Croatia Insurance Report Q2 2009

The latest GDP data release for Croatia shows the economy continuing to slow during the third quarter of 2008, further confirming that the economic downtrend is now firmly in place and will continue to play out through 2009. The deterioration in trade dynamics, unwinding of domestic demand, and contraction in external credit availability constricted growth dynamics during the third quarter, with the economy only mustering up growth of 1.6% year-on-year (y-o-y), down from 3.4% the previous quarter, and marking a multiyear low.

Given the severity of the slowdown in the third quarter, and our belief that both domestic and external demand conditions will get worse before they get better, we have revised down our economic growth forecasts for 2009 and 2010. Specifically, whereas we were previously targeting growth of 2.1% in 2009, we now expect to see a contraction of 1.5%, coinciding with the deepening of the eurozone recession (with growth of -1.6% currently pencilled in). Moreover, given our belief that international credit markets will still take time to thaw from their current state of flux, and that risky emerging markets such as Croatia will come further down the priority list of international lending, we do not expect to see a swift return to pre-credit crunch levels of economic growth. As such, we forecast a mild recovery to 1.3% growth in 2010, ticking up further to 3.2% in 2011.

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 of purely domestic firms to each of the various countries.

Over the course of 2008, actual total premiums in Croatia rose by 11% to HRK9,673mn. Non-life premiums rose by 9% to HRK7,132mn, while life premiums rose by 14% to HRK2,541mn.

Between now and the end of the forecast period, we expect that annual non-life premiums will grow HRK6,191mn, while life premiums should grow by HRK3,562mn.

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 2.32% to 3.00%.

Growth in life premiums should be driven by the change in the overall population and a rise in life density from US$110.13 to US$250.00 per capita.

BMI's Insurance Business Environment Rating for Croatia is 54.7.