The CEE - a motor insurance market under pressure
While the exit of some international players from the market has lessened pricing pressure, we don't think this will last or expect to see growth in the near future that would restore the profitability of smaller, undiversified players, despite the market being underpenetrated by Western European standards, says S&P's. On the contrary, we see a number of issues arising that could further dampen the sector's prospects. The prolonged low interest rate environment, increased regulatory requirements, digitalization, higher policyholder awareness, and the possible liberalization of specific markets could, in our view, place additional pressure on insurers in the region, especially smaller, less diversified ones. That said, we believe that these challenges will not have any direct rating impact on insurers we rate from the region, due to their generally strong diversification and sufficient scale.
The main findings of the S&P's report are:
- The profitability of MTPL insurance in CEE will remain divergent across countries, with some significantly outperforming others, in our view.
- We believe the MTPL sector faces challenges from increased claims, possible market liberalization, digitalization, and convergence toward Western European operating standards, with small, less diversified insurers most at risk.
- We anticipate that weak performance of CEE MTPL will hurt the P/C insurance sector's overall profitability and lead to further consolidation.
- The insurers we rate that are exposed to the CEE MTPL market are well-positioned to withstand such challenges, due to their strong diversification and sufficient scale.