Bulgaria Insurance Report Q2 2009

While the 5.6% year-on-year (y-o-y) flash estimate for Bulgarian real GDP growth in Q308, provided by the National Statistical Institute (NSI), indicated that our full-year 2008 growth forecast was on target, the official figure published on December 15 has since derailed our projection. The revision was driven largely by stronger consumption and gross fixed capital formation (GFCF) outturns. The new data reveal that final consumption expanded by 5.4% y-o-y during the third quarter (from an initial estimate of 3.0%), while GFCF far surpassed the original 8.6% projection, to post growth of 22.3%.Given that the NSI has revised up third quarter growth by a considerable 1.2% to 6.8%, we have now adjusted our fullyear growth estimate to 6.4%, from a previous 5.6%. As a result of dwindling external credit lines, shrinking export markets, widespread deleveraging and the gradual consolidation of corporate and household balance sheets, economic growth will continue to slow for the remainder of 2009, with a 1.1% outturn pencilled in for this year.

While exports have proved highly exposed to adverse developments in the global economy, we believe they will be the first to rebound alongside the economic recovery of the eurozone. Import growth, however, will likely remain subdued over the medium term as international credit markets continue to thaw and domestic demand remains under pressure.

The global financial crisis is likely to affect the various segments of the global insurance industry in different ways. In many countries - especially in Europe - the coming recession points to softness in the non-life segment. In many cases, the numbers of policies may fall so there should be downwards pressure on premiums. By contrast, the main problem for the life segment - in almost all countries - is the extreme volatility of financial markets. Over the longer term, though, the fortunes of life insurance will recover; thanks to the secular growth of organised savings in most countries. China, where the larger insurance companies continue to achieve double-digit growth in premium income, is a good example of this. Some particular niches should also do well in the current environment, such as legal liability insurance.

In Central and Eastern Europe (CEE), we profile 22 multi-national insurance companies. In alphabetical order, these are AEGON, AIG, Allianz, Aviva, AXA, Cardif, ERGO, Eureko, Fortis, Generali, GRAWE, Groupama, HDI-Gerling, HSBC Insurance, ING, MetLife, Prudential Financial, QBE, RSA, UNIQA, Vienna Insurance Group and Zurich Financial Services. We also discuss the regional presence of Belgium's KBC and Austria's Erste Bank through a number of insurance subsidiaries and explain the importance, for each of the various countries, of purely domestic firms.

Over the course of 2008, estimated total premiums in Bulgaria rose by 21% to BGN1,830mn. Non-life premiums rose by 20% to BGN1,566mn, while life premiums rose by 31% to BGN264mn.

Between now and the end of the forecast period, we expect that annual non-life premiums will grow by BGN726mn, while annual life premiums should grow by BGN294mn.

Growth in non-life premiums should be driven by the general growth of nominal GDP plus a rise in nonlife penetration from the current level of 2.42% to 2.60%.

Growth in life premiums should be driven by the change in the overall population and a rise in life density from US$22.25 to US$40.00 per capita.

BMI's Insurance Business Environment Rating for Bulgaria is 50.7.