Insurance sector withstood the challenges of the pandemic, but it should accelerate the digitalisation of services
The insurance sector successfully withstood the challenges caused by the pandemic and operated profitably last year. The net profit earned by insurance undertakings registered in Lithuania amounted to €50 million, whereas that of insurance brokers totalled almost €7 million. However, the restrictions of activity during the quarantine highlighted the need to accelerate the digitalisation of services.
“The insurance sector swiftly responded to the challenges caused by the COVID-19 pandemic, rearranged their operations and took into consideration the Bank of Lithuania’s recommendation to avoid dividend payments from the previous year profit, thus strengthening their financial situation and containing risks. Nevertheless, this sector still has room for improvement in the digitalisation of its services; for example, the restrictions of activity highlighted the need to have a possibility to conclude contracts remotely”, said Jekaterina Govina, Director of the Financial Market Supervision Service.
During the reporting period, the assets managed by insurance undertakings increased by almost 20% and amounted to €1.67 billion at the end of the year. Such growth was mainly determined by the finalised reorganisation of undertakings. All insurance undertakings, except one, operated profitably, whereas the whole sector earned the net profit of €50 million. Insurance undertakings took into consideration the Bank of Lithuania’s recommendation to avoid dividend payments, therefore, the total profit earned in the previous year remained with the undertakings, thus strengthening their equity capital. Equity capital of insurance undertakings increased by one-fifth in 2020 and amounted to €128 million, with retained profits for the reporting year and the previous year comprising 37% of it. All undertakings not only complied with the compulsory solvency capital requirement, but also had substantial buffers exceeding the requirement.
The amount of insurance premiums amounted to €955 million in the reporting period, rising by 1%, compared to the previous period. Insurers paid insurance claims in the amount of €500.7 million last year, an increase of 0.3% year on year. Developments in different insurance sectors were varied: the amount of life assurance premiums grew by 7.5% last year, to €290.7 million, whereas that of non-life insurance premiums contracted by 1.7%, to €664.1 million. The growth of the life assurance market was driven by unit-linked life assurance. Premiums of this type of insurance, which comprise two thirds of the total life assurance portfolio, grew by 11.3% last year and amounted to €189.4 million. Although premiums grew rapidly, the consequences of the pandemic and economic uncertainty determined a significant contraction of the demand for unit-linked insurance products, which is reflected by the decline in the number of new contracts by one-fourth.
In the non-life insurance sector, the transport insurance volume was most severely affected by the pandemic. The premiums of motor third party liability insurance, which comprises the largest share of the non-life insurance market (35.7%), amounted to €237.1 million in 2020, down by 8.4%, compared to 2019. The volume of this activity was affected by lower road traffic as a result of pandemic-related restrictions and stronger competition. The number of contracts concluded last year was lower by 5.5%. Such trends of change in the amount of premiums and the number of insurance contracts reflect the decline of the average premium for the second consecutive year.
Insurance brokers were particularly active during the pandemic. They acted as intermediaries in concluding 2.99 million insurance contracts in 2020, i.e. 34.2% more than in the previous year. Such contracts comprised almost 30% of total contracts concluded in the market. As usual, insurance brokerage firms were most active in the non-life insurance market. Although motor third party liability insurance contracts still comprised the largest share of insurance broker contracts, i.e. almost 50% of total contracts, this share declined significantly: a year ago, it comprised 66% of total contracts. Such change in the composition was determined by a substantial rise of more than 7 times in the number of property insurance contracts concluded via intermediation of insurance brokers.
The operations of insurance brokerage firms in the reporting period were profitable, with the profit earned amounting to €6.7 million. Compared to 2019, their profit increased 2.3 times. Such growth was mainly determined by the reduction of costs by insurance brokers as well as one-off factors related to the merger of companies in the previous year.
The year 2020 was exceptional for the insurance market, as on 1 July the Pension Annuity Fund managed by Sodra started to provide the pension annuity payment service from second-pillar pension funds. In the first six months, 239 decisions on pension annuity payments were taken, with the total amount of lump-sum payments comprising almost €3.7 million. Residents most frequently opted for the standard pension annuity with a guaranteed payment period. This is a service whereby a pension annuity payer, upon receiving a lump-sum contribution from the funds accumulated in a pension fund, makes pension annuity payments until the death of a pension annuity recipient. If a pension annuity recipient dies before the end of the guaranteed payment period, the unpaid amount of annuities for the remaining guaranteed payment period is inherited.
The detailed Review of Lithuania’s insurance market is available on the Bank of Lithuania website.