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CAUCASUS INSURANCE MARKET

AIIF 2012

Chingiz Mekhtiyev

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CAUCASUS REGION

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General InformationAzerbaijan Georgia Armenia

Independence 18 October 1991 31 March 1991 21 September 1991

Official Language: Azerbaijanian Georgian Armenian

Area 86.6 ths. sq. km. 69.7 ths. sq. km. 29.7 ths. sq. km.

Population 9,2 million 4,5 million 3,3 million

Capital Baku Tbilisi Yerevan

Currency Manat Lari Dram

Source: The State Statistical Committee of the Republic of Azerbaijan, National Statistics Office of Georgia, Statistical Service of Republic of Armenia

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Macroeconomic figures (in USD)

Source: Azerbaijan Export and Import Promotion Foundation, www.indexmundi.com, World Bank, Central banks of respective countries

2011 Azerbaijan Georgia Armenia

GDP 63.4 bln 14.4 bln 10.2 bln

GDP per capita 7,003 3,215 3,022

Inflation (as of 2010) 5.1 % 5.7 % 6.9 %

Unemployment rate 7.6 % 15.1 % 6.2 %

Poverty level 5.4 % 9.2 % 35.8% (2010 statistics)

Average monthly salary

460 412 299

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GDP in South Coucasus (bln USD)

2005 2006 2007 2008 2009 2010 20110.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

13.2

21.0

33.1

48.944.3

52.9

63.4

6.4 7.810.2

12.8 10.8 11.614.4

4.9 6.49.2

11.78.6 9.4 10.2

Azerbaijan Georgia Armenia

The State Statistical Committee of the Republic of Azerbaijan, World Bank

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GDP Share in South Caucasus (%)

2005 2006 2007 2008 2009 2010 2011 -

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

53.9 59.7

63.0 66.6

69.5 71.6 72.0

26.1 22.2

19.4 17.4 17.0 15.7 16.4 20.0 18.2 17.5 15.9

13.5 12.7 11.6

Azerbaijan Georgia Armenia

The State Statistical Committee of the Republic of Azerbaijan, World Bank

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GDP per Capita (in USD)

2006 2007 2008 2009 2010 20110

1000

2000

3000

4000

5000

6000

7000

8000

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

2471

3841

56034874

5631

7003

17642315

2921

24552623

3215

2,267

3,2053,592

2,5582,953

3,022

Azerbaijan Georgia ArmeniaAzerbaijan dynamics Georgia dynamics Armenia dynamics

The State Statistical Committee of the Republic of Azerbaijan, World Bank

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Country ratings

Azerbaijan Georgia Armenia

Rating BBB- B+ BB-

Outlook Positive Stable Stable

Azerbaijan Georgia Armenia

Rating BBB- BB- Not rated

Outlook Positive Stable -

Fitch Rating

Standard&Poors Rating

Moody’s Investors Service

Azerbaijan Georgia Armenia

Rating Baa3 Ba3 Ba2

Outlook Stable Stable Negative

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Country ratings

Rating Azerbaijan Georgia Armenia

World 55 88 92

CIS countries 1 5 6

WEF Global Competitiveness Report 2011

Rating Azerbaijan Georgia Armenia

UNDP Human Development report

67 74 76

Human Development Report 2010

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Market Players

Azerbaijan Georgia Armenia

Non – life IC 25 14 8

Life IC 3 0 0

Reinsuarance Companies 1 - -

Brokers 6 12 4

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2008 2009 2010 20110.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

316.44340.99

427.61

581.90

150.2196.6

254.6300.1

81.64

Azerbaijan Georgia Armenia

Total Assets of Insurance companies (mln. USD)

Source: Ministry of Finance of Azerbaijan Republic, National Bank of Georgia, Central bank of Armenia

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2008 2009 2010 20110.00

50.00

100.00

150.00

200.00

250.00

300.00

350.00

103.24133.25

187.71

321.84

18.8 24.8 25.841.9 30.94

Azerbaijan Georgia Armenia

72%

Paid-up capital (mln USD)

62%

Source: Ministry of Finance of Azerbaijan Republic, National Bank of Georgia, Central bank of Armenia

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Gross Written Premium 2011 (mln USD)

2008 2009 2010 20110.0

50.0

100.0

150.0

200.0

250.0

300.0

223.1203.4 195.0

270.8

163.2

213.8 205.2191.2

58.08

Azerbaijan Georgia Armenia

39%

- 7%

Source: Ministry of Finance of Azerbaijan Republic, National Bank of Georgia,, XPRIMM

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2012 (1st Quarter) Premiums (mln USD)

20091st Qr

20101st Qr

20111st Qr

20121st Qr

0.0

20.0

40.0

60.0

80.0

100.0

120.0

53.4 55.662.0

103.8

67.7

50.1 50.2

78.9

Azerbaijan Premium (mln USD) Georgia Premium (mln USD)

Source: Ministry of Finance of Azerbaijan Republic, National Bank of Georgia

67%

57%

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Azerbaijan Georgia Armenia0

5

10

15

20

25

30

35

40

45

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

29.32

42.49

18.150.43%

1.33%

0.57%

GWP per Capita (USD)

GWP / GDP %

GWP per capita and GWP to GDP

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GWP in Caucasus 2011 (mln USD)

52%37%

11%

Azerbaijan

Georgia

Armenia

Azer

baija

n

Geo

rgia

Arm

enia

0.0

50.0

100.0

150.0

200.0

250.0

300.0

89%

95%

100%

11%

5%

LifeNon-Life

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Loss ratio (2011)

Medical

Motor Casco

Personal Accident

Property

Liability

0% 20% 40% 60% 80% 100% 120%

96%

50%

32%

29%

13%

87%

47%

16%

6%

2%

70%

63%

9%

9%

19%

Armenia

Georgia

Azerbaijan

Source: XPRIMM, Ministry of Finance of Azerbaijan Republic

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GWP Structure(2011)

66.44%9.61%

6.84%

6.64%

ArmeniaMTPL (com-ry)

Property

Motor Hull

Health

CARGO

GTPL

Financial risks

Travel

Accidents

Other

21.1%

17.2%

24.4%

14.0%

6.0%

6.6%

7.3%

3.4%

Motor insurancePersonal (medical + PA)Compulsory insurancesProperty insuranceCargoLiability Aviation hullOthers

Azerbaijan

62.46%

12.42%

8.65%

5.10%

GeorgiaHealthPropertyMotor HullLifeAviation*SuretyshipGTPLMTPLCARGOTravelAccidentsOther

Source: XPRIMM, Ministry of Finance of Azerbaijan Republic

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Summary

GDP 72% Azerbaijan

Assets 60% Azerbaijan

Capital 82% Azerbaijan

GWP 52% Azerbaijan

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Weaknesses

• Very young market

• Bad history of former USSR insurance system

• Narrow spectrum of services

• Lack of modern sales technology

• Lack of sophisticated IT platforms

• Lack of corporate governance

• Territory geographically is prone to CAT risks / Lack of CAT cover

• Price sensitive market

• Low self retention (capacity) of Insurers

• Political instability in the region

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Strength

• New market with big growth opportunity

• Well educated professionals speaking at least 3 languages

• Big energy and infrastructure projects

• Adoption of compulsory insurance laws

• Tax discounts for life insurance

• No VAT applied for insurance services

• Good loss ratio

• Gradual increase of capitalization

• Update of legislative acts

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Challenges and Opportunities

• Low market penetration

• Huge growth potential

• Investment in Internet sales

• Investment in information recourses

• Investment in skilful management

• Investment in core systems

• Development of predictive modeling and advance analytics

• Anticipate regulatory changes

• Working on reshaping products and services and distribution channels

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THANK YOU !!!