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Gazing into the privatisation crystal ball

In a country that has been lambasted for the slow pace of its privatisation, setting a date for the end of the monopoly of Slovenská poisťovňa on the Slovak insurance market, in two forms of insurance at least, is a welcome signal to investors.
Of course, dates for privatisations may come and go, be missed, as unforeseen perils along the path of the government sale emerge to waylay the state in its attempts to off-load its stake in a firm. The government's laggardly approach to structural reform, especially in the banking sector, has already caught the eye of those abroad willing, if not yet wholly committed, to put money into Slovakia.
However, the sale of SP will be a bit different from that of other state-controlled firms, even if the exact set date for the sale is not kept.

In a country that has been lambasted for the slow pace of its privatisation, setting a date for the end of the monopoly of Slovenská poisťovňa on the Slovak insurance market, in two forms of insurance at least, is a welcome signal to investors.

Of course, dates for privatisations may come and go, be missed, as unforeseen perils along the path of the government sale emerge to waylay the state in its attempts to off-load its stake in a firm. The government's laggardly approach to structural reform, especially in the banking sector, has already caught the eye of those abroad willing, if not yet wholly committed, to put money into Slovakia.

However, the sale of SP will be a bit different from that of other state-controlled firms, even if the exact set date for the sale is not kept.

As SP will be one of the first major insurance companies to be privatised in central Europe, questions are already being asked as to what kind of investor will be found for the company. Analysts are split into two camps, one of whom believes the sale will follow the classical course of the privatisation of banks - western giants wading into a sector they already know and are comfortable with - and the other arguing that a financial institution will take a hold of SP as an enterprise it may already have some competence in managing.

But with little experience to fall back on, the government may decide to gaze into a crystal ball and look at the insurance market of the future to try and divine the best way to approach SP. What it finds there may be surprising.

The involvement of banks in the insurance sector is far from unheard of. The skills of risk management and asset handling are common to both lines of business, while both insurance firms and banks perform the same role, that of a financial institution. Foreign insurance firms bidding for SP in any kind of privatisation tender may be one outcome, but an equally likely one would be to find the European banking giants eyeing the Slovak insurance firm and putting in their own, probably not inconsiderable bid.

The scenario of a bank's controlling an insurance company has already happened in the Czech Republic. Investiční a poštovní banka (IPB) has sunk its claws into Česká pojišťovna, the Czech insurance firm. It has recently ceded total majority control to the firm PPF, part of its consortium, but the example remains valid for predicting events in Slovakia.

Foreign insurance firms, meanwhile, may find it more to their advantage to bide time and stamp their authority on the market not as Slovenská poisťovňa strategic investors, but as big players in a market where the monopoly monolith has just been relegated not quite to the sidelines, but certainly lower down the insurance premier league.

Controlling 50% of the market now, SP will, at the end of next year, find itself having to compete with other firms for auto and work health insurance. With 40% of the population taking auto insurance, the market that will be opened up to competition is huge.

While foreign firms may be licking their lips at the opportunity to start exploiting a policy sector they were previously unallowed to set foot in, the knowledge that SP would lose its stranglehold on two types of insurance will have set the wheels in motion for the likes of French firm AXA to take a much closer look at Slovakia.

However, before the government, potential investors and new arrivals on the market get too worked up with the liberalisation of the insurance sector, they must take a look at the most important part of their day-to-day operations - the Slovaks.

Unlike the average western policy buyer, the emphasis is on what is needed and not what is on offer. Health insurance is only a big pull if someone is going abroad. Life insurance, something quite common in more developed markets, while growing in Slovakia is still something strictly for the middle-classes, a totem almost for those who are moving onwards and upwards in the transition economy.

No doubt attitudes will change as the middle-class grows and more comprehensive insurance packages are offered, but the market will be a developing one and the initial responses to the new, fully open market, may be a bit different in reality to what had been expected.

The next 18 months will bring the picture afforded by the insurance market crystal ball a little bit more into focus. The government, though, must play its part in making the vision a reality. Delays are not part of the imaginary scenario, and the quick, complete opening-up of the sector is a must if the insurance market is to be an example of what can be achieved in the Slovak corporate sector.

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