Market environment

With 300 million inhabitants, the region of Central and Eastern Europe still offers huge growth potential for insurance business.  For example, the per-capita expenditure for insurance products in the CEE region is still significantly below the level in western Europe. Currently in the 15 UNIQA CEE markets, the premium per capita per year is, on average, €216. In comparison, each Austrian citizen spends €1,960.
per year on insurance.

Economic environment

The macroeconomic environment continued to cool down in 2019. According to forecasts (OECD), the world economy grew by 2.9 per cent, its lowest rate since the 2008/2009 financial crisis. World trade is stagnating despite a deescalation in the US/China trade conflict (“Phase One” deal). The United Kingdom left the European Union on 31 January 2020, although uncertainty over their future trading relationship is continuing to weigh on the economy. Many countries, including Germany, are finding that industry is their weakest link, while their service sectors are flourishing. The downward trend in business confidence reached a first low point at the beginning of 2020. The economic impact of the spread of the coronavirus is still uncertain in March 2020, but there are already signs of a radical impairment of economic activity. Its extent will depend on the duration of the crisis and the public measures to prevent the spread on the one hand, and on the attempts to bridge the temporary losses of income for companies and households on the other. 

Gross domestic product (GDP) in the eurozone rose by 1.2 per cent in 2019. This means that growth was slower compared with the previous year. Consumption by private households continued to be bolstered by a healthy labour market: at the end of 2019, the unemployment rate in the eurozone was at a precorona low (7.4 per cent). The Austrian economy put in a solid performance in 2019. Despite growing international risks facing the economy, GDP growth for the year amounted to 1.6 per cent. Although here, too, the economy had cooled off compared with previous years, there were increasing signs of stabilisation on a path of modest growth towards the end of the year. However, a decline in international trade and the demand for industrial goods were curbing growth in the manufacturing sector. By contrast, the trend in the service sector was still very pleasing at the start of 2020, while demand amongst private consumers remained brisk thanks to the robust labour market. Both employment and wages were on the rise, while unemployment was at a very low 4.2 per cent. Disruptions of economic activity caused by people not working, interrupted supply chains, slumps in sectors directly affected by the impact of the coronavirus such as tourism and transport, and the influence of government measures to contain the further spread of the disease are expected to have a major, albeit temporary, effect on the development of the Austrian economy.

The European Central Bank (ECB) performed something of a U-turn in September 2019, bringing a temporary phase of monetary normalisation to an end with new measures to stimulate the economy and push up inflation. It reduced the interest rate on deposits to –0.5 per cent and, in November 2019, the ECB launched another unlimited programme of monthly bond purchases worth €20 billion. Despite this comprehensive monetary policy stimulus, inflation growth remains weak, meaning that a normalisation of monetary policy and interest rates is unlikely to be on the cards for the next few years under the ECB’s new president Christine Lagarde as well. A strategic review will be carried out from 2020 onwards to assess the effectiveness and appropriateness of the monetary policy instruments being deployed, amongst other things. The Federal Reserve, the US central bank, completed its midcycle adjustment with three interest rate cuts in 2019. In March 2020 central banks and governments around the world responded to the emerging consequences of the coronavirus spread. In two emergency meetings of the Open Market Committee, the Fed cut key interest rates by a total of 150 basis points. Its target range for key interest rates is thus 0 to 0.25 per cent. Furthermore, both the Fed and the ECB decided on new large-volume bond purchases and extensive measures to supply the money and capital markets with liquidity.

Last year Austria benefited from the still highly favourable economic conditions in Central and Eastern Europe (CEE). Economic growth in UNIQA’s core markets in CEE stood at 3.7 per cent (not including Russia) according to forecasts, down slightly on 2018. Nevertheless, CEE is amongst the growth regions enjoying the most rapid expansion and has so far shown itself to be highly resistant to the economic slowdown in the eurozone, an important trading partner for the region. However, negative contagion effects have adversely affected industry and the demand for exports in some countries. In the Czech Republic and Slovakia, economic growth slowed in 2019, with GDP rising by 2.4 and 2.3 per cent respectively according to forecasts. Poland and Hungary, meanwhile, are still enjoying something of a boom (GDP growth of 4.1 and 4.9 per cent respectively). Unemployment hit historic lows in CEE, with the healthy labour market underpinning strong domestic demand.

The Russian economy proved stable, although it offers relatively little potential for growth in the medium term. The planned delivery of national infrastructure projects presents opportunities for some upward movement. Ukraine’s economy, meanwhile, was on the road to recovery: inflation fell sharply in 2019, paving the way for more favourable financing conditions. The central banks in both Russia and Ukraine have begun cycles of interest rate cuts.

GDP growth rates in the economies of Southeastern Europe are around 3.4 per cent on average, with the positive trends continuing on the employment markets and inflation at modest levels. The Balkan countries also offer stable economic conditions as a whole. While there are signs of a temporary interruption of the solid economic development due to the effects of the coronavirus, with economic growth in CEE outstripping that in Western Europe by some margin, the process of income and wealth convergence in the region should continue in line with expectations.

Property and casualty insurance remain the driver for growth in Austria Premium revenues in Austrian property and casualty insurance were strong in 2019 with 4.2 per cent growth to €9.9 billion. Growth was driven by the comprehensive vehicle and passengers’ accident insurance (+6.4 per cent) business lines as well as fire, including business interruption (+7.2 per cent). The vehicle liability insurance business line, by contrast, only managed a slight increase in premiums (+1.7 per cent).

The premium attrition trend continued in life insurance, with premiums shrinking by some 2.2 per cent year on year to just under €5.5 billion. As in the previous year, the main reason was the 4.6 per cent drop in single-premium insurance to €0.7 billion. The life insurance business with recurring premiums also experienced a decline, although this was more modest at around 1.9 per cent to just under €4.8 billion.

Health insurance performed slightly less well in 2019 than in the previous year, with growth in premiums of 3.8 per cent to €2.3 billion.

Signs indicate continued growth in the Central and Eastern European markets As mentioned above, the macroeconomic environment in CEE is in very fine form. Like in previous years, the Eastern European insurance markets were able to capitalise on this sustained positive economic trend again in 2019. According to the results currently available, total premium volumes rose in Central and Eastern Europe (not including Russia) by around 5.0 per cent to an estimated €35 billion. This equates to growth of some €1.5 billion year on year in absolute terms. All CEE markets posted premium growth in 2019 despite the characteristic diversity between them. Growth rates in the individual countries ranged from just under 2 per cent in Poland to some 17 per cent in Bulgaria and Ukraine and are expected to remain well above the eurozone average in 2020– 2021 as well.

Increased demand for insurance products fuelled by the sustained economic growth resulted in a marked rise in premiums in the year just passed – particularly in property insurance, where the figure was over 7 per cent. Stimulus for growth came in particular from the household and homeowner sectors as well as from health insurance and the vehicle insurance business lines. The vehicle business lines experienced substantial premium increases, mainly due to higher vehicle inventories as a result of a significant overall rise in new registrations as well as higher average premiums in certain countries.

Developments in the life insurance markets in Central and Eastern Europe, by contrast, were mixed. Following robust premium growth in 2017 and a fall in 2018, however, life insurance once again posted slight premium growth overall in CEE.

Growth in the region depends largely on the trend of the life insurance market in Poland, where the sharp decline in the insurance business involving short-term, single-premium products – which has fallen by some €600 million in all, i.e. about 50 per cent, over the past two years – has cut aggregate growth on the life insurance markets significantly in recent times. This contrasts with another trend of the past few years, which demonstrates that extraordinary premium growth is very likely in some Southeastern European countries on account of their still-underdeveloped life insurance markets.

The next few years should see demand for life insurance in Eastern Europe recover across the board as people will still need their own, independent provision on top of their state pension. Many insurers have also responded to the persistently low interest rates by launching new provision solutions.

CEE remains a region with high growth potential for UNIQA, as can be seen from the positive performance in the insurance markets overall over the last few years. The sustained positive economic performance in Central and Eastern Europe should lead to further increases in income over the next few years and to higher consumer spending by households. Rising levels of wealth and growing purchasing power also mean greater demand for insurance solutions – and this in a market with some 155 million potential customers (not including Russia).

Both premiums per capita (insurance density) and the share of GDP contributed by the insurance industry (insurance penetration) in CEE are still well below the Western European market average, illustrating quite clearly the immense catch-up potential that these insurance markets continue to offer.

Market categorisation

We categorise the European markets in the following regions:

  • Austria
  • Central Europe (Czech Republic, Hungary, Poland, Slovakia)
  • Southeastern Europe (Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Northern Macedonia, Montenegro, Serbia)
  • Eastern Europe (Romania, Ukraine)
  • Western Europe (Liechtenstein, Switzerland)

We also are actively involved in Russia. 

Market positions

We are the market leader in some of these countries, while we hold top market positions in many of them. In a few others, we still have some catching up to do. However, there is still plenty of room for expansion in most of these markets irrespective of our own market position.