TAX PRESSURE ON INSURANCE COMPANIES HAMPERS THEM
Mr. Yanchev, the insurance gross premium income in Bulgaria's gross domestic product (GDP) is still less than 2 per cent. Where could we look for the reasons?- The Bulgarian insurance market started to develop after 1997, when the legislative framework had already been prepared, insurance companies were getting licences, and real competition began. Regarding insurance culture, however, the society is falling very much behind. Part of the insurance interest in the country is now inert. It only appears when there is a kind of compulsion - either a bank's credit requirement or a mortgage loan collateral, for example. Most companies operating in Bulgaria insure fixed assets by their balance value which is several times lower than the market one, i.e. the value at which this kind of property is usually insured in other countries.If we make comparison with countries close to Bulgaria in terms of territory, population, industry, transport communications, infrastructure, etc., we'll see that we are lagging behind considerably in terms of premium income realized on the market. I hope that in four to five years that will be overcome.Is there so much money in the insurance business that could justify the heavy taxes imposed by the State on insurance companies?- There is not so much money. We have been repeating for four years now that the effective taxation system is not appropriate. In our opinion, some provisions of the Corporate Income Taxation Act are interpreted quite generally and beyond the specifics of our activities. There is no reliable dialogue between the State bodies and us. If we go back some ten years in the past, we can say that insurance was then among the most sound and soberly operating sectors. Even prior the passing of insurance legislation, all companies were united in a branch organisation. Then the insurers initiated the establishment of an insurance supervision body. We participated in the preparation of stipulations for its functions, rights and obligations. The functions of the supervision are to defend the insurers.And does it defend them?- After the market liberalization we adopted the currently effective taxation system. Then the licensing process left only companies which had serious intention to work as insurers and were ready to forget about the past when evasion of taxes was possible. We have already gone through that procedure. At present, the tax imposed on some companies goes beyond 100% and, for others, it is even 130% of the technical result on their insurances. In this case, their capital practically decreases. In the past five years, most of the companies were decapitalized - it means that the initially invested capital was spent on the payment of taxes to the State. Bulstrad which is a leader and holds 17.23% of the general insurance market, registered just 1% growth of proceeds for 2003 year-on-year. What can that result be attributed to?- Insurance is an activity that has two sides. Investors, expecting return on their money, are on one side. In Bulgaria investors in insurance are too patient, as their investments cannot be regained due to the above-mentioned forms of taxation. On the other hand, insurance fulfils specific social functions. In that sense it is extremely important to provide really good-quality services. The wide public is hardly aware that our activity is among the first, liable to auditing in compliance with the international accounting standards. The market of natural persons has future in Bulgaria. However, we are restricted by the number of the country's population. As you know, there are some 8,000,000 people with 4,000,000 homes and about 3,000,000-4,000,000 cars. This is in fact our potential market. Some 2,500,000 citizens of the entire population have jobs with the respective responsibilities, which are also subject to insurance. Bulgaria will hardly be ever again full of operating plants. I would say that we are satisfied with last year's results. We are no longer the only company, selling the Green Card insurance. Our relative share dropped there, too, and we currently hold 57% of that market. The remaining 43%, accounting for about BGN13-14MN, is the share we do no more hold. Our 1% growth, which is equal to BGN1MN-plus, has been achieved by compensation of missed proceeds from the Green Card and other kinds of insurances. Thus, if we do not count that compensation, our growth would be 19 per cent. The next target that Bulstrad aims at by the restructuring of its portfolio is to become the market leader according to the profit indicator. A prerequisite for that is the fact that we close less Green Card insurances because compensations under them are higher. The money, set aside for their payment, account for 80% of our entire amount of reserves. In the next two or three years this problem will be minimized and we'll be able to boast of a fairly good profit. The structure of our portfolio is currently good: Civil Liability of vehicles in Bulgaria accounts for about 22% and the share of the Green Card insurance is almost the same; Casco accounts for 16 per cent; real estate insurances are 20 per cent; insurances of vessels, aircraft and cargo account for 10 per cent, and the share of other kinds of insurances is 7-8 per cent. How do you imagine the insurance market after the year 2007?- Investments in the branch will increase, because as as the date of Bulgaria's full-fledged membership in the EU comes nearer, the country will have to satisfy a number of criteria and standards in the insurance sector. Currently, the minimum required capital of insurance companies in the European countries is EUR10MN. Nobody will be regarding you earnestly if you don't have at least that amount of money. Bulstrad's capital totals EUR7.5MN now, and as early as this year it will be raised to the European minimum, but this concerns Bulstrad Life as well. We are about to finalize the deal for acquiring the share of DSK Bank in that company. We have already reached an agreement in principle on the purchase price. Presently, a procedure is going on for coordinating things with various institutions, such as the Financial Supervision Commission and the central bank's Bank Supervision Department. Moreover, up to 30-45 day term has been stipulated by law for the deal's completion.