Interfax
October 15
The insurance system in Uzbekistan is more developed than the insurance systems in other countries of Central Asia and the Caucasus. However, the relative indicators and insurance infrastructure do not make it possible to describe the industry as sufficiently developed. Premium collection in 2001 was must 0.2% of GDP.
At the same time, Uzbek authorities are making an effort to bring the insurance system up to a level that better meets the needs of the economy. The government has provided profit tax exemptions for several years, which gives grounds to expect the system to grow more intensively in the next three years.
GENERAL DESCRIPTION
Uzbekistan has 29 insurance companies with combined charter capital (not including Uzbekinvest, of nearly 7.3 billion sum ($10.5 million) at the start of 2002.
The first legislation on the insurance business was passed in 1993. Under current legislation the State Insurance Inspectorate (Gosstrakhnadzor) in the Ministry of Finance is the industry watchdog. The first document Gosstrakhnadzor drew up was a program of urgent measures to develop the insurance market in 1999 - 2000, which helped systematize the operations of insurance companies.
One of the agency's main regulatory functions is to increase the charter capital of companies to establish the reliable operation of the insurance industry. The capital requirement for insurance companies was increased by more than five times in the past four years. However, combined charter capital in the industry has increased just 70% since 1997. The increase has slowed lately, falling to 15% in 2000 and 4% in 2001. Equity capital is growing even more slowly, at just 30% in four years.
The large discrepancy in the increase in the capital requirement and actual charter capital stems from the fact that capital has been increasing lately primarily at small companies that account for a very insignificant share of the market. The charter capital at insurance companies that have capital of 10 million - 100 million sum (up to $300,000) has increased by more than 90% while the number of companies in this category has increased by 150%. The number of companies that have charter capital of 1 million - 10 million sum has dropped.
The change in the overall number of insurance companies is not significant. Of the 29 insurance companies in the past few years just five new companies have been formed and four companies have folded since 1998. The number one reason companies have left the business was failure to meet prudential standards and the lack of qualified specialists.
The insurance business has developed fairly successfully in Uzbekistan as is evident by a number of indicators. The average per capita premium is growing and was up more than 50% in the first nine months of last year from the same period of 2000. Total premium collection on some types of insurance increased from 25% to 75%. At the same time, total premium collection last year, as in 2000, was unchanged at 9 billion sum ($12.9 billion). The ratio of premiums collect to GDP dropped from 0.3% in 2000 to 0.2% in 2001, despite higher first-half figures.
Gosstrakhnadzor said that optimizing the proportion in voluntary and mandatory insurance would be a key element of its structural policy.
The following types of insurance are mandatory in Uzbekistan:
Insurance for passengers of all forms of transport;
Insurance for specialists in high-risk industries;
Insurance for the property of agricultural enterprises.
All other forms of insurance are voluntary.
An analysis of the distribution of premiums by policy type shows that
voluntary insurance accounts for most of the collective insurance portfolio
(72% of premiums collected), and this is increasing. The share of payouts
on voluntary insurance in total payouts last year increased by 13% from
2000.
Voluntary property insurance, which is in third place in the collective insurance portfolio in terms of the number of active policies, generates 54% of insurance premiums. It also accounts for 57% of total payouts.
Thus, Uzbekistan has substantial potential in the areas of personal and liability insurance.
STRUCTURE OF INSURANCE PORTFOLIO IN UZBEKISTAN
Premiums have been increasing practically entirely as a result of
increased activity by insurance companies, since under current law premiums
on voluntary insurance are not deductible as they are elsewhere in the
world. The current tax system thus does not stimulate an increase in
voluntary insurance since enterprises must pay premiums out of profit.
The main objective in developing property insurance in the near future will be to increase voluntary property insurance for individuals according to Gosstrakhnadzor plans. The range of services must also be expanded. There are only about 20 types of insurance available at present, compared with nearly 70 in Kazakhstan.
Moreover, a law on insurance that has been submitted for a referendum might give new impetus to the insurance business in Uzbekistan, as might a decision by the president to provide a three-year exemption from profit tax for insurance companies.
Even greater opportunity for the insurance business lies in the privatization of the main state companies and creating greater opportunity for broader competition on the insurance market.
REQUIREMENTS FOR INSURANCE COMPANIES
The requirements for insurance companies in Uzbekistan differ little from those in developed countries.
Insurance company assets are broken into two groups under the Ministry of Finance classification - liquid and free. Free assets must make up no more than 20% of annual premiums on non- life including reinsurance operations. Premiums transferred in reinsurance are included in the amount not exceeding 70% of premiums on all insurance and reinsurance operations.
Free assets must not exceed 5% of premiums collected during the year on life insurance.
Liquid assets must be 20% of premiums but not less than $75,000 on non- life insurance and 15% but not less than $100,000 for life insurance.
Liquid assets must constitute 25% of annual insurance premiums but not less than $250,000.
Highly liquid assets must constitute 30% of annual premiums for reinsurance but not less than the equivalent of $1 million if the company is engaged exclusively in reinsurance.
Gosstrakhnadzor has established the following requirements on the type
of investment for insurance companies:
Investment in real estate must not exceed 35% on non-life insurance and no
more than 50% for life insurance;
Investment in government securities must not exceed 75% and 15% - 90%,
respectively;
Deposits in commercial banks must not exceed 45% and 50%, respectively;
Corporate securities must not exceed 30%;
Other shares must not exceed 20% and 15%, respectively;
Cash on hand and in transaction (currency) and other accounts in banks must
not be less than 5% of average monthly payouts for the previous quarter.
Moreover, loans on life insurance policies must not exceed 50% of the policy value.
Gosstrakhnadzor established the prudential standards for the industry with the assistance of the Asian Development Bank, which is the main consultant and financial sponsor for Uzbekistan in the insurance industry.
INSURANCE COMPANIES
Four companies account for nearly 90% of the premiums collected in Uzbekistan - state insurance company Uzagrosugurta, Uzbekinvest, Kafolat, and Madad Insurance Agency.
These four companies are all state enterprises. They hold nearly 985 of the insurance policies opened in Uzbekistan.
Other companies are also active on the insurance market. The largest of them is the Uzbek-American joint venture UZ-AIG, which is 51% held by American International Group, Inc. National Bank for Foreign Economic Activity in Uzbekistan holds the other 49%.
Russian companies are also active on the Uzbek insurance market. Russia's Soglasie is represented in Uzbekistan through its subsidiary Alskom. The difficulty competing with state companies prevents foreign insurance companies from operating actively on the local market. Nonetheless, a quarter of the insurance companies in Uzbekistan have foreign co-founders.
Uzbek banks are also active on the insurance market. More than 75% of the insurance companies have banks as founders or shareholders.
More than 90% of the country's insurance companies are based in Tashkent. Insurance companies have more than 320 affiliates and branches throughout the country.
UZBEKINVEST
Uzbekinvest is the biggest insurance company in Uzbekistan with charter capital of nearly $100 million.
The company was created under a presidential decree at the start of 1997 to provide insurance for Uzbek exporters on world markets and to protect foreign investors in Uzbekistan.
The company has established dominance on the market, including among state insurance companies, by providing coverage for practically all export and import deals, insuring the property of joint ventures with foreign investment, liability coverage for international shippers, and coverage for construction by foreign contractors.
It has set up a joint venture in London called Uzbekinvest Int to expand its operations. This allows foreign partners to fully insurance all activity in Uzbekistan from political risk.
Uzbekinvest also operates through its subsidiary marketing company Uzbekinvest Eximinform to provide market studies of international markets for technology, goods and services; studying the export potential of national producers and developing strategies to promote technology, goods and services on world markets. It also holds shares in several Uzbek banks and holds shares in Uzbek auditing firms.
UZAGROSUGURTA
Uzagrosugurta is Uzbekistan's second largest insurance company with charter capital of 2 billion sum.
The company was the successor of the Uzbek division of the Soviet Gosstrakh (state insurance company). After Uzbekistan became independent the company changed its orientation to providing coverage for agricultural enterprises and property insurance for the rural population.
Uzagrosugurta specializes mainly in providing mandatory insurance for money allocated to agricultural producers. It covers the risk of non- payment.
It also provides coverage for loans made by commercial banks to develop agricultural production and for agricultural projects.
Up until 1997 mandatory crop insurance was a successful business for the company. However, this type of insurance is no longer mandatory and many producers for various reasons have ceased to carry crop insurance, so premiums on this form of insurance have dropped by several times. The Uzbek government allocated money to save Uzagrosugurta from bankruptcy. The company was able to continue operating and expanded and diversified its business.
Uzagrosugurta is currently the leader in insurance payouts, making 85% of total payouts in Uzbekistan.
KAFOLAT
Kafolat is the country's third largest insurance company with charter capital of 500 million sum.
The company was founded in May 1997 to provide insurance for individuals, enterprises and organizations in Uzbek cities.
The company was founded by the Ministry of Finance, Uzagrosugurta, Uzbekinvest, Asaka Bank and Narodny Bank of Kazakhstan.
Kafolat has an office in the capital and 14 affiliates in Karakalpakstan and Uzbek regions. It also has branches in 40 villages. Including its retail insurance business Kafolat has the largest staff, which includes more than 500 people. It also has an agent network that includes more than 500 people.
Kafolat specializes in life, health and property insurance for individuals, corporate property insurance, liability coverage for enterprises and individuals, and reinsurance.
MADAD INSURANCE AGENCY
Madad Insurance Agency is Uzbekistan's fourth largest insurance company with charter capital of 250 million sum. It specializes in insurance coverage for small and medium-size businesses.
The company was founded in July 1995 by several large Uzbek banks.
While this company's area of specialization is perhaps one of the most important its core business - coverage of commercial risk and liability on loans, as yet does not generate a large share of income. It collects just 6% of the total insurance premiums collected in Uzbekistan.
Analysts note that the company has occupied a potentially profitable niche that could eventually give the company greater weight in the insurance system. This niche is insurance for various types of liability. Madad collects about 64% of premiums on this type of insurance.
Nine other companies that provide liability coverage limit themselves generally to liability coverage for automobile owners. Other liability insurance (loan repayment, privatization and investment fund liability, professional liability for auditors, etc) is provided by Madad.