WHEN all Slovak branches of the biggest domestic insurer Slovenská poisťovňa (SP) and its German owner Allianz merge into a single company, the Slovak insurance sector will have a chance to improve its limping performance, say analysts.
The merger, to take place in January 2003, is expected to strengthen the dominant position of the former state monopoly SP, but at the same time introduce a new pricing policy that, according to insurance sector experts, is likely to increase premiums but bring more profit to insurers.
Allianz bought a 67 per cent stake in state-owned insurer SP at the beginning of this year, after having been chosen winner of a public tender.
The German company, which is the world's second-largest insurance house, bought the shares for 142 million euro, and later purchased an additional 24.3 percent stake in SP from the Penta Group.
While SP's tradition in Slovakia dates back to 1948, Allianz was founded in 1889 and is represented in more than 77 countries worldwide. The name of the merged insurer has not yet been revealed, but according to SP officials it will contain significant elements of both SP and Allianz.
The new company is expected to have a significant influence on the future of Slovakia's insurance sector.
"The shape of the insurance industry will largely depend on the measures taken by the new dominant market player," said Roman Juráš, a member of the board at Generali insurer.
"The new [company] has to introduce new principles of pricing and calculation of risk, which is likely to be reflected in an increase in premiums, something that can improve the overall situation in the Slovak insurance sector," he continued.
Although costs for local insurers, particularly for reinsurance, have increased considerably since the September 11, 2001, terrorist attacks on New York and Washington and 2002 summer flooding in central Europe, they have not yet been heavily priced into premiums, say insurance dealers.
As a state company until this year, SP had subsidised premiums for some of its products, which caused several private insurance houses to follow the same low-price strategy to attract more clients and increase the number of the premiums sold.
As a result, say analysts, one third of insurers registered in Slovakia recorded annual losses for 2001, while insurers ending the year in black figures saw only modest profits.
According to Trend magazine, in 2001 SP had a market share of 45.8 percent and recorded a profit of Sk574 million ($13.7 million). For the same year, Allianz had a market share of 8.3 percent and profits of Sk20 million ($476,000).
"Managements of insurers cannot ask for unlimited capital from their shareholders. They have to give them some kind of return and provide stability for the company," said Manuel Bauer, a member of the supervisory board at SP.
"We also have to make sure that our company stays on both feet," he added.
"Our main aim is to set pricing that gives adequate protection for the market, proper insurance, a guaranteed quality of services and reinsurance.
"But why should the market be subsidised? We also want to achieve a modest return," he said.
Bauer said that if the market leader introduced correct pricing, the rest of the market should follow it or disappear, adding that an adequate number of insurers in Slovakia would be somewhere between 10 and 20. There are currently around 28 insurers in the country.
According to Bauer, Slovakia has one of the lowest premiums in Europe for third-party liability insurance as well as crash and safety insurance, and household insurance is also partially subsidised.
"On average, Slovakia has 30 per cent lower prices for premiums than the neighbouring Czech Republic, where the state insurance monopoly was privatised back in 2000," said Bauer.
According to insurance experts, the presence of Allianz at SP should also mean that some of the risks insured by SP when it was a state company will not be insured anymore.
"Allianz should establish exact German calculations in SP. This will mean that some of the current SP clients will leave for other insurers," said Vladimír Rančík, general secretary of the Slovak Insurance Association.
Generali's Juráš said that he expected the market share of merged SP and Allianz, which was about 54 per cent in 2001, to drop to between 40 per cent and 50 per cent.
Bauer said that he was not alarmed about the predicted drop in SP and Allianz market share. He added that he expected a significant reduction in non-life insurance, where SP and Alianz had a nearly 67 per cent combined stake last year, and a stabilisation in life insurance, where the combined market share reached about 38 per cent.
The predicted drop in non-life insurance is linked to the lifting of SP's monopoly on lucrative third-party car liability insurance as of this year and Slovakia's granting of eight licenses to offer this kind of insurance.
Life insurance is expected to be given boost after the government allows people to deduct insurance costs from the tax base.
Slovakia is one of the few European countries where this is not possible, something that analysts say accounts for the insurance industry's relatively low contribution to the country's GDP.
18. Nov 2002 at 0:00 | Peter Barecz