companies maintained level market shares from 1995 (refer to Table 6).

With about 2,700 insurance companies operating in Russia, only 77 (approximately 2.85% of all companies) are of foreign origin; hence foreign participation is much lower than either the Czech Republic, Hungary or Poland. A crisis situation facing the federal insurance supervision department is enforcing companies to operate within the law. In the first half of 1996 it withdrew 266 licences from insurance companies, and a total of 1,200 companies violated the law in some capacity just within the first six months of 1996. The main reasons for this crisis are: instability of the banking system and highly deficient tax regulations which have made the insurance business unprofitable.

Since Russia's transition to a market economy, thousands of private sector insurers have emerged, the vast majority of whom are severely inexperienced and undercapitalised. The legal framework is in need of an overhaul.

The non-life sector grew 102% in 1994, 22.3% (1995) and 36.7% (1996).

Based on the gross premium figures life business makes up about 36.8% of total insurance premiums, property (20.1%), compulsory health and medical (40.9%) and liability (2.2%). Clearly, compulsory health insurance is the most important line of business, whereas property business is still relatively underdeveloped.

Robert Spence is a senior analyst at The Sedgwick Information Exchange and can be contacted on +44 (0) 171 377 3041.