Банкеръ Weekly



Life insurance is a peculiar kind of investment which gives a person and his/her family security that in moments of illness, disability or even death, they will get a compensation, protection against poverty, and savings. But despite these advantages, most Bulgarians worry less for their lives than for insuring their cars. Perhaps that is the reason for the still unsatisfactory performance of the life insurance sector in 2003. Proceeds for last year amount to almost 52% of the 2002 revenues. This means that the general drop in life insurance is 48 per cent. But despite the overall unfair trend, three companies report growth as compared to 2002. Proceeds of Allianz Bulgaria Life went up from BGN11,054,000 in 2002 to BGN16,302,000 in 2003, marking a 47% increase year-on-year; the revenues of AIG Life (Bulgaria) rose by 50% within the same period, from BGN6,275,000 to BGN9,437,000, and incomes of Grave Bulgaria increased from BGN3,048,000 to BGN4,030,000 (by 32%). The companies' 2003 rating according to the premium proceeds indicator is as follows: DZI AD which holds 33% of the market retains its leadership; Allianz Bulgaria Life - with a 23% market share - is second; AIG Life (Bulgaria) - with a 13% share - is third; Orel Life - also with a 13% market share - comes next; the companies Bulstrad DSK Life and Grave Bulgaria - each with a 6% share follow; Vitosha Life holds 4%, and Bulgarian Estates-Life holds 2 per cent. Technical reserves (the so-called insurance reserves) are another important indicator for evaluating the insurers. They cover risks such as permanent disability, death cases, temporary disability, etc. In 2003 the eight leaders in the life insurance sector - DZI, Allianz Bulgaria Life, AIG Life (Bulgaria), Orel Life, Bulstrad DSK Life, Grave Bulgaria, Vitosha Life, and Bulgarian Estates-Life - have put aside as reserves a total of BGN107,834,000, which guarantees to their clients security and payment of compensations. For comparison, the eight companies had set aside a total of BGN103,445,000 in reserves in 2002. DZI AD again tops the list with the largest amount of reserves, BGN58,900,000 (or 54% of the aggregate value); Allianz Bulgaria Life is second with BGN23,362,000 (21%), and AIG Life (Bulgaria) is third with BGN9,075,000 (8%). Considerable amounts of reserves, proportional to their operation, were set aside by Orel Life - BGN5,450,000 and Grave Bulgaria - BGN4,414,000.Compensations paid up in the insurance sector are another important indicator. The eight top insurers paid up a total of BGN40,583,000 in compensation last year, or 33% of the amount paid in 2002. DZI AD was the company that paid the largest amount of compensations in 2003 (53% of the aggregate); Orel Life is second with 17%, and Bulgarian Estates-Life is third (with 14% of the entire amount of compensations). The reasons for the shrinkage of life insurance activities are related to the State's general strategy in the branch. In 2002 the tendency in the State's policy was to apply financial schemes for reducing the tax burden on life insurance and the entire amount of natural persons' insurance was acknowledged as expenses, while in 2003 the amount recognized as costs was drastically reduced. Insurance companies claim that the 2002 results were artificially padded for this reason, and the real picture of the life insurance market could be seen in 2003. The half-reduced proceeds indicate that in addition to the grave economic situation of most Bulgarians, there is something wrong with the State's tax policy. Life insurance is still taxable. A 2% tax is charged on the amount of premium proceeds and not on the financial result (i.e. a profit tax) as in the other branches of economy. Tax legislation as a whole also creates problems, although it has been amended in recent years. For example, the people employed under labour contracts can use a tax relief for life insurance only if the payments are made each month, unlike the people with liberal professions who enjoy that preference throughout the year. The Natural Persons Income Taxation Act stipulates that the 10% reduction of the tax basis for the people employed under labour contracts is calculated on the grounds of the monthly salary, while the basis for the others are their annual incomes. Practically, this is a serious problem for most life insurers, because they have calculated only annual or half-annual insurance instalments.Despite the current gloomy picture in the life insurance sector, the managers of these companies believe the branch has a potential for development over the next years, especially after Bulgaria's expected accession to the European Union (EU) in 2007. For comparison, in the end of the 1980s there were 2,000,000 polices for long-term life insurances in Bulgaria, respectively in DZI. Now they are between 70,000 and 100,000 in all life insurance companies. According to forecasts, their number will reach 1,000,000 within a few years. And this is a huge empty niche.

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