Croatia Insurance Report Q2 2008

As was the case in Q108, the main focus of this report is BMI's proprietary Insurance Business Environment Rating (IBER). The rating brings together a number of pieces of relevant quantitative data, together with BMI's Country Risk Rating (CRR). The IBER makes it easier for the business environment for the insurance sector in a particular country to be compared with the business environment for any other industry in that country that is surveyed by BMI. The IBER also allows an objective and meaningful comparison of the business environment for the insurance sector in one country with the business environment for insurance in another country.

Over the coming months, we will substantially change the format of the BMI insurance reports. essence, we will focus to a much greater extent on the companies that are active in the non-life and life segments.

Croatia's IBER is 56.3. Croatia is a moderately attractive insurance market relative to other countries in Central and Eastern Europe (CEE) for foreign insurers. Croatia stands out within the region for its strong regulatory framework. The economic outlook is germane. Government policies are likely to remain constant over the long-term. The under-development of the life segment, the bureaucracy and external risk have, however, tended to hold back Croatia's IBER. Since the insurance market is still largely controlled by the state, there exist clear barriers to entry and neither the life nor the non-life segment are particularly open to participation by foreign groups. However as the competitive landscape, in both the non-life and the life segment is fragmented, Croatia may still attract some foreign interest. Moreover, the market is still comparatively underdeveloped.

Croatia's non-life segment has grown significantly over the last two years. It is currently among the highest ranked in its region. Like most other countries in the region, more than half of this is accounted for by motor insurance. However, the market is still primarily local and somewhat under-developed, meaning that there may be room for cross-border groups to move in. The life segment is, by comparison, the main weakness of Croatia's insurance sector, largely on account of its small size. Although its score is about average for Eastern Europe in the IBER breakdown and in spite of several cross-border companies being present, it is apparent that the market is not yet a strong one.

We anticipate that, over the forecast period, non-life premiums will grow by 16% annually in local currency terms and by 16% in US dollar terms. Life premiums are expected to increase by 18% annually in local currency terms and by 18% in US dollar terms. The anticipated rise in nominal GDP from around US$48bn to US$71bn and an expected increase in non-life penetration from 2.78% of GDP to 4.00% are expected to be the key drivers of growth in the non-life segment in 2007-2012. The envisaged rise in life density from US$117 per capita in 2007 to US$270 per capita in 2012 is expected to be the key driver of growth in the life segment. However, against this, Croatia's total population is declining.