Deloitte CEE Insurance M&A Study 2020 Download

Home , Achmea, Cardif, CIG Pannonia, ERGO Group, Munich Re, Uniqa Insurance Group

CEE insurance M&A outlook Despite general headwind M&A activity continues to rise November 2020 02 Contents

Foreword 04 Number of deals in the CEE Region, 2016 - 2020 September 06 Macroeconomic overview 08 Insurance trends in CEE 09 Key regional insurance groups 13 M&A activity in the CEE region 15 Expectations in light of the COVID-19 pandemic 20 Country profiles

Poland 22 The Czech Republic 30 Slovakia 38 Hungary 44 Romania 52 Slovenia 58 Croatia 64 Bulgaria 70 Serbia 76 Baltic region (Estonia, Latvia, Lithuania) 82 Albania 100 Bosnia and Herzegovina 106 North Macedonia 112 Deloitte team Regional and global team of professionals 118 Contacts 120

03 Foreword

In spite of the global pandemic, 2020 of the life insurance segment broke as extensive thus putting further pressure revealed the second most transactions the life insurance premiums grew with a on profitability and require further since 2015 with having the two landmark modest 2.1% in 2019. centralization. On a regional level, the trades of the AXA and Aegon entities. greatest regulatory change of the next With the total number of 17 transactions Insurance penetration (GWP compared few years is undoubtedly the introduction activity almost reached the peak of 19 to GDP), which could be used as a general of the new accounting, IFRS 17 standard, trades experienced in 2018. We expect measure of the development of the which has not been in effect yet. The this to furher continue, as regional sector, remaind practically unchanged in market is heavily working towards the insurance markets remain fragmented 2019. It recorded 2.4% of the GDP with implementation of its requirements with smaller subsidiaries of large having an average premium of EUR 348 in terms of IT architecture, modelling, international groups still present who per capita, implying a premium increase methodology and accounting and would might reconsider their regional strategy of 6.4% over the last year. result a universal transparency and instead of waiting for long-term returns. mitigate risks embedded in the financial At the same time, dominant players The impacts of the global pandemic statements and reducing costs of M&A. are eager to continue to strengthen are continuosly examined by the their position through furher market marker players. Lockdowns caused We hope that this third release of our CEE consolidation. Based on the success motor insurance loss ratios to improve M&A Insurance outlook will continue to of our 1st and 2nd release of the significantly in 2020 resulting in some serve as a thought-provoking go-to-guide CEE insurance M&A outlook, we are unexpected profits for the non-life for market players and especially for committed, as a leading financial advisor insurance businesses. However, on the those with a transaction appetite. Feel to continue to provide our readers with long run we still expect that, due to the free to reach out to our regional team of insights into the insurance markets and fierce competition, the increasing paid experts in case you wish to discuss any the transactions forming them. claims to GWP ratios would put pressure topics around the regional insurance on insurance companies, which did not markets. After the record year in 2018, total GWP achieve economies of scale so far. of the CEE region grew with a further 6.3% in 2019, due to the sustained Beside market factors, the new economic growth last year. Growth was regulatory requirements (Solvency II Zsolt Vajda still driven by the non-life segment, and the expected introduction of IFRS Director, especially the motor line of business. 17 in early 2020s) make insurance Regional Insurance Industry Leader, However, the long-lasting declining trend operations more costly and capital Financial Advisory

ADVI A SO & EA L CO D UN R Y T M B

C E E # P N 1 M T O R R 0 E A U 2 R L E 0 G AN N 2 E D TER R EAS 1 M H A & R 9 KE 01 T, 2018 & 2

#1 M&A advisor in Central Europe based on the number of Awards by M&A Advisor, 2011 transactions (Mergermarket, 2006, 2007, 2008, 2009 and 2010, Professional Services Firm of the Year at the Private Equity 2018, 2019, 2020H1) Awards 2011 #1 M&A advisor among the Big 4 firms (Mergermarket, 2006, Ranked #1 in global consulting by Gartner for the third 2007, 2008, 2009 and 2010, 2018, 2019H1, 2020H1) consecutive year, 2013 Global M&A Advisor Award of the year 2009 by M&A Advisor

#1 Accounting / Due Diligence Firm at the International M&A

M&A ADVISORY LEAGUE TABLE (1H 20) CEE EUROPE GLOBAL

# Company name Deal count # Company name Deal count # Company name Deal count

1 Deloitte 11 1 Deloitte 117 1 Deloitte 187

2 PwC 10 2 PwC 100 2 PwC 166

3 VTB Capital AO 9 3 EY 96 3 KPMG 130

4 EY 8 4 KPMG 95 4 EY 130

5 Citi 4 5 Rothschild & Co 75 5 Goldman Sachs & Co 103

6 UBS Investment Bank 4 6 JPMorgan 53 6 JPMorgan 103

7 KPMG 4 7 Goldman Sachs & Co 41 7 Morgan Stanley 95

8 Clairfield Inernational 3 8 Bank of America 38 8 Rothschild & Co 88

9 SUMMA Advisers 3 9 Morgan Stanley 36 9 Bank of America 85

10 JPMorgan 2 10 Lazard 36 10 Houlihan Lokey 80

Source: Mergermarket Global & Regional M&A Report 1H20

05 Number of deals in the CEE Region 2015 - 2020 November

14 6

9 3 4 7

4 3 7 1 0

06 2 Poland 17 Czech Republic 14 3 Hungary 9

3 Bulgaria 7 Romania 7 Slovakia 6 17 Croatia 4 Bosnia-Herzegovina 4 14 Slovenia 3 6 Lithuania 3 9 Serbia 3 3 7 4 Latvia 3 4 3 Estonia 2 7 North Macedonia 1 1 0 Albania 0

07 Macroeconomic overview

The CEE region experienced a remarkable more sustainable growth rate of 3.3%. growth is however expected to come to a economic progress in the past calendar The highest growth rates were achieved hault in 2020 due to the outbreak of the years, with the average real GDP growth in Hungary (4.9%), Estonia (4.3%) and global COVID-19 pandemic, which has being above 3% per annum in the last five Serbia (4.2%) in 2019. Growth was driven reached the region in Q1 2020. Economic years. After the peak periods in 2017 and by an increasing domestic demand fueled forecasts predicted an average GDP 2018 with an average GDP growth rate by improving labour market conditions decline of 5.8% in the region with Croatia of 4.0% the 15 CEE countries recorded a and favorable consumer prices across (-8.6%), Slovakia (-8.2%) and Serbia slight slow down in 2019 returning to a Europe . This period of impressive experiencing the greatest decline.

Changes in real GDP, 2016-2019

4 4.0 3.3 2

0 PL CZ SK HU RO SL HR BG SRB EE LV LT BA MK AL

-5.8*

2016 2017 2018 2019 2020* Average - 2018 Average - 2019 Average - 2020*

* Estimated

Source: EIU

On average the unemployment rate 3.4% point, North Macedonia recorded countries have already experienced decreased by 0.9% point from 8.2% the second highest unemployment rate an increase of the unemployment to 7.3% in 2019 considering all fifteen (17.3%) in 2019. In 2020, an average rate together with a climbing inflation countries. Bosnia and Herzegovina increase of unemployment rate by 1.5% because of the economic slowdown recorded the highest unemployment rate point is expected, with Estonia and and uncertainty due to the coronavirus (18.4%) in the region. Despite showing Latvia likely to record highest increases outbreak in 2020 Q1. the most significant improvement of (3.8% and 3.7% point respectively). Most

Unemployment rate, 2015 - 2018

10 8.7 8.2 7.3 5

0 PL CZ SK HU RO SL HR BG SRB EE LV LT BA MK AL

2016 2017 2018 2019 2020* Average - 2018 Average - 2019 Average - 2020*

* Estimated

Source: EIU

08 Insurance market trends in CEE

The CEE insurance industry is continued 2019, which was mainly driven by the 2019, this decline resulted in a marginal loss to be increasingly dominated by the expansion of the non-life insurance of EUR 58m of regional GWP. non-life sector, especially by the motor segment (8.4%). The life-segment segment. Life insurance keeps playing recorded a more moderate increase of The regional average GWP growth rate was a less significant role and suffers from a 2.2% in 2019. 6.8% in 2019, which was outperformed general lack of awareness and shrinking by Bulgaria, Croatia, Estonia, Latvia and of the unit-linked segment. Overall GWP Almost every country recorded rising Lithuania. expansion continued in 2019, leading GWP figures in 2019, except for Estonia, to the highest total GWP value reached which experienced a 10.6% decline. since 2010. The region showed a 6.3% However, as Estonia accounted for only increase of total GWP from 2018 to 1.3% of the total GWP in the CEE region in

Gross Written Premiums in CEE, 2010 - 2019 (EUR m)

30 000 CAGR 4.6% 26 406 24 348 25 000 22 715

19 684 20 000 18 941 18 428

14 994 CAGR -2.2% 15 000 13 441 13 061 12 263 12 360 12 626

10 000

5 000

2012 2015 2016 2017 2018 2019

Life Non-life

Source: Xprimm

With the amounts of EUR 12 626m the examined period of 2016-2019. and EUR 26 406m, the life and non-life Nominally, the increase of the whole CEE segments accounted for 32.3% and 67.7% market was driven by the Polish and the of total GWP in 2019, respectively. Czech markets, which increased with a The Latvian and Bulgarian markets CAGR of 5.8% and 6.2% or by EUR 774m experienced the highest annual growth and EUR 361m respectively. rate (17.2% and 12.4% respectively) in

09 Average annual GWP volume growth and GWP CAGR (2016-2019, EUR m, %)

LV 108, 17.2%

15.0

BG 147, 12.4% ) 9 1 0 2 - 6

1 LT 0 10.0 78, 10.0% 2 (

) (

R G

A EE ALB C

35, 8.4%10, 8.3% SRB SL W P

G 64, 8.2% 161, 7.4% HU MKD 211, 6.9% 10, 6.7% CZ 361, 6.2% PL BIH 774, 5.8% 22, 6.4% SK 5.0 137,6.5%

RO 69, 3.2%

(100) 0 100 300 500 700 900

Source: Xprimm, Intelligence Research

Note: Size of the bubbles represents the number of transactions

The CEE countries fall into three countries experienced a higher number of GWP/capita and GWP penetration, categories based on their GWP/capita of transactions during the analyzed experienced the most transactions in and GWP penetration. period. the examined period with 14 and 10 transactions respectively. Developing markets like Bulgaria, Countries with average GWP/capita and Romania, Lithuania and Serbia had lower GWP penetration experienced lower Due to its very special health insurance GWP penetration and GWP/capita and transaction numbers (3 on average). system generating a large volume of GWP, therefore offer larger growth potential. Slovenia is considered an outlier in terms Due to the higher growth potential and Poland and the Czech Republic, which are of our classification. the lower market concentration, these closer to the European indicators in terms

10 Insurance market GWP penetration and GWP/capita, 2019

avg: 2.4 1 199

1 100

900

700 CZ 610 a p i t a c /

W P 500 G LV SK 451 436 EE 380 avg: 348 300 LT PL HR 395 338 HU 346 359

RO 118 BG SRB 213 132 BIH 100 MKD 118 ALB 82 50

0.5 1.5 2.5 3.5 4.5 5.5 GWP penetration

Source: Xprimm, Intelligence Research

Note: Size of the bubbles represents the number of transactions

11 Total paid claims in the region increased in nominal terms (EUR 95m or 1.0%). After by 5.5% in 2019 year over year. The a modest increase in 2018, paid claims to highest nominal increase was recorded in GWP decreased moderately in 2019 — the Czech Republic (EUR 403m or 11.2%), from 60.9% to 60.4%. whilst Poland showed the highest decline

Total paid claims in CEE, 2010 - 2019 (EUR m)

21 127 23 595 20 256 21 740 22 354 62.0% 18 555 19 276 18 596 61.2% 18 067 18 248 60.9% 60.5% 60.4%

58.7% 59.1% 57.9% 57.5% 57.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Total paid claims Paid claims/GWP (right axis) Source: Xprimm

Average insurance penetration on the penetration. The Slovak market insurance penetration dropped by 0.1% CEE market slightly declined in 2019 experienced similar trend as in Poland. point to 0.7% in the CEE region in 2019, to 2.3% compared to 2.5% in previous Romania had the lowest overall insurance with several countries experiencing slight years. Despite increasing GWP volumes in penetration with 1.0% while Slovenia had decline. The average non-life penetration Poland, insurance penetration decreased the highest rate with 5.2%. Latvia showed rate was 1.6% in 2019, indicating a 0.2% further to 2.8% (from 2.9% previously) the sharpest increase of insurance point decrease year over year, with in 2019, as GDP increased even more penetration with 2.1% point. Estonia showing the sharpest decline of sharply. Both in the Czech Republic and 0.3% point. in Hungary GWP growth outperformed Typically, the life segment has lower GDP growth hence increasing insurance insurance penetration rates. Average life

GWP and GWP penetration in CEE, 2016 - 2019 (EUR m)

14 000 5.0 12 000 4.0 10 000

8 000 3.0

6 000 2.0 4 000 1.0 2 000

0 0.0 8 6 8 6 8 6 8 6 8 6 8 6 8 6 8 6 8 6 8 6 8 6 8 6 8 6 8 6 8 6 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2 2017 2019 2 2017 2019 2017 2019 2017 2019 2017 2019

BG HR CZ EE HU LV LT PL RO SRB SK SL AL BA MK

Life GWP (EUR mn) Non-life GWP (EUR mn) Total penetration (), right axis

Source: Xprimm, Deloitte Intelligence

12 Key regional insurance groups and market concentration

Although there are sizeable, well-known to the top 10 this year. The top 10 life Group could increase its market positions national players on the local insurance insurer groups covered 75.1% of the in almost all of the countries, especially markets such as the Polish PZU or the total life gross written premiums in the in Poland. Another player with significant Slovenian Triglav, the largest insurers are presented fifteen countries. The largest geographic coverage, Generali lost its typically owned by large international life insurance group in terms of GWP was position in few countries, however it groups such as Allianz, Vienna Insurance the state-owned Polish PZU retaining its is still the 3rd biggest life insurance Group, Generali or NN, who have position with EUR 2 032m GWP in 2019 company in the CEE region. presence in multiple countries in the despite being only present in Poland and region. Lithuania. The leading life insurance companies operate in an average of 5.9 countries, The top 10 leading life insurance groups The second largest insurance group, representing a GWP of EUR 929m on remained almost the same in 2019 being present in fourteen of the average. as in 2018, with Uniqa making it back presented countries, Vienna Insurance

Ranking of the leading life insurance groups by total GWP in the respective countries, 2019

Life insurer Change Nr. of Total CEE Total CEE Cummulated # group in rank PL CZ SK HU RO SL HR BG SRB EE LV LT AL MK BH countries with GWP market market (18-19) presence (EUR m) share share -

1 PZU - 1 6 2 2 032 16.4% 16.4%

Vienna 2 Insurance - 5 1 1 4 2 8 2 1 2 3 4 3 3 2 14 1 916 15.5% 31.9% Group

3 Generali - 7 2 4 3 5 3 7 1 8 1 094 8.9% 40.8%

4 NN - 3 4 5 2 1 5 1 050 8.5% 49.3%

5 Allianz - 10 6 2 6 4 12 1 3 8 803 6.5% 55.8%

Talanx 6 - 4 1 2 645 5.2% 61.0% Group

7 Aviva - 2 2 2 601 4.9% 65.9%

8 MetLife - 8 3 n.a. 9 3 469 3.8% 69.7%

9 Uniqa 2 16 7 3 8 7 8 4 5 1 4 5 11 397 3.2% 72.9%

10 KBC - 5 7 13 2 4 279 2.3% 75.1%

TOP 1-5 TOP 6-10 TOP 11-15 Source: Xprimm, Deloitte Intelligence

13 The top 10 leading non-life insurance market. PZU ended up one position lower Similarly the leading non-life insurance groups remained unchanged. Vienna with almost the same market share as the companies operate in an average of 6 Insurance Group’s (VIG) recent leading company. countries representing an average GWP acquisitions and increasing market shares of EUR 1 809 m. helped to strengthen its positions in the The top 10 leading non-life insurance region and could take over the leading groups accounted for 68.5% of the total position. The total non-life GWP of VIG non-life gross written premiums of the reached EUR 3 512m in 2019, which presented fifteen countries. accounts for 13.3% of the total non-life

Ranking of the leading non-life insurance groups by total gwp in the respective countries, 2019

Non-life Change Nr. of countries Total CEE Total CEE Cummulated # insurer in rank PL CZ SK HU RO SL HR BG SRB EE LV LT AL MK BH with GWP market market group (18-19) presence (EUR m) share share

Vienna 1 Insurance 1 4 2 2 6 2 8 7 20 4 5 1 2 2 1 0 14 3 512 13.3% 13.3% Group

2 PZU -1 1 0 0 0 0 0 0 0 0 0 0 1 0 0 0 2 3 505 13.3% 26.6%

3 Generali - 7 1 3 2 6 4 4 8 2 0 0 0 0 0 0 9 2 693 10.2% 36.8%

4 Allianz - 5 3 1 1 3 6 3 7 0 0 0 0 0 0 0 8 2 246 8.5% 45.3%

5 Munich Re - 2 10 0 0 0 10 0 0 0 3 5 3 0 0 0 6 1 770 6.7% 52.0%

Talanx 6 - 3 0 0 12 0 0 0 0 0 0 0 0 0 0 0 2 1 531 5.8% 57.8% Group

7 Uniqa - 8 5 4 7 7 0 5 11 6 0 0 0 1 5 0 10 1 016 3.8% 61.6%

Triglav 8 - 0 0 0 0 0 1 6 0 5 0 0 0 0 2 10 5 797 3.0% 64.6% Group

9 AXA 1 6 7 0 0 0 0 0 0 0 0 0 0 0 0 0 2 532 2.0% 66.7%

10 KBC -1 0 4 n.a. 5 0 0 0 0 0 0 0 0 0 0 0 2 490 1.9% 68.5%

TOP 1-5 TOP 6-10 TOP 11-15

Source: Xprimm, Deloitte Intelligence

Most of the markets can be considered for further consolidation in the region, as moderately or highly concentrated in especially for players who struggle to terms of GWP in both segments, however reach economies of scale in their given in many cases there are a significant markets. number of smaller companies present as well. This implies that there is room

14 M&A activity in the CEE region

Although the M&A activity remained strong in the region, the We expect that future transactions will drive market consolidation relatively large number of insurance companies didn't change further and as such smoothen the fragmented insurance significantly in the past years in the individual countries. landscape in the region.

Number of insurance companies

41 40

19 29 30 27 25 23 7 21 20 19 10 20 13 15 16 15 12 14 14 5 15 11 9 4 18 3 11 3 9 10 8 12 6 10 17 5 11 9 7 7 10 8 3 7 6 4 6 5 2 3 4 4 3 4 0 1 1 2 2 2 1 PL CZ SK HU RO SL HR BG SRB EE LV LT BIH MKD ALB

Only Life Only Non-Life Both segment

Source: Xprimm, Deloitte Intelligence

Compared to the last M&A study, there catching up with the Polish market in The number of transactions in the were seven recent completed M&A deals terms of transactions. There was one previous years could differ from as it was in Central and Eastern Europe and ten completed deal each in Latvia, North presented last year due to the extension others are still ongoing as of the date Macedonia and also in Slovenia. of the study with Albania, Bosnia and of collecting information for this study. Herzegovina, and North Macedonia. The Czech Republic was the most active market with two additional completed deals in 2020. The Czech Republic is

M&A activity by year - Nr. of transactions

10 19 15 13 12 8 7

2015 2016 2017 2018 2019 2020

Completed Ongoing

Source: Deloitte Intelligence

15 M&A activity by country - Nr. of transactions, 2015 – 2020 November

PL 2 2 2 6 3 1 1 17

CZ 3 2 4 2 2 1 14

HU 1 3 1 2 2 9

RO 1 2 2 2 7

BG 1 1 1 1 1 2 7

SK 2 2 1 1 6

SL 1 2 1 4

HR 2 2 4

BA 2 2 4

LV 2 1 3

RS 1 1 1 3

LT 1 1 1 3

EE 2 2

MK 1 1 15 16 17 18 19 20 Ongoing

Source: Deloitte Intelligence

The Vienna Insurance Group (VIG) is still The second most active buyer remained By 2020, Münich RE/ERGO completed the most active buyer in the region in the Canadian Fairfax Financial Holdings, the sales of its insurance companies in respect of the number of transactions. which acquired six insurance companies Hungary and in the Slovakian market. by 2018. AIG’s global insurance In 2020 the company announced to operations in Argentina, Bulgaria, Chile, After sale of Aegon Pojistovna, a.s. acquire Aegon's insurance, pension Columbia, the Czech Republic, Hungary, and Aegon Slovensko in 2018 for a and asset management business in Poland, Romania, Slovakia, Turkey, consideration of EUR 155m, Aegon Hungary, Poland, Romania and Turkey. Uruguay, and Venezuela were taken over continued to decrease it presence in CEE The transaction is in line with VIG's by Fairfax. countries in 2020 Q4 with the announced expansion strategy in the CEE market. sale of it's entities in Poland, Romania, In 2019, a subsidiary of the Group The third most active buyer in the period Hungary and Turkey for a consideration acquired an undisclosed majority stake in under review was the listed, Italy-based of EUR 830m. Towarzystwo Ubezpieczen Wzajemnych insurer Generali, which—compared to (TUW) for an undisclosed consideration. its status in last year’s study—completed One of the other significant recent deal 2018 was the most active year regarding the two ongoing transactions in Slovakia was the sale of the Polish, Czech and acquisitions as VIG completed five deals and Hungary, one with ERGO Poistovna, Slovakian operations of AXA SA acquired during that year. One of them was the a.s. and another with Ergo Eletbiztosito by Uniqa Insurance Group AG, for a acquisition of Merkur Osiguranje d. d. in Zrt., the Hungarian branch of Ergo consideration of EUR 1 002m. Bosnia and Herzegovina. According to Versicherung Aktiengesellschaft. The VIG’s long-term strategy, the Romanian sale is in line with ERGO's international market remained in focus, but no public strategy of expanding its position in core activity has been reported recently. European markets like Poland and Greece Prior to that in 2016, VIG acquired two and to divest its operations in other non- subsidiaries of AXA in Romania and core European countries. Serbia.

16 Top buyers by number of transactions, Top sellers by the Nr. of transactions, 2015 – 2020 November 2015 – 2020 November

10 4 3

6 6 5 5 2 3 3 3 3

VIG Fairfax Generali Uniqua Euroins Munich Re / Aegon AXA SA AIG Societe ERGO NV Generale SA Completed Ongoing Completed Ongoing Completed Ongoing

Source: Deloitte Intelligence

17 Current regulatory matters with potential impact on Insurance M&A

IFRS17

The greatest regulatory change of the contributes to the provisions of more The IFRS 17 standard is not in effect yet. next few years is undoubtedly the transparent and comparable information The market is still heavily working on the introduction of the new accounting on the performance of the portfolio held implementation of its requirements in standard. The International Accounting and on the performance of the company. terms of modelling and methodology. The Standards Board remained very principle Liabilities will consist of three items: new era also needs significant investment based in the standard. Nevertheless, the the present value of future contractual in IT infrastructure and accounting main purpose of providing a coherent cash flows, the risk adjustment and the systems. framework in which the financial positions contractual service margin. Contractual are comparable industrywide is clear. cash flows show what future incomes The International Accounting Standards We do not intend to provide a detailed and outflows are expected, the risk Board (IASB) decided to defer the overview of the standard here; however, adjustment figure provides information effective date to 1 January 2023, by two a few aspects are highlighted which could about how uncertain those expectations years from the original date. According to have implications for M&A. are, and finally, the contractual service the Board’s decision, this delay could be margin reflects the remaining profits of beneficial to investors, insurers and other The statement of financial performance the contracts. This way of presentation stakeholders as well, since it contributes will be broken down by every company of universal transparency could serve as to implement this new standard at the into insurance service result and the basis of more established investment same time worldwide. insurance finance expense as the key decisions by mitigating the risks building blocks of the profit and loss. embedded in the financial statements Other comprehensive income will remain and reducing the costs of M&A. part of the statement. This breakdown

Solvency II

This regime is more established with However effective with 1st January horizon, it could also bring more useful conventions already set up. The IFRS 17 2019, the European Commission insights and enhanced decision making has similar characteristics, but there are implemented some amendments to for the ultimate stakeholders in the significant differences as well, especially the regulation. This consisted some upcoming years. in the time value of money and the investment related choices to support risk adjustment methodology. The simple, transparent and standardized EIOPA also delayed the deadline of the Solvency II regime requires substantial securitization investments and a solvency information request for the holistic documentation and assessment of the capital requirement review. In the review, impact assessment of the 2020 Solvenc companies’ current and anticipated risk they adopted a few simplifications for by two months, to 1 June 2020. Moreover, appetite. From this particular point of proportionality, removal of unintended EIOPA will deliver its advice on the view it is also useful for M&A decisions. technical inconsistencies and unjustified Solvency II Review to the European constraints of financing. Commission at the end of December Together with the IFRS 17 regime, it 2020. These extensions allow an update builds up a very powerful resource The current amendments could be to reflect the impacts of the Covid-19 to understand the insurance sectors’ interesting looking at the asset side of the pandemic on the financial markets and financial positions, strengths and insurance sector. The liability side will not insurance sector. Adding to this, these weaknesses. This regime has been fully be affected significantly. Although with impacts could be taken into account in in place since 2016 with a full review the revisions effective from 2022 and EIOPA’s advice as well. scheduled after a five-year period. the IFRS 17 going live almost at the same

18 FRS and Solvency II stages and progress in the reviewed countries

IFRS and Solvency II stages and progress in the reviewed countries

Country IFRS Solvency II

1 Albania All insurance companies are categorized as Public Interest Entities in Albania Solvency I is in place and has to be audited. The and as such are required to prepare the financial statements under IFRS. Insurance Companies are in process to receive amended directives from the Albanian Financial Supervisory Authority with regard to Solvency II.

2 Bosnia and Local GAAP is a Bosnian translation of IFRS 4. As per the expectation, it will be Solvency II was not implemented in BiH. Herzegovina the same with IFRS 17.

3 Bulgaria IFRS is obligatory for insurance companies. Solvency II is an Acceptable Use Policy.

4 Croatia Local GAAP resembles IFRS. The local companies might want stay with the Solvency II is in place and has to be audited. current GAAP even after IFRS 17 is in force. No official conclusion on this initiative. IFRS 17 will be also new local GAAP.

5 Czech- IFRS is not mandatory. The Czech Insurance association is lobbying for the Solvency II is required, but the audit of it is not Republic possibility of voluntary adoption. mandatory.

6 Estonia All insurance companies should report in accordance with IFRS as adopted Insurance companies have to report under Solvency by EU. However, local GAAP associate more IFRS SME, not full IFRS. II as well.

7 Hungary Local GAAP is in place. Local companies might report according to IFRS in Solvency II is in place and has to be audited. some cases if it is required by the parent group.

8 Latvia All insurance companies should report in accordance with IFRS as adopted Solvency II is implemented, insurance companies by EU. prepare separate report on Solvency And Financial Condition Report, however, this report is not audited.

9 Lithuania All insurance companies should report in accordance with IFRS as adopted Solvency II is implemented, insurance companies by EU. prepare separate report on Solvency And Financial Condition Report, however, this report is not audited.

10 North Legal entities in Macedonia are required to prepare the financial statements Solvency II has not been implemented yet. The Macedonia in conformity with the IFRS officially adopted in Macedonia as of December preparation for implementation and understanding 29, 2009 (IAS, IFRS and related interpretations). IFRS 17 will not be applicable the requirements are in progress, but no significant locally. steps are made.

11 Poland IFRS17 is not compulsory for Companies that are not listed. There is a local Solvency II is performed and SFCR is audited. GAAP based on specific local regulations. The biggest Company in the market is listed and vast majority of the market are subsidiaries of Groups reporting IFRS.

12 Romania The IFRS is performed by the insurance segment as comparative reporting. The Quantitative Templates of Solvency II (Economic The Company is still responsible of issuing Financial Statements in Balance Sheet, Own Funds, SCR and MCR) are Accordance with Romanian Accounting Standards. required to be audited on an annual basis.

13 Serbia Local GAAP is in place. No relevant activity towards IFRS 17. The National Bank of Serbia has a strategy for Solvency II implementation, but the process is very slow. The Regulator conducted QIS 1 and QIS 2 studies, but not for market as a whole since the participation was facultative.

14 Slovakia In Slovakia the IFRS is taken as a local GAAP since 2006. Solvency II is implemented, insurance companies prepare separate report on Solvency And Financial Condition Report, however, this report is not audited.

15 Slovenia IFRS is in practice, almost exactly local GAAP. The same is going to be with Solvency II is in place and has to be audited. IFRS 17.

19 Expectations in light of the COVID-19 pandemic

Introduction Non-Life insurance Indirect impact

The outbreak of the COVID-19 pandemic In case of motor insurance products, An indirect impact of COVID-19 could be is resulting in general economic which is the leading insurance policy type the changes in customers’ behaviour and slowdown, which affected the insurance in the region, contradictory effects could customers’ expectations. In the turbulent industry as well. Even though CEE be expected. On one hand, the segment and uncertain times caused by the countries seemed to perform better in is positively affected by the decreasing pandemic, the importance of customer terms of pandemic statistics compared claim numbers as a result of slowing satisfaction and stability of services is to more severely hit Western countries, trading activities and declining traffic crucial. Especially important are these the economies have already showed the during the lockdown periods introduced factors for insurance companies, the signs of recession. Due to the coronavirus in most countries in the region. At the substance of whose services is providing crises Moody’s has revised down its same time, based on market experience, support and protection against risk. CEE growth forecasts, projecting a several commercial fleet operators Based on expert observations in contraction of 4.7% in 2020, down from have asked for freezes in their contracts many countries of the region insurers a 3.3% growth forecast in January. The due to inactivity, which along with the implemented solutions to support most hardly hit countries will be those declining car sales is expected to result in customers such as allowing flexible which have the greatest dependency on decreasing GWP in the segment. payments or extending coverages. tourism, such as Croatia and Slovenia, that can experience even larger As for property and casualty (P&C) New opportunities decreases. insurance, based on Moody’s estimations, losses will be limited, as both positive and At the same time changing habits and Declining business activities and general negative effects would be experienced. opinion of customers provides insurance economic downturn impacted the Despite travel restrictions causing plant companies with new opportunities as insurance sector directly and indirectly closures and supply chain interruptions well. Customers became more health in several ways. The first direct impact is which are usually insured, as the spread conscious and the importance of risk the decline in growth and new business of infectious diseases are usually mitigation stepped into focus, increasing volume in general which can be already excluded of these insurance policies, the need for health and wellness services, experienced in the 2020 Q2 figures. not causing increased claim amounts to which might indicate growth potential to insurers. Negative effects could more related insurance product lines. Life insurance result from event cancellations which leads to cancellation of related insurance New customer service - Life segment is expected to suffer from policies as well. digitalization the generally slowing bank lending activity and from the decreasing saving potential Direct impact Besides handling customer needs, of households. At the same time, due to insurance companies also needed to the coronavirus, people might become A direct impact of the coronavirus face the challenges that the coronavirus more conscious about their health outbreak would be through the volatility imposed on their own operations. In and would be more willing to turn to of the financial (equity and bond) many cases, face to face administration insurance service providers. Especially markets. Falling equity markets and became impossible, offices needed to be important consequence could this be in interest rates have led to a decline in closed and operations to be switched to the CEE countries, where traditionally life insurers’ investment portfolios and online platforms as employees started products are less widespread compared earnings putting a pressure on insurers’ to work from home. These novelties to Western Europe. Some of the top balance sheet, product profitability required the introduction and rapid insurance providers already experienced (especially in Life segment) and improvement of new digital solutions growth in terms of life products. investment management fees related providing answers not only to clients’ to savings products. In Europe, equity but also to employees’ needs. Many top In terms of claims, a moderate increase markets declined by as much as 35% executives of insurance companies in due to the pandemic could be expected, in March 2020 vis-à-vis year end 2019 the region highlighted how digitalization however according to Moody’s a and interest rates have declined by as played a key role in reacting rapidly to significant growth of mortality rates much as 90 bps in March 2020 vis-à-vis the pandemic situation and that they see would be needed to trigger a substantial year end 2019. Due to financial market continuing digital transformation as one rise in life insurance claims. volatility, solvency II ratios of European of the most important strategic directions insurers have also decreased by 20 for the future as well. percentage points from c. 210% at 2019 year end to c. 190% in March 2020. 20 Considering the valuation of insurance dropped in 2020 Q1. P/BV multiples in 2020 Q2. P/BV multiples returned to companies in the CEE region, similar decreased by cca. 30% both in the life the 2017 level, whereas P/E multiples impacts can be seen. Before the and in the non-life segments, whereas P/E recovered to early 2019 level. pandemic reaching the region, GLC multiples sank from the level of 11.0x to multiples of selected insurers showed 8.0x in the life, and from 15.0x to 11.0x in an increasing trend for the last ten years. the non-life segment. Despite the sharp However, both P/BV and P/E multiples decreases, the market started to recover

GLC median P/BV and P/E (2005-2020) 2.0x

1.8x

1.6x

1.4x

1.2x

1.0x

0.8x

0.6x

0.4x

0.2x Non-Life Median P/BV Life Median P/BV

18.0x

16.0x

14.0x

12.0x

10.0x

8.0x

6.0x

4.0x

2.0x

Non-Life Median P/E Life Median P/E

Source: CapitalIQ

Looking out to the future, most strategies further on emphasizing that of digital platforms and solutions is executives of the top insurers in the despite decreasing business volumes, definitely an area which should remain region remained positive after the first growth initiatives can still be fulfilled, only in the focus of their strategy in order to wave of the pandemic, they highlighted potentially at a slower pace. Most of them accelerate and support growth. that they are still focusing on growth mentioned that the further improvement

21 Poland

Macroeconomic environment

The Polish economy showed a stable GDP growth between In tandem with the strengthening economy, unemployment rate 2016 and 2019. 2019 recorded a real GDP growth of 4.1% driven stood at 5.4% in 2019, down from 6.1% in 2018. However due to by strong private consumption and increase in investments. the pandemic, it may return to the 2018 levels in the upcoming Because of the pandemic, the GDP is forecasted to decline by years. 4.0% in 2020 and the annual growth rate will average to 3.4% in the next few years. In 2019, budget deficit dropped to 0.7% from previous year’s 0.2% together with a decrease of public debt by 2.8% points to 46.0%. Consumer price inflation increased to 2.3% in 2019 from 1.7% in Due to the fiscal stimulus package by the government in order to 2018. Before the coronavirus breakout, the inflation increased reduce the impact of the lockdown the budget deficit is expected to 4.7% primarily due to the rise in minimal wage in January 2020 to increase to 9.4% and public debt increase to 58.4% in 2020. and weakening national currency. After a temporary increase to 3.0% in 2020, the annual inflation is predicted to average 2.3% in the forecasted five-year period.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 426 835 466 901 497 653 528 837 502 027 -5.1%

Nominal GDP/capita (EUR) 11 232 12 287 13 131 13 953 13 281 -4.8%

GDP (% real change pa) 3.1% 4.9% 5.3% 4.1% -4.0% -8.1%

Consumer prices (% change pa) -0.6% 2.0% 1.7% 2.3% 3.0% 0.7%

Recorded unemployment (%) 8.9% 7.3% 6.1% 5.4% 6.5% 1.1%

Budget balance (% of GDP) -2.4% -1.5% -0.2% -0.7% -9.4% -8.7%

Public debt (% of GDP) 54.3% 50.6% 48.8% 46.0% 58.4% 12.4%

Source: EIU *Estimated

Insurance market trends

The general trend in the Polish insurance industry remains the As a result of the forecasted worsening economic conditions, shrinking of the life insurance and the expansion of the non-life the GWP in the life segment is forecasted to contract by 2.0% in insurance segment. 2020 and rise by 1.9% in the next five years. Meanwhile, non-life segment is expected to decrease by 0.6% in 2020, although in 2017 was an outstanding year for both main subsectors of mid-term the GWP will increase by 4.7% per year on average. the industry expanding in business volumes. In 2018, life GWP decreased by 14.3%, while the non-life segment expanded by In 2019, life and non-life GWP accounted for 33.3% and 66.7% of 3.9% year over year. In 2019, life GWP continued to fall (decrease the total market’s GWP, respectively. by 1.1%), while the non-life sector overperformed the previous year’s growth with 6.2% increase in written premiums. Life Insurance penetration was 2.8% in 2019, which means a decrease insurance premium was dominated by life assurance and unit- of 0.1% points in relation to 2018. linked products, while the non-life segment’s growth was mainly driven by motor insurance products. In total, the insurance GWP per capita increased by 3.7% from 381 in 2018 to EUR 395 market GWP increased by 18.3% from 2016 to 2019 with an in 2019, above the CEE average of EUR 348. average annual growth rate of 5.8%. Paid claims per GWP was 64.0% in 2019, a decrease of 3.0% points compared to 2018.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 5 393 5 889 5 048 4 994 -1.1%

Non-Life 7 275 9 061 9 410 9 995 6.2%

Total 12 667 14 950 14 458 14 989 3.7%

Insurance penetration

Life 1.5% 1.3% 1.3% 1.0% -0.1%

Non-Life 1.5% 1.7% 1.9% 1.9% 0.0%

Total 3.0% 3.2% 2.9% 2.8% -0.1%

GWP / Capita (EUR)

333 393 381 395 -3,0%

Total Paid Claims

Life 4 133 4 880 4 997 4 360 -12.8%

Non-life 4 158 4 672 4 695 5 237 11.5%

Total 8 291 9 552 9 692 9 597 -1.0%

Paid claims / GWP 2016 2017 2018 2019

Life 76.6% 82.9% 99.0% 87.3% -11.7%

Non-life 57.2% 51.6% 49.9% 52.4% 2.5%

Total 65.4% 63.9% 67.0% 64.0% -3.0%

Source: Xprimm

23 Insurance market

There were 26 life insurance and 34 non-life insurance companies in Poland. 19 of the insurance companies operated in both segments (via separate entities) in 2019.

List of Life Insurers in Poland 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 PZU ŻYCIE 2 015 40.4% State Yes -

2 AVIVA TUnŻ 455 9.1% Aviva Yes -

3 NATIONALE-NEDERLANDEN TUnŻ 361 7.2% NN Yes 1

4 OPEN LIFE TU ŻYCIE 260 5.2% LC CORP No -1

5 TUnŻ WARTA 228 4.6% Talanx Group Yes 4

6 COMPENSA TU na ŻYCIE VIG 210 4.2% Compensa S.A. (VIG) Yes 2

7 GENERALI ŻYCIE T.U. 209 4.2% Generali Yes -2

8 METLIFE TUnŻiR 201 4.0% Metlife No -1

9 AXA ŻYCIE TU 159 3.2% AXA Yes 1

10 TU ALLIANZ ŻYCIE POLSKA 142 2.8% Allianz Yes 1

11 PKO ŻYCIE TU 125 2.5% PKO BP S.A. Yes 1

12 TU na ŻYCIE EUROPA 115 2.3% Talanx Group Yes -6

13 SANTANDER AVIVA TU na ŻYCIE 94 1.9% Aviva Yes 3 Aegon | VIG (ongoing 14 AEGON TU na ŻYCIE 89 1.8% No - transaction) 15 STUnŻ ERGO HESTIA 84 1.7% Munich Re Yes -2 Prudential International 16 UNUM ŻYCIE TUiR 69 1.4% No 2 Ins. Holdings Ltd 17 VIENNA LIFE TU na ŻYCIE VIG 55 1.1% Vienna Insurance Group No -2

18 TUnŻ CARDIF POLSKA 50 1.0% BNP Paribas No -1

19 UNIQA TU na ŻYCIE 23 0.5% Uniqa Yes -

20 SALTUS TU ŻYCIE 17 0.3% n.a. Yes 2

21 POCZTOWE TUnŻ 14 0.3% Poczta Polska S.A. Yes -

22 SIGNAL IDUNA ŻYCIE POLSKA TU 8 0.2% SIGNAL IDUNA Yes 1

23 TUW REJENT-LIFE 4 0.1% Several municipalites No 2 Macif, MuTAWE Societe 24 MACIF ŻYCIE TUW 4 0.1% Yes - Eurpoene 25 TU INTER-ŻYCIE POLSKA 2 0.0% Inter Beteiligungen AG Yes 1 Concordia Versicherung 26 WTUŻiR CONCORDIA CAPITAL 0 0.0% Yes -6 Holding AG

Total 4 994 100,0%

Source: Xprimm

List of Non-Life insurers in Poland 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 PZU SA 3 062 30.6% State Yes -

2 STU ERGO HESTIA 1 497 15.0% Munich Re Yes -

3 TUiR WARTA 1 416 14.2% Talanx Group Yes -

4 TUiR ALLIANZ POLSKA 482 4.8% Allianz Yes -

5 AXA UBEZPIECZENIA TUiR 447 4.5% AXA Yes -

6 COMPENSA TU VIG 421 4.2% Vienna Insurance Group Yes -

7 GENERALI T.U. 380 3.8% Generali Yes -

8 INTERRISK TU VIG 319 3.2% Vienna Insurance Group No 1 9 UNIQA TU 272 2.7% Uniqa Yes -1

10 LINK4 TU 240 2.4% PZU No -

11 WIENER TU VIG 194 1.9% VIG No -

12 TUW PZUW 162 1.6% State No 2

13 PKO TU 158 1.6% PKO BP SA Yes -

14 TUW TUW 138 1.4% Macif Yes -2

15 AVIVA TU OGÓLNYCH 107 1.1% Aviva Yes - Concordia Versicherunk 16 CONCORDIA POLSKA T.U. 99 1.0% Yes - Holding AG Euler Hermes Deutschland 17 TU EULER HERMES 83 0.8% No 1 AG 18 PTR 81 0.8% Fairfax No 1

19 TU EUROPA 79 0.8% Talanx Group Yes -2

20 T.U.W. POCZTOWE 62 0.6% Poczta Polska S.A. Yes 1

21 TUZ TUW 60 0.6% Andrzej SzymaNowski No -1

22 SALTUS TUW 54 0.5% n.a. Yes -

23 TU INTER POLSKA 33 0.3% INTER Beteiligungen AG Yes -

24 SANTANDER AVIVA TU 29 0.3% Aviva Yes -

25 POLSKI GAZ TUW 27 0.3% n.a. No -

26 KUKE 23 0.2% Skarb Państwa No 1

27 TUW- CUPRUM 15 0.2% KGHM Polska Miedź S.A. No 1

28 TU ZDROWIE 15 0.1% Pomerania Investment S.A. No -2

29 SIGNAL IDUNA POLSKA TU 14 0.1% SIGNAL IDUNA Yes - Crédit Agricole Assurances 30 CREDIT AGRICOLE TU 11 0.1% No 1 Société ANonyme 31 NATIONALE-NEDERLANDEN TU 11 0.1% National Nederlanden Yes -1

32 D.A.S. TU OCHRONY PRAWNEJ 2 0.0% Munich Re No -

33 TUW MEDICUM 2 0.0% n.a. No -

34 PARTNER TUiR 0 0.0% Andrzej SzymaNowski No -

Total 9 995 100,0%

Source: Xprimm

25 The life insurance market is highly concentrated—based on GWP, Based on GWP in 2019, the non-life market was 2 times larger the top three life insurers control 56.7% of the total market. The than the life segment. The non-life market is even more rest of the market is shared by 23 players. concentrated than the life segment, with the top 3 companies holding a 59.8% of the total GWP. The remaining 40.2% of the PZU’s life insurance subsidiary still dominates the market with a market is shared by 31 other insurers. 40.4% market share. However, foreign firms are also present in the segment. There are eight entities with a market share of 2-5% Overall motor insurance had the largest share of total premiums each, therefore the life insurance market is considered to be with 37.0%, followed by life insurance products with 33.3%. The more fragmented. dominance of motor insurance products is mainly based on the end of price competition initiated in 2016 and growth of the PZU is the leading firm in the non-life segment as well, with 30.6% Polish automotive market, which increased by 32.3% from 2016 of total GWP. However, foreign firms are also prominent in this to 2019 with an annual growth rate of 9.8%, in terms of sales segment. Since, there are many relatively small insurers in both volume. segments, there is still room for consolidation.

Market concentration in Poland

Life insurance 14.0% 29.3% concentration 56.7%

Non-Life insurance concentration 59.8% 13.5% 26.7%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

M&A activity

List of insurance M&A deals in Poland 2015 - 2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn Vienna Insurance 2020 AEGON TU na ŻYCIE 100% 830 Aegon NV N Group UNIQA Insurance 2020 AXA SA 100% 1002 AXA SA Y Group AG

2019 Damo Ubezpieczenia Sp. z o.o. Unilink SA 100% n.a. Undisclosed seller Y

Vienna Insurance P&V Verzekeringen; Macif- 2019 Towarzystwo Ubezpieczen Wzajemnych 100% n.a. Y Group Mutualite; MAIF

2019 Bezpieczny.pl sp. z o.o. Generali 51% 10 Undisclosed seller Y 2018 BIK Brokers Sp z oo Pollen Street Capital n.a. n.a. Syntaxis Capital U.F.B. GmbH Y Enterprise Investors 2018 Unilink SA 38% n.a. Undisclosed seller Y Sp. z o.o. Vienna Insurance 2018 Gothaer Towarzystwo Ubezpieczen S.A. 100% n.a. Gothaer Finanzholding AG Y Group Concordia Versicherung 2018 Concordia Ubezpieczenia Generali 100% n.a. Holding AG; Vereinigte Y Hagelversicherung VvaG 2018 Pramerica Zycie TUiR SA Unum Group 100% n.a. Prudential Financial, Inc. Y Indigo Underwriters 2018 Latona S.A. 100% 124 mFinanse S.A. Y Ltd. Fairfax Financial 2017 AIG 100.0% n.a. AIG Y Holdings Pekao Pioneer Powszechne Towarzystwo Emerytalne S.A. (35% Stake); Pioneer Pekao 35.0%, 2017 Investment Management S.A. (51% Stake); Bank Pekao SA 50.0%, 142 UniCredit Group Y Dom Inwestycyjny Xelion Sp. z o.o. (50% 51.0% Stake) 2016 Open Life Towarzystwo Ubezpieczen Zycie SA Leszek Czarnecki 51.0% n.a. TU Europa SA Y Liberty Seguros, Compania de 2016 Liberty Ubezpieczenia AXA SA 100.0% 23.506 Y Seguros y Reaseguros, S.A BZ WBK-AVIVA Towarzystwo Ubezpieczen Aviva International 2015 na Zycie S.A.; BZ WBK-Aviva Towarzystwo 17.0% n.a. Bank Zachodni WBK SA Y Insurance Limited Ubezpieczen Ogolnych S.A. BRE Ubezpieczenia Towarzystwo 2015 AVANSSUR S.A. 100.0% 140 mFinanse S.A. Y Ubezpieczen i Reasekuracji S.A.

Source: Deloitte Intelligence

There were 16 insurance related transactions on the Polish In 2019, Unilink SA acquired Damo Ubezpieczenia Sp. z o.o., insurance market from 2015 until 2020 September. the Poland-based insurance multiagency, for an undisclosed consideration. Recent transactions since the last issue of the M&A study Previous major transactions since 2015 In 2020 Q4, Aegon has agreed to sell its insurance, pension and asset management business in Hungary, Poland, Romania and The top acquisitions of the past 4 years where the sales amount Turkey for a consideration of EUR 830m to Vienna Insurance was made public included: Group. The proceeds represent a multiple of 2.6 times the book • Latona S.A, which was acquired by Indigo Underwriters Ltd for value on June 30, 2020. The deal is in line with Aegon's strategy EUR 124m, and to decrease its footprint in the CEE region, which started in 2018 with the sale of the entities in the Czech Republic and Slovakia. • Bank Pekao SA, a Poland-based banking group which acquired several assets from UniCredit Group for EUR 142m. In 2020, Uniqa Insurance Group AG has agreed to acquire the Polish, Czech and Slovakian operations of AXA SA, for a consideration of EUR 1 002m. Uniqa will take over AXA’s 5 million costumers, 2100 employees and EUR 800m premiums. 27 Regulatory

Industry regulators

The main regulator in the Polish Insurance sector has been Polish Insurance Association (PIU) is a local trade organization KNF, the Polish Financial Supervision Authority since 2006. KNF established in 1990 and representing all insurance firms excercises supervision over the financial market, and its aim operating in Poland. PIU’s main task is to support the legislature is to ensure the proper functioning of the insurance market, in enacting law. The Association also works to raise public its stability, security and transparency and to ensure that the awareness of insurance and pursue a multilateral dialogue on the interests of the market’s participants are protected. development of the insurance sector in Poland.

Insruance related acts

• Act of September 2005 – on insurance and reinsurance activity; institutions, insurance companies and investment firms in a financial conglomerate; • Act of May 2003 – on insurance and pension supervision and Insurance Ombudsman; • Act of September 2015 – insurance and reinsurance activities;

• Act of May 2003 – on insurance mediation; • Act of July 2016 – on financial market supervision;

• Act of May 2003 – compulsory insurance, Insurance Guarantee • Decree on specific accounting principles for insurance and Fund and the Polish Motor Insurers' Bureau; reinsurance companies;

• Act of April 2005 – the supplementary supervision of credit • Civil Code – Title XXVII – Insurance contract.

Impact of COVID-19

According to the PFSA (as of 1Q 2020), the economic • insurers’ losses from event cancellations and insurance related consequences of the COVID-19 pandemic might include: to transportation and travels.

• drop in demand for insurance products meaning a general Other effects on European level include The European Insurance decrease in written premiums for insurance companies, and Occupational Pensions Authority (EIOPA) urging insurers • fluctuations of financial instruments prices and exchange rate and reinsurers in Europe to suspend discretionary dividend and low interest rates that affect insurers investment activity payments, share buy backs and variable executive remuneration and their respective earnings, as it would result in cash savings and an overall reduction in the insurers’ total distribution to the shareholders. • increased value of claims paid by insurers, mainly due to corporate insurance related to liquidity risk and insolvency of companies from sectors, where impact of COVID-19 is crucial (tourism, gastronomy, liability insurance),

28 29 The Czech Republic

Macroeconomic environment

In the Czech Republic, real GDP grew by 2.3% in 2019, supported Consumption was boosted mainly by the relatively low unemployment by vigorous domestic demand owing to a tight labor market, strong rate and by growing nominal wages. The unemployment rate wage growth and robust fixed capital formation. In 2019, the decreased further to 2.0% in 2019, despite of this a slight rise is investment activity was weak and in the future, forecasts expect expected in the next years due to the coronavirus outbreak. a slowdown in the private consumption growth, external and domestic demand, therefore a contraction of 6.9% is expected in Despite stable GDP and revenue growth in 2019, the budget surplus respect of GDP in 2020. The economy will stabilize feasible in 2022- decreased by 0.6%. Public debt declined by 1.9% points to 30.2% 2024. from 2018 to 2019, as the budget balance improved and growth picked up. However, significant downturn is forecasted in 2020. The Consumer price inflation increased by 0.7% points in 2019, budget balance could turn to 6.0% deficit, due to the decline in the compared to steady acceleration in the previous years. trade across Europe, but it could narrow in 2021 as the global trade recovers.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 177 439 194 133 210 893 223 945 213 565 -4.6%

Nominal GDP/capita (EUR) 16 795 18 333 19 849 20 989 19 997 -4.7%

GDP (% real change pa) 2.5% 5.2% 3.2% 2.3% -6.9% -9.2%

Consumer prices (% change pa) 0.7% 2.5% 2.1% 2.8% 3.3% 0.5%

Recorded unemployment (%) 4.0% 2.9% 2.2% 2.0% 2.9% 0.9%

Budget balance (% of GDP) 0.7% 1.5% 0.9% 0.3% -6.0% -6.3%

Public debt (% of GDP) 36.6% 34.2% 32.1% 30.2% 43.1% 12.9%

Source: EIU *Estimated

Insurance market trends

Total GWP increased by 19.9% from 2016 to 2019 with an annual Despite declining premiums of the previous years, the profitability of 6.2% growth rate. The overall market growth will be relatively limited the industry has been slightly growing in the last 4 years. Per Fitch, with the non-life segment expected to continue to grow in terms of the demand for discretionary insurance products is forecasted to premium volume, while the life segment faces a weaker demand in decrease as the household incomes decrease in the coming year. the near future. New insurtech companies could put pressure on The life insurance premium is expected to decrease by 1.2% in the traditional players on the insurance sector. 2020 due to impact of COVID-19. The government restricted the tax deductibility in case of life insurance investments, which could Both main subsectors of the industry had grown in business volume implicate a further throw-back in demand. In non-life segment the year over year until 2017. The life segment’s GWP dropped by 3.0% premium growth is per Fitch expected to reach only 1.1% in 2020 in 2018 and by 3.8% in 2019, while that of the non-life segment as a consequence of the novel coronavirus effects and could rise increased significantly by 5.2% in 2018 and by 15.3% in 2019. to 4.5% in 2024. This slow growth will be driven by the slow volume growth in motor vehicle and property insurance sectors. Life GWP has been decreasing, which was caused by the market shift from the life savings business to life protection business In 2019, the life and non-life segments’ GWP accounted for 32.2% and reduction in toxic business (primarily by some questionable and 67.8% of total market GWP, respectively. brokers). Life savings business from the past was partly replaced by other savings products (primarily mutual funds) better suited for Insurance penetration has been falling steadily since 2015 till 2018, the purpose. As a result of these shifts, the overall retention and mainly due to the shrinking life insurance segment. However, in profitability of the life business has improved. 2019, total penetration was 3.0%, up by 0.1% points from 2018, which is relatively strong in the CEE region, but there is still room for The non-life growth rate was mainly driven by motor insurance expansion in the industry. products and by property insurance. The popularity of motor insurance products is mostly based on the increase of the Czech car In 2019, GWP per capita was EUR 610 up by 8.3% points from 2018, market which registered record high sales volumes between 2014 which is above the CEE average of EUR 348. Paid claims per GWP and 2017 however started to slightly decrease in 2018 and 2019. was 61.1% in 2019, 1.6% down from 2018.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 2 205 2 255 2 186 2 102 -3.8%

Non-Life 3 243 3 651 3 841 4 428 15.3%

Total 5 448 5 906 6 027 6 530 8.3%

Insurance penetration

Life 1.2% 1.2% 1.0% 0.9% -0.1%

Non-Life 1.8% 1.9% 1.8% 2.0% 0.2%

Total 3.1% 3.0% 2.9% 2.9% 0.1%

GWP / Capita (EUR)

514 557 563 610 8.3%

Total Paid Claims

Life 1 662 1 628 1 677 1 701 1.4%

Non-life 1 866 2 069 1 911 2 290 19.8%

Total 3 528 3 696 3 588 3 991 11.2%

Paid claims / GWP 2016 2017 2018 2019

Life 75.4% 72.2% 76.7% 80.9% 4.2%

Non-life 57.5% 56.7% 49.8% 51.7% 2.0%

Total 64.8% 62.6% 59.5% 61.1% 1.6%

Source: Xprimm

31 Insurance market

There were 14 life insurers and 24 non-life insurers in the Czech Republic, 13 of which operated in both segments in 2019. The market is dominated by the Generali and Vienna Insurance Groups as both companies operate through multiple entities and control almost about two thirds of the market. Generali and VIG with earned 58.9% of life insurance premiums and 58.6% of non-life insurance premiums.

List of Life Insurers in the Czech Republic 2019

Has GWP Market Change in Name of institution Major shareholder Non-life (EUR mn) share % rank business

Vienna Insurance 1 Kooperativa, pojišťovna 551 31,0% Yes - Group

2 Generali Česká pojišťovna 402 22,6% Generali Yes -

3 NN Životní pojišťovna N.V 195 11,0% NN No -

4 ČSOB Pojišťovna 143 8,0% KBC Yes -

5 Allianz pojišťovna 122 6,9% Allianz Yes -

6 MetLife Europe 102 5,7% MetLife Yes -

Vienna Insurance 7 Česká podnikatelská pojišťovna 93 5,3% Yes - Group

Sogecap S.A., Komercni 8 Komerční pojišťovna 65 3,7% Banka a.s. ( Société Yes - Générale Group)

9 UNIQA pojišťovna 45 2,5% Uniqa Yes -

10 AXA životní pojišťovna 39 2,2% AXA (Uniqua 2020) Yes -

11 BNP Paribas Cardif Pojišťovna 10 0,6% BNP Paribas Yes -

12 ERGO pojišťovna 6 0,3% Euronics Yes -

13 MAXIMA pojišťovna 4 0,2% Mella Holding Yes -

Fire Fighters 14 Hasičská vzájemná pojišťovna 0 0,0% Yes - Association

Total 1 776 100,0%

Source: Xprimm

List of Non-Life insurers in the Czech Republic 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 Generali Česká pojišťovna 1 062 29,4% Generali Yes -

2 Kooperativa, pojišťovna 726 20,1% Vienna Insurance Group Yes -

3 Allianz pojišťovna 447 12,4% Allianz Yes -

4 Česká podnikatelská pojišťovna 305 8,5% Vienna Insurance Group Yes -

5 ČSOB Pojišťovna 292 8,1% KBC Yes -

6 UNIQA pojišťovna 252 7,0% Uniqa Yes -

7 BNP Paribas Cardif Pojišťovna 97 2,7% BNP Paribas Yes -

8 DIRECT pojišťovna 70 2,0% VIGO Finance No -

9 AXA pojišťovna 68 1,9% AXA Yes -

10 Slavia pojišťovna 39 1,1% SPGroup No 1

11 Colonnade Insurance 38 1,1% Fairfax Financial Holdings No -1

12 Pojišťovna VZP 30 0,8% VZP (Czech government) No 1

13 ERV Evropská pojišťovna 28 0,8% Munich Re No -1

14 Hasičská vzájemná pojišťovna 27 0,7% Fire Fighters Association Yes -

15 ERGO pojišťovna 20 0,6% Euronics Yes 1

16 Česká pojišťovna ZDRAVÍ 18 0,5% Generali No -1

17 AXA životní pojišťovna 17 0,5% AXA (Uniqua 2020) No -

18 Komerční pojišťovna 16 0,4% Societe Generale Yes 2

19 MAXIMA pojišťovna 15 0,4% Mella Holding Yes 2

20 D.A.S. Rechtsschutz AG 15 0,4% Munich Re No -2

21 HDI Versicherung AG 14 0,4% HDI Versicherung No -2

22 MetLife Europe 8 0,2% MetLife Yes -

23 HALALI, všeobecná pojišťovna 1 0,0% - No -

24 Česká kancelář pojistitelů 0 0,0% - No -

Total 3 605 100,0%

Source: Xprimm

33 The life insurance market is highly concentrated. Based on concentrated, with the three largest firms accounting for 62.0%, GWP, the top three companies control 64.6%, while the top while the five largest for 78.6% of the total GWP. five companies 79.6% of the market. The rest of the market is controlled by 9 other insurance companies. There are plenty of relatively small insurers in both segments, which means there is still room for consolidation. Based on the GWP in 2019, the non-life segment is twice as large in size as the life segment. The non-life market is also highly

Market concentration in the Czech Republic

Life insurance 20.6% 14.7% concentration 64.6%

Non-Life insurance concentration 62.0% 23.6% 14.4%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

M&A activity

List of insurance M&A deals in the Czech Republic 2015-2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn 2020 Klikpojisteni.cz, a.s. Netrisk.hu 100% n.a. Benson Oak Y UNIQA Insurance 2020 AXA SA 100% 1002 AXA SA Y Group AG Simply Fair 2019 Pillow pojistovna a.s. 100% n.a. RSJ Investments SICAV a. s. Y Insurance a.s. Fortegra Financial 2019 Defend Insurance Group sro 100.0% n.a. Undisclosed seller Y Corporation ERGO Insurance Company; ERGO Euroins Insurance 2019 100.0% n.a. Munich Re / ERGO Y Asigurari SA; ERGO pojistovna, a.s. Group LLC

2018 Chytryhonza.cz, s.r.o. DRFG 79.50% n.a. Aegon NV Y

Kooperativa pojišťovna, a.s, Vienna Insurance 2018 100.0% n.a. Vienna Insurance Group Y Pojišťovna České sporitelny, a.s* Group

2018 Direct Pojistovna Odyssey 44 50.0% n.a. VIGO Finance a.s. Y

2018 Aegon Pojistovna, a.s. NN Group N.V. 100.0% 155 Aegon NV Y Fairfax Financial 2016 AIG 100.0% n.a. AIG Y Holdings Wuestenrot pojistovna; Wuestenrot Wuestenrot & 2016 Allianz 100% 25 Y zivotni pojistovna, a.s. Wuerttembergische AG Mella Holdings 2015 MAXIMA pojistovna a.s 67.0% 13 Undisclosed seller Y B.V.

2015 Direct Pojistovna, a.s. Vigo Investments 100.0% n.a. Zavarovalnica Triglav DD Y

2015 Generali PPF Holding Assicurazioni 24.0% 1246 PPF Group N.V. Y

Source: Deloitte Intelligence

There were thirteen completed transactions and one acquisition Previous major transactions since 2015 still ongoing in the Czech insurance market from 2015 until September 2020. In 2019, Fortegra Financial Corporation acquired an undisclosed majority stake for an undisclosed consideration in Defend Recent transactions since the last issue of the M&A study Insurance Group s.r.o., Euroins Insurance Group LLC, agreed to acquire ERGO Asigurari SA, ERGO Insurance Company and ERGO In 2020, Benson Oak Capital and other shareholders have pojistovna from ERGO Group AG for an undisclosed consideration sold their stake in the Czech Republic-based online insurance and DRFG, a.s. acquired a 100% stake in Chytrý Honza a.s., the brokerage Klikpojisteni.cz (Klik) to Netrisk. Post transaction, Klik will Czech Republic-based online insurance and mortgage aggregator continue to operate under the Klik brand and will continue with its and broker using webpage chytryhonza.cz, from Aegon. management team. Previously, Kooperativa pojišťovna, a.s., Vienna Insurance Group Also in 2020, Uniqa Insurance Group AG has agreed to acquire merged with its sister company Pojišťovna České spořitelny, a.s., the Polish, Czech and Slovakian operations of AXA SA, for a cash Vienna Insurance Group, thus creating the largest insurance consideration of EUR 1,002mn. In the Czech Republic AXA was company on the Czech market. Odyssey 44 acquired a 50% stake insurer #17 in non-life and #10 in life. of Direct Pojistovna from VIGO Investments and Vigo Investments acquired Direct Pojistovna, a.s. from Triglav for an undisclosed In 2019, Simply Fair Insurance a.s. acquired První klubová consideration. pojišťovna a.s. (then renamed to Pillow pojistovna a.s.) from RSJ Investments SICAV a. s. and its other founders, for an undisclosed In 2018, NN Group N.V. acquired 100% of Aegon Pojistovna, a.s. from consideration. Aegon NV for EUR 155m including the Slovakian assets of Aegon.

35 Regulatory

Industry regulators Assosiations

The main regulator in the Czech insurance industry is CNB, The Czech Insurance Association (CAP) is the principal industry the Czech National Bank, which cooperates closely with the association that was established in 1994. CAP was founded in order European Insurance and Occupational Pensions Authority. CNB to support and organize mutual aid and cooperation between is responsible for authorising insurance companies to operate insurance and reinsurance companies. CAP’s main objectives legally and for ensuring the proper functioning of the insurance include: to defend and represent interests of member insurance sector in the Czech Republic. companies, initiate amendments to legislation, prepare opinions to drafts of legal acts, and promote the importance of insurance.

Insruance related acts

• Insurance Act (277/2009 Coll. plus amendments) (the regulation Distribution Directive (IDD), its aim was to improve of the insurance industry). This national legislation has been transparency in the structure of insurance intermediaries and amended in order to transpose the EU’s Solvency II Framework; facilitate supervision by the Czech National Bank (CNB); this transposition was implemented via Decree 306/2016 Coll in • Effective from 2020, a change in tax legislation is in place, which September 2016; allows tax deductibility of technical provisions at level per • Civil Code Act (89/2012 Coll.) (includes arrangements on Solvency II. The tax difference between accounting and new tax insurance contracts); base shall be repaid in the following two years. This will mean a higher income tax to be paid by insurers for 2021 and 2022 • Motor Third Party Liability Act (168/1999 Coll. plus (although the accounting impact will be limited). amendments);

• Insurance Distribution Act (No. 170/2018 in force from December 1, 2018). Replaced the previous Insurance Intermediaries Act. Beyond transposing the Insurance

Impact of COVID-19

The Czech insurance sector faces challenges from downturn in New business of life insurance decreased by 9% in regular and economy due to Covid-19 combined with significantly increased by 25% in single products in the first half of 2020 compared to tax payments scheduled for 2021 and 2022. In order to improve the same period last year, further strengthening the shift to solvency, Czech National Bank issued a strong recommendation life protection insurance. Due to state support and still a low to insurers that they avoid distributing any dividends that might unemployment rate, insurance companies have not yet been impact their solvency position until the Covid-19 crisis is over, and faced with massive lapses. according to our knowledge, all insurers decided to comply with this recommendation. The short-term winner of Covid-19 is motor insurance, which is experiencing lower claims due to lower car traffic in the spring One of the immediate impacts was in operational areas, where months. In the long-term, however, this increased profitability many insurers had to establish tools for online collaboration, together with delayed new car purchases may create additional both internal and external, and provide their sales network tools pressure on motor insurance prices. With the exception of travel to continue sales online. This sudden technology change opens insurance, the volumes in general insurance have so far managed area for further insurtech innovations on the market, which we well the downturn with the GWP growing by 5 % in H1/2020 on believe was not yet as well established as other fintech products. y-o-y basis.

Securities market volatility from shares and increased credit Covid-19 creates an opportunity for further market consolidation, represents continuing threat on insurers’ solvency, however mainly between medium and small players. due to typical structure of Czech insurers’ financial investments, such impact on was limited (except for unit-linked), depending on case-by-case basis. Worldwide share markets are returning to pre-crisis levels, however that cannot be said about the Czech stock market yet.

Assosiations

37 Slovakia

Macroeconomic environment

The Slovak economy expanded by 2.4% in 2019, and showed income, lockdown measures impending private spending, crash in a stable GDP growth during the last 4 years. Real GDP growth global energy prices) the inflation is forecasted to average around was mainly driven by strong investment, strengthening private 2%. Unemployment rate decreased to 5.0% from 9.5% since 2015, consumption and the long-dominant automotive sector. In 2020, and is expected to rise back to around 7% in the next few years. the real GDP is expected to contract by 7.9% driven by a collapse of both domestic and external demand. In the next years, the GDP will In 2019, the government budget deficit raised to 1.3% of GDP and stabilize to an average of 2% and not expected to recover to its 2019 it is forecasted to widen to 8.6% in 2020 as the government rolls level until 2022. out fiscal measures to overcome the crisis. Along with nominal GDP growth led to a decline in the public debt/GDP ratio to 48.0% from Inflation averaged 3.2% in 2019. In the upcoming years, driven by 49.5% in 2018. However, significant growth is presumed regarding both demand-side factors and supply-side factors (low disposable public debt, which could reach 63.8% in 2020.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 81 000 84 500 89 600 94 200 87 300 -7.3%

Nominal GDP/capita (EUR) 15 000 15 648 16 291 17 127 15 873 -7.3%

GDP (% real change pa) 2.1% 3.0% 3.9% 2.4% -7.9% -10.3%

Consumer prices (% change pa) 0.3% 2.1% 2.0% 3.2% 1.8% -1.4%

Recorded unemployment (%) 9.5% 7.1% 5.4% 5.0% 7.0% 2.0%

Budget balance (% of GDP) -2.5% -1.0% -1.1% -1.3% -8.6% -7.3%

Public debt (% of GDP) 52.0% 51.3% 49.5% 48.0% 63.8% 15.8%

Source: EIU *Estimated

Insurance market trends

Life and non-life GWP increased by 1.5% and 5.1%, respectively, on a the largest share of total premiums with 48.6%, followed by overall year over year basis. In 2019, both segments expanded significantly motor insurance products of 30.8%. Since 2016 the number of sales As a result, total insurance market GWP increased by 20.8% from on the Slovakian car market increased by 15.1%, with an annual 2016 to 2019 with an annual growth rate of 6.5%. growth rate of 4.8%.

In 2020, contraction is assumed in terms of GWP in both segments, Insurance penetration was 2.5% in 2019, up by 0.1% points from the life GWP could decline by 2.6% and the non-life by 0.3% on a 2016. In 2019, GWP per capita was EUR 436, which is higher than the year over year basis. Albeit, the growth could improve after 2021 CEE average of EUR 348. Paid claims per GWP increased by 6.9% to and remain steady in the upcoming years. 59.1% from 52.2% in 2018.

In 2019, life and non-life GWP accounted for 48.6% and 51.4% of total market GWP, respectively. Total life insurance accounted for

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 960 1 073 1 148 1 166 1.5%

Non-Life 1 024 1 062 1 170 1 231 5.1%

Total 1 984 2 135 2 319 2 396 3.3%

Insurance penetration

Life 1.2% 1.3% 1.3% 1.2% 0.0%

Non-Life 1.3% 1.3% 1.3% 1.3% 0.0%

Total 2.4% 2.5% 2.6% 2.5% 0.0%

GWP / Capita (EUR)

367 395 422 436 3.3%

Total Paid Claims

Life 659 680 741 780 5.3%

Non-life 501 517 468 635 35.6%

Total 1 160 1 197 1 209 1 415 17.0%

Paid claims / GWP 2016 2017 2018 2019

Life 68.6% 63.4% 64.6% 67.0% 2.4%

Non-life 48.9% 48.7% 40.0% 51.6% 11.6%

Total 58.5% 56.1% 52.2% 59.1% 6.9%

Source: Xprimm, Deloitte Intelligence Note: 2018 and 2019 GWP were adjusted.

39 Insurance market

There were 14 life insurance and 14 non-life insurance companies in Slovakia. 12 of the companies operated in both segments in 2019.

List of Life Insurers in Slovakia 2019

Has GWP Market Change in Name of institution Major shareholder Non-life (EUR mn) share % rank business

1 KOOPERATIVA 357 30.6% Vienna Insurance Group Yes -

Allianz New Europe 2 Allianz 243 20.8% Yes - Holding GmbH

3 Generali 108 9.2% Generali CEE Holding B. V Yes -

4 AXA 82 7.0% UNIQA International AG Yes 2

5 Komunálna 88 7.6% Vienna Insurance Group Yes -1

NN Continental Europe 6 NN Životná 76 6.5% Yes -1 Holdings B.V.,

7 AEGON 52 4.5% Union Yes 1

8 ČSOB 43 3.7% KBC Insurance NV Yes -1

9 UNIQA 31 2.7% UNIQA International AG Yes -

Wüstenrot Versicherungs- 10 Wüstenrot 27 2.3% Yes - Aktiengesellschaft

Fragmented shareholder 11 NOVIS 23 2.0% No - structure

12 Poštová 15 1.3% Poštová banka, a. s. Yes -

13 BNP Paribas Cardif 12 1.0% BNP PARIBAS CARDIF S.A. Yes 1

14 Union 9 0.8% Achmea B. V. Yes -1

Total 1 166 100.0%

Source: Deloitte Intelligence

List of Non-Life insurers in Slovakia 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank

Allianz New Europe 1 Allianz 403 32.7% Yes - Holding GmbH

2 KOOPERATIVA 277 22.5% Vienna Insurance Group Yes -

3 Generali 153 12.5% Generali CEE Holding B. V. Yes -

4 UNIQA 95 7.7% UNIQA International AG Yes -

5 KOMUNÁLNA 79 6.4% Vienna Insurance Group Yes -

6 Union 55 4.5% Achmea B. V. Yes -

7 ČSOB 49 4.0% KBC Insurance NV Yes -

Societe Beaujon, S.A.S | 8 AXA 36 3.0% Yes -1 Uniqua 2020

Wüstenrot Versicherungs- 9 Wüstenrot 28 2.3% Yes 1 Aktiengesellschaft

Polish Re (subsidiary of 10 Colonnade 23 1.9% No 4 Fairfax L.H. S.à r.l)

11 BNP Paribas 21 1.7% BNP PARIBAS CARDIF S.A Yes -2

12 HDI 8 0.6% HDI Versicherung AG No -1

13 Poštová 2 0.1% Poštová banka, a. s. Yes -1

NN Continental Europe 14 NN Životná n.a. n.a. Yes n.a. Holdings B.V

Total 1 231 100.0%

Source: Deloitte Intelligence

41 The life insurance market is highly concentrated with the top accounting for 67.7% of the total GWP. The rest of the market is three companies having a 60.7% share of the market in terms split among 11 players. of GWP. The rest of the market is distributed among 11 players. Uniqua with the purchase of AXA in 2020 became the third The largest two players in both markets are Allianz and largest player by ownership. Kooperativa, which together account for 51.5% and 55.3% of the life and non-life segment, respectively. The non-life segment was of almost the same size as the life segment based on GWP in 2019. The non-life segment had a higher concentration rate with the top three companies

Market concentration in Slovakia

Life insurance 21.1% 18.2% concentration 60.7%

Non-Life insurance concentration 67.7% 18.7% 13.6%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

M&A activity

List of insurance M&A deals in Slovakia 2015 - 2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn UNIQA Insurance 2020 AXA SA 100.0% 1002 AXA SA Y Group AG 2019 ERGO Poistovna, as Generali 100.0% n.a. Munich Re / ERGO Y DAS Rechtsschutz-Versicherungs- 2018 Allianz 100.0% n.a. Munich Re / ERGO Y AG 2018 Aegon Slovensko NN Group N.V. 100.0% 155 Aegon NV Y Penta Investments 2015 DOVERA 50.0% n.a. Prefto Holdings Y Limited Fairfax Financial 2015 AIG 100.0% n.a. AIG Y Holdings

Source: Deloitte Intelligence

There were six completed transactions in the Slovakian insurance Previous major transactions since 2015 market from 2015 until 2020 September. Previously, Assicurazioni Generali S.p.A. acquired ERGO Recent transactions since the last issue of the M&A study Poistovna, a.s., a Slovakia-based insurance company from Ergo International AG for an undisclosed consideration. In 2020, Uniqa Insurance Group AG has agreed to acquire Poland, Czech Republic and Slovakia operations of AXA SA, for a cash Allianz acquired DAS for an undisclosed consideration in 2018 consideration of EUR 1,002mn. Uniqa will take over AXA’s 5 and NN Group N.V. obtained Aegon Slovensko, the Slovakian million costumers, 2100 employees and EUR 800mn premiums. subsidiary of Aegon NV for EUR 155m.

Regulatory

Industry regulators

The National Bank of Slovakia (NBS) is the regulator and The Slovak Insurance Association (SLASPO) is the principal trade supervisor of the Slovakian insurance sector, as well as all body, which is a professional association of commercial insurance financial services. NBS is responsible for licensing insurance companies. The aim of SLASPO is to promote the common companies, determining macroprudential policy in line with the interests of its members in their relationship with national EU’s Single Supervisory Mechanism, and supporting the National authorities and the wide general public. Resolution Council.

Insruance related acts

• Act no. 39/2015 Coll. on insurance; • Act no. 186/2009 Coll. on financial intermediation and financial counselling; • Act no. 381/2001 Coll. on compulsory motor third-party liability insurance; • EU Solvency II Directive (2009/138/EC);

• Act no. 747/2004 Coll. on supervision of the financial market; • EU Insurance Distribution Directive (2016/97/EU).

Impact of COVID-19

Due to the Covid-19 pandemic, there will be a downturn in be adequate. Income loss insurance accounts for the 10% of non- premium growth in the insurance sector in 2020. However, it life premiums, therefore the number of claims in this and in some is expected to return to the previous level in 2021 and remain other non-life lines could increase significantly. stable in the next few years.

According to the Financial Stability report of the National Bank of Slovakia, the solvency of the insurance companies forecasted to

43 Hungary

Macroeconomic environment

Real GDP increased by 4.9% in 2019 from 5.1% in 2018. After years The recorded unemployment rate in Hungary fell to 3.4% in 2019 of growth, the economy will embark on a slowing cycle in short to from 3.7% in the previous year. Labor shortage and the lack of skilled medium term mainly driven by the strong consumer demand and workers remained an issue to be dealt with in most fields of the increased government expenditure. GDP growth in 2018 shows the economy. The labor shortage is mainly attributable to the migration strongest performance during the last years. As a consequence of of Hungarians to more attractive economies abroad. In 2020, the the crisis caused by the coronavirus pandemic the GDP growth will lockdown and regulations responding the pandemic situation could contract significantly by 5.3% in 2020. The economy is expected to lead to an increase in the unemployment rate of 5.9%. recover in 2023 with 2.3% growth rate. Budget deficit decreased by 0.1% points to 2.1% in 2019, while public Consumer prices increased by 3.3% in 2019, the highest since 2015. debt dropped to 66.4% in 2019 from 70.4% in 2018, partially due to In the coming years, the inflations expected to average around 2.7% sectoral taxes. Despite of the previous targets, the budget deficit is owing to a demand shock and falling oil prices. forecasted to increase to 5.1% in 2020 and the public debt to 72.3% as the revenue has been dropped.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 115 096 125 338 133 563 143 586 133 456 -7.1%

Nominal GDP/capita (EUR) 11 745 12 921 13 769 14 803 13 758 -7.1%

GDP (% real change pa) 2.1% 4.5% 5.1% 4.9% -5.3% -10.2%

Consumer prices (% change pa) 0.4% 2.3% 2.8% 3.3% 2.7% -0.6%

Recorded unemployment (%) 5.1% 4.2% 3.7% 3.4% 5.9% 2.5%

Budget balance (% of GDP) -1.8% -2.5% -2.2% -2.1% -5.1% -3.0%

Public debt (% of GDP) 75.6% 73.0% 70.4% 66.4% 72.3% 5.9%

Source: EIU *Estimated

Insurance market trends

In 2019, life segment’s GWP increased by 4.0%, while non-life by overall motor insurance products of 28.8%. Since 2016 the segment increased by 13.8% on a year over year basis. The total number of sales on the Hungarian car market increased by insurance GWP increased by 22.2% with an annual growth rate of 56.2%, with an annual growth rate of 16.0%. 6.9% since 2016. In 2020, as an impact of the Covid-19 pandemic, both segments From 1 January, 2019, the accidental tax has been replaced are expected to shrink regarding GWP growth. Life and non-life by 23% insurance tax in case of the compulsory MTPL premiums are assumed to widen by 1.2% and 2.3%, respectively. contracts, which has to be paid as a part of the premium by the policyholders. However, it shall apply to existing insurance Insurance penetration was 2.4% in 2019 and remained broadly contracts only after the anniversary date. The significant growth flat since 2017. GWP per capita was EUR 359 in 2019, which shows of 13.8% in GWP in the non-life segment partially derived from an increasing trend since 2015. It is moderately higher than the this amendment to Act CII of 2012 on Insurance Tax. CEE average of EUR 348.

Life and non-life GWP accounted for 44.3% and 55.7% of the total Paid claims per GWP increased by 0.6% points to 58.9% in 2019 market GWP in 2019, respectively. The life insurance accounted from 58.3% in 2018. for the largest share of total premiums with 44.3%, followed

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 1 411 1 486 1 483 1 543 4.0%

Non-Life 1 438 1 571 1 702 1 938 13.8%

Total 2 849 3 057 3 185 3 481 9.3%

Insurance penetration

Life 1.2% 1.2% 1.1% 1.1% 0.0%

Non-Life 1.2% 1.3% 1.3% 1.3% 0.1%

Total 2.5% 2.4% 2.4% 2.4% 0.0%

GWP / Capita (EUR)

291 315 328 359 9.3%

Total Paid Claims

Life 1 095 1 175 1 132 1 277 12.8%

Non-life 629 723 724 772 6.5%

Total 1 724 1 898 1 857 2 049 10.4%

Paid claims / GWP 2016 2017 2018 2019

Life 77.6% 79.1% 76.4% 82.8% 6.4%

Non-life 43.8% 46.0% 42.6% 39.8% -2.7%

Total 60.5% 62.1% 58.3% 58.9% 0.6%

Source: Xprimm

45 Insurance market

There were 14 life insurer and 21 non-life insurer companies in Hungary, 12 of which operated in both segments in 2019.

List of Life Insurers in Hungary 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 Magyar Posta Életbiztosító Zrt. 301 18.7% Talanx Group Yes 1

2 NN Biztosító Zrt. 246 15.3% NN No -1

3 Generali Biztosító Zrt. 154 9.6% Generali Yes 2

Union Vienna Insurance Group 4 144 9.0% Vienna Insurance Group Yes - Biztosító Zrt.

5 Groupama Biztosító Zrt. 144 9.0% Groupama Yes -2

6 Allianz Hungária Zrt. 139 8.7% Allianz Yes -

Aegon Magyarország Általános Aegon | VIG (ongoing 7 130 8.1% Yes - Biztosító Zrt. transaction)

8 Uniqa Biztosító Zrt. 80 5.0% Uniqa Yes -

MetLife Europe Limited Magyarországi 9 73 4.5% MetLife Yes - Fióktelepe

10 Signal Iduna Biztosító Zrt. 60 3.7% Signal Iduna Yes -

11 CIG Pannónia Életbiztosító Nyrt. 53 3.3% Opus Globa Nyrt. Yes -

Grazer Wechselseitige 12 Grawe Életbiztosító Zrt. 39 2.4% No 1 Versicherunk

13 K&H Biztosító Zrt. 38 2.3% KBC Yes -1

14 BNP Paribas Cardif biztosító Zrt. 9 0.5% BNP Paribas Yes 1

Total 1 610 100.0%

Source: MABISZ

List of Non-Life insurers in Hungary 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 Allianz Hungária Zrt. 4 10 21.8% Allianz Yes -

2 Generali Biztosító Zrt. 323 17.2% Generali Yes -

Aegon Magyarország Általános Aegon | VIG (Ongoing 3 259 13.8% Yes - Biztosító Zrt. transaction)

4 Groupama Biztosító Zrt. 212 11.3% Groupama Yes -

5 K&H Biztosító Zrt. 149 7.9% KBC Yes 1

Union Vienna Insurance Group 6 141 7.5% Vienna Insurance Group Yes 1 Biztosító Zrt.

7 Uniqa Biztosító Zrt. 138 7.4% Uniqa Yes -2

8 Wáberer Hungária Biztosító Zrt. 89 4.7% Waberer's International No -

KÖBE Közép-európai Kölcsönös Biztosító 9 46 2.5% Private individuals No - Egyesület

Collonade Insurance S.A. Magyarországi 10 38 2.0% Fairfax No - Fióktelepe

11 Signal Iduna Biztosító Zrt. 38 2.0% Signal Iduna Yes -

12 Magyar Posta Biztosító Zrt. 36 1.9% Talanx Group Yes -

13 Genertel Biztosító Zrt. 31 1.6% Generali No 1

CIG Pannónia Első Magyar Általános CIG Pannónia Életbiztosító 14 29 1.5% Yes -1 Biztosító Zrt. Nyrt.

Medicover Försakrings AG Magyarországi 15 25 1.3% Medicover Försakrings AG No - Fióktelepe

BNP Paribas Cardif Biztosító 16 15 0.8% BNP Paribas Yes - Magyarország Zrt.

17 Európai Utazási Biztosító Zrt. 11 0.6% Generali No -

ERGO Versicherunk 18 D.A.S. Jogvédelem Biztosíó 8 0.4% No n/a Aktiengellschaft

Österreichische 19 Agrár Biztosító Magyarországi Fióktelepe 5 0.3% Hagelversicherung VVaG No n/a (ÖHV)

MÜBSE Magyar Ügyvédek Kölcsönös 20 4 0.2% - No n/a Biztosító Egyesülete

MetLife Europe Limited Magyarországi 21 3 0.2% MetLife Yes -2 Fióktelepe

Total 1 879 100.0%

Source: Xprimm

47 The life insurance market is highly concentrated. Based on GWP, The non-life segment is even more concentrated than the life the top three insurers control 43.5% of the market. In 2019, the segment, with the top three companies accounting for 52.8% market leader was Magyar Posta Életbiztosító Zrt. with a share of of the total GWP. Earning 21.8% of the total GWP, Allianz is the 18.7%. leading firm in the non-life segment.

Based on GWP in 2019, life insurance and non-life insurance had almost the same market size.

Market concentration in Hungary

Life insurance 26.6% 29.9% concentration 43.5%

Non-Life insurance concentration 52.8% 26.7% 20.5%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

M&A activity

List of insurance M&A deals in Hungary 2015 - 2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn Aegon Magyarország Általános Vienna Insurance 2020 100.0% 830 Aegon NV N Biztosító Zrt. Group Non-life Portfolio of CIG Pannonia CIG Pannonia General 2020 Aegon 100.0% n.a. Y General Insurance Insurance

Netrisk.hu Elso 2019 Biztositas.hu Biztosítási Alkusz Kft. Online Biztositasi 100.0% n.a. Undisclosed seller Y Alkusz Zrt.

Ergo Életbiztosító Zrt.; Ergo 2019 Versicherung Aktiengesellschaft Generali 100.0% n.a. Munich Re / ERGO Y Magyarországi Fióktelepe

Erste Biztosító, Union Biztosító, Vienna Insurance 2018 100.0% n.a. Vienna Insurance Group Y Vienna Life Biztosító (merger) Group

2017 Netrisk.hu MCI Capital 100.0% 56.5 Enterprise Investors Y

CIG Pannonia Life Versicherungskammer 2017 MKB Life Insurance 99.0% n.a. Y Insurance Bayern

CIG Pannonia Life Versicherungskammer 2017 MKB General Insurance 99.0% n.a. Y Insurance Bayern

Fairfax Financial 2015 AIG 100.0% n.a. AIG Holdings

Source: Deloitte Intelligence

There were seven completed insurance related acquisitions and merger on the Hungarian insurance market from 2015 until September 2020 and one acquisition is still ongoing.

Recent transactions since the last issue of the M&A study Previous major transactions since 2015

In 2020 Q4, Aegon has agreed to sell its insurance, pension and Assicurazioni Generali S.p.A. acquired Ergo Eletbiztosito Zrt. and asset management business in Hungary, Poland, Romania and Ergo Versicherung Aktiengesellschaft Magyarorszagi Fioktelepe Turkey for a consideration of EUR 830m to Vienna Insurance from Ergo International AG for an undisclosed consideration. Group. The proceeds represent a multiple of 2.6 times the book value on June 30, 2020. The deal is in line with Aegon's strategy to decrease its footprint in the CEE region, which started in 2018 with the sale of the entities in the Czech Republic and Slovakia.

In 2019, MCI Capital -backed Netrisk has acquired Hungary- based provider of online insurance services Biztositas.hu. Bank Gospodarstwa Krajowego has partially financed the transaction.

49 Regulatory

Industry regulators

The main regulator in the Hungarian Insurance sector is the The Association of Hungarian Insurance companies (MABISZ) National Bank of Hungary (MNB), responsible for ensuring the was established in 1990 by eight insurance companies, and now proper functioning and the stability of the financial services represents the interests of 24 member insurers. The activities sector. MNB led the development of the so-called “ethical of MABISZ can be divided into two main areas: the professional life insurance concept” with decrees aimed at improving advocacy activities of the association and the tasks related to defective insurance products, limiting costs and enhancing third-party insurance. The aim of the association is to represent cost transparency. This concept’s ultimate aim is to protect the the Hungarian insurance profession and to protect its interests. interest of the policyholders.

Insruance related acts

• Act LXXXVIII of 2014 on the Business of Insurance (The • Act CXXXVIII of 2007 on Investment Firms and Commodity Insurance Act) as the principle legislation for the insurance Dealers, and on the Regulations Governing their Activities industry; (AIFCD);

• Act CCXXXVII of 2013 on Credit Institutions and Financial • Anti-money laundering regulations; Enterprises (The Banking Act); • Solvency II Framework Directive 2009/138/EC through national • Act CXXXIX of 2013 on the National Bank of Hungary; law;

• Act CII of 2012 on Insurance Tax; • Insurance Distribution Directive (implemented from October 2018). • Act LXII of 2009 on Compulsory Motor Third Party Liability Insurance (MTPL Act);

Impact of COVID-19

The situation created by the virus forced the insurance become more stringent in terms of reporting, and more regular companies for home-office operation from one moment to the and detailed statements have been expected in order to next, which posed challenges in many ways in their day-to-day continuously monitor their capital position, portfolio and the business. The biggest difficulty in the first weeks was building the expected profit. At the end of 2019 and the first quarter of 2020, right IT infrastructure as well as application architecture. Most the Solvency II reporting deadlines were postponed by the MNB insurers needed to buy new laptops for their employees, as many as the suggestion of EIOPA, thus giving insurers more time to still worked in the office with a desktop computer. produce QRT tables and prepare related reports. However, in many cases the insurers did not take advantage of the time delay However, developments that had been delayed for a long time thus obtained, as they had already completed their duties by the came to the fore due to the pandemic, and several insurers original deadline. started implementing the planned improvements in the first weeks of the curfew. As a result, various solutions have already As per the statistics of National Bank of Hungary (MNB), the been launched for the digitization of certain parts of the non-life premiums in 2020 Q2 increased by 2.8% comparing the contracting process or the whole. In addition to the development same period a year before. Meantime in case of life segment, the of new products, several insurers have reconsidered the premiums declined by 1.9%. The demand for pension products contractual terms of their existing products. have been increased, however the premium income of other life lines sank. In view of the uncertain economic situation, the requirements of insurers’ parent companies and local management have

50 51 Romania

Macroeconomic environment

The Romanian economy grew by 4.1% in real terms in 2019. Real Dropping to 3.9% from 5.9% in 2016, the unemployment rate GDP growth is mainly due to a large increase in private consumption showed continuous improvement in 2019. This improving trend is and investments. As the major trading partners have adverse effect forecasted to break in 2020 and reach almost the 2016-year level, on the economy and export, the Romanian GDP is expected to around 5.4% due to the recession. contract by 6.0% in 2020. The recovery is assumed to be slower than previously expected. Budget deficit widened to 4.6% in 2019 from 2.4% in 2016 and increased slightly compared to the year before. It is expected to The inflation averaged to 3.8% in 2019. The main reasons behind are expand to 9.6% in 2020 caused by the coronavirus crisis. the expansive wage policies, the weakness of the national currency, volatile food and energy prices, moreover the increase of several In 2019, public debt remained 35.2%, but is expected to climb up in taxes. Despite the fact of the significant shrinking in consumer the next years and hit 46.8% in 2020. spending and global energy prices, the inflation is predicted to reach 2.9% in 2020.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 170 379 187 746 204 731 223 158 207 010 -7.2%

Nominal GDP/capita (EUR) 8 605 9 530 10 499 11 503 10 782 -6.3%

GDP (% real change pa) 4.8% 7.1% 4.4% 4.1% -6.0% -10.1%

Consumer prices (% change pa) -1.6% 1.3% 4.6% 3.8% 2.9% -0.9%

Recorded unemployment (%) 5.9% 4.9% 4.2% 3.9% 5.4% 1.5%

Budget balance (% of GDP) -2.4% -2.8% -2.9% -4.6% -9.6% -5.0%

Public debt (% of GDP) 37.3% 35.1% 34.7% 35.2% 46.8% 11.6%

Source: EIU *Estimated

Insurance market trends

Romania is one of the largest untapped insurance markets in to the distrust in the public health system. Therefore, based on Eastern Europe with considerable growth potential. Both life the forecasts, the life insurance segment is awaited to grow by and non-life GWP overperformed the previous year in terms 1.7% and the non-life sector by 1.4% in 2020. of growth rates; life GWP increased by 4.9% while the non-life segment widened by 5.9% on a year over year basis in 2019. In In 2019, life and non-life GWP accounted for 20.5% and 79.5% total, the insurance market GWP increased by 9.9% from 2016 to of total market GWP, respectively. Overall motor insurance 2019 with an annual growth rate of 3.2%. accounted for the largest share of total premiums with 57.4%, followed by life insurance products of 20.5%. The demand for insurance products is expected to reduce as a consequence of the economic decline and rise in unemployment, Insurance penetration was 1.0% in 2019, down by 0.2% points especially in motor vehicle and property lines. On the other hand, from 2016. Paid claims per GWP increased by 3.5% to 62.1% in the sale of private health insurance products could increase due 2019 from 58.6% in 2018.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 372 442 450 472 4.9%

Non-Life 1 719 1 683 1 724 1 826 5.9%

Total 2 090 2 125 2 174 2 298 5.7%

Insurance penetration

Life 0.2% 0.2% 0.2% 0.2% 0.0%

Non-Life 1.0% 0.9% 0.8% 0.8% 0.0%

Total 1.2% 1.1% 1.1% 1.0% 0.0%

GWP / Capita (EUR)

106 108 112 118 6.2%

Total Paid Claims

Life 158 218 220 221 0.6%

Non-life 802 888 1 054 1 205 14.4%

Total 960 1 107 1 274 1 427 12.0%

Paid claims / GWP 2016 2017 2018 2019

Life 42.5% 49.5% 48.9% 46.9% -2.0%

Non-life 46.7% 52.8% 61.1% 66.0% 4.9%

Total 45.9% 52.1% 58.6% 62.1% 3.5%

Source: Xprimm

53 Insurance market

There were 13 life insurer and 21 non-life insurer companies in Romania, 6 of which operated in both segments in 2019.

List of top 10 Life insurers in Romania 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 NN Asigurări de Viață 173 36.6% NN No -

2 BCR Asigurări de Viață VIG 77 16.4% Vienna Insurance Group No -

3 BRD Asigurări de Viață 62 13.1% Sogecap No -

4 ALLIANZ-ȚIRIAC 35 7.3% Allianz Yes -

5 ASIROM VIG 25 5.2% Vienna Insurance Group Yes -

6 GENERALI România 32 6.7% Generali Yes 1 7 SIGNAL IDUNA 18 3.9% SIGNAL IDUNA No -2

8 UNIQA Asigurări de Viață 17 3.6% Uniqa Yes -

9 ERGO Asigurări de Viață 9 2.0% Euroins No -3

10 GRAWE Romania 9 2.0% n.a. No -

+ Others 15 3.2% n.a. n.a. n.a.

Total 472 100.0%

Source: Xprimm, Annual reports

List of top 10 Non-life insurers in Romania 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank Societatea de Asig. Reasig. CITY Sc Vivendi International 1 400 21.9% No - Insurance SRL 2 ALLIANZ-ȚIRIAC 273 15.0% Allianz Yes -

3 OMNIASIG VIG 268 14.7% Vienna Insurance Group No - EUROINS Romania Asigurare 4 251 13.7% Euroins Insurance Group No - Reasigurare 5 GROUPAMA Asigurări 220 12.1% Groupama No -

6 ASIROM VIG 116 6.4% Vienna Insurance Group Yes -

7 GENERALI România 89 4.9% Generali Yes -

8 UNIQA Asigurări 79 4.3% Uniqa Yes -

9 Gothaer Asigurari Reasigurari 33 1.8% Gothaer No -

10 P.A.I.D. 19 1.0% Multiple sharholders No -

+ Others 76 4.2% n.a. n.a. n.a.

Total 1,826 100.0%

Source: Xprimm, Annual reports

The life insurance market is highly concentrated. Based on GWP, based on GWP in 2019. The non-life segment concentration is the top three companies control 66.0% of the market, while the moderate, less concentrated than the life segment, given that the top ten 97.4%. The rest 2.6% of the market is distributed among top three insurers account for only 51.5% of the total GWP, since 3 companies. the top ten for 95.7%. The rest 4.3% of the market is shared by 11 other players. The life insurance market is led by international groups such as NN, Vienna Insurance Group and Allianz. The biggest individual company in the non-life segment is City Insurance, although based on GWP Vienna Insurance Group is The Romanian insurance market is dominated by non-life also one of the biggest among the other players. insurance, which is almost four times larger than the life segment

Market concentration in Romania

Life insurance 19.3% concentration 66.0% 14.7%

Non-Life insurance concentration 51.6% 32.2% 16.2%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

55 M&A activity

List of insurance M&A deals in Romania 2015 - 2020 November

Deal Value Year Target Buyer % Acquired Seller Completed in EUR mn Aegon | Branch of Polish AEGON Vienna Insurance 2020 100% 830 Aegon NV N TU na ŻYCIE Group ERGO Insurance Company; ERGO Euroins Insurance 2019 100% n.a. Munich Re / ERGO N Asigurari SA; ERGO pojistovna, a.s. Group LLC Berlin London Societatea de Asigurare- undisclosed 2017 Beteiligungs 50 Undisclosed seller Y Reasigurare City Insurance S.A. majority Holding AG Fairfax Financial 2017 AIG 100.0% n.a. AIG Y Holdings Vienna Insurance 2016 SC AXA Life Insurance S.A. 100.0% n.a. AXA SA Y Group

2016 Credit Europe Asigurari-Reasigurari Munich Re 100.0% n.a. Credit Europe Bank N.V. Y

2015 SRBA Insurance Broker Renomia AS 100.0% n.a. Undisclosed seller Y

Source: Deloitte Intelligence

There were five closed transactions and one outstanding on the SA, a Romania-based company engaged in providing non-life Romanian insurance market from 2015 until September 2019. insurance products from ERGO Group AG for an undisclosed consideration. EIG will acquire all shares in the companies held by Recent transactions since the last issue of the M&A study Ergo. The acquisition is in line with Euroins’s strategy to expand its operations in Central and Eastern Europe and to expand and In 2020 Q4, Aegon has agreed to sell its insurance, pension and diversify its products offering range. asset management business in Hungary, Poland, Romania and Turkey for a consideration of EUR 830m to Vienna Insurance Previous major transactions since 2015 Group. The proceeds represent a multiple of 2.6 times the book value on June 30, 2020. The deal is in line with Aegon's strategy In 2017, Berlin London Beteiligungs Holding AG acquired an to decrease its footprint in the CEE region, which started in 2018 undisclosed majority of Societatea de Asigurare-Reasigurare City with the sale of the entities in the Czech Republic and Slovakia. Insurance S.A. for EUR 50m.

Euroins Insurance Group LLC agreed to a deal to acquire three In 2016, Vienna Insurance Group acquired 100% of Axa Life ERGO companies. They agreed to acquire ERGO Asigurari Insurance SA through its BCR Life and Omniasig entities.

Regulatory

Industry regulators

The Romanian insurance regulator is the Financial Supervisory UNSAR’s main objectives: to protect and represent the interests Authority (ASF) with three areas of activity: insurance- of Romanian insurance and reinsurance companies and reinsurance, capital markets, and private pensions. In 2013, ASF members of the Association; to take part in the improvement of replaced the Insurance Supervisory Commission as the insurance the existent legal framework in the field of insurance, to initiate regulator in Romania. The ASF provides regulatory oversight appropriate legal remedies regarding the modification of the and supervision for the activities of insurers and reinsurers and legislation in force, to promote the insurance market activity in issues relevant rules and directives for their functioning. Romania and a most sustainable development strategy of the insurance industry at national and international level The National Association of Insurance and Reinsurance Companies (UNSAR) is an independent, non-profit organizationestablished in order to develop and extend the collaboration and cooperation in the field of insurance and reinsurance.

Insruance related acts

• Government Emergency Decree No. 93/2012 ('GEO 93/2012') • Law No. 82/1991, the 'Accounting Law'

• Law No. 136/1995 on Insurance and Reinsurance in Romania • Law No. 656/2002 and Law No. 496/2006, the anti-money laundering/combating the financing of terrorism legal • Law No. 32/2000 on the Activity and Supervision of Insurance framework and Reinsurance Intermediaries

Impact of COVID-19

Template text from Fitch reports: “Romania's insurance industry will The economic decline and rise in unemployment will place see weaker demand in the short-term as the country's economy pressure on household income rates, in turn weakening demand falters in the wake of Covid-19. A recession in 2020 will slow for a number of insurance lines, particularly the key consumer demand across the market, particularly for consumer driven lines driven motor and property segments. In contrast, we note such as motor- and property insurance, though we do highlight demand for private health insurance has risen substantially continued robust growth in the health insurance segment. More as those who can afford to take up cover in order to avoid the positive growth is anticipated across the insurance industry from overstretched public health system. 2021 onwards and the low rates of penetration and density in the life and non-life sectors mean this is a market which still offers Growth in the life sector is expected to improve over the medium considerable growth potential. term as Romania's economy recovers and by 2024 total life premiums are forecast at RON2.6bn (USD671mn). Similar to states throughout the region, Romania implemented a number of strict public health measures to contain the The non-life insurance sector accounts for a significant majority pandemic. Following a two-month lockdown to contain the of premiums written in the Romanian market, at close to 80.0%, spread of the disease, Romania began to lift restrictions from and therefore determines the overall growth trajectory of the May 15 as the number of cases slowed. Taking into account the market. In the short term, a weaker economic outlook in the projected impact of Covid-19 on Romania, our Country Risk team wake of Covid-19 means demand for key consumer driven lines, have revised down Romania's economic growth outlook. Real particularly the leading motor insurance segment, will slow, GDP is now projected to contract by 4.4% y-o-y, down from our dampening growth in the non-life sector. Over the medium term, pre-Covid-19 forecast for 2020 of 3.4% growth. Unemployment however, rapidly rising demand for segments such as health levels rose to a two and a half year high in April 2020, with the insurance, combined with a general return to economic growth national statistics office reporting an unemployment rate of 4.8% will push non-life premiums upwards.” while noting that the easing of government support meant this rate was likely to rise further in May and June.

57 Slovenia

Macroeconomic environment

The Slovenian GDP increased by a solid 4.8% in nominal terms The budget was balanced for the first time in Slovenia's history in to reach EUR 48.2 bn in 2019. Economic growth was mainly due 2017 and remained so since then thanks to the robust tourism to private consumption driven by the improvement of the labor receipts, reaching a small surplus of 0.5% of GDP in 2019 as well. market. After a strong real GDP growth in the last two years Unfortunately, the fiscal and financial support packages responding due to private consumption and investment and supported by to the coronavirus pandemic presumably will cause a budget deficit a cyclical upswing in the euro zone, the economy entered into a of 8.7% in 2020. The deficit will narrow year-by-year, but the budget slowdown with real GDP growth of 2.4% in 2019. A 7.3% contraction balance will be negative for the upcoming five years. is expected in term of real GDP in 2020 caused mainly by the weakening tourism sector and the export-oriented economy. The Public debt declined significantly by 4.2% points to 65.9% from 2018 economy will return to its 2019 size in 2022. to 2019 as the budget balance improved and growth picked up. As a consequence of the emergency government spending, the public The recorded unemployment rate slightly decreased further in 2019 debt ratio is forecasted to peak up to 91.9% of GDP. by 0.7%, which is still relatively high compared to the neighboring countries.

Change 2018-19 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 40 300 43 100 46 000 48 200 44 400 -7.9%

Nominal GDP/capita (EUR) 19 190 20 524 21 905 22 952 21 143 -7.9%

GDP (% real change pa) 3.2% 5.1% 4.2% 2.4% -7.3% -9.7%

Consumer prices (% change pa) -0.2% 1.6% 1.9% 1.7% -0.3% -2.0%

Recorded unemployment (%) 11.2% 9.5% 8.3% 7.6% 9.7% 2.1%

Budget balance (% of GDP) -1.9% 0.0% 0.7% 0.5% -8.7% -9.2%

Public debt (% of GDP) 78.8% 73.9% 70.1% 65.9% 91.9% 26.0%

Source: EIU *Estimated

Insurance market trends

After years of the expansion of GWP, in 2019, both the life and The industry’s GWP increase aligned with the country’s nominal non-life segments could continue its expanding trend. Life GWP GDP and, therefore, the insurance penetration remained 5.2% increased by 5.2%, while the non-life segment increased by 8.6% only 0.1% higher than a year before. year over year. The Unit-Linked insurance product line grew by 15%, which drove the increase in life insurance segment. As a In 2019, life and non-life GWP accounted for 30.0% and 70.0% result, total insurance market GWP increased by 23.8% from of the total market GWP, respectively. Life insurance products 2016 to 2019 with an annual growth rate of 7.4%. accounted for the largest share of total premiums, followed by overall motor insurance of 23.22%. In 2020, a subdued growth of 0.6% is awaited in life segment in terms of GWP, meantime the non-life GWP is forecasted to increase by 3.5%. Health insurance has the strongest growth potential since it is a mandatory product in Slovenia frequently supplemented by voluntary health insurance.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 576 654 717 754 5.2%

Non-Life 1 457 1 526 1 624 1 763 8.6%

Total 2 033 2 179 2 341 2 517 7.5%

Insurance penetration

Life 1.4% 1.5% 1.6% 1.6% 0.0%

Non-Life 3.6% 3.5% 3.5% 3.7% 0.1%

Total 5.0% 5.1% 5.1% 5.2% 0.1%

GWP / Capita (EUR)

968 1 038 1 115 1 199 7.5%

Total Paid Claims

Life 423 477 493 525 6.5%

Non-life 950 1 020 1 086 1 118 2.9%

Total 1 374 1 497 1 579 1 643 4.0%

Paid claims / GWP 2016 2017 2018 2019

Life 73.4% 73.0% 68.8% 69.7% 0.9%

Non-life 65.2% 66.9% 66.9% 63.4% -3.5%

Total 67.6% 68.7% 67.5% 65.3% -2.2%

Source: Xprimm

59 Insurance market

Despite the small size of the insurance market, the number of insurance companies that may directly perform insurance operations in Slovenia is growing every year.

There were 14 life insurer and 18 non-life insurer companies in Slovenia, of which 11 operated in both segments in 2019.

List of Life Insurers in Slovenia 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 Zavarovalnica Triglav 180 23.9% State Yes -

2 Modra zavarovalnica 160 21.2% Kapitalska Druzba (State) Yes -

3 Zavarovalnica Sava 82 10.9% Sava Re Yes -

4 NLB Vita življenjska zavarovalnica 80 10.7% Pozavarovalnica Sava, d. d. Yes -

5 Adriatic Slovenica 63 8.4% Kd Group (Generali) Yes -

6 Prva osebna zavarovalnica 39 5.2% Coface SA Yes 1

7 Merkur zavarovalnica 37 4.9% Merkur Yes -1

8 GENERALI zavarovalnica 33 4.4% Generali Yes 1

Triglav, pokojninska družba (ex Skupna 9 33 4.4% Triglav Group No -1 pokojninska družba)

10 Wiener Städtische zavarovalnica 20 2.6% Vienna Insurance Group Yes -

11 GRAWE Zavarovalnica 17 2.2% Clearstream Banking Yes -

12 Sklad obrtnikov in podjetnikov 7 0.9% n.a. No -

13 ERGO zavarovalnica 2 0.3% Munich Re Yes -

Allianz zavarovalna podružnica (ex 14 0 0.0% Allianz No - ALLIANZ ZAGREB)

Total 754 100.0%

Source: Xprimm

List of Non-Life insurers in Slovenia 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 Zavarovalnica Triglav 479 27.2% State Yes -

2 Zavarovalnica Sava 346 19.6% Sava Re Yes -

3 Vzajemna zdravstvena zavarovalnica 331 18.8% n.a. No -

4 Adriatic Slovenica 251 14.2% Kd Group (Generali) Yes -

5 Triglav, Zdravstvena zavarovalnica 177 10.1% Triglav Group No -

6 GENERALI zavarovalnica 74 4.2% Generali Yes -

7 GRAWE Zavarovalnica 30 1.7% Clearstream Banking Sa Yes -

Allianz zavarovalna podružnica (ex 8 17 1.0% Allianz No 6 ALLIANZ ZAGREB)

Coface PKZ zavarovalnica (ex SID - Prva 9 15 0.8% Sid Banka No -1 kreditna zavarovalnica)

10 Wiener Städtische zavarovalnica 14 0.8% Vienna Insurance Group Yes -1

11 Merkur zavarovalnica 11 0.6% Merkur Yes -

12 ERGO zavarovalnica 8 0.4% Munich Re Yes -2

13 NLB Vita življenjska zavarovalnica 4 0.2% Pozavarovalnica Sava, d. d. Yes -

14 Prva osebna zavarovalnica 3 0.2% Coface SA Yes 2

15 ARAG SE 3 0.1% ARAG SE No -

16 CROATIA zavarovanje 1 0.0% n.a. No n.a

17 Modra zavarovalnica 0 0.0% Kapitalska Druzba No -

18 Allianz zavarovalnica 0 0.0% Allianz Yes -6

Total 1 763 100.0%

Source: Xprimm

61 The life insurance market is highly concentrated. Based on GWP, concentration rate with the top five companies accounting for the top five companies control 75.0% of the market while the 89.9% of the total GWP. The rest of the non-life market is shared largest player Zavarovalnica Triglav itself has a 23.9% market between 13 participants with less then 5% market share, which share. There are 9 other participants with less than 10% market shows room for further consolidation. share and out of these 4 with more than EUR 30m GWP.

Based on GWP, the non-life segment was twice as large as the life segment in 2019. The non-life segment had a higher

Market concentration in Slovenia 3,4% Life insurance concentration 75.0% 21.6%

1.6% Non-Life insurance concentration 89.9% 8.5%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

M&A activity

List of insurance M&A deals in Slovenia 2015 - 2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn Nova Ljubljanska banka d.d., NLB Vita, zivljenjska zavarovalnica Pozavarovalnica 2020 100.0% n.a. Ljubljana; KBC Verzekeringen Y d.d. Sava, d. d. SA 2019 Adriatic Slovenica d.d. Generali 100.0% 245 KD Group Y 2019 Prva kreditna zavarovalnica, d.d. Coface SA 100.0% n.a. SID Bank, Inc. Y Zavarovalnica 2015 Skupna pokojninska druzba, d.d. 69.9% 8 Undisclosed seller Y Triglav DD

Source: Deloitte Intelligence

There were four closed insurance related transactions on the expand in the Slovenian insurance market with its life insurance Slovenian insurance market from 2015 until September 2020. products.

Recent transactions since the last issue of the M&A study Previous major transactions since 2015

On 06 January 2020, Pozavarovalnica Sava, d. d. has acquired In 2019, Coface SA completed the acquisition of Prva kreditna NLB Vita, zivljenjska zavarovalnica d.d. Ljubljana, a Slovenia-based zavarovalnica, d.d. for an undisclosed consideration and Generali bank insurance company providing life, accident and health CEE completed the acquisition of Adriatic Slovenica for a insurance from KBC Verzekeringen SA and Nova Ljubljanska consideration of €245m. banka d.d., Ljubljana for an undisclosed consideration. Through the acquisition KBC intends to focus on its strategic business Zavarovalnica Triglav DD acquired 69.9% the shares of Skupna and Sava’s aim is to utilize the bankassurance partnership and pokojninska druzba, d.d. for €8m, in 2015.

Regulatory

Industry regulators

The main regulator in the Slovenian Insurance sector is AZN, regulation of the insurance sector of the financial services the Insurance Supervisory Agency established in 2000. The industry in Slovenia. Regulator is a self-governing and independent body reporting to the National Assembly of Slovenia. The Slovenian Insurance Association is the main trade body, a commercial interest association of Slovenian insurance AZN was mainly entrusted with the exercise of control over companies. The Association represents the collective and the insurance business and activities of insurance agents individual interests of its members and performs tasks stipulated and brokers while it is also responsible for the oversight and by national and international regulations and agreements.

Insurance related legislation

• The Insurance act and amendments; • General good provisions;

• Secondary legislative acts; • Social and Labour Law relevant for IORPs.

• Solvency II;

Impact of COVID-19

According to the Bank of Slovenia, the current macroeconomic In April 2020, the Financial Stability Board issued a projections for Slovenia are characterized by the Covid-19 recommendation to supervisory authorities, stating that outbreak. The course of events is estimated to be extremely the impact of the Covid-19 epidemic on the operations of unpredictable, as the economic activity will be heavily financial companies may lead to disturbances in the financial dependent on the overall epidemiological picture. Bank system, which will have serious negative consequences for of Slovenia (Macroeconomic projections for Slovenia, June the functioning of the financial system and the real economy. 2020) has prepared two alternative scenarios alongside the They called (re)insurers and pension companies to suspend the baseline projections. GDP growth will primarily depend on the dividend payments until at least first October 2020. effectiveness of the domestic and foreign measures in mitigating the health and socioeconomic consequences of the epidemic. A comparison of data on the financial results of Slovene insurers in the first quarter of 2020 with data from the first quarter of The baseline projection foresees a contraction of 6.5% in 2019 shows that, on average, income from investments in the economic activity this year, followed by a stabilization over non-life insurance business decreased by almost 50% and by the next two years with economic growth of 4.9% and 3.6% over 95% in the life insurance business. The profit of companies respectively. declined by 40% on average. The capital adequacy ratio fell, on average, by 20 percentage points. Mentioned data refers to Under a scenario of a major deterioration in the epidemiological the first quarter of 2020 and therefore do not include further picture, GDP would decline by approximately 10% this year, developments. followed by a very gradual recovery. In August 2020, the Insurance Supervision Agency called for In the absence of enacted domestic fiscal policy measures ensuring financial stability in the situation of Covid-19 epidemic and the favorable financing conditions ensured by the ECB’s by temporarily suspending dividend payments. Due to the accommodative monetary policy, the estimated 2020 GDP uncertain situation regarding the spread of the Covid-19 decline would reach 9.7% in the baseline projection and 14.4% epidemic and the consequent unclear impacts of the epidemic under the severe scenario. on the economy and the insurance industry the Insurance Supervision Agency recommended that insurance, reinsurance In March 2020, the Insurance Supervision Agency sent a letter and pension companies even after first October 2020: i.) suspend to all (re)insurers and pension companies, in which it stated dividend payments, ii.) undertake no irrevocable commitments its expectations about the temporary suspension of dividend to pay out dividends and iii.) refrain from buying treasury shares payments until at least 1 October 2020. The management boards intended to reward shareholders until the auditors’ opinions on followed the recommendation. the 2020 annual reports have been published.

63 Croatia

Macroeconomic environment

The Croatian economy grew by 2.9% in 2019 with the growth Inflation accelerated in 2019 to an average of 1.4% from 0.9% mainly driven by private consumption and fixed investments. As in 2018, mainly driven by rising global oil prices and domestic the tourism was badly affected by the pandemic, the real GDP is inflationary pressures from wage increases. expected to contract by 8.6% in 2020 and is expected to return to its 2019 level after 2023. Croatia posted budget surpluses since 2017. The 1.0% budget deficit of 2016 turned to a 0.4% budget surplus in 2019. However, it will shift The unemployment rate of 15.0% in 2016 saw a strong improvement into deficit of 7.2% in 2020 and will recover as the tourism improves. by 7.3% points arriving to 7.7% in 2019. Croatia is one of the most affected countries in Europe by the coronavirus pandemic and due At the same time, public debt fell to 74.6% of GDP at the end of 2018 to the large tourism sector, the country is suffered by a labor market and despite of the earlier expectations it increased to 87.5% in 2019. shock. Expressed in numbers, the unemployment rate is expected to increase to a level of 9.4% in the coming year.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 46 442 48 711 51 634 53 745 48 649 -9.5%

Nominal GDP/capita (EUR) 11 058 11 598 12 294 13 108 11 866 -9.5%

GDP (% real change pa) 3.5% 3.1% 2.7% 2.9% -8.6% -11.5%

Consumer prices (% change pa) 0.2% 1.2% 0.9% 1.4% 0.5% -0.9%

Recorded unemployment (%) 15.0% 12.4% 9.8% 7.7% 9.4% 1.7%

Budget balance (% of GDP) -1.0% 0.8% 0.2% 0.4% -7.2% -7.6%

Public debt (% of GDP) 80.2% 77.8% 74.6% 87.5% 89.6% 2.1%

Source: EIU *Estimated

Insurance market trends

Both life and non-life GWP could overperform the growth of the could not neutralize the weakening market of motor vehicle previous years as they increased by 8.0% and 11.3% year over and property insurance products, therefore the non-life GWP is year in 2018. Growth in the life segment will be mainly driven by forecasted to slightly decline by 0.9% in 2020. the expansion of the retirement-age population, although the growth will be limited by low income levels and lack of disposable In 2019, life and non-life GWP accounted for 29.1% and 70.9% household income. In 2019, the life segment’s GWP declined by of the total market GWP, respectively. Overall motor insurance 2.5%, meanwhile the non-life segment could increase by 10.9% accounted for the largest share of total premiums with 33.71%, on year over year basis. As a result, the total insurance GWP followed by life insurance products. increased by 22.2% from 2016 to 2019 with an annual growth rate of 6.9%. Insurance penetration was 2.6% in 2019, same as in a year before. In 2019, GWP per capita was EUR 346, which is almost the In 2020, both life and non-life segment is expected to face a same as the CEE average of EUR 348. decline in terms of GWP. Due to the higher unemployment, there will be a 1.2% contraction in life premiums. In case of the non- Paid claims per GWP increased by 0.7% points to 57.0% in 2019 life sector, the growing demand for health insurance products from 56.3% in 2018.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 386 391 423 412 -2.5%

Non-Life 773 814 906 1 005 10.9%

Total 1 159 1 205 1 329 1 417 6.6%

Insurance penetration

Life 0.8% 0.8% 0.8% 0.8% -0.1%

Non-Life 1.7% 1.7% 1.8% 1.9% 0.1%

Total 2.5% 2.5% 2.6% 2.6% 0.0%

GWP / Capita (EUR)

276 287 316 346 9.2%

Total Paid Claims

Life 242 273 312 317 1.6%

Non-life 388 407 437 491 12.4%

Total 630 681 749 808 7.9%

Paid claims / GWP 2016 2017 2018 2019

Life 62.6% 69.8% 73.8% 76.9% 3.1%

Non-life 50.2% 50.1% 48.2% 48.9% 0.7%

Total 54.3% 56.5% 56.3% 57.0% 0.7%

Source: Xprimm

65 Insurance market

There were 13 life insurer and 16 non-life insurer companies in Croatia, 9 of which operated in both segments in 2019.

List of Life Insurers in Croatia 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 ALLIANZ HRVATSKA 76 18.4% Allianz Yes 1

WIENER OSIGURANJE VIENNA 2 73 17.8% Vienna Insurance Group Yes 1 INSURANCE GROUP

3 CROATIA OSIGURANJE 70 16.9% Adris Grupa Yes -2

4 AGRAM LIFE OSIGURANJE 43 10.3% Private individuals Yes 2

Grazer Wechselseitige 5 GRAWE HRVATSKA 40 9.7% Yes - Versicherung

6 MERKUR OSIGURANJE 33 7.9% Merkur Yes 1

7 GENERALI OSIGURANJE 31 7.6% Generali Yes -3

8 UNIQA OSIGURANJE 26 6.4% Uniqa Yes -

9 TRIGLAV OSIGURANJE 8 1.9% Triglav Group Yes 1

Wüstenrot Versicherungs- 10 WÜSTENROT ŽIVOTNO OSIGURANJE 7 1.6% No 2 AG

11 OTP OSIGURANJE 6 1.5% OTP banka Hrvatska No -

12 ERGO ŽIVOTNO OSIGURANJE 0 0.0% Zavarovalnica Sava No 1

13 ERSTE OSIGURANJE 0 0.0% Vienna Insurance Group No -4

Total 412 100.0%

Source: Xprimm

List of Non-Life insurers in Croatia 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 CROATIA OSIGURANJE 295 29.3% Adris Grupa Yes -

2 EUROHERC OSIGURANJE 172 17.1% Private individuals No -

3 ALLIANZ HRVATSKA 108 10.7% Allianz Yes 1

4 ADRIATIC OSIGURANJE 101 10.1% Private individuals No -1

5 GENERALI OSIGURANJE 77 7.6% Generali Yes -

6 UNIQA OSIGURANJE 59 5.9% Uniqa Yes -

7 TRIGLAV OSIGURANJE 58 5.7% Triglav Group Yes -

WIENER OSIGURANJE VIENNA 8 51 5.1% Vienna Insurance Group Yes - INSURANCE GROUP

9 HOK OSIGURANJE 32 3.1% Zodaks D.O.O. No -

Grazer Wechselseitige 10 GRAWE HRVATSKA 21 2.0% Yes - Versicherung

11 AGRAM LIFE OSIGURANJE 9 0.9% Private individuals Yes 1

12 IZVOR OSIGURANJE 9 0.9% Private individuals No 1

13 ERGO OSIGURANJE 8 0.8% Zavarovalnica Sava No -2

14 MERKUR OSIGURANJE 4 0.4% Merkur Yes -

15 HRVATSKO KREDITNO OSIGURANJE 2 0.2% Hbor No -

16 CROATIA OSIGURANJE KREDITA 0 0.0% Croatia Osiguranje No -

Total 1 005 100.0%

Source: Xprimm

The life insurance market is highly concentrated. Based on GWP, Based on the GWP in 2019, the non-life segment is more than the top three companies, controlled 53.0% of the market. The twice as large as the life segment, The non-life segment’s market remaining market share is distributed among ten players. is highly concentrated, given that the three largest firms generate 57.1% of the total GWP. The rest of the market is shared by 13 The leading firm in the life segment is Allianz Hrvatska with 18.4% other companies. of the total GWP. There are plenty of relatively small insurers mainly in the non-life segment, where there is room for further consolidation.

Market concentration in Croatia

Life insurance 19.0% concentration 53.0% 28.0%

Non-Life insurance concentration 57.1% 23.6% 19.3%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

67 M&A activity

List of insurance M&A deals in Croatia 2015 - 2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn 2018 ERGO osiguranje d.d. Save Red.d 100.0% n.a. Munich Re / ERGO N 2018 Ergo životno osiguranje d.d. Save Red.d 100.0% n.a. Munich Re / ERGO N

Societe Generale Splitska Banka 2017 OTP bank 100.0% n.a. Societe Generale SA Y d.d.

BNP Paribas Cardif osiguranje Croatia Osiguranje 2017 100.0% n.a. BNP Paribas Cardif SA Y dionicko drustvo za osiguranje D.D.

Source: Deloitte Intelligence

Compared to the previous insurance M&A Outlook, there were Generale Splitska Banka d.d., OTP Banka Hravatska d.d. indirectly no additional transactions on the Croatian insurance market until acquired OTP Osiguranje d.d. and Croatia Osiguranje D.D. September 2020. acquired 100% share of BNP Paribas Cardif osiguranje dionicko drustvo za osiguranje In 2018, Save Re d.d signed a contract for the entire capital of Croatian insurers ERGO osiguranje d.d. and Ergo životno All transactions were approved by industry regulators. osiguranje d.d. Previously, during the acquisition of Societe

Regulatory

Industry regulators

HANFA, the Croatian Financial Services Supervisory Agency HUO, the Croatian Insurance Bureau (since 1992) is responsible was set up to maintain a stable insurance market and protect for acting as an insurance ombudsman, and a mediator for customers. Hanfa is responsible for licensinginsurance out-of-court disputes. HUO provides national statistics on the companies operating in Croatia. Since joining the EU in 2003, insurance market. foreign insurance companies have been able to provide services without physical presence in Croatia.

Insruance related acts

• In 2016, the new Insurance Act came into force with the main • Key regulations in force: focus on transposing the EU’s Solvency II framework into • Act on Mandatory Health Insurance; national law. • Act on Pension Insurance Companies; • Act on Compulsory Insurance within the Transport Sector • In 2019, the government introduced new regulations for the (ACITS); pension system. Main changes included the raisining of the • Insurance Act (IA), updated in December 2018; retirement age to 67 years by 2033 and allowing pensioners to • The Civil Obligations Act (COA). work up to 4 hours weekly.

Impact of COVID-19

There is no doubt, the Croatian economy’s most essential in both life and non-life segments in 2020. In the last period, industry is the tourism which is badly affected by the a growing trend could be observed in demand for life Covid-19 pandemic. This economic slowdown leads to higher insurance products, however this market is still considered unemployment, weaker income and therefore shrinking underdeveloped among the other countries. From 2021, growth demand. Thus, written premiums are expected to contract is forecasted in both segments.

69 Bulgaria

Macroeconomic environment

Bulgaria’s real GDP continued to grow steadily since 2016, after the The recorded unemployment rate decreased by 0.6% to 5.6% in slow post-crisis recovery. Bulgarian GDP was up by 8.2% in nominal 2019, which is below the average rate of 7.3% in the CEE Region. This terms to reach EUR 60.5 bn in 2019 and real GDP grew by 3.4% declining trend is expected to reverse and average 8.2% in 2020. in 2019. The economic growth was mainly driven by the private consumption and real wage growth. The coronavirus pandemic hit The budget balance ended with a 1.0% deficit in 2019 due the retail, tourism and transport sectors, therefore 4.0% contraction to increasing government consumption and one-off military of real GDP is expected in 2020. expenditure. As a consequence of the economic contraction, the government is targeted 3% budget deficit in 2020. Inflation continued to grow in 2019. It increased up to 3.8% from 0.1% in 2016. Decline in global energy prices and consumer demand, Public debt fell by 1.9% points to 20.4% from 22.3% between 2018 the inflation is assumed reaching an average 1.7% in 2020. and 2019. In 2020, the debt is expected to increase significantly to 26.8% as the government spending increased in order to mitigate the effects of the pandemic.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 48 516 52 198 55 967 60 545 59 510 -1.7%

Nominal GDP/capita (EUR) 6 833 7 352 7 995 8 649 8 625 -0.3%

GDP (% real change pa) 3.8% 3.5% 3.2% 3.4% -4.0% -7.4%

Consumer prices (% change pa) 0.1% 2.8% 2.7% 3.8% 1.7% -2.1%

Recorded unemployment (%) 7.7% 6.2% 6.2% 5.6% 8.2% 2.6%

Budget balance (% of GDP) 1.5% 0.8% 0.1% -1.0% -3.0% -2.0%

Public debt (% of GDP) 29.3% 25.3% 22.3% 20.4% 26.8% 6.4%

Source: EIU *Estimated

Insurance market trends

In Bulgaria, the global economic crisis caused a major decline in In 2019, life and non-life GWP accounted for 17.1% and 82.9% of insurance premiums in 2009, 2010 and 2012. The recovery from total market GWP, respectively. Overall motor insurance (refers these years was constrained by deleveraging that followed pre- to both MTPL and CASCO combined) accounted for the largest crisis years of growth mainly driven by domestic demand that share of total premiums with 59.82%, followed by life insurance was initially financed through capital inflow. Bulgaria’s recovery products. Since 2016 the number of sales on the Bulgarian car from the 2009 recession has been gradual but uneven. market increased by 32.3%, with an annual growth rate of 9.8%.

The life segment’s GWP decreased by 1.1% while non-life Insurance penetration was 2.5% in 2019. GWP per capita GWP increased by 18.9% year over year in 2019. In 2019, both remained relatively low (EUR 213) compared to the CEE average segments expanded considerably. Life and non-life GWP of EUR 348, which means the market has considerable potential increased by 12.3% and 15.8% year over year, respectively. The for further growth. life insurance premium was mainly dominated by simple life and unit-linked products and the non-life segment’s growth rate was mainly driven by motor insurance products. As a result, total insurance market GWP increased by 41.9% from 2016 to 2019 with an annual growth rate of 12.4%.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 219 230 227 255 12.3%

Non-Life 829 896 1 065 1 233 15.8%

Total 1 048 1 126 1 292 1 488 15.2%

Insurance penetration

Life 0.5% 0.4% 0.4% 0.4% 0.0%

Non-Life 1.7% 1.7% 1.9% 2.0% 0.1%

Total 2.2% 2.2% 2.3% 2.5% 0.1%

GWP / Capita (EUR)

148 159 185 213 15.2%

Total Paid Claims

Life 88 94 83 91 9.6%

Non-life 438 437 492 529 7.5%

Total 526 532 575 620 7.8%

Paid claims / GWP 2016 2017 2018 2019

Life 40.3% 41.1% 36.5% 35.6% -0.9%

Non-life 52.8% 48.8% 46.2% 42.9% -3.3%

Total 50.2% 47.2% 44.5% 41.7% -2.8%

Source: Xprimm

71 Insurance market

There were 11 life insurer and 25 non-life insurer companies in Bulgaria, 7 of which companies operated in both segments in 2019.

List of Life Insurers in Bulgaria 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank

BULSTRAD LIFE VIENNA INSURANCE Bulstrad Vienna Insurance 1 77 30.3% Yes - GROUP Group ZAD

2 DZI LIFE INSURANCE 56 22.1% KBC Insurance N.V. Yes 2

Allianz Bulgaria Holding 3 ALLIANZ BULGARIA LIFE 46 18.1% Yes -1 AD

4 UNIQA LIFE 36 14.2% Uniqa AD Yes -1

Grazer Wechselseitige 5 GRAWE BULGARIA LIFE INSURANCE 20 7.7% No 1 Versicherung AG

Groupama Life Insurance 6 GROUPAMA LIFE EXPRESS 7 2.6% No n.a. EAD

GROUPAMA LIFE INSURANCE Groupama Holding Filiales 7 6 2.3% Yes 1 COMPANY et Participations

8 LIFE INSURANCE COMPANY SAGLASIE 2 0.9% Web Finance Holding AD Yes 1

9 JZI 2 0.8% Lev Ins AD No 1

10 CCB LIFE 1 0.5% CCB Group EAD No 1

Euroins Insurance Group 11 EUROINS LIFE INSURANCE 1 0.5% Yes 1 EAD

Total 255 100.0%

Source: Xprimm

List of Non-Life insurers in Bulgaria 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 LEV INS 162 13.1% Rahiti Meir Classic Ltd No -

2 BULSTRAD Vienna Insurance Group 142 11.5% TBI Bulgaria EAD Yes 1

3 DZI - General insurance 131 10.6% DZI - Life Insurance ZEAD Yes -1

Euroins Insurance Group 4 Euroins 124 10.0% Yes 2 EAD

5 ARMEEC 114 9.2% CCB Group EAD No -1

6 OZK Insurance 111 9.0% LM Impex EOOD No 3

7 Generali Insurance 91 7.4% Generali CEE Holding B.V. No -

Allianz Bulgaria Holding 8 Allianz Bulgaria 89 7.2% Yes - AD

Steelco GmbH, Hili 9 BUL INS 89 7.2% Investment Groups Ltd, No -4 Stroybiulding EOOD

Commercial League - 10 DallBogg: Zhivot I zdrave 73 5.9% National Pharma Centre No - AD

11 UNIQA Insurance 35 2.8% Uniqa International AG Yes -

Allianz Bulgaria Holding 12 Energia 17 1.4% No - AD

13 Asset Insurance 14 1.1% Bent Oil AD No -

Groupama Holding Filiales 14 Groupama Insurance 12 1.0% Yes - et Participations

15 ZAD BULGARIA INSURANCE 9 0.7% LM Impex EOOD No -

Doverie-Obedinen Holding 16 OZOF DOVERIE 8 0.7% No - AD

17 FI Health Insurance 4 0.3% Fisrt Investment Bank AD No 2

18 Bulgarian Export Insurance Agency 3 0.2% State No -

Kibul EOOD, Fin Invest 19 Saglasie 2 0.2% Company, Rodna Zemya Yes 1 Holding AD

20 OZOK INS 2 0.1% OZK-Insurance AD No 2

Euroins Insurance Group 21 EIG Re 1 0.1% No -4 EAD

Doverie-Obedinen Holding 22 Medico - 21 1 0.1% No -1 AD

23 ZAD European Insurance Company 1 0.0% OMZ OOD No 1

ZAD Bulstrad Vienna 24 Nova Ins 0 0.0% No -1 Insurance Group AD

25 Euroamerican 0 0.0% Individuals No -

Total 1 233 100.0%

Source: Xprimm

73 The life insurance market is highly concentrated. Based on GWP, concentration is fairly moderate, given that the five largest firms the top five companies control 92.4% of the market and the account for 54.5% of the total GWP. The rest of the market is remaining market share is distributed among six players. In June comprised by 20 other companies, which all have less then 10% 2019, Groupama merged the two life entities into one to strengthen market share. Given the significant amount of relatively small Groupama's position in the life insurance market. players on the non-life insurance market, there is strong investment rationale. Considering Groupama’s life insurance entities as one, there are five other players with less then 10% market share of the life insurance In 2019, the leading companies by market share of premium income segment, therefore there is still room for further consideration. in the non-life sector were Lev insurance, Bulstrad and DZI, together accounting for 35.3% of the total GWP. The life insurance segment remained small leaded by Vienna Insurance Group with a 30.3% market share. There are plenty of relatively small insurers in both segments so there is room for consolidation. Based on the GWP of 2019, the non-life segment is almost 5 times larger than the life segment. The non-life segment’s market

Market concentration in Bulgaria

0.5% Life insurance concentration 92.4% 7.1%

Non-Life insurance concentration 54.5 % 36.7% 8.8%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

M&A activity

List of M&A transactions in Bulgaria 2015-2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn 2020 I&G Insurance Brokers Unilink SA 100.0% n.a. Asigest Holding s.r.l. N 2019 Express Life Bulgaria IJSC Groupama S.A. 100.0% n.a. OTP Bank Plc N 2019 Express Life Bulgaria IJSC OTP Bank 99.7% n.a. Societe Generale SA Y 2018 UBB-METLIFE DZI Life Insurance 40.0% n.a. MetLife Y Fairfax Financial 2017 AIG 100.0% n.a. AIG Y Holdings

2016 Generali Life Insurance portfolio Saglasie 100.0% n.a. Generali Y

Euroins Insurance 2015 HDI Zastrahovane 100.0% n.a. Talanx International Y Group LLC

Source: Deloitte Intelligence

Recent transactions since the last issue of the M&A study Previous major transactions since 2015

Unilink SA has agreed to acquire I&G Insurance Brokers, a In 2019, Groupama S.A. agreed to acquire Express Life Bulgaria Bulgaria-based insurance broker from Asigest Holding s.r.l. for IJSC from OTP Bank Plc for an undisclosed consideration and an undisclosed consideration. This transaction allows Unilink to OTP Bank Plc acquired a 99.74% stake in Societe Generale expand its footprints in the Bulgarian market and export Polish Expressbank AD from Societe Generale SA for an undisclosed expertness abroad, which will build a positive image of Polish consideration. entrepreneurs in Europe. The acquisition is subject to regulatory approvals. In 2018, DZI Life Insurance acquired 40% of the shares of UBB- METLIFE from MetLife for an undisclosed consideration.

The Canadian Fairfax Financial Holdings acquired the Bulgarian AIG in 2017.

Regulatory

Industry regulators

Financial Supervision Commission (FSC) (since 2003) is the ABZ, the Association of Bulgarian Insurers (since 1992), the regulator and supervisor of the Bulgarian non-banking financial principle trade body, is a non-profit organization set up for the sector. The aim of FSC is to provide and enforce administrative protection of the interests of insurance companies. At the end of and legal requirements for the non-banking financial sector 2018, it had 30 members, i.e. covers more than 90% of the local (including the insurance sector) in order to maintain stability insurance market. and transparency and to protect customers. FSC also provides insurance companies with guidelines and instructions for the implementation of the law.

Insruance related acts

• Health Insurance Act (1990, plus amendments); • Law on Insurance Premium Tax (2011);

• Export Insurance Act (1998, plus amendments); • Insurance Code (2015, plus amendments) - updated in order to implement the EU's Solvency II framework and IDD. • The FSC Act (2003, plus amendments);

Impact of COVID-19

Тhe impact of the pandemic disruption has affected directly part of the travel disruption was the relatively smaller travel insurance of the insurance market while expected to drive down segments segment that dropped 49% y-o-y with estimated longer-term of the market. deceleration.

The non-life insurance market was stable despite the COVID-19 The life insurance market is started to get affected by the related lockdown introduced on March 13, which heavily affected pandemic situation and expectations are that the mid-term the general consumption and movement of goods and people performance of the market will be significantly depressed by in Q2 2020. H1 2020 GWP grew marginally by 0.7% y-o-y with conservative reaction of the consumers in the EU state with the performance in Q2 offsetting the 4.2% growth y-o-y in Q1. The lowest personal income per capita. The H1 2020 GWP dropped car related insurance policies Casco and MTPL traditionally 14% y-o-y and second half is expected to be hit harder. The form about ¾ of the non-life market and H1 performance was life market is concentrated in 4 big players – Bulstrad (Vienna unaffected by the pandemic – the y-o-y change was -1% and 1% Insurance Group), DZI (KBC), Allianz and Uniqa and despite respectively. There are expectations that the Casco sales will relative gain of market share y-o-y by Bulstrad on the expense of decrease in the mid-term due to the 45% drop of sales of new the other three all players would be negatively affected. cars in Bulgaria in the first half of the year while immediate victim

75 Serbia

Macroeconomic environment

Serbia’s economic growth accelerated in the previous years. In 2019, The recorded unemployment rate continued to decrease, it fell from GDP increased by 7.3% in nominal terms and by 4.2% in real terms, 15.3% in 2016 to 10.4% in 2019, which is considered low compared 0.2% lower than it was in 2018. The growth was mainly driven by to other Balkan countries. Unfortunately, the lockdown due to the higher public investment and household consumption. 3% drop in coronavirus will push the unemployment rate to 12.4% in 2020. real GDP is expected in 2020 and the growth will average to 2.9% in the next few years. Between 2014 and 2017, Serbia achieved an improvement in the government fiscal balance, which in 2017 recorded the first surplus. After the increase of GDP for 5.1% in Q1 2020, it dropped by 6.4% in In 2019, the budget balance turned into a slight deficit again, namely Q2 of 2020 as a result of COVID – 19 pandemic. EBRD estimation is 0.2% of GDP as the government spending was boosted for pre- that Serbian GDP for 2020 will decline by 3.5%, while the expectation election. for 2021 is the increase of GDP for 4.1%. Public debt has declined in recent years (the government cut it by Inflation has been relatively stable since 2015, averaging 1.7% in 1.7% to 52.0% in 2019). The fiscal deficit is expected to increase to 2019. In 2020, inflation will be around 1.6% as the crisis-related hit about 9% of the GDP and push the public debt back above 60%. to domestic demand and low global oil prices will dampen price growth.

Change 2018-19 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 36 607 40 118 42 885 46 012 45 357 -1.4%

Nominal GDP/capita (EUR) 5 156 5 731 6 126 6 668 6 573 -1.4%

GDP (% real change pa) 3.3% 2.0% 4.4% 4.2% -3.0% -7.2%

Consumer prices (% change pa) 1.2% 3.2% 2.0% 1.7% 1.6% -0.1%

Recorded unemployment (%) 15.3% 13.5% 12.7% 10.4% 12.4% 2.0%

Budget balance (% of GDP) -1.2% 1.1% 0.6% -0.2% -9.0% -8.8%

Public debt (% of GDP) 67.8% 57.9% 53.7% 52.0% 62.0% 10.0%

Source: EIU *Estimated

Insurance market trends

Life GWP increased by 4.8% while non-life GWP expanded by the largest share of total premiums with 42.5%, followed by life 8.5% year over year in 2018. In 2019, both insurance segments insurance products. could overperform the previous pace. Life GWP increased by 5.9% while the non-life segment expanded by 8.8% year over Insurance penetration was 2.0% in 2019, i.e. it remained year. As a result, total insurance market GWP increased by 26.6% unchanged from 2015 to 2019. In 2019, GWP per capita was EUR from 2016 to 2019 with an annual growth rate of 8.2%. 131, which is lower than the CEE average of EUR 348. It means that there is room for further growth. In 2020, gross written premium is expected to contract by 1.8% in life segment, while the non-life sector could grow by 1.2% driven Impact of COVID-19 on the market is expected to be lower then mainly by the growth in health insurance line. in developed countries, since insurance market in Serbia is still mainly based on obligatory insurance products. In 2019, life and non-life GWP accounted for 23.3% and 76.7% of total market GWP. Overall motor insurance accounted for

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 187 192 201 213 5.9%

Non-Life 535 594 644 701 8.8%

Total 722 786 845 914 8.1%

Insurance penetration

Life 0.5% 0.5% 0.5% 0.5% 0.0%

Non-Life 1.5% 1.5% 1.5% 1.5% 0.0%

Total 2.0% 2.0% 2.0% 2.0% 0.0%

GWP / Capita (EUR)

102 112 121 132 7.6%

Total Paid Claims

Life 52 77 93 111 19.0%

Non-life 218 234 252 338 34.0%

Total 270 311 346 449 30.0%

Paid claims / GWP 2016 2017 2018 2019

Life 27.8% 40.0% 46.3% 52.1% 6.3%

Non-life 40.8% 39.5% 39.2% 48.3% -0.3%

Total 37.5% 39.6% 40.9% 49.1% 1.3%

Source: Xprimm

77 Insurance market

There were 10 life insurer and 12 non-life insurer companies in Serbia, 8 of which operated in both segments in 2019.

List of Life Insurers in Serbia 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 GENERALI Osiguranje 63 29.4% Generali Yes -

2 WIENER 44 20.8% Vienna Insurance Group Yes - Grazer Wechselseitige 3 GRAWE 32 15.0% Yes - Versicherung Društveni capital, Serbian 4 DUNAV 22 10.5% Yes - state 5 UNIQA Zivot 16 7.6% Uniqa Yes -

6 DDOR 16 7.4% UNIPOLSAI S.P.A Yes -

7 MERKUR 7 3.1% Merkur No -

8 OTP Osiguranje (ex Societe Gen.) 6 2.7% OTP Group No -

9 TRIGLAV 4 2.1% Triglav Group Yes -

10 SAVA Zivotno 3 1.4% Pozavarovalnica Sava DD Yes -

Total 213 100.0%

Source: National Bank of Serbia, Xprimm

List of Non-Life insurers in Serbia 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank Društveni kapital, Serbian 1 DUNAV 219 31.3% Yes - state 2 GENERALI Osiguranje 134 19.1% Generali Yes -

3 DDOR 92 13.1% UNIPOLSAI S.P.A Yes -

4 WIENER 63 8.9% Vienna Insurance Group Yes -

5 TRIGLAV 54 7.7% Triglav Group Yes -

6 UNIQA Nezivot 37 5.3% Uniqa Yes - Auto-Moto Association of 7 AMS 33 4.8% No 1 Serbia 8 MILENIJUM 30 4.3% Croatia Osiguranje No -1

9 SAVA Nezivot 23 3.2% Pozavarovalnica Sava DD Yes -

10 SOGAZ 11 1.6% SOGAZ Insurance Group No - Grazer Wechselseitige 11 GRAWE 2 0.3% Yes 1 Versicherung 12 GLOBOS 2 0.3% Milovan Durovic No -1

Total 701 100.0%

Source: National Bank of Serbia, Xprimm

The life insurance market is highly concentrated. Based on GWP account for 63.5% of the total GWP. The remaining 36.5% of the the top three companies control 65.2% of the market. The rest of market is distributed among 9 insurers. the market share is distributed between other 7 relatively smaller players (less then 15% ownership market share). Market share of In 2019, there were 14 insurance companies operating in the Generali Osiguranje life insurance company decreased by 1.8% from Serbian market. Of the life insurers, only two companies, namely, the previous year, but is still the most dominant in the market with OTP Osiguranje (ex Société General) and Merkur did not have non- 29.4% market share. life business, and out of the 12 non-life insurance companies four operated only in the non-life segment. Based on GWP in 2019, the non-life segment was more than three times larger than the life segment. The non-life insurance segment is also highly concentrated, given that the top three companies

Market concentration in Serbia

Life insurance concentration 65.2% 25.5% 9.3%

Non-Life insurance concentration 63.5% 21.9% 14.6%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

79 M&A activity

List of M&A transactions in Serbia 2015-2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn 2019 Societe Generale Osiguranje OTP group 100.0% n.a. Societe Generale SA Y Vienna Insurance 2016 AXA Zivot, AXA Nezivot 100.0% n.a. AXA SA Y Group 2015 Takovo Osiguranje Dunav 100.0% n.a. Undisclosed seller Y

Source: Deloitte Intelligence

Compared to Deloitte’s CEE insurance M&A Outlook 2019, there In 2019, Societe Generale, a French-based banking group, has were one additional transactions on the Serbian insurance sold its Serbian unit to Hungarian banking group OTP. As part of market until September 2020. Before that there were 2 closed the deal, OTP has acquired Societe General Osiguranje which will insurance related transactions with none of the purchase be renamed OTP Osiguranje. amounts disclosed.

Regulatory

Industry regulators

NBS (National Bank of Serbia) is the regulator of the insurance strengthening the financial stability of the insurance market. NBS industry in Serbia. The aim of NBS is to protect clients and to is responsible to issue and revoke licenses for insurance activities enforce all requirements in the insurance sector by supervising and to perform supervision of insurance activities. the activities of insurance businesses and by protecting and

Insruance related acts

• The Law on Bankruptcy and Liquidation of Banks and Insurance • The Law on Pension and Disability Insurance; Companies; • The Law on the National Bank of Serbia; • The Law on Compulsory Traffic Insurance; • The Law on Voluntary Pension Funds and Pension Schemes. • The Law on Deposit Insurance;

• The Insurance Law 2014 (with amendments);

Impact of COVID-19

In Serbia, the insurance industry is considered to be shrank. The non-life market is more developed, so a slight growth underdeveloped. The market is dominated by subsidiaries of in terms of written premiums is expected in 2020. The increased noted European insurance groups. In the upcoming years, there unemployment could be the reason of the contraction in the is a potential for further consolidation. demand for motor and property insurance products.

The life sector is assumed to be hit significantly by the effect of From 2021, the premiums is awaited to growth in both sectors. the pandemic, as the demand for the saving products will be

81 Baltic region - Estonia

Macroeconomic environment

Estonia’s economic growth accelerated in the recent years. In 2019, In 2019, the consumer price index was 2.3%. Due to the crisis GDP grew by 4.3% in real terms compared to 2018, mainly driven caused by the COVID-19 pandemic, the consumer prices are by private consumption (construction, manufacturing, professional, forecasted to stay below the year-ago level at the end of 2020, scientific and technical activities) and real wage growth. As Estonia is however in short term the inflation could average around 2.5%. highly sensitive to the economic cycle of the rest of the EU countries, a downturn of around 7.8% is forecasted in 2020. Recorded unemployment rate declined continuously in the last four years, dropping to 4.5% in 2019 from 6.2% in 2015, however it Following deflation between 2014 and 2016, inflation rebounded to is expected to increase over the next year. In 2019, budget deficit an average of 3.4% in 2017 and 2018, which was due to rising energy was -0.3% while public debt remained on the 2018 level of 8.4% of and food prices, as well as the introduction of an income tax reform GDP. As the result of COVID-19 both indicators are forecasted to be in early 2018, which increased real wages as well. heavily impacted.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 21 694 23 776 26 036 28 038 25 748 -8.2%

Nominal GDP/capita (EUR) 16 688 18 289 20 028 21 568 19 806 -8.2%

GDP (% real change pa) 2.6% 5.7% 4.8% 4.3% -7.8% -12.1%

Consumer prices (% change pa) 0.1% 3.4% 3.4% 2.3% -0.4% -2.7%

Recorded unemployment (%) 6.8% 5.8% 5.4% 4.5% 8.3% 3.8%

Budget balance (% of GDP) -0.5% -0.8% -0.6% -0.3% -8.9% -8.6%

Public debt (% of GDP) 10.2% 9.3% 8.4% 8.4% 18.1% 9.7%

Source: EIU *Estimated

Insurance market trends

Life GWP increased by 4.6% while non-life GWP grew by 35.9% In 2019, life and non-life GWP accounted for 19.4% and 80.6% of year on year in 2018. In 2019, both the life and non- segments the total insurance market GWP, respectively. fell back, as life segment GWP increased only by 0.4% and the non-life segment GWP decreased by 12.9% % year on year. Insurance penetration was 1.8% in 2019, which is a decline after Concerning the period of the last four years, an overall increase 2018 back to the previous level of 2016 and 2017. In 2019, GWP was experienced, as total insurance market GWP increased by per capita amounted to EUR 380, which is greater than the CEE 27.3% from 2016 to 2019 with an annual growth rate of 8.4%. average of EUR 348.

Life GWP is expected to contract by 1.1% in 2020 as the segment faces poorer demand due to the COVID-19 breakdown. Meanwhile, the non-life segment is assumed to expand by 1.8% driven by health and accident lines.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 86 91 95 96 0.4%

Non-Life 302 336 457 398 -12.9%

Total 388 427 552 494 -10.6%

Insurance penetration

Life 0.4% 0.4% 0.4% 0.3% 0.0%

Non-Life 1.4% 1.4% 1.8% 1.4% -0.3%

Total 1.8% 1.8% 2.1% 1.8% -0.4%

GWP / Capita (EUR)

298 329 425 380 -10.6%

Total Paid Claims

Life 55 58 63 61 -2.3%

Non-life 177 181 199 218 9.3%

Total 232 240 262 279 6.5%

Paid claims / GWP 2016 2017 2018 2019

Life 64.1% 63.7% 65.5% 63.7% -1.8%

Non-life 58.5% 54.0% 43.7% 54.8% 11.1%

Total 59.8% 56.1% 47.4% 56.5% 9.1%

Source: Xprimm

83 Insurance market

There were five life insurance and 13 non-life insurance companies in Estonia, three of which operated in both segments in 2019.

List of Life Insurers in Estonia 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 Swedbank Life Insurance SE 39 40.6% Swedbank Yes -

2 SEB Elu- ja Pensionikindlustuse AS 22 23.1% SEB No - Compensa Life Vienna Insurance Group 3 17 17.4% Vienna Insurance Group Yes - SE Mandatum Life Insurance Company 4 12 12.7% Sampo Group No - Limited Eesti filiaal 5 Ergo Life Insurance SE Eesti filiaal 6 6.2% Munich Re Yes -

Total 96 100.0%

Source: Estonian Financial Supervision Authority, Xprimm, Annual reports

List of Non-Life insurers in Estonia 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 Swedbank P&C Insurance AS 75 18.9% Swedbank Yes 1 Skadeforsakring Holding 2 If P&C Insurance AS 73 18.3% No -1 AB 3 ERGO Insurance SE 64 16.0% Munich Re Yes 1

4 AB Lietuvos draudimas Eesti filiaal 63 15.8% AB Lietuvos draudimas No -1

5 Seesam Insurance AS 37 9.3% OP Vakuutus Oy No - AAS BTA Baltic Insurance Company Eesti 6 27 6.7% Vienna Insurance Group No 1 filiaal 7 Salva Kindlustuse AS 24 6.0% NN No -1 Compensa Vienna Insurance Group 8 14 3.5% Vienna Insurance Group Yes - UADB Eesti filiaal OÜ Unix-V , Voldemar 9 AS Inges Kindlustus 9 2.2% No 1 VaiNo Akciné draudimo bendrové Gjensidige 10 8 2.0% Gjensidige Group No -1 Eesti filiaal 11 Telia Försäkring AB Eesti filiaal 3 0.7% n.a. No 2

Eesti Vabariigi Majandus-ja 12 Kredex Krediidikindlustus AS 2 0.4% Kommunikatsiooni- No -1 ministeerium

13 Estonian Traffic Insurance Fund 1 0.3% n.a. No -1

Total 398 100.0%

Source: Estonian Financial Supervision Authority, Xprimm, Annual reports

The life insurance market is highly concentrated. Based on GWP, the concentrated compared to the life segment, given that the top three top three companies control 81.1% of the market. The largest insurer companies own 53.2% of total GWP. is by far Swedbank, which is the leader in both segment with a total market share of 23.1% in terms of GWP on the total market. There are some relatively small insurers in the non-life segment, indicating that there is room for consolidation. The non-life segment is slightly more than four times larger than the life segment in terms of GWP in 2019. The non-life market is less

Market concentration in Estonia

Life insurance concentration 81.1% 18.9%

Non-Life insurance concentration 53.2% 31.8% 15.0%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

85 M&A activity

List of M&A transactions in Estonia 2015-2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn GrECo 2018 IIZI Group AS 57.0% n.a. Undisclosed seller Y International AG Vienna Insurance 2018 Seesam Insurance AS 100.0% n.a. OP Financial Group Y Group

Source: Deloitte Intelligence

Compared to Deloitte’s CEE insurance M&A Outlook 2019, there insurance related transactions, the purchase price was not were no additional transactions in the Estonian insurance market disclosed in any of the two cases. until September 2020. Prior to that, there were 2 completed

Regulatory

Industry regulators

Estonian Financial Authority (Finantsinspektsioon) is the funds, payment institutions, e-money institutions, creditors and financial supervision and crisis resolution authority with credit intermediaries, and the securities market. These entities autonomous responsibilities and budget that works on behalf all operate under activity licenses granted by the Estonian of the state of Estonia and is independent in its decision- Financial Authority. Supervision over branches of banks, making. Finantsinspektsioon carries out state supervision insurance companies and investment funds operating in Estonia over banks, insurance companies, insurance intermediaries, is exercised by the supervision authority of the country of origin investment firms, fund managers, investment and pension of the branch.

Insruance related acts

• Insurance Activities Act 01.01.2016; • Motor Insurance Act 01.10.2014;

• Law of Obligations Act 01.07.2002; • Unemployment Insurance Act 01.01.2002;

• State Pension Insurance Act 01.01.2002; • Financial Supervision Authority Act 01.01.2002.

• Health Insurance Act 01.09.2019;

Impact of COVID-19

The insurance sector is expected to face pressure in the short- on the life insurance sector in particular. Moreover, a dampening term from rising unemployment rates, which according to some demand for consumer-driven non-life lines is expected as well. estimations could reach as high as 13% in 2020. This will weigh

87 Baltic region - Latvia

Macroeconomic environment

Latvia’s economic growth slowed down in 2019 with a 2.2% real GDP Over the past four years, recorded unemployment rate has been growth after a strong upswing in the preceding period between falling arriving at 6.3% in 2019, however it is expected to rise to 2017 and 2018. The crisis caused by the pandemic is estimated to 10.0% in 2020 due to the pandemic. lead to a real GDP contraction of 6.9% for the year of 2020. Although according to experts a recovery will follow in 2021, a return to pre- After a surplus of 0.2% in 2016, budget balance turned to negative in crisis GDP levels is not expected until 2022. 2017 and remained in deficit over 2018 and 2019 as well. Public debt decreased constantly from 2016 arriving at the level of 36.9% of Following subdued inflation of about 2.2% on average in 2016 to GDP. Both indicators are expected to show a negative trend in 2020 2017, inflation increased to 2.5% in 2018, followed by a reported due to COVID-19. inflation of 2.3% in 2019. Inflation is expected to fall to 0.8% in 2020 and is estimated to average in 1.4% over the next few years.

Change 2018-19 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 25 041 26 736 29 040 30 470 28 657 -6.0%

Nominal GDP/capita (EUR) 12 521 13 368 15 284 16 037 15 083 -6.0%

GDP (% real change pa) 1.6% 3.8% 4.5% 2.2% -6.9% -9.1%

Consumer prices (% change pa) 2.2% 2.2% 2.5% 2.3% 0.8% -1.5%

Recorded unemployment (%) 9.6% 8.7% 7.4% 6.3% 10.0% 3.7%

Budget balance (% of GDP) 0.2% -0.8% -0.8% -0.2% -8.2% -8.0%

Public debt (% of GDP) 40.9% 39.3% 37.2% 36.9% 47.4% 10.5%

Source: EIU *Estimated

Insurance market trends

Life GWP increased by 0.1% while non-life GWP increased by Meantime, only 0.8% growth is assumed in the non-life segment. 21.9% year on year in 2018. In 2019, both segments increased, with the life segment significantly outperforming the growth In 2019, life and non-life GWP accounted for 26.6% and 73.4% of rates of the previous years. Life and non-life GWP increased total market GWP, respectively. by 57.2% and 2.9% year over year, respectively. The non-life segment’s growth was mainly driven by motor insurance Insurance penetration was 2.8% in 2019, which is 0.7% points products. As a result, total insurance market GWP grew by 60.9% higher compared to 2016. In 2019, GWP per capita amounted to from 2016 to 2019 with an annual growth rate of 17.2%. EUR 451, which is above the CEE average of EUR 348.

In 2020, life segment GWP is expected to grow by 3.8% since there is a strong demand for long-term savings and investments, therefore for unit-linked and term insurance products as well.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 124 145 145 228 57.2%

Non-Life 409 501 611 629 2.9%

Total 532 646 756 857 13.4%

Insurance penetration

Life 0.5% 0.5% 0.5% 0.7% 0.2%

Non-Life 1.6% 1.9% 2.1% 2.1% 0.0%

Total 2.1% 2.4% 2.6% 2.8% 0.2%

GWP / Capita (EUR)

266 323 398 451 13.4%

Total Paid Claims

Life 73 91 91 145 60.4%

Non-life 240 271 315 404 28.2%

Total 314 362 406 549 35.4%

Paid claims / GWP 2016 2017 2018 2019

Life 59.1% 62.5% 62.4% 63.7% 1.3%

Non-life 58.8% 54.1% 51.6% 64.3% 12.7%

Total 58.9% 56.0% 53.7% 64.1% 10.4%

Source: Xprimm

89 Insurance market

There were six life insurance and 11 non-life insurance companies in Latvia, three of which operated in both segments in 2019.

List of Life Insurers in Latvia 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 SEB Life and Pension Baltic SE 107 47.1% SEB No 1

2 ERGO Life Insurance SE Latvijas filiāle 40 17.6% Munich Re Yes -1 Swedbank Life Insurance SE Latvijas 3 31 13.8% Swedbank Yes - filiāle Compensa Life Vienna Insurance Group 4 24 10.7% Vienna Insurance Group Yes - SE Latvijas filiāle CBL Life apdrošināšanas akciju IPAS "CBL Asset 5 19 8.2% No sabiedrība Management” Mandatum Life Insurance Company 6 6 2.7% Sampo Group No - Limited Latvijas filiāle

Total 228 100.0%

Source: Xprimm

List of Non-Life insurers in Latvia 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 IJSC "BTA Baltic Insurance Company" 223 35.5% Vienna Insurance Group No - POWSZECHNY ZAKLAD 2 Insurance Joint Stock Company "Balta" 114 18.2% No 1 UBEZPIECZEN S.A. B5 Holding Limited, HTT Holding Company Limited, MDA Holding Limited, 3 Balcia Insurance SE 87 13.9% No -1 Transport Information Agency AS, B6 Holding Limited Akcine draudimo bendrove "Gjensidige" 4 42 6.7% Gjensidige Group No - Latvijas filiāle 5 ERGO Insurance SE Latvijas filiāle 37 5.9% Munich Re Yes - Swedbank P&C Insurance AS Latvijas 6 30 4.7% Swedbank Yes 1 filiāle 7 If P&C Insurance AS Latvijas filiāle 30 4.7% Sampo Group No -1 Compensa Vienna Insurance Group ADB 8 26 4.1% Vienna Insurance Group Yes - Latvijas filiāle 9 Seesam Insurance AS Latvijas filiāle 22 3.6% OP Insurance Company Ltd No 1 "Baltijas Apdrošināšanas Nams" 10 16 2.6% BAN Holdings No -1 Insurance Joint Stock Company 11 Telia Forsakring AB filiāle Latvijā 0 0.1% Telia Forsakring AB No n.a.

Total 627 100.0%

Source: Xprimm

The life insurance market is highly concentrated, as based on GWP, Of the 11 non-life insurers only BTA Baltic Ins. and Baltikums VIG are the top three insurers, control 78.5% of the market. Only two locally registered in Latvia, the rest are operating as foreign branches of registered companies, SEB dzīvības apdrošināšana and CBL Life non-domestic companies. are operating in the life segment, the other insurers are the local branches of non-domestic companies. The two local firms together There are some relatively small insurers mainly in the non-life account for 55.2% of GWP in the life segment as per 2019. segment, which means there is room for further consolidation.

The non-life market was almost three times larger than life Latvian insurers operate cross-border in the Baltics Region because segment based on GWP in 2019. The non-life segment is also highly of the modest size of the national market. Cross-border operation concentrated, considering that the top three companies account for in the region provides cost efficiency, economies of scale and 67.7% of total GWP. synergies.

Market concentration in Latvia

Life insurance concentration 78.5% 21.5%

Non-Life insurance concentration 67.7% 17.3% 15.0%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

91 M&A activity

List of M&A transactions in Latvia 2015-2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn 2020 SIA UniCredit Insurance Broker Citadele Bank 100% n.a. UniCredit Group Y Vienna Insurance BTA Insurance Company 2015 BTA Baltic Insurance Company AAS n.a. n.a. Y Group SE Vienna Insurance 2015 Baltikums AAS n.a. n.a. Baltikums Bank AS Y Group

Source: Deloitte Intelligence

Compared to Deloitte’s CEE insurance M&A Outlook 2019, there provider in the Baltics for small and medium-sized enterprises. was one additional transaction on the Latvian insurance market until September 2020. Before that, there had been 2 completed insurance related transactions, both related to the Austria-based VIG, which in In 2020, Citadele Bank, a Latvia-based commercial bank acquired 2015 acquired majority stakes in the Latvia-based insurers SIA UniCredit Insurance Broker, a Latvia-based insurance service Baltikums AAS and BTA Baltic Insurance Company AAS, both for provider from UniCredit Group. This acquisition was in line with an undisclosed amount. Citadele’s long-term strategy to become leading financial service

Regulatory

Industry regulators

FCMC (Financial and Capital Market Commission) is the primary LIA (Latvian Insurers Association) is the main trade body including supervisor and regulator of the insurance sector. FCMC is 15 members, covering nearly 100% of the insurance market. The responsible for licensing insurance companies that are operating aim of the association is to represent the common interests of in the Latvian market. Foreign European companies can operate local insurance companies and to support the development of without an authorization to provide insurance services via legislation regulating insurance activity. passporting. The aim of FCMC is to monitor and control the insurance sector and maintain stability of the market.

Insruance related acts

• Activities of Insurance and Reinsurance Intermediaries Law • General legal requirements to capital markets and joint-stock (2007); companies;

• Compulsory Liability for owners of Motor Vehicles Law (2007, • Insurance and Reinsurance Act (2015, plus amendments); plus amendments); • Insurance Contract Law (1998, amended in 2002 and 2018). • EU Directive 2016/97 - The Insurance Distribution Directive;

• EU Directive 2011/89/EU;

Impact of COVID-19

The economy of Latvia is also expected to hit by the pandemic. consciousness. The government has already agreed a recovery The higher unemployment will cause a contraction in demand plan with the European Union, so the country will receive a for insurance product in consumer driven lines. Despite of the significant amount for economy improvement in the next above, the demand in the life segment is awaited to increase for upcoming years. The idea of a health insurance tax is raised again health related products because of the public health system and due to the coronavirus outbreak.

93 Baltic region - Lithuania

Macroeconomic environment

In 2019, the real GDP growth was 3.9% mainly driven by strong Recorded unemployment decreased to 6.2% in 2018 from 7.1% in private consumption as labour market conditions improved in the 2017, continuing its downward trend, however it slightly increased by recent years. Real GDP growth is expected to decline and there will 0.1% to 6.3% in 2019. The unemployment rate has been increased, be a contraction of 3.6% in 2020 due to the recession caused by however wage growth will remain robust and the government's the lockdown imposed by the government to tackle the pandemic. fiscal stimulus will support household income against rising Further ease in the next years and stop at around an average of unemployment. 3.3%, mainly driven by domestic demand. In 2019, budget balance resulted in a positive ratio of 0.3% while the After inflation had jumped to 3.7% in 2017, it eased further back public debt increased significantly by 2.4% to 36.2%. to 2.2% in 2019. The inflation is forecasted to an average of 1.1% in 2020 and will firm over the next years once the global economy strengthen and the oil prices recover.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 38 900 42 300 45 300 48 400 47 900 -1.0%

Nominal GDP/capita (EUR) 13 414 15 107 16 179 17 286 17 741 2.6%

GDP (% real change pa) 2.6% 4.2% 3.6% 3.9% -3.6% -7.5%

Consumer prices (% change pa) 0.7% 3.7% 2.5% 2.2% 1.1% -1.1%

Recorded unemployment (%) 7.9% 7.1% 6.2% 6.3% 9.6% 3.3%

Budget balance (% of GDP) 0.2% 0.5% 0.6% 0.3% -4.7% -5.0%

Public debt (% of GDP) 39.7% 39.1% 33.8% 36.2% 44.0% 7.8%

Source: EIU *Estimated

Insurance market trends

Life GWP increased by 7.3% and non-life GWP by 12.2% year over In 2019, life and non-life GWP accounted for 28.6% and 71.4% of year in 2018. In 2019, both segments expanded but only the life total market GWP, respectively. segment could overperform the 2018 growth rate. In 2019, life and non-life GWP increased by 8.9% and 7.1% year over year, Insurance penetration was 2.0% in 2019, roughly unchanged respectively As a result, total insurance market GWP increased by from 2015. In 2019, GWP per capita was EUR 338, which is below 33.2% from 2016 to 2019 with an annual growth rate of 10.0%. the CEE average of EUR 348. It means that there is room for expansion. Both segments is expected to grow, the life by 2.8% and the non- life by 2.6% driven by health and accident lines.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 247 231 248 270 8.9%

Non-Life 463 561 630 675 7.1%

Total 710 793 878 945 7.6%

Insurance penetration

Life 0.6% 0.5% 0.5% 0.6% 0.0%

Non-Life 1.2% 1.3% 1.4% 1.4% 0.0%

Total 1.8% 1.9% 1.9% 2.0% 0.0%

GWP / Capita (EUR)

245 283 314 338 7.6%

Total Paid Claims

Life 114 151 129 131 1.3%

Non-life 259 304 324 369 13.9%

Total 373 455 453 499 10.3%

Paid claims / GWP 2016 2017 2018 2019

Life 46.1% 65.4% 51.9% 48.3% -3.6%

Non-life 55.9% 54.2% 51.4% 54.7% 3.3%

Total 52.5% 57.4% 51.5% 52.8% 1.3%

Source: Xprimm

95 Insurance market

There were 9 life insurer and 15 non-life insurer companies in Lithuania, five of which operated in both segments in 2019.

List of Life Insurers in Lithuania 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 SWEDBANK Life Insurance 63 23.1% Swedbank Yes -

2 AVIVA Lietuva 53 19.4% Aviva No -

3 COMPENSA Life Insurance 47 17.5% Vienna Insurance Group Yes 1

4 SEB gyvybės draudimas 47 17.4% SEB Yes -1

5 ERGO Life 25 9.2% Munich Re Yes -

6 PZU Lietuva gyvybės draudimas 17 6.4% PZU No -

7 MANDATUM Life Insurance Baltic 11 4.2% Sampo Group No -

8 BONUM PUBLICUM 8 2.8% Šiaulių bankas No -

9 LIETUVOS draudimas 0 0.0% PZU Yes n.a.

Total 270 100.0%

Source: Xprimm

List of Non-Life insurers in Lithuania 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 LIETUVOS draudimas 204 30.2% PZU Yes - BTA Insurance Company SE filialas 2 107 15.9% Vienna Insurance Group No - Lietuvoje 3 ERGO filialas 94 14.0% Munich Re Yes -

4 GJENSIDIGE 70 10.4% Gjensidige Group No -

5 If P&C Insurance AS filialas 47 6.9% Sampo Group No -

6 COMPENSA VIG 45 6.7% Vienna Insurance Group No - SWEDBANK P&C Insurance AS Lietuvos 7 29 4.3% Swedbank Yes - filialas 8 SEESAM Lietuvos filialas 19 2.8% Vienna Insurance Group No -

9 BALCIA filialas 21 3.1% Balcia Insurance Yes -

10 COMPENSA Life Insurance 16 2.4% Vienna Insurance Group No - COFACE CENTRAL EUROPE 11 COFACE Lietuvos filialas 6 0.9% No - HOLDING 12 ERGO Life 6 0.9% Munich Re No - Vereinigte Hagelversicherung VVaG Vereinigte 13 8 1.2% No - Filialas VH Lietuva Hagelversicherung 14 LAMANTINAS 3 0.4% Bronius Bradauskas No -

15 SEB gyvybės draudimas 0 0.0% SEB Yes 1.

Total 675 100.0%

Source: Xprimm

The life insurance market is highly concentrated. The top three The non-life market was more than twice as large as the life companies control 60.0% of the market based on GWP in 2019. segment based on GWP in 2019. The non-life segment is also highly Despite the high concentration, there are plenty of relatively small concentrated, given that the top three companies account for 60.1% insurers in both segments, which shows that there is room for of the total GWP. The remaining 39.9% of the market is shared by 12 consolidation. businesses, most of which owned by foreign firms

Market concentration in Lithuania

Life insurance concentration 60.0% 33.0% 7.0%

Non-Life insurance concentration 60.1% 24.0% 15.9%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

97 M&A activity

List of M&A transactions in Lithuania 2015-2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn UAB Inovatyvus prekybos 2018 UAB Mokilizingas Inbank AS 100.0% 15 Y sprendimai; LHV Group AS 2017 Balto Link Aon Baltic 100.0% n.a. Balto Link Y Gjensidige 2015 PZU 99.9% 66 PZU Y Forsikring

Source: Deloitte Intelligence

There were three closed insurance related transactions 2015 and there were no additional transactions on the Lithuanian insurance market until June 2020.

Previous major transactions since 2015

In 2018, Inbank AS, a listed Estonia-based bank agreed to acquire In 2017, Aon Baltic, a Lithuania-based insurance services UAB Mokilizingas from LHV Group AS and UAB Inovatyvus company acquired Balto Link, a Lithuania-based insurance prekybos sprendimai for a consideration of EUR 15m. The brokerage company for an undisclosed consideration. acquisition was a step in the implementation of the international growth strategy of Inbank. In 2015, Gjensidige Forsikring, the listed Norway-based company providing non-life insurance, banking and pension services agreed to acquire PZU business in Lithuania for a consideration Regulatory of EUR 66m.

Industry regulators

BoL (Bank of Lithuania) is the single supervisor and regulator of BoL performs prudential and market conduct supervision of all financial markets, including the insurance sector in Lithuania. financial markets.

Insruance related acts

• Law on Companies (2000, with amendments); • Law on Unemployment Social Insurance (2003, with amendments); • Law on Financial Institutions (2002, with amendments); • Law on Accumulation of Pensions (2003, with amendments); • Labour Code (2016, with amendments) • Law on Supplementary Voluntary Accumulation of Pensions • Civil Code (2000, with amendments); (1999, with amendments); • Law on Insurance (2003, with amendments); • Law on Prevention of Money Laundering and Terrorist • Law on Health Insurance (1996, with amendments); Financing (1997, with amendments);

• Law on Compulsory Insurance against Civil Liability in respect • Law on the Bank of Lithuania (1994, with amendments). of the Use of Motor Vehicles (2001, with amendments);

Impact of COVID-19

As the economy faces with a slowdown, the insurance industry is lines, meantime an increase in demand is expected for health also affected by the effect of the coronavirus pandemic causing a insurance products. The improvement on the pension system contraction in demand for insurance products. However, motor could also contribute to the growth of the life segment. In mid- and property insurance products will remain the most driven term, the industry is forecasted to expand again in the future.

99 Albania

Macroeconomic environment

Albania’s economic growth slowed down to 2.2% in 2019, while in driven by food price growth, while prices in major service sectors the previous years GDP grew by 3.3-4.1% annually in real terms. (medical care, communication, transport) fell annually. Despite Household consumption and government spending were the the crisis caused by the pandemic, change in consumer prices is primary drivers of the economic growth. As the country’s main trade estimated to stay below 2.0% in 2020. partners in Europe expect to have the highest GDP decrease in Europe, Albania’s GDP is also expected to decrease by 6.0% in 2020 Recorded unemployment rate declined continuously in the last four due to COVID-19. years, dropping to 5.9% in 2019 from 10.3% in 2016. However, it is expected to increase in 2020 as a result of the pandemic. In 2019, The inflation was stable in the previous years as the changes of budget deficit was -1.9% while public debt decreased further to consumer prices remained under 2.0%. Inflation was primarily 68.8% of GDP from 73.3% in 2016.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 10 715 11 532 12 822 13 643 12 374 -9.3%

Nominal GDP/capita (EUR) 3 695 3 976 4 421 4 705 4 267 -9.3%

GDP (% real change pa) 3.3% 3.8% 4.1% 2.2% -6.0% -8.2%

Consumer prices (% change pa) 1.3% 2.0% 2.0% 1.4% 1.9% 0.5%

Recorded unemployment (%) 10.3% 7.6% 6.3% 5.9% 7.8% 1.9%

Budget balance (% of GDP) -1.8% -2.0% -1.6% -1.9% -5.6% -3.7%

Public debt (% of GDP) 73.3% 71.9% 69.6% 68.8% 81.5% 12.7%

Source: EIU *Estimated

Insurance market trends

Life GWP increased by 2.2% while non-life GWP grew by 13.6% Insurance penetration was 1.1% in 2019, i.e. it remained year on year in 2018. In 2019, only life insurance segment could unchanged from 2016 to 2019. In 2019, GWP per capita overperform the previous growth rate as it increased by 7.9% amounted to EUR 50, which is lower than the CEE average of EUR while the non-life segment grew by 5.3% year on year. As a result, 348, indicating that the insurance sector of Albania is among total insurance market GWP increased by 26.9% from 2016 to the less developed ones in the CEE region and there is plenty of 2019 with an annual growth rate of 8.3%. room for further growth.

Non-life segment is dominating the market, in 2019, it accounted for 93.1% of total market GWP.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 7 9 9 10 7.9%

Non-Life 106 112 127 134 5.3%

Total 114 121 137 144 5.5%

Insurance penetration

Life 0.1% 0.1% 0.1% 0.1% 0.0%

Non-Life 1.0% 1.0% 1.0% 1.0% 0.0%

Total 1.1% 1.1% 1.1% 1.1% 0.0%

GWP / Capita (EUR)

39 42 47 50 5.5%

Total Paid Claims

Life 1 2 2 2 -9.9%

Non-life 30 34 46 46 -1.5%

Total 32 36 48 47 -1.9%

Paid claims / GWP 2016 2017 2018 2019

Life 18.6% 21.9% 20.2% 16.9% -1.7%

Non-life 28.5% 30.4% 36.5% 34.1% 6.1%

Total 27.8% 29.7% 35.4% 32.9% 5.6%

Source: Xprimm

101 Insurance market

There were 9 life insurer and 15 non-life insurer companies in Lithuania, five of which operated in both segments in 2019.

List of Life Insurers in Albania 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank

Sigal Uniqa Group Austria 1 Sigal Life Uniqa Group Austria 6 59.5% Yes - Sh.a.

Individuals - Aleksander 2 Sicred 2 21.3% No - Pilo, Renis Tershana

Shefqet Kastrati, Samir 3 Insig jeta 2 18.6% Yes - Mane, Eurosig Sh.a.

4 Albsig jeta 0 0.6% - Yes n.a.

Total 10 100.0%

Source: Xprimm

List of Non-Life insurers in Albania 2019

GWP Market Has life Change in Name of institution Major shareholder (EUR mn) share % business rank

Uniqa International 1 Sigal Uniqa Group Austria 35 25.9% Beteiligungs-Verwaltungs Yes - GmbH

2 Albsig 19 14.5% Shefqet Kastrati Yes -

3 Eurosig 19 14.1% Kadri Morinaj No -

Vienna Insurance Group 4 Sigma Interalbanian VIG 18 13.7% AG Wiener Versicherung No - Gruppe

Vienna Insurance Group 5 Intersig VIG 15 11.1% AG Wiener Versicherung No - Gruppe

6 Ansig 10 7.4% Piro Angjeli No 1

7 Insig 9 6.9% Eurosig Sh.a. Yes -1

8 Atlantik 9 6.3% Dritan Çelaj No -

Total 134 100.0%

Source: Xprimm

The life insurance market is highly concentrated. Based on GWP the In total, 9 insurance companies were operating in the Albanian top three companies’ control 99.4% of the market. market in 2019. Of the life insurers, namely Sicred does not have non-life business, and out of the 8 non-life insurance companies In terms of GWP, the non-life segment is more than thirteen times 5 operates only in the non-life segment. There are some smaller larger than the life segment in 2019. The non-life insurance segment scale insurance companies in the market, so there is room for is also highly concentrated, given that the top five companies consolidation and also for the entrance of new insurers. account for 79.4% of total GWP of the segment.

Market concentration in Albania

0.6% Life insurance concentration 99.4%

Non-Life insurance concentration 54.5% 32.2% 13.3%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

103 M&A activity

There is no sign for recent M&A activity in Albania.

Regulatory

Industry regulators

Albanian Financial Supervisory Authority (AFSA) is responsible for the regulation and supervision of non-banking financial systems and the operators of the sector.

Insruance related acts

• The Law on the activity of insurance and reinsurance (2014); amendments in 2014);

• The Law on compulsory insurance within the transport sector • The Regulation on the prevention of the conflict of interest (2009 with amendments in 2011); when performing public function in the Financial Supervisory Authority (2009). • The Law on Financial Supervisory Authority (2006 with

Impact of COVID-19

COVID-19 brought upon new challenges for the Albanian AFSA undertook a number of precautionary measures to ensure economy as a whole and for the insurance market specifically. the market well-functioning and protecting investors and Firstly, the insurance industry faces the issue of expediting, policyholders in light of COVID-19, including the suspension of streamlining and virtualizing their services, thereby guaranteeing dividend distribution from the insurance companies for purposes continuity and building confidence in their customer base. of capital maintenance within the system and the directive for Conservation of capital and prudent spending is key in funding a cautionary approach with staff compensations, with the view claims to be paid and preserving the rights of the customers. The of deferring bonuses in time. In addition, upon monitoring the companies must be mindful of their clients’ circumstances and situation, the Authority has required from all operators under its deal with them in due process and time. supervision to update and maintain functional plans for ensuring continuing operations and crisis management plans, whereby are The second challenge bringing to market and informing the delineated all the logistical, technical, financial and human capital consumer of other voluntary types of insurance. The majority needs to encounter any possible future effects. of premiums in Albania have historically come from compulsory forms of insurance. Simultaneously, there is a market call form The insurance market continued to be oriented towards non-life insurance companies for consumers to insure themselves rather insurance, which brought 93.4% share of the total premium than count on the government, especially following the market volume, leaving life insurance with 6.6% share of the total disturbances caused from two earthquakes in late 2019 and the premium volume as at August 2020. global pandemic in 2020. Based on AFSA data, during January-August 2020 the insurance Lastly, the situation caused from the pandemic exposed the market GWP experienced a net decrease by 6.5% compared dependency of the Albanian market on Third Party Liability to January-August 2019. The number of policies was 609,601, a Coverage (TPL) insurance, which highlighted the need of decrease of 30.6% compared to January - August 2019, which development in the insurance sector. entails an increase in the premiums earned per policy. The GWP value decline was primarily driven by the “Motor Third Party The Insurance market in Albania countered relatively well Liability” segment, followed by “Marine and Aviation” segment the pandemic effects. However, the Authority is constantly which decreased by. The largest decrease in policy numbers for monitoring the market for any continuing and lasting impact. the non-life insurance segment was exhibited in the “Accidents

& Sickness” and “Motor Third Party Liability (TPL)” insurances insurance GWP’s, which were at similar levels with 2019 during by 64.2% and 20.4% y-o-y respectively. However, the “Fire & May, and exceeded the prior year amounts during June-July Property damage” and “TPL liability” insurance policies exhibited 2020. However, a decreasing trend in non-life GWP was exhibited growths of 1.2% and 91.4% correspondingly. The TPL Liability during August, partly attributed to the seasonality and partly due segment also increased in value. In the life insurance segment, to the decrease in number of returning immigrants, because of the “Life & Health in travel” policies displayed a notable decrease the pandemic border restrictions. The life insurance GWP income by 71.9% and the value decline was driven by the reduction in the were at lower levels than the prior year until July 2020, while premiums earned from “Group Life” segment. exhibiting an apparent recovery during August.

The declining trend of March-April, which corresponds with the quarantine period of the country, did not persist for non-life

105 Bosnia and Herzegovina

Macroeconomic environment

Bosnia’s economic growth slowed down to 2.9% in 2019, while in deflation is expected, which would be primarily driven by the the previous years GDP grew by 3.1-3.3% annually in real terms. decrease of oil price and economic recession. The deflation forecast Household consumption, investments and capital expenditure were is 0.5% in 2020. the main drivers of the economic growth. As Bosnia’s economy is highly dependent on the euro zone, where economic decrease is Recorded unemployment rate declined continuously in the last expected, Bosnia’s GDP is also expected to decrease by 5.1% in 2020 four years, dropping to 18.4% in 2019 from 25.4% in 2016. In 2019, due to COVID-19. budget surplus was 2.0% while public debt decreased further to 38.0% of GDP from 43.7% in 2016. Both indicators are expected After a year of deflation in 2016, inflation was relatively stable in the to show a negative trend in 2020 as the result of the COVID-19 period of 2017 to 2019 as the change of consumer prices remained pandemic under 1.5% annually. Due to the crisis resulting from the pandemic,

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 15 806 16 497 17 359 18 229 17 205 -5.6%

Nominal GDP/capita (EUR) 4 662 4 925 5 229 5 524 5 245 -5.0%

GDP (% real change pa) 3.1% 3.2% 3.3% 2.9% -5.1% -8.0%

Consumer prices (% change pa) -1.6% 0.8% 1.4% 0.5% -0.5% -1.0%

Recorded unemployment (%) 25.4% 20.5% 18.4% 18.4% n.a. n.a.

Budget balance (% of GDP) 0.4% 1.8% 1.5% 2.0% -6.0% -8.0%

Public debt (% of GDP) 43.7% 40.5% 38.9% 38.0% 43.0% 5.0%

Source: EIU *Estimated

Insurance market trends

Life GWP increased by 2.9% while non-life GWP grew by Insurance penetration was slightly changing between 2.1 and 4.7% year on year in 2018. In 2019, both insurance segments 2.2% in the period of 2016 to 2019. In 2019, GWP per capita overperformed the previous growth rate, as life GWP increased amounted to EUR 118, which is lower than the CEE average of by 10.5% while the non-life segment grew by 6.0% year on year. EUR 348, indicating that the insurance sector of Bosnia and As a result, total insurance market GWP increased by 20.3% Herzegovina is less developed than the CEE region and there is from 2016 to 2019 with an annual growth rate of 6.4%. In 2020, plenty of room for further growth. contraction of the market is expected in both life and non-life segments, by 2.1% and by 1%, respectively.

The insurance market is dominated by the non-life segment in the country, as non-life GWP accounted for 79.2% of total market GWP in 2019.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 66 71 73 81 10.5%

Non-Life 258 278 291 309 6.0%

Total 324 349 365 390 6.9%

Insurance penetration

Life 0.4% 0.4% 0.4% 0.4% 0.0%

Non-Life 1.6% 1.7% 1.7% 1.7% 0.0%

Total 2.1% 2.1% 2.1% 2.1% 0.0%

GWP / Capita (EUR)

96 104 110 118 7.6%

Total Paid Claims

Life 24 29 30 31 3.2%

Non-life 101 107 112 123 9.1%

Total 126 136 143 154 7.9%

Paid claims / GWP 2016 2017 2018 2019

Life 36.5% 40.2% 41.6% 38.8% -2.8%

Non-life 39.3% 38.5% 38.6% 39.7% 1.1%

Total 38.8% 38.9% 39.2% 39.5% 0.3%

Source: Xprimm

107 Insurance market

There were 10 life insurer and 27 non-life insurer companies in Bosnia and Herzegovina in total (in the Federation and in the Republika Srpska part of the country), 10 of which operated in both segments in 2019.

List of Life insurers in the Federation of Bosnia and Herzegovina 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank 1 Vienna osiguranje d.d. 19 27.6% Vienna Insurance Group Yes 1 UNIQA internationale Beteiligungs- 2 Uniqa osiguranje d.d. 18 27.0% Yes -1 Verwaltungs GmbH Grazer Wechselseitige Versicherung 3 Grawe osiguranje d.d. 15 21.2% Yes - AG 4 Triglav osiguranje d.d. 8 11.7% Triglav INT d.d. Yes -

5 Croatia osiguranje d.d. 4 5.8% Croatia Osiguranje d.d. Zagreb Yes - Euroherc Osiguranje d.d., Euroherc Osiguranje d.d. Sarajevo, Agram Life 6 Adriatic osiguranje d.d. 2 3.4% Yes - Osiguranje d.d., Adriatic Osiguranje d.d. Zagreb State, ZIF BIG-Investiciona grupa d.d. 7 Sarajevo-osiguranje d.d. 2 3.1% Yes - Sarajevo

Total 68 100.0%

Source: Statistics of insurance market 2018, Insurance Agency of Bosnia and Hercegovina

List of Non-life insurers in the Federation of Bosnia and Herzegovina 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank Euroherc Osiguranje d.d., Euroherc Osiguranje d.d. Sarajevo, Agram Life 1 Adriatic osiguranje d.d. 33 16.0% Yes - Osiguranje d.d., Adriatic Osiguranje d.d. Zagreb State, ZIF BIG-Investiciona grupa d.d. 2 Sarajevo-osiguranje d.d. 32 15.8% Yes 1 Sarajevo Mladenka Crgic, Euroherc Osiguranje 3 Euroherc osiguranje d.d. 32 15.6% No -1 d.d 4 Croatia osiguranje d.d. 22 10.8% Croatia Osiguranje d.d. Zagreb Yes -

5 Central osiguranje d.d. 20 9.6% CEPS - Centar za poslovne studije No -

6 Triglav osiguranje d.d. 17 8.2% Triglav INT d.d. Yes -

7 ASA osiguranje d.d. 16 8.0% ASA Finance d.d. Sarajevo No - UNIQA internationale Beteiligungs- 8 Uniqa osiguranje d.d. 14 6.8% Yes - Verwaltungs GmbH Grazer Wechselseitige Versicherung 9 Grawe osiguranje d.d. 14 6.6% Yes - AG 10 Camelija osiguranje d.d. 5 2.4% Cavkic d.o.o. No -

11 Vienna osiguranje d.d. 0 0.1% Vienna Insurance Group Yes - Grazer Wechselseitige Versicherung 12 VGT osiguranje d.d. 0 0.0% No - AG

Total 204 100.0%

Source: Statistics of insurance market 2018, Insurance Agency of Bosnia and Hercegovina

List of Life insurers in Republika Srpska in Bosnia and Herzegovina 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank Grazer Wechselseitige Versicherung 1 Grawe osiguranje a.d. 11 85.6% Yes - AG 2 Wiener osiguranje a.d. 1 11.7% Vienna Insurance Group AG Yes -

3 Dunav osiguranje a.d. 0 2.7% Dunav Stockbroker AD Beograd Yes -

Total 13 100.0%

Source: Statistics of insurance market 2018, Insurance Agency of Bosnia and Hercegovina

List of Non-life insurers in Republika Srpska in Bosnia and Herzegovina 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank Vienna Insurance Group 1 Wiener osiguranje a.d. 15 13.8% Yes - AG 2 Osiguranje Aura a.d. 12 11.4% Zoran Tunjic No 3

3 Drina osiguranje a.d. 12 11.4% Mileks d.o.o Milici Yes -1 Dunav Stockbroker AD 4 Dunav osiguranje a.d. 12 11.3% No -1 Beograd 5 Nešković osiguranje a.d. 9 8.2% Nešković d.o.o No 1

6 Brčko-gas osiguranje d.d. 8 7.7% Brcko Gas d.o.o. Brcko No 1 Grazer Wechselseitige 7 Atos osiguranje a.d. 8 7.5% No -3 Versicherung AG 8 Mikrofin osiguranje a.d. 6 5.5% Aleksandar Kremenovic No 1

9 Triglav osiguranje a.d. 6 5.4% Triglav INT d.d. No -1

10 Osiguranje Garant d.d. 5 5.2% Svetozar Vrkacevic No -

11 Euros osiguranje a.d. 5 5.1% A&K Konsalting d.o.o. No -

12 Premium osiguranje a.d. 4 3.6% Individuals No 2 Akcijski Fond Republike Srpske AD Banja Luka, 13 Krajina osiguranje a.d. 2 2.2% No - Naveen Aggarwal, Neete Gupta Rado Gavric, Miodrag 14 SAS - Super P osiguranje a.d. 2 1.9% No -2 Stojanovic Grazer Wechselseitige 15 Grawe osiguranje a.d. 0 0.0% Yes - Versicherung AG

Total 105 100.0%

Source: Statistics of insurance market 2018, Insurance Agency of Bosnia and Hercegovina

109 Bosnia and Herzegovina consists of two regions, the Republika Life and non-life GWP accounted for 20.8% and 79.2% of the total Srpska (RS) and the Federation of Bosnia and Herzegovina (FBiH). market GWP in 2019 respectively.

In terms of GWP, 69.7% was generated by the FBiH and 30.3% by Number of insurance M&A transactions is picking-up since the RS insurers in 2019. 2017, and given the fact that the top 5 firms control 41.4% of the market and all the firms have less than 10% market share, there In 2019, in terms of the total market, 79.2% of total GWP was is strong potential for further consolidation. earned by the non-life segment, namely EUR 308.9 out of which EUR 203.6 was generated by FBiH insurers.

4 of the top 5 largest insurers in the total market operate in both segments with 33.3% share of total market GWP.

Market concentration in Federation of Bosnia and Herzegovina

3,1%

Life insurance concentration 75.9% 21.0%

Non-Life insurance concentration 47.5% 28.6% 24.0%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

Market concentration in Republika Srpska

Life insurance concentration 100.0%

Non-Life insurance concentration 36.6% 27.2% 36.3%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

M&A activity

List of M&A transactions in Bosnia and Hercegovina 2015-2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn Vienna Insurance 2018 Merkur Osiguranje d. d. n.a. n.a. Merkur Versicherung AG Y Group Grazer MG Mind d.o.o. Mrkonjić 2018 Atos Osiguranje a.d. Bijeljina Wechselseitige 99.7% 12,2 Y Grad Versicherung AG Bosna-Sunce 2017 Zovko Osiguranje d.d. osiguranje d.d. n.a. 4,6 n.a. Y Sarajevo Grazer Halim Zukic (Private 2017 VGT Osiguranje Wechselseitige 95.0% n.a. Y investor) Versicherung AG

Source: Deloitte Intelligence

There were 4 closed insurance related transactions between In case of two transactions, the deal values were not published. 2017 and 2020 Q3 in Bosnia and Herzegovina, out of which the In 2018, Vienna Insurance Group acquired unknown part of deal value was public in two cases. In 2018, Grazer Wechselseitige Merkur Osiguranje d. d. and in 2017, Grazer Wechselseitige Versicherung AG acquired 99.7% of Atos Osiguranje a.d. Bijeljina Versicherung AG acquired 95.0% of VGT Osiguranje for unknown for a consideration of EUR 12.2m. Also in 2017, Bosna-Sunce considerations in each case. osiguranje d.d. Sarajevo (which later was renamed to Adriatic Osiguranje d.d.) acquired unknown part of Zovko Osiguranje d.d. for a total purchase price of EUR 4,6m.

Regulatory

Industry regulators

As with banking, regulation of the insurance sector is divided and AZORS for RS. The state-level Insurance Agency of B&H across Bosnia and Herzegovina's two entities - the Federation is charged with ensuring uniform implementation of laws and of Bosnia-Herzegovina (FBiH) and Republika Srpska (RS) - each regulations across both entities. with a separate Insurance Supervision Agency: NADOS for FBiH

Insruance related acts

• The Law on Insurance Agency of Bosnia-Herzegovina (2004 • The Law on Insurance Companies is RS (2005 with with amendments); amendments);

• The Law on Insurance in FBiH (2017); • The Law on Insurance Intermediation in RS (2005 with amendments); • The Law on Intermediation in Private Insurance in FBiH (2005 with amendments); • The Law on Compulsory Motor Insurance in RS (2015).

• The Law on Motor Liability Insurance and other Provisions on Compulsory Liability Insurance (2005);

Impact of COVID-19

Life insurance sector is stronger impacted by the Covid-19 crises. segment will remain the leading sector in the future. After a It can be already observed, that the past quarter revenues have contraction due to the pandemic in 2020, the sector is assumed dropped compared to Q2 in the previous year. The non-life to expand in the upcoming years.

111 North Macedonia

Macroeconomic environment

North Macedonia’s economic growth increased to 3.6% in 2019, Recorded unemployment rate declined continuously in the last four while in the previous years GDP grew by 1.1-2.8% annually in real years, dropping to 17.3% in 2019 from 23.7% in 2016. However, it is terms. Government spending and investments were the main expected to increase back to 18.0% in 2020. After a decline in 2018, drivers of the economic growth. As North Macedonia’s main trade budget deficit increased slightly to 2.0% in 2019, whilst public debt partners in Europe expect to have a high GDP decrease, North remained on the 2018 level amounting to 47.6% of total GDP. Both Macedonia’s GDP is also expected to decrease by 4.4% in 2020 due indicators are expected to increase in 2020. to COVID-19. Concerning 2020 actual data, Macedonian GDP is increased by 5.1% Inflation was stable in the previous years as the changes of the in Q1 2020, and after the of COVID – 19 impact, it dropped by 11.6% consumer price remained under 2.4%. Inflation was primarily driven in Q2 of 2020. The EBRD estimation is that Macedonian GDP for by food price growth. Due to the pandemic crisis, the consumer 2020 will decrease by 3.5%, while it will grow in 2021 for 5.5%. prices change will stay below 2.0% in 2020.

Change 2019-20 Macro indicators 2016 2017 2018 2019 2020* (% or % point)

Nominal GDP (EUR mn) 9 675 10 052 10 705 11 300 10 937 5.6%

Nominal GDP/capita (EUR) 4 607 4 787 5 098 5 381 5 208 5.6%

GDP (% real change pa) 2.8% 1.1% 2.7% 3.6% -4.4% 0.9%

Consumer prices (% change pa) -0.3% 2.4% 0.8% 0.4% 1.4% -0.4%

Recorded unemployment (%) 23.7% 22.4% 20.7% 17.3% 18.0% -3.4%

Budget balance (% of GDP) -2.7% -2.7% -1.8% -2.0% -6.7% -0.2%

Public debt (% of GDP) 46.7% 46.1% 47.6% 47.6% 57.2% 0.0%

Source: EIU, IMF *Estimated

Insurance market trends

Life GWP increased by 15.5% while non-life GWP grew by 9.4% Insurance penetration was 1.5% in 2019, i.e. it remained year on year in 2018. In 2019, both insurance segments showed unchanged between 2015 and 2019. In 2019, GWP per capita further increase, however at a slightly more modest pace. Life amounted to EUR 82, which is lower than the CEE average of EUR GWP increased by 9.7% while the non-life segment grew by 6.0% 348, indicating that there is plenty of room for further growth. year on year. As a result, total insurance market GWP increased by 21.3% from 2016 to 2019 with an annual compounded growth Impact of COVID-19 on the market is expected to be lower then in rate of 6.7%. developed countries, since insurance market in North Macedonia is still mainly based on obligatory insurance products. Non-life insurance is the more dominant segment in the country, accounting for 82.7% of total market GWP.

GROSS WRITTEN PREMIUMS Change 2018-19 2016 2017 2018 2019 Product portfolio (EUR mn) (% or % point)

Life 21 24 27 30 9.7%

Non-Life 121 123 134 142 6.0%

Total 142 146 161 172 6.6%

Insurance penetration

Life 0.2% 0.2% 0.3% 0.3% 0.0%

Non-Life 1.2% 1.2% 1.3% 1.3% 0.0%

Total 1.5% 1.5% 1.5% 1.5% 0.0%

GWP / Capita (EUR)

68 70 77 82 6.6%

Total Paid Claims

Life 3 4 5 6 5.1%

Non-life 55 54 58 60 2.7%

Total 59 58 64 66 2.9%

Paid claims / GWP 2016 2017 2018 2019

Life 16.1% 17.5% 19.8% 19.0% -0.8%

Non-life 45.7% 44.1% 43.5% 42.1% -1.4%

Total 41.3% 39.8% 39.5% 38.1% -1.4%

Source: Xprimm

113 Insurance market

In 2019 there are 5 life insurer and 11 non-life insurer companies in North Macedonia, 5 of which operated in both segments.

List of life insurers in North Macedonia 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 CROATIA 13 44.0% Adris grupa d.d. Yes -

Grazer Wechselseitige Versicherung 2 GRAWE 9 30.0% Yes - AG

3 WINNER 5 15.9% Vienna Insurance Group AG Yes -

4 UNIQA 2 8.1% Sigal Uniqa Group Austria Sh.a. Yes -

5 TRIGLAV 1 2.0% Triglav INT d.d. Yes -

Total 30 100.0%

Source: Xprimm

List of Non-life insurers in North Macedonia 2019

GWP Market Has Non-life Change in Name of institution Major shareholder (EUR mn) share % business rank

1 TRIGLAV 23 16.3% Triglav INT d.d. Yes -

Gofi-Group of Finance and Investment 2 EUROLINK 16 11.6% No - SA

3 MAKEDONIJA - VIG 15 10.6% Vienna Insurance Group AG No -

4 SAVA 14 10.1% Pozavarovalnica Sava d.d. No -

5 UNIQA 13 9.4% Sigal Uniqa Group Austria Sh.a. Yes 1

6 EUROINS 13 9.3% Euroins Insurance Group AD No 2

7 WINNER 13 9.2% Vienna Insurance Group AG Yes -2

8 INSURANCE POLICY 12 8.1% Individuals No -1

9 HALK 9 6.0% Halk Banka AD No n.a.

10 CROATIA NONLIFE 7 5.2% Adris grupa d.d. Yes -1

Grazer Wechselseitige Versicherung 11 GRAWE NONLIFE 6 4.1% Yes n.a. AG

Total 142 100.0%

Source: Xprimm

The life insurance market is highly concentrated. Based on GWP Of the 11 insurance companies operating in the country in the top three companies control 89.9% of the market. 2019, all are present in the non-life segment, whilst 5 have life business as well. There is no insurance company in the country, In terms of GWP, the non-life segment is almost five times larger which would be present only in the life segment. There are some than the life segment in 2019. The non-life insurance segment is relatively small insurers in the non-life segments so there is room less concentrated, given that the top five companies account for for consolidation. 58.1% of total GWP.

Market concentration in North Macedonia

Life insurance concentration 89.9% 10.1%

Non-Life insurance concentration 38.5% 28.8% 32.7%

TOP3 insurers TOP 4-6 Rest of the insurers

Source: Xprimm, Deloitte Intelligence

115 M&A activity

List of M&A transactions in North Macedonia 2015-2020 November

% Deal Value Year Target Buyer Seller Completed Acquired in EUR mn Grazer Gofi-Group of Finance and 2020 Eurolink Osiguravanje AD Skopje Wechselseitige 100.0% 17.5 Y Investment SA Versicherung AG

Source: Deloitte Intelligence

There was only one closed insurance related transaction in Having in mind the number of relatively small insurance the period between 2015 and 2020 Q3in North Macedonia. In companies, further consolidation in this segment could be 2020, Grazer Wechselseitige Versicherung AG acquired 100.0% expected in the upcoming period. of Eurolink Osiguravanje AD Skopje for a consideration of EUR 17.5m.

Regulatory

Industry regulators

The Insurance Supervision Agency is an independent regulatory insurance market with the objective of protecting the rights of authority that shall promote fair and efficient functioning of the the insurance policyholders and beneficiaries.

Insruance related acts

• The Law on Insurance Supervision (2019); • The Law on Obligations (2019);

• The Law on Trade Companies (2019); • The Law on Compulsory Traffic Insurance (2020).

Impact of COVID-19

Having in mind the structure of insurance products in North it is expected that the total GWP will remain stable in North Macedonia, and dominating role of obligatory insurance policies, Macedonia in short-term.

117 Our global team of professionals

CEE insurance M&A Centre of Excellence

Zsolt Vajda Balazs Biro Director Managing Partner Regional Insurance Leader Financial Advisory Central Europe Regional Financial Service Industry Leader

Daniel Molnar Tomasz Ochrymowicz Director Partner Hungary Poland

Radu Dumitrescu Kreshnik Robo Partner Partner Romania Albania

Alexander Zahariev Vedrana Jelusic Director Partner Bulgaria Croatia

Luka Vesnaver Darko Stanisavic Partner Partner Slovenia Serbia, North Macedonia

Sabina Softić Linas Galvele Partner Partner Bosnia Baltics

Ivana Roman Lux Lorencovičová Assistant Director Partner Czech Republic Slovakia

A team with experienced professionals with significant track record and deep understanding of the markets is ready to support you.

118 Our Global Insurance M&A team

United Kingdom Germany Ian Sparshott Frank Nagel Vivak Kapoor Switzerland Andrew Gould Michal Chlebny Richard Baddon Italy France Elisa Fabris Vincent Rapiau Spain Belgium José Manuel Lasa García Franky Wevers Netherlands Siebe Groenveld

Canada South Africa Asia pacific Catherine Code Andrew Warren Jimmy Chan – China USA Kenneth Yue – Hong Kong Matt Hutton Jeffrey James Pirie –Singapore Douglas Sweeney Taro Kuryuzawa – Japan Mark Purowitz Alan Merten – Australia Boris Lukan James Hickey – Australia Caribbean and Bermuda Countries John Johnston Gokul Sudarsana Argentina Lionel Moure

119 Contacts

Financial Industry Leader Hungary Central Europe Balazs Biro Andras Fulop Tel: +36 (1) 428 6865 Tel: +36 (1) 428 6937 Email: [email protected] Email: [email protected] Zsolt Vajda Financial Advisory Managing Partner Tel: +36 (1) 428 6873 Central Europe Email: [email protected] Balazs Biro Tel: +36 (1) 428 6865 Daniel Molnar Email: [email protected] Tel: +36 (1) 428 6727 Email: [email protected] Actuarial & Insurance Solutions Leader Central Europe Poland Jiri Fialka Tomasz Ochrymowicz Tel: +420 (246) 042622 Tel: +48 (22) 5110 456 Email: [email protected] Email: [email protected]

Albania Romania Robo Kreshnik Radu Dumitrescu Tel: +355 4451 7922 +40 744 557 315 Email: [email protected] Email: [email protected]

Baltic region Serbia, North Macedonia Linas Galvele Darko Stanisavić Tel: + 37 (05) 255 3022 Tel: +381 (1) 138 12134 Email: [email protected] Email: [email protected]

Bosnia-Herzegovina Slovakia Sabina Softic Lorencovicova Ivana Tel: +387 3395 3702 Tel: +421 (2) 582 49148 Email: [email protected] Email: [email protected]

Bulgaria Slovenia Alexander Zahariev Luka Vesnaver Tel: +359 (2) 802 3311 Tel: +386 (1) 307 28 67 Email: [email protected] Email: [email protected]

Croatia Contributors Vedrana Jelusic Adam Suveges-Szabo Tel: +385 (1) 235 2117 Tel: +36 (1) 428 6542 Email: [email protected] Email: [email protected]

Czech Republic Viktória Németh Pavel Piskacek Tel: +36 (1) 428 6949 Tel: +420 (246) 042 946 Email: [email protected] Email: [email protected]

120 Explore all the data behind the study in Tableau

121 Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as "Deloitte Global") does not provide services to clients. Please see www.deloitte.com/about to learn more about our global network of member firms.

In Hungary the services are provided by Deloitte Auditing and Consulting Limited (Deloitte Ltd.), Deloitte Advisory and Management Consulting Private Limited Company (Deloitte Co. Ltd.) and Deloitte CRS Limited (Deloitte CRS Ltd.) (jointly referred to as “Deloitte Hungary”) which are affiliates of Deloitte Central Europe Holdings Limited. Deloitte Hungary is one of the leading professional services organizations in the country providing audit, tax, risk, advisory and consulting services through over 750 national and specialized expatriate professionals. Legal services to clients are provided by cooperating law firm Deloitte Göndöcz and Partners Law Firm.

These materials and the information contained herein are provided by Deloitte Hungary and are intended to provide general information on a particular subject or subjects and are not an exhaustive treatment of such subject(s).

Accordingly, the information in these materials is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser.

These materials and the information contained therein are provided as is, and Deloitte Hungary makes no express or implied representations or warranties regarding these materials or the information contained therein. Without limiting the foregoing, Deloitte Hungary does not warrant that the materials or information contained therein will be error-free or will meet any particular criteria of performance or quality. Deloitte Hungary expressly disclaims all implied warranties, including, without limitation, warranties of merchantability, title, fitness for a particular purpose, non-infringement, compatibility, security, and accuracy.

Your use of these materials and information contained therein is at your own risk, and you assume full responsibility and risk of loss resulting from the use thereof. Deloitte Hungary will not be liable for any special, indirect, incidental, consequential, or punitive damages or any other damages whatsoever, whether in an action of contract, statute, tort (including, without limitation, negligence), or otherwise, relating to the use of these materials or the information contained therein.

If any of the foregoing is not fully enforceable for any reason, the remainder shall nonetheless continue to apply.

122