Strong growth potential and the comparatively low cost of acquiring market share compared with other growth regions have boosted western insurers' interest in moving into the relatively underdeveloped central and eastern Europe markets. There is the added incentive that countries like the Czech Republic, Estonia, Hungary and Slovenia are gearing up for membership of the European Union (EU), ensuring an adequate level of insurance supervision and practice. Countries in the region generally are privatising their insurance industries and introducing more liberal legislation to attract foreign investors.

Foreign insurers already have a significant share of the markets in the Czech Republic, Estonia, Hungary, Latvia, Poland and Slovakia. Allianz, CGU and Nationale-Nederlanden are among the leading foreign investors in the region. Munich Re also recently strengthened its position there with the purchase of a majority stake in Alte Leipziger Europa which itself has majority stakes in 14 insurers in eight central and eastern European countries.

Other insurers with a strong regional and eastern European presence include Swiss insurance groups Zurich Financial Services and Winterthur . Zurich has operations in the Baltic states as well as the Czech Republic, Hungary, Poland and Russia . In July 1999, it received a licence for non-life insurance business in Slovakia, enabling it to institute plans to specialise in insurance for selected customer groups in commercial business.

Following Winterthur's acquisition of the Polish life and non-life subsidiaries of French insurer Azur in December 1997 (renamed Winterthur SA and Winterthur Zycie), Winterthur is investing considerable amounts in these companies and in Polish life funds. In March 2000, it announced plans to expand in the life and pension markets of central and eastern Europe where it has a 5.5% market share. It is also spending SFr500 million on improving its internet products, including those available in Hungary. Winterthur Insurance Rt, the Hungarian subsidiary of Winterthur Group, generated gross income of SFt1.803 billion in 1999, significantly higher than its 1998 figure of SFt275 million.

The internet is generally seen as a cost-effective means of accessing eastern European markets. In addition to Winterthur's recently announced strategy, Belgian bank and insurance group KBC plans to invest at least E25 million (more if joint projects currently underway materialise) in the internet. KBC expects its three interests in eastern Europe - CSOB in the Czech Republic, K&H Bank in Hungary and KredytBank in Poland - to account for 10% of its profits within three years; currently they represent 2.5%. It also plans to target Slovenia.


Until 1989, there were only two insurance companies in Bulgaria, the State Insurance Institute (DZI) and Bulstrad.. Following the abolition of the state monopoly, more than 100 private insurance companies were set up by 1995. However, the country's insurance market remains highly concentrated, with the three largest insurers - Bulstrad, DZI and Allianz-Bulgaria (51% owned by Allianz AG) - controlling more than 70% of the market. The Bulgarian insurance market liberalisation has produced considerable interest from foreign investors. American International Group (AIG) was the first foreign insurer to enter Bulgaria, establishing AIG Bulgaria Insurance and Reinsurance Company in 1997. More recently, in August 1999, AIG announced that its subsidiary, American Life Insurance Company (ALICO), had received permission from the Republic of Bulgaria's National Insurance Council to operate a wholly owned life insurance company in Bulgaria, offering a range of life and personal accident products. ALICO has a joint venture stake in the Bulgaria Post Bank, providing the company with an additional distribution channel.

In 1999, Israeli-German TBI increased its holding in Bulstrad to 36% by buying an additional 31% stake from the Bulgarian government. TBI is a subsidiary of Dutch TBI Holding which is 39.9% owned by Deutsche Bank and Bankers Trust and 60.1% by the Israeli Talladium Kardan Group. Through open market transactions, TBI increased its holding again in Bulstrad to 52% but has now transferred its shares to the newly established Bulgarian Insurance and Pension (BIP), in which the European Bank for Reconstruction and Development (EBRD) has made a US$5.15 million equity investment. This represents 30% of BIP's capital, with the remaining 70% owned by TBI. The company's eventual holding in Bulstrad seems likely to reach 60%.

“This is the first EBRD's investment in the Bulgarian insurance sector and also the first investment in a voluntary pension fund management company,” says Jonathan Woollett, the director for non-banking financial institutions at EBRD. “The EBRD's investment in BIP will support the development of the Bulgarian insurance sector and involve the bank at an early stage in the country's pension reforms”.

Following BIP's initial controlling stakes in Bulstrad and in pensions company Doverie, it plans to expand further in the Bulgarian insurance and pension markets.


Croatia's political and economic problems may have deterred some would-be foreign investors in the last year or two although a number of western insurers are represented in the country. For example, the Austrian insurer Merkur Versicherung has a wholly owned Croatian subsidiary and Austrian insurer Grazer Wechselseitige owns 98% of Prima osiguranje d.d. Allianz established a joint venture with Zagrebacka banka, Croatia's largest bank, acquiring an initial 50% stake (later 51%) in Adriatic Osiguranje, the bank's insurance subsidiary selling both life and non-life cover, renaming it Allianz Zagreb. More recently, in November 1999, EBRD bought a 20% stake in Austrija Osiguranje, a Croatian unit of Austrian insurance group UNIQA.

Plans to sell a significant stake in the largely state-owned Croatia osiguranje, once dominant in the market but increasingly challenged by private insurers, appear to be foundering. The Croatian government, while keen to sell a stake to a major European group in order to combat the erosion of Croatia osiguranje's business by competitors and to generate some much-needed funds, has reportedly been divided on exactly how much of its national insurer to sell .

Czech Republic

The Czech Republic has introduced a framework of laws and regulations to provide for development and liberalisation of its insurance market and to bring Czech insurance law in line with EU legislation. Foreign companies are well represented in the region. According to the Ministry of Finance, out of a total of 43 insurance companies licensed at 25 June 1999, eight operated as organisational units of foreign insurers and 35 were joint-stock companies, 12 of which were totally foreign-owned. Of the remainder, 18 were purely Czech companies while, of the five joint ventures, four comprised mainly foreign capital.

However, the prize acquisition remains tantalisingly out of reach and foreign insurers may be starting to give up hopes of obtaining a share of the leading Czech insurer Ceska Pojistovna (CP).Originally wholly state-owned, CP then moved to being 51% owned by Investicni a Post'ovni Banka (IPB) and PPF, a local investment fund with close links to IPB. IPB's transfer of its holding to PPF, announced earlier this year, will make PPF the majority shareholder, a role which the Czech government was keen to see a powerful foreign insurance group assuming. PPF apparently has no plans to sell on its CP shares. Through the National Property Fund, the government has a 31.2% stake in CP which it plans to sell next year. CP has a 54% share of the Czech insurance market.

The relative under-development of the Republic's industry makes it attractive to western eyes. The overall insurance penetration ratio (which compares premiums written to the gross domestic product unadjusted for inflation) was 3.1% in 1998. Although higher than in previous years, according to the statistical office of Ceska asociace pojistoven (CAP), the Czech insurance association, this still does not match the Czech insurance industry's potential and is less than half the average insurance penetration in the EU which was 7.6% in 1997. CIA attributes this to a number of factors, including citizens' insufficient understanding of the importance of insurance and their continuing dependence on the government, even though the economic environment and the government's role in society have changed fundamentally since 1990. Life insurance premiums represented only 27.1% of overall premiums written in the Czech Republic in 1998 (the average in the EU is 52%).

There has been little sign of the Czech public's appetite for voluntary insurance growing, even following the floods that caused considerable damage in 1997 and 1998. Possibly the severe floods in March 2000, mainly affecting Bohemia, will alter perceptions. CAP estimates that these floods will result in insured claims of Kc2.22 billion. Some insurers may also hope to market householders' cover on the back of motor insurance, following the demonopolisation of motor liability insurance.

However, a free market for motor liability business has presented problems as well as opportunities. The costs of setting up facilities and marketing them for this previous sole preserve of CP have been significant and competition is strong. Many Czech insurers' 1999 results have been disappointing, particularly the smaller companies. In some cases, powerful foreign investors have been prepared to bolster their Czech interests in order to maintain their presence in a market that is ripe for growth, and have devoted substantial funds to providing the no fault motor cover.

There has already been considerable foreign investment in the Czech insurance industry, mainly through shareholdings in and joint ventures with Czech insurers. As liberalisation continues, both Czech and foreign insurers are gearing to compete.

This year, Belgian insurer KBC fulfilled its plans to take control of Chmelarskç pojist'ovna, increasing its 33.7% stake to 75.8% by buying shares from Ministry of Agriculture fund Podpurny Garancni Rolnicky a Lesnicky Fond and also by taking up the whole of the company's recent capital issue. Chmelarskç, now renamed CSOB Pojist'ovna, mainly writes non-life business and, in common with others, has been focusing on expansion in the newly liberalised motor market.

The merger of Ceskç Kooperativa and Moravskoslezskç Kooperativa, facilitated by the agreement of Austrian insurance group Wiener Staeditsche Versicherung, the main shareholder in both, reinforced the former Ceskç Kooperativa's position as the Republic's second largest insurer and positioned it as a formidable contender for motor business in 2000.

There are around 18 composites in the Republic with five life insurers and the remaining 20 companies specialising in non-life only. Competition is intensifying in the market, particularly for commercial business. Western insurers hope that they will emerge among the winners.


Estonia's insurance market is comparatively small but it is developing rapidly without any barriers to foreign investment. Transactions include Hansapank's sale of Estonia's largest non-life insurer Eesti Kindlustus to Vakuutusosakeyhti Yritys, a subsidiary of Finnish insurer Sampo which, with the integration of another recent acquisition, Polaris Vara, gave Sampo a market share of over one-third of Estonia's non-life market. While withdrawing from property insurance, Hansapank expanded its life business with the integration of Eesti Elukindlustus, the life subsidiary of Eesti Kindlustus, with its existing life company Hansapanga Kindlustus, gaining a combined market share of around 60% of Estonia's life business.


The Hungarian market has experienced strong growth with annual total premium income increases of over 20% in the last few years. Its largest insurer remains Hungaria Insurance, while the merger of Generali and Providencia created a company (Generali-Providencia) that achieved the second largest premium revenue last year. The fastest expansion in 1999 came from life insurer Nationale Nederlanden Magyarorszag, Axa-Colonia and ABN-Amro. Behind the big four insurers - Hungaria, Generali Providencia, AB-Aegon and NN Magyarorszag - come OTP- Garancia and Axa-Colonia.

Greater capitalisation of Hungarian insurers has resulted in lower premium payments to foreign reinsurance companies, although premiums are reportedly still higher than those paid by EU insurers.

Foreign insurers have made considerable inroads in Hungary's market but, while most of them enjoyed increased premium income last year, those in the non-life sector also had to contend with claims that rose 50% over 1998's level. Further, last year's spring floods did not produce the hoped for increase in demand for home insurance, in parallel with the Czech Republic's experience in 1997 and 1998. Also like the Czech Republic, Hungary's insurance penetration is well below that of western Europe.

Hungary is amending its financial legislation to comply more fully with EU directives and to keep the legal framework abreast of the rapidly developing market.


Drauda, a Lithuanian-German insurance company founded in April 1991, was the first western European insurance company to begin operations in the country. It is the largest private insurance company in Lithuania, its main shareholder being Germany's Alte Leipziger Europa Beteiligungsgesellschaft.

A key development in the Lithuanian market in 1999 was the $26.3m purchase by Royal & SunAlliance's subsidiary Codan of a 70% controlling interest in Lietuvos Draudimas AB. This is the largest insurer in Lithuania with a general insurance market share of around 50% and a life assurance market share of around 90%.


Australian QBE Insurance Group's acquisition of a controlling stake in Macedonia's largest insurer completed its central and eastern European strategy of attaining A$200 million in annual premium income. Its 60% stake in ADOR Makedonijia, which has a 94% market share in Macedonia, gave QBC a presence in six countries in the region - Bulgaria, Hungary, Moldova, Slovakia, Ukraine and Macedonia. The next stage of its regional strategy is to achieve economies of scale across its businesses through its centralised support team and standardised operating systems.


Another market where QBE has made its mark is Moldova. This is the smallest insurance market in Europe after Albania and is also one of the least underdeveloped with total market income in 1998 amounting to the equivalent of 1.18% of GDP. Of the over 40 authorised insurers in the country, 33 are active. The market is dominated by the QBE ASITO Group, which was formed following the acquisition by QBE of the major shareholding in the ASITO Group, which was originally created from the former Gosstrakh monopoly.


Investment by foreign insurers in Russia has been held back by political uncertainties. However, some Russian companies have western shareholders - AIG, Marsh and Alte Leipziger each hold 15% stakes in Rossia Re - and EBRD reportedly plans to buy 35% of the reinsurer, with the aim of increasing the company's reinsurance capabilities, since the Russian insurance industry has insufficient capitalisation. EBRD also plans to advise the company on the assessment of risks.


Ukraine's insurance market is small - but it is growing fast. The 127% growth in 1999 compounds a trend which has seen annual growth rates of between 60% and 70% in the last few years. The country is rapidly developing insurance-related legislation. Overseas investors include QBE which established operations there in 1998.

  • Sue Copeman is a freelance writer and researcher, and a director of Insurance Research & Publishing Ltd.