Romania 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.

Romania's IBER is 55.5. Romania is a very small insurance market relative to other countries in Central and Eastern Europe for foreign insurers. Romania stands out within the region for the measure of openness of the non-life and life segments. The economic outlook is generally positive, although there are some political uncertainties and a growing budget deficit. The very small size of the industry and low levels of expected growth and penetration hold back the IBER of both the life and non-life sectors. It is also held back by the legal framework and bureaucracy and external risks.

Broadly similar to that of Hungary, the Romanian non-life market is extremely crowded, except it is more fragmented. Both the sheer number of local companies and the fact that none has a truly dominant position are a distinctive feature of the Romanian insurance market, when compared to neighbouring countries such as Bulgaria and Poland. The market is also small, making it not particularly attractive to foreign firms. The number of firms operating in Romania is, however, amazing, given its small size. It is the relatively low total size of the sector and the very low expected growth and penetration rates in relation to other countries in the Central and Eastern European region which are the main weaknesses of Romania's insurance sector. The global 'credit crunch' and some political uncertainty are also potential threats. Romania's relative openness to foreign players and overall excellent Regulatory Framework, Development and Competitive Landscape, on the other hand, constitute the strengths of the sector.

Another positive is that the general economy is growing strongly, and although growth will likely slow, it is likely to continue to grow at around 4-5% through the period 2008-2012.

We anticipate that non-life premiums will grow by 18% annually in local currency terms and by 18% in US dollar terms over the forecast period. Life premiums are expected to increase by 21% annually in local currency terms and by 21% in US dollar terms. The key drivers of growth in the non-life segment in 2008-2012 are the anticipated rise in nominal GDP from around US$155.50bn, to US$226.01bn, and an expected increase in non-life penetration from 1.68% of GDP, to 2.60%. An envisaged rise in life density from US$26.63 per capita in 2007, to US$70.00 per capita in 2012, is expected to be the key driver of growth in the life segment. The total population of Romania is declining very moderately.