Although vulnerabilities are still here, the European economies show clear signs of recovery on an upward trend. According IMF, the outlook is for a continued gradual and uneven expansion. Advanced Europe's real GDP is projected to grow by 1.7 percent in 2011 and by 2 percent in 2012. Emerging Europe's growth is expected to be 3.7 percent in 2011 and 4 percent in 2012. Economic prospects across the region are likewise divergent, largely reflecting differences in the state of public and private sector balance sheets and the stance of macroeconomic policies.
In emerging Europe, the recovery has broadened, but growth continues to be primarily export-led. Poland, the region's largest and most domestically oriented economy, will remain the growth leader. Growth is expected to remain solid at about 3.8 percent this year as corporate profitability rises, the absorption of EU funds continues, and bank lending resumes. Exports are also driving the Baltic region's slow return to growth amid an ongoing process of internal devaluation. Political risks and continued fiscal consolidation threaten support for coalition governments across the region. Estonia will lead regional growth, as positive sentiment surrounding the country's 2011 euro adoption supports a recovery in domestic demand. The South-Eastern Europe economies will experience positive but below-trend growth rates in 2011, due to slow capital inflows, ongoing deleveraging and fiscal austerity measures. Fiscal tightening will weigh on regional growth in the forecast period. A rapid recovery is projected to continue in Turkey, where robust private demand and buoyant credit growth are lifting economic activity above its potential level amid still-accommodative macroeconomic policies.
Among the most important volatility factors, the continuing debt crisis in the eurozone could spill over to the SEE region via trade and financial channels, unsettling the recovery. Still, for the time being, although concerns about banking sector losses and fiscal sustainability made the headlines in some European countries, the damage to economic activity was limited to the affected economies and did not spread to the rest of Europe, where growth has become more broad-based and self-sustained. The approaching election cycle in the CEE region brings an additional risk of fiscal slippage, which could result in higher borrowing costs. Another downside risk to growth stems from higher-than-expected commodity prices.
All in all, the worst case scenario seems to be, at the moment this articles is written, a long period of slow economic growth. Nevertherless, for the regions' citizens, the positive impact of the macroeconomic recovery remains still in the future, as unemployment will most probably remain at high rates in the following years and the austerity measures, reducing household wealth, will continue to affect the daily life. For the insurance industry, economic recovery could mean corporate business revival, while weakened household incomes will still put pressure on the retail segment.
2010 in CEE insurance
The CEE insurance market ended year 2010 with an overall EUR33.1bil GWP, meaning a 7.4% evolution as compared to 2009. After a quite "symmetrical" result in 2009, of 7.6% less underwriting volume than in 2008, the 2010 results looks really optimistic. Still, it is noticeable the regional end year result shows a sensible "balancing" of the growth rate showed by the market in the first half of 2010, of about 6.45%. It is also obvious that across the region, results vary in a fairly wide range, usually according to the different situation of the domestic economies: while for many of the countries in the region the second half of 2010 started offering a better environment, visible in the higher market dynamic, there are still some countries were the final six months of 2010 didn't bring any good news.
Estonia, Poland and the Czech Republic - the most spectacular growth rates, of over 16% and 14%, respectively. While growth in Estonia and the Czech Republic comes mainly from the strong recovery of the life segment, in Poland both segments of the market grew almost at the same pace, with a slight plus for non-life. Poland's performance is even more impressive as in 2009 it reported a fall of 12%, unlike the Czech Republic which, with a 2009/2008 growth rate of over 4%, was the only important insurance market in the region that did not decrease due to the crisis.
With few exceptions, the rest of the registered positive performance, in relative terms, in 2010, belong to small and very young markets from the ex-Yugoslav region and surrounding areas: Kosovo, Macedonia, Albania and Bosnia & Herzegovina. They have recorded growth rates of 3-5%, after in previous year they had reported very small decreases or even slightly positive results. The exception is Slovakia, a medium-sized, mature market, who managed to use the increased appetite for insurance products with investment components and marked an increase of 4% of the total volume of gross written premiums. Finally, Slovenia and Lithuania have passed the year 2010 registering growth rates of less than 1%. For Lithuania, the mere positioning in the group of countries with a positive evolution of the underwritings is a notable performance, given the very difficult period through which the Lithuanian economy continued to pass in 2010.
Hungary, Croatia, Montenegro, Serbia, Romania and Latvia have not been able to stay in the black, although the half year results entitled many of these countries to hope that 2010 will end with clear signs of returning to an ascending trend.
Life insurance industry represented in 2010 the re-launching engine of the industry. In almost all countries, this business segment has recorded positive results. Therefore, not incidentally, the best growth rates in 2010 belong to countries where the share of life insurance is over 40% of the insurance portfolio. The "reborn" investment appetite of clients, combined with a wide range of life insurance products where the investment component accounted for the "lion's share", resulted in growth rates which in some cases have exceeded even the record figures from the "good years" before the crisis.
On the non-life segment, only Poland has registered a spectacular increase, of 16%. The rest of the countries in the region, except for Latvia, have registered modest results, either positive or negative. Also note that, in general, the increase of the premiums volume was accompanied by a significant increase in the volume of paid claims. Not few are the cases where an increase in GWP of only a few percents came with a double digit increase of claims, proving an increasingly competitive character of the non-life markets.
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