Ilijana JELEC Member of the Board Croatian Financial Services Supervisory Agency (HANFA).

XPRIMM: How would you comment on the insurance market's general evolution during the first part of 2018?

Ilijana JELEC: Overall, we can say that the Croatian insurance market has experienced significant recovery. In 1H 2018, premiums recorded a total growth of 9.2% (9.5% in non-life insurance and 8.5% in life insurance) in comparison with the same period last year (1H 2017). The structure of premiums has not changed significantly compared to the same period last year: The share of non-life insurance is 69% and life insurance is 31%.

In life insurance, traditional insurance is still the most significant line with a 78% share (in comparison with 1H 2017, when it reached 73%). During the previous years, the share of traditional life insurance in total life insurance decreased due to the growth of unit-linked business, predominantly single premium. This was mainly due to the low interest rate environment and strong bank assurance sales channel.

However, during H1 2018, traditional life insurance showed signs of recovery and premiums continued to increase in comparison with those in 2017, mostly due to bank assurance sales channel activities and endowments shifting in new single policies, especially in cases of mature life portfolio.

In the non-life segment, the most dominant insurance line is still MTPL with a 29% share. Premiums for motor hull insurance, other property insurance, and general liability insurance also rose significantly, which resulted in a substantial increase of total non-life premiums.

XPRIMM: Are there any changes in your market's structure (new entries, mergers, acquisitions, exits etc.)?

I.J.: There are no significant changes in the ownership structure. On the Croatian market there were two mergers in the first half of the year - one within Vienna Insurance Group, and another one within Croatia osiguranje Group (the merger of the Croatian subsidiary of Vienna Insurance Group, Wiener Insurance with Erste VIG, and merger of Croatia osiguranje with Croatia osiguranje krediti.).

XPRIMM: How would you comment on the evolution of motor insurance lines during the last year? What were the growth drivers? What about the profitability of the motor insurance business?

I.J.: In regards to growth drivers, sales of new cars increased in H1 2018 by almost 20%. Regarding profitability, according to the Act on Compulsory Traffic Insurance, insurance undertakings are obligated to form insurance premiums sufficient to coverall future claims and expenses. Therefore, HANFA [the Croatian Financial Services Supervisory Agency] carries out continuous supervision of MTPL business and if necessary, imposes measures instructing the insurance companies to fulfil these requirements. As a result, GWP and the profitability of MTPL business have stabilized compared to the previous year but we have to take into consideration that profitability is not yet satisfactory.

XPRIMM: How popular are new technologies in the Croatian market, for example the use of telematics, claims reporting apps, etc.?

I.J.: New technologies in insurance do not develop as fast as in other industries due to the traditional aspects of the trade. Nevertheless, insurers are developing mobile applications for clients (policies, claims, e-bills, etc.). Increased use of new technologies has been recorded in claims handling (for example, electronic claim application and processing) and sale of simple insurance products (such travel insurance and additional health insurance).

XPRIMM: Croatia was affected in both 2017 and 2018 by extreme weather events. How large was the economic impact and how much of the loss did the insurance industry cover?

I.J.: Official data on economic losses caused by the heatwave aren't available yet, but we don't expect any significant losses, taking into account low insurance penetration in Croatia and the information available from the media and the government. Besides, during H1 2018 weather conditions were less extreme than in 2017 and we do not expect a significant impact on claims incurred.

XPRIMM: How do you comment on the Nat Cat insurance coverage degree in your country? Is your government taking action to improve Nat Cat protection?

I.J.: The low Nat Cat insurance coverage degree in Croatia is caused mostly by low risk awareness among the population and partly by the government's intervention policy in place. The protection against natural disasters in Croatia is regulated by the Act on Protection against Natural Disasters and a series of accompanying subordinate regulations. The financial assistance system is implemented at the local self-government, regional self-government and state level, but only for direct damages that are not insured.

XPRIMM: Please share your comments on the insurance distribution channels in your country with our readers: which channels are the most popular in different lines of business and why; what is the status of the insurance brokers etc.

I.J.: Insurance brokers are not one of the dominant sales channels in Croatia - the market share of insurance brokers' business in 2017 stood at 8%. Besides property and liability insurance, brokers are more popular in corporate insurance lines with small shares in the market premium written, such as transport, aviation, suretyship, insurance of railway locomotives, and rolling stock. In non-life insurance, the most significant distribution channel is internal sales force (41% of total non-life premium). In life insurance, bank channel accounts for the biggest share in life gross written premium (39%).

XPRIMM: In your opinion as a supervisor, what are the main challenges and opportunities in your market? Are there any legislative changes to be expected in the near future?

I.J.: The main challenges mostly relate to the new regulation: PRIIPs, IDD Directive and the new accounting standard IFRS 17. A lot of additional information and reports have been collected since Solvency II came into force, and some of them need to be submitted twice (within Solvency II and standard statutory reporting), which can be burdensome for businesses. The new legislation also implies additional expenses and challenges, both for enterprises and supervisors.

XPRIMM: Considering the market results recorded in the first half of the year, what are your expectations for the year-end?

I.J.: We expect that the growth recorded in 1H will remain more or less unchanged until year end in non-life insurance and be slightly higher in life insurance because more premiums written in the life segment is traditionally written in December on the Croatian market.

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