Lithuania Insurance Report 2008

Over the next five years Lithuania's insurance sector should change in three ways. First, it will undoubtedly be substantially larger than it is at present, notwithstanding the fact that percentage growth rates are likely to slow from the (blistering) rates of 2006. We are looking for compound annual growth rates (CAGR) of around 20% in 2007-2012. Second, it will undoubtedly be more sophisticated. The nonlife segment is still dominated by compulsory third party motor liability (CTPML) business, but other lines (and notably voluntary motor insurance - or CASCO) are also growing quickly. Property insurance is rising rapidly from a low base. In the life segment, it appears that Lithuanians accept the concept of insurance as an attractive organised savings opportunity. Unit-linked business has been driving the growth.

Interestingly, pricing in both segments appears to have been firm. This is in spite of the presence of a surprisingly large number of foreign-owned groups in both the non-life and the life segments. The opening of the market to foreigners, and closure of unprofitable small firms by the regulator, means that there are no predominantly Lithuanian-controlled firms that are substantial. This has implications for the third way in which Lithuania's insurance sector is likely to change over the coming years. The number of players will likely continue to contract. It is not clear why the country needs 10 non-life and eight life companies. For those insurers who are owned by major foreign groups, the Lithuanian operations are generally a tiny part of their global - or even European - business. The other insurers are, for the most part, subsidiaries of Latvian companies.

This is significant because both the economies of both Lithuania and Latvia are overheating. At some stage, the authorities in both countries are likely to take steps to engineer economic landings which, in the case of Latvia, will probably be hard. It would not be surprising if at least one of the Latvian groups that are competing in Lithuania becomes a forced seller of its business in that country.