BMI View: Hungary's insurance market is under-penetrated by both regional and global standards. Although total penetration has been consistent , it only accounts for only 2.7% of GDP which puts Hungary among the lowest rating countries out of the OECD member group, especially with an OECD average of 8.4% GDP. Regionally, unlike some of its counterparts in Central and Eastern Europe (CEE) , Hungary does not have a strong outlook in terms of premium growths from a large base as the country is more fragmented and facing numerous challenges. Recently the economy has enjoyed a small boost driven by private expenditure , but we don't see this impacting the segment radically due to lack of affordability and awareness , particularly among the life segment.
In the non-life segment, soft prices will constrain premium growth in a fragmented marketplace. This is at a time that the near-stagnation of the wider European economy will continue to limit volumes growth. Despite moderate economic growth in 2015 we don't anticipate significant growth in the segment as the shrinking population, high unemployment and low life expectancy all present key challenges for insurers. There are still growth opportunities in some sub sector lines such as property insurance, whilst some lines will continue to stagnate, such as motor insurance.
There are some markets in Central and Eastern Europe (CEE) that can look forward to superior growth in premiums - and from a large base - through the forecast period. Hungary is not one of them. The country is a classic example of a fragmented market where excess capacity is causing prices to fall in the main sub-sectors of the non-life segment (namely property and motor vehicle insurance). A key metric is total penetration. This has been fairly constant at about 2.7% of GDP (which is not a high level) and is expected to remain broadly unchanged through the forecast period. Indeed, it appears that all the households and businesses that can afford life insurance (and who understand it) are already using it.
We anticipate that the property insurance market will be one of the stronger non-life performers in terms of premium growth in the medium term. The property insurance segment is set to outperform the more fragmented and stagnant motor vehicle segment. As the environment is more cautious for businesses and consumers alike we see the limited scope of growth being driven as a result of capital inflows from overseas. Real estate will benefit from this and recent figures highlight that the segment is growing as foreign investors look to take greater advantage of low borrowing costs and high yields. The key challenge in the non-life segment will remain to be the country's fragmented state, prompting our stagnant outlook. The motor vehicle insurance market is a prime example of this as the stagnation of the country's passenger car fleet is expected to cause insurance premiums to flat-line over the next few years.
In the life segment, further growth will be difficult to achieve given that more or less all potential customers are already using the insurers' products and solutions. The difficulty of increasing penetration is further hindered by the gradual shrinking of the Hungarian population combined with one of the lowest average life expectancies in Europe at around 75 years of age. This, combined with an already competitive operating environment, will limit opportunities for new entrants over the next few years. Reinsurance also faces a challenging outlook. Hungarian life insurers appear not to need to lay off risk in the global reinsurance market while many of the leading life companies, in any case, have in-house reinsurance operations.
We believe that these themes and trends will remain in place beyond 2015 and over the medium term to 2019. Many companies are defending profitability by cutting costs, changing product portfolios and distribution strategies and/or taking steps to enhance efficiency. Nevertheless, we remain of the view that consolidation in the fairly fragmented marketplaces of both major segments is likely. The shape of the competitive landscape and the extent to which the sector (and the non-life segment in particular) continues to be plagued by over-capacity will determine how Hungary's insurance sector develops in 2020 and beyond.
In March 2015, it was reported that the National Bank of Hungary will make up to USD386.99mn available to the National Deposit Insurance Fund OBA in the form of a liquidity loan aimed at compensating depositors of four small banks linked to failed brokerage firm Buda-Cash.
In January 2015, Canadian insurance company Fairfax Financial Holdings reached an agreement with QBE Insurance (Europe) to buy QBE's insurance businesses in Hungary, the Czech Republic and Slovakia.
In January 2015, a small earthquake hit parts of Hungary's Nograd, Heves and Pest Counties. According to the trade association, this resulted in aggregate damages of around HUF190mn.
Generali moved to 100% control of its Generali PPF Holding JV on January 1 2015: this includes its operations in Hungary.
Key BMI Forecasts
In 2015, life premiums are expected to fall by 5.5% to USD1.8bn.
Non-life premiums will likely contract by 11.2% to USD1.5bn.
Within this sub-total, motor vehicle insurance premiums should drop by 14.6% to USD572mn.
Property insurance premiums are forecast to contract by 8.8% to USD637mn.