BMI View: Lithuania's insurance market is underdeveloped, with limited penetration and density in both the life and non-life sectors. However the country offers substantial growth potential and benefits from the presence of a number of large regional and global insurers which bring expertise and capital stability to the market. We are forecasting steady growth in premiums across the insurance market over the forecast period and in conjunction with a transparent regulatory environment this makes Lithuania an increasing ly attractive investment destination.
The domestic economy in Lithuania is expected to slow somewhat in 2015 and 2016, and we have revised down our real GDP growth outlook for the country as the impact of Russia's economic crisis on Lithuania has been more pronounced than we had anticipated. As a result, we have downgraded our forecast for real GDP growth to 2.5% in 2015 and 3.1% in 2016, from our previous forecasts of 2.8% and 3.3% respectively. Short-term currency fluctuations will also impact the market and mean that we expect to see double-digit declines in life and non-life premiums in US dollar terms over 2015, before returning to growth in 2016. In local currency terms, we expect to see positive growth driven by an increase in private financial consumption - with our forecasts supported by the latest Bank of Lithuania figures, which show steady growth in life and non-life premiums over the first half of 2015.
Several large and strong multi-national firms have a presence in Lithuania and recent months have seen a number of acquisitions in the market, reflecting the attractiveness of the country's growth potential. The large insurance firms will be able to manage increasing capital requirements following the introduction of the Solvency II regime, though we may see some smaller players priced out of the market which gives scope for entry into the market via local acquisitions, particularly in the non-life sector.
Lithuania's non life sector is altogether more developed, with a greater share of premiums written in the market. In 2015 we expect non-life premiums will increase by around 4% in local currency terms, with motor insurance, transport and property insurance accounting for nearly 80% of premiums written. Pricing competition is particularly intense in these lines which places downwards pressure on pricing; and thus we expect to see stronger growth in the smaller non-life lines such as health insurance over the course of the forecast period. In the smaller life segment, growth will be driven by increasing household income leading to a rise in the number of households which can afford to save. Unit-linked and single premiums products are seeing the fastest growth. Over the forecast period, we expect to see high single-digit growth (in US dollar terms) in life premiums, though the market will remain small by global standards.
Recent D evelopments
Vienna Insurance Group, via subsidiary Compensa Life, is expanding in the market through the recent acquisition of Lithuania's largest life insurance sales company Finsaltas.
Vienna Insurance Group has also recently acquired a 100% share in Latvian based insurer Baltikums which has a small share of the non-life market in Lithuania.
Swedish life insurance giant Skandia has announced plans to open an accounting and insurance customer service centre in Lithuania.
Key BMI Forecasts
In 2015, life premiums are forecast to fall by 16.2% to USD208mn.
Non-Life premiums will contract by 14.7% to USD448mn.
Within this sub-total, we look for motor vehicle insurance premiums to slip by 16.4% to USD153.5mn.
Transport insurance premiums should contract by 11.5% to USD117.8mn.