CYPRUS: a premium destination for insurers, with large room for expansion

Over 34 insurance companies operate currently in Cyprus mainly revolved around the domestic market in the past. As an EU member at the moment, the island has attracted some major international industry players having a key role serving the markets of the Eastern Mediterranean, Middle East, Russia and the CIS region.

Up until 1960 (independence year from Britain) insurance in Cyprus was provided from the large UK insurance houses with agencies in Cyprus. Companies registered in England, operating under British insurance law until 1969, when the state passed the Insurance Companies Law making it possible for the establishment of local insurance companies and transforming many of the former agencies into fully-fledged independent insurance companies. This helped the Cypriot market to expand both in number of companies and volume of business substantially.

Cypriot domestic insurance sector is considered to be a highly competitive and sophisticated one, which is mainly due to the large number of insurance suppliers in relation to the size of population. 34 insurance companies are operating in the domestic market including five EU firms and three non-EU undertakings plus another six international insurance/reinsurance companies provided services solely outside of Cyprus. The supervision and regulation for all companies it is handled by the Superintendent of Insurance appointed by the Ministry of Finance assisted by the Insurance Companies Control Service.

In Cyprus most of the largest insurance companies have a banking background, meaning that these companies are either subsidiaries or affiliates of banks. For example in the life segment Laiki Cyprialife and Eurolife had the largest market share in 2010 accounting each of them for almost 30%, followed by Universal Life at 15%. In non-life Laiki insurance, a subsidiary of the Marfin Laiki Bank and General insurance of Cyprus are leading the market. Whilst the banks have expanded their operations internationally, mainly into Russia, the Balkan States and the CIS countries, their insurance arms followed suit, thus taking bancassurance products managed from Cyprus to the various countries in which Cypriot banks have a presence. In addition, almost 400 EU insurance companies are exercising their right to provide cross-border services in Cyprus. While the official figures on passporting-based operations in the Single Market of the EU are not available, insurance experts estimate that cross-border business will expand in the next few years.

As the market grew with the years in the island it has shown an impressive development, with data released by the IAC (Insurance Association of Cyprus) the total gross premiums written amounted to EUR 761.6 million in 2010, up by 71% from EUR 446 million in 2001. Life premiums totaled EUR 375.2 million in 2010 while non-life premiums reached EUR 386.4 million in the same year. The industry registered 6% growth in life premiums written and 4% in non-life premiums written in 2010. This growth continued also in 2011 where the 4Q premiums reached EUR 402 million in non-life premiums a 1.24% change from 2010. While the total gross written premiums including A&H premiums by Life Companies reached EUR 460 million a 3.62% change since 2010.

Cyprus industry with over 2000 direct employees and a further 2000 intermediaries accounts for some 4-5% of GDP which is lower than the global average of 9%, a fact that indicates ample space for significant growth. Executives say that in the years to come a major shift is likely to occur regarding attitude and a corresponding increase in underwriting in Cyprus, where the penetration rate for insurance policy has been lower than in Western Europe. With Life insurance showing great potential managing a 6% increase even through 2010. The demand has grown due to the challenge of an ageing population in Cyprus also considering pension reforms as the country recognizes that, along with other western countries making it harder in terms of funding pension programs when forecast of the number of elderly people is to triple in the next few decades. Therefore the insurance industry sees great opportunities in providing private funded policies for people's health and retirement encouraging the government to open the market to them.

Having such a great and rapid development the insurance sector of Cyprus is one of the most interesting areas of the island's financial services industry, being attractive to EU or non-EU based insurance companies and managers. The target is to become a centre for insurance and reinsurance activities reaching to countries that want to enter the EU, Russia, CIS countries, the Middle East or Mediterranean to choose the Island as their regional headquarters in order to benefit from the easy market access and the fact that it has a stock of insurance professionals to service the industry and a reputable international financial centre. Another advantage is also Cyprus tax system, a strong network of double tax agreements, no tax on capital gains and the participation exemption of dividends - both receivable and payable - without onerous conditions and without any thin capitalization rules. Thus, Cyprus has already become an attractive option for holding companies for multinational groups.

On the other side now regarding the nessecity of regulatory requirements, Solvency II, is inevitably the next challenge for the Cypriot insurance industry. While the deadline for 2013 will most probably be pushed back to 2014 many companies are preparing themselves for the future trying to find ways to increase their capital reserves and risk management standards as required under the new directive. As a result, many companies will not be able to meet the requirements and a period of consolidation is expected in the near future, therefore a reduction of number of current players is most likely to occur, which will leave the ground to larger sized insurance firms with higher capital. For example the first merger has already made the market with Interlife joining forces with Greek insurance firm Demco changing its name to Prime Insurance in 2011.

In conclusion, even though the island's insurance industry remains a small one compared internationally its believed that the backup of experience and the large number of qualified professionals gives it an edge when seeking to attract international insurance management and reinsurance operations. With organizations such as the Insurance institute of Cyprus and the Cyprus Association of Actuaries constantly training professionals to ensure that the right skills are available. Cyprus EU membership strategic location, low taxation, extensive umber of tax treaties and a host of other fiscal advantages offers great potential for companies searching to expand in the EU and surrounding markets of the Mediterranean region.

Download the 2011 market statistics published by IAC.

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