Latvia Insurance Report 2014: New research report available at Fast Market Research

Latvia's insurance sector is strengthened by the presence of the subsidiaries of major life insurance companies. However, significant challenges to growth remain.

Like those of Lithuania and Estonia, Latvia's insurance sector is dominated by the local subsidiaries of multi-national giants. In the life segment, for instance, leading players include Swedbank Life, SEB Life & Pensions and Sampo Group's Mandatum Life. In the non-life segment, RSA Group company Balta remains the largest company. This is positive, because it means that global best practice is brought to a small country which experienced a brutal recession and financial crisis. Best practice - across both segments - in this context includes development of brands, innovation in product development and imaginative approaches to distribution. By seeing Latvia as one element of a larger Baltic (or European) business, the insurance companies who are active in the country have access to significant economies of scale.

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However, significant challenges remain. The non-life segment has grown over recent years, but basically as a result of the recovery in overall GDP. The latest figures from the FKTK, the regulator, indicate that non-life penetration (premiums as a percentage of GDP) will be lower in 2013 than in any of the preceding eight years (bar 2010). In essence, there is over-capacity. Prices and margins are under downwards pressure in most lines. Indeed, many of the most important lines were unprofitable in 2012, according to official data.

In the underdeveloped life segment, there are other problems. The regulator recognises the need for education of the benefits of life insurance. Some Latvian households are too poor to save through life insurance. The life insurance segment is in competition with second-tier (state sponsored) and third-tier (private) pension plans. Density (premiums per capita) should remain low.

The beginning of 2014 marks Latvia's accession to the euro area. In the short-term, this is a factor that has contributed to higher administrative costs for insurers. Over the longer-term, though, it is a very positive factor because it will give the insurers (and, in particular the life insurers, with their long dated liabilities) greater flexibility in terms of investment. Currently, around half the insurers' investment assets are held in Latvia.

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