Poland 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. In essence, we will focus to a much greater extent on the companies that are active in the non-life and life segments.

Poland's IBER is 63.4, which makes it a moderately attractive market for foreign insurers market compared to other countries in Central and Eastern Europe. Within the region, Poland stands out in terms of the likely absolute growth in non-life premiums and the measure of openness of the non-life and life segments. The economic outlook is positive and the new government is committed to introducing fiscal and economic reform. However, the IBER is constrained by the overall size of the industry, the low levels of life and non-life penetration, and by the legal framework and bureaucracy in Poland.

We anticipate non-life premiums will grow by 14% annually in local currency terms and by 15% in US dollar terms over the forecast period. Life premiums are expected to rise 10% annually in local currency terms and by 11% in US dollar terms. The key drivers of growth in the non-life segment in 2007-2012 are the anticipated rise in nominal GDP, from around US$419.8bn to US$610bn, and an expected increase in non-life penetration from 1.67% of GDP, to 2.30%. The key driver of growth in the life segment is the envisaged rise in life density from US$207.20 per capita in 2007, to US$350 per capita in 2012. Poland's total population is falling.

In both the non-life and the life segment, the competitive landscape is very open to participation by foreign groups, although foreigners are more important in the life than in the non-life segment. While the former state-owned monopoly, PZU, has lost market share, it accounted for over 40% of gross non-life premiums in 2004. The market is small by world standards, and so the number of world-class multinationals who are present in Poland is astounding. These firms have started to rationalise and we find it difficult to believe there will not be further significant rationalisation.

The sector's advantages are its relative size versus other countries in the region, and its continuing growth and the relative openness to foreign players. Economic conditions are, and are likely to remain, favourable, and the new government is committed to privatisation and introducing fiscal and economic reform.

The low penetration rate and the overall legal framework and bureaucracy of the sector are the main weaknesses of Poland's insurance sector. Possible threats from the international credit crisis and some slowing of the economy loom as additional negatives.