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SP still in troubled waters as privatisation looms

Insurance monolith Slovenská poisťovňa (SP) is still struggling with unpaid premiums, bad clients and losses of nearly five billion crowns as it begins tentatively to look forward to its privatisation next year and the concurrent loss of its monopoly on motor and workplace insurance.
Figures were released on March 23 showing that while SP had pulled in 67.82 billion crowns in income across all areas, 1.57% more than the company had hoped, the 66.55 billion crowns it raised from social insurance was only 90.46% of its expected income from this sector. The new data have not only deepened fears that the company will be in dubious shape for the entry of a strategic investor, but also raised concerns over Slovakia's ability to get up to scratch before it joins the OECD (Organisation for Economic Co-operation and Development).
"There is a need for Slovakia to convince all existing OECD members that it is able to perform in a global economy as any other OECD country would," said Eric Burgeat, director of the centre for co-operation with non-members at the OECD.


The Slovenská poisťovňa insurance house remains a market leader for the moment, but is set to lose its monopoly on auto and workplace insurance at the end of 2001, concurrent with the entry of a strategic investor.
photo: Vladimír Hák

Insurance monolith Slovenská poisťovňa (SP) is still struggling with unpaid premiums, bad clients and losses of nearly five billion crowns as it begins tentatively to look forward to its privatisation next year and the concurrent loss of its monopoly on motor and workplace insurance.

Figures were released on March 23 showing that while SP had pulled in 67.82 billion crowns in income across all areas, 1.57% more than the company had hoped, the 66.55 billion crowns it raised from social insurance was only 90.46% of its expected income from this sector. The new data have not only deepened fears that the company will be in dubious shape for the entry of a strategic investor, but also raised concerns over Slovakia's ability to get up to scratch before it joins the OECD (Organisation for Economic Co-operation and Development).

"There is a need for Slovakia to convince all existing OECD members that it is able to perform in a global economy as any other OECD country would," said Eric Burgeat, director of the centre for co-operation with non-members at the OECD.

The government has said that it wants to be part of the organisation before the end of this year.

Latest figures have shown that the Slovak insurance market is underdeveloped in comparison with OECD countries. Premium collection last year was 3% of GDP, a figure that fares badly with the rate in OECD countries - 9%.

Difficulties in collecting premiums have dogged the domestic market in recent years, and with a more than 50% share of the sector, SP has found itself struggling with some clients.

"It's a problem for Slovenská poisťovňa, a problem for companies that have a large share of the insurance market," said Milan Hrotka of Generali Insurance, a smaller firm on the Slovak insurance market.

Hrotka added that because of SP's monopoly on auto and work injury insurance, the firm had no chance to tailor itself to clients it could trust.

"Premium collection is not such a big problem for us beacuse we have only been here for a few years," he said, "but we are expecting to have these problems and are preparing for them. SP may have a problem with unreliable premium payments. The real problem is with former state firms."

Between 1994 and 1998, SP collected 93.5% of its premiums. Collection of insurance payments account for 99% of poisťovňa's revenues. At the end of February this year, SP had total overdue sick and pension insurance payments of 43.9 billion crowns. SP said that 7.8 billion crowns of overdue claims were 'dubious'.

Some of the largest debtors of the insurance firm include state health care facilities, transformed state companies and agricultural cooperatives and the state railway firm ŽSR.

Slovenská poisťovňa officials hold little hope that their success rate with premiums will rise in the near future. "The situation with premiums is very much the same as it was in previous years," said Lucia Bombošová, spokeswoman for the firm. "Any change in this would depend on the Slovak macro-economic situation."

SP revised its budget April 28 for the coming year with plans for revenues to increase by 2.3 billion crowns. The board of directors of the company said that increased insurance payments, planned introduction of the obligation for working pensioners to continue paying premiums for social insurance and a decrease in ŽSR's debt would give the company a financial boost.

From monopoly to part player?

The Finance Ministry has said that SP will lose its monopoly on motor insurance and work health insurance at the end of 2001. While the move will substantially change the insurance market and will reduce Slovenská poisťovňa to a part-player from its current lead role in the insurance market, the firm itself is unconcerned with the competition it will face.

"When our monopoly ends it will be the same situation as in all the other countries that have gone through this," said Bombošová. "We will be better and better in our services because we have been here on the insurance market for 30 years. After the [1989 Velvet] revolution we were no longer the only insurance company on the market and we have been as successful as other foreign firms."

The opening of the market has been long anticipated, with the end of the firm's monopoly having been a matter of time. Confirmation by Finance Minister Brigita Schmögnerová on May 2 that SP would lose its stranglehold on the two insurances has this merely moved forward a D-day for the Slovak market that had been expected.

"It was only a question of time," said Michal Kustra, analyst with Slovak bank Tatra banka. "The direction of the market is likely to follow that of the Czech Republic where there was a boom and competition came in. Obviously there will be increased competition and that can only be good for the market," he added.

"The insurance market will change over the next two years, it will be a real challenge," agreed Hrotka. "We already have 30 companies here on the Slovak insurance market and SP has more than a 50% share of that market. There will be a lot of opportunity for foreign firms to come in."

Privatisation unpredictable

As SP loses its monopoly hold, the firm is also slated for privatisation. The entry of an investor is expected at the end of 2001; however, as SP is one of the first large insurance companies to be privatised in central Europe it is not entirely certain what kind of buyer would be interested.

Many of the bigger privatisations in the region have been in the banking sector, where a pattern of bidders has emerged. European banking giants such as Deutsche Bank, Bank Austria-Creditanstalt, Erste Bank and BNP Bank have dominated tenders in that field. But with SP this may not be the case.

"We used to look to the Czech Republic and Poland to get a view of who would be interested in privatisations, but with insurance companies so far not. There are no patterns of previous experience to go back on," said Kustra. "The frequency of privatisations of insurance companies is nothing like that of, for instance, banks."

However, the involvement of western insurance firms has not been ruled out.

"Of the top five global insurance companies, only the French insurance firm AXA is not investing in Slovakia," said Hrotka. "It may be that they will be interested in SP. It's a big question."

The government's strategy on privatising SP will be paramount in determining who will manage to get the stake in poisťovňa. It is unclear as yet whether the government will look to sell to a strategic investor or a straight financial buyer.

The example of the Czech Republic's Česká pojišťovna insurance firm has often been cited as a possible path for the SP sale. The Czech firm is majority held by the firm PPF as part of a consortium with Investiční a poštovní banka (IPB) - an involvement of banks in insurance firms which may become a part of the process in Slovenská poisťovňa's eventual privatisation.

The cross-over of expertise in risk managemnet and asset handling in the banking and insurance sector, some analysts have said, may see banks entering the running for the Slovak firm at the end of next year.

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