OPPORTUNITIES AWAIT IN EASTERN EUROPE

Eastern Europe will be one of the fastest-growing regions for insurance sales in the next few years, with countries such as Poland, the Czech Republic and Hungary leading the way, according to a study by Swiss Reinsurance Co.

Swiss Re predicts that non-life premium volume in Eastern Europe will grow by 5% to 9% during the next five years and that life business will grow by 7% to 12%. Such growth would exceed the world average and boost Eastern Europe's share of global life and non-life premium volume to 1.2% by 2010, compared with 0.6% in 1995, when they reached a record $12 billion.

Countries included in the study are Poland, the Czech Republic, Hungary, Slovenia, Slovakia, Croatia, Romania, Bulgaria, Russia, Ukraine, Estonia, Belarus, Lithuania and Latvia.

And, insurance growth in the region could be even greater if Eastern European governments offer tax concessions on life insurance as a form of providing pensions, according to the report.

The study, "Insurance in Eastern Europe: A Growth Industry on the Way towards Market Structures," is one of the Sigma series published by the Zurich-based insurance group's Economic Research unit.

The increased demand for all types of insurance in large measure results from the collapse of communism since 1989 and the transition to market-based economies. Privatization, particularly of large companies, "will pave the way for new areas of business involving considerable volume," Swiss Re predicts.

In addition, as life insurers become more financially stable and as investors see better returns, the insurers will in turn see more business.

While demand for certain kinds of coverage has increased, economic changes in Eastern Europe have caused a shrinkage in demand for other coverages, such as agricultural insurance, which used to be compulsory.

Commercial property insurance is growing in importance as businesses are privatized, the study says. General liability and employers liability insurance also are becoming more important, while demand for product liability coverage is growing as industrial companies become more export-oriented.

Privatization and decentralization of the insurance industry in Eastern Europe largely has been completed, and new companies-created locally or units of foreign insurers-have entered the market. They will gradually increase their market shares, with the foreign subsidiaries particularly gaining ground through takeovers, as the former state insurers decrease in importance.

The share of insurers under foreign control, while low compared with figures for Western Europe, is increasing throughout Eastern Europe. Topping the list is Hungary, where foreign companies make up nearly all of the industry; followed by the Czech Republic, where 20.5% of life companies are foreign; and Estonia, where 15.9% of life companies and 30.5% of non-life companies are foreign.

Although their market share is declining, particularly in non-life insurance, the former state-owned insurance monopolies remain the largest writers of insurance in the region, according to the study.

While the economies of Southeast Europe, the Baltic states, Russia and the Ukraine should achieve pronounced economic growth, it will be more modest than in Eastern Central Europe, which is made up of Poland, the Czech Republic, Hungary, Slovakia, Slovenia and Croatia, and continued high inflation and inadequate efficiency in the banking and financial market systems will make expansion in their life markets more modest in the short term.

Swiss Re notes three trends that it claims will determine the further development of insurance company branch structures in Eastern Europe. These are: the gradual region-wide introduction of compulsory auto insurance; the transition from book value to market value of commercial property, which will lead to a higher demand for property insurance; and the continued contraction of agricul-tural insurance.

As for insurance regulation, Eastern Europe is adapting itself to the standards of European Union insurance law. Countries of Southeast Europe, the Baltic states, Russia and the Ukraine have made less progress passing insurance legislation and enforcing what laws they do have. However, Swiss Re expects these countries to close the gaps in insurance legislation in the next few years and to establish an effective means of insurance supervision.

The study is available for no charge from Swiss Reinsurance Co., Economic Research Section, 8022 Zurich, Switzerland.