Bulgaria is an example of macro- and micro-financial discipline
We have new launches on the capital market in Europe ahead
New technologies will change the insurance products
Business success is directly related to the development of the environment
What is your assessment the previous year from the perspective of the business you are in charge of, the sector you operate in, and the Bulgarian economy in general? What are your expectations for 2018?
At corporate level, all indicators have shown this year was a success. For the first nine months of 2017, Eurohold’s revenue showed 17% growth on annual basis and reached 450 million euro, and those of our insurance holding Euroins Insurance Group (EIG) – 35% growth, increasing to 256 million euro, respectively. The operational profitability of our business also indicates growth.
Eurohold witnessed a successful launch on the international markets with two bond issues and successfully increased its capital with about 25 million euro in one of the biggest public offerings at the Bulgarian Stock Exchange with the participation of all major shareholders of the company. The holding and its insurance business were for the first time rated by the Fitch international agency. On the other hand, our subsidiary Euro-Finance acquired a minority shareholding in the German Varengold Bank AG.
In terms of EIG, we completed the purchase of АТЕ Insurance in Romania and we stepped on the Russian market by the acquisition of a local insurer.
The Bulgarian economy is in good shape too, however I think we should grow at quicker rate and with greater expansion. We need many many years of significant growths in order to start coming up with Central Europe. In Romania, for example, the growth is twice bigger.
My expectations for 2018 are positive, with view of the upsurge of the major European economies. At the same time, we all know that ECB’s program for quantitative facilities comes to its end and the only thing that remains unknown is how sharp its effect on the European economies would be. I hope that the 2008 lessons have been well-understood and the errors the government and the business then made would not be repeated.
What are the effects expected for your business as a result of the bond issues and the acquisition on the Russian market?
With the realization of already two successful bond issues, Eurohold becomes more recognizable among investors who are interested in Eastern Europe. The roadshow of our bonds attracted great interest in international aspect and investors from all big financial centers in Europe took part in the issue. The enhanced results of the holding helped us to decrease the interest rate of our bonds by 1.5 percent points, thus decreasing the expenses by 1 million euro per year. It was extremely important for us to find a funding source corresponding to our ambitions. You cannot become a player at European level if you rely on traditional bank facilities only. Especially,under the conditions of increased banking regulations. Due to our experience and history on the international markets, I am sure that we are ahead of new and even more successful launches on the capital market in Europe.
The transaction in Russia is part of our strategy for expansion in the CIS countries. The Russian insurance market is very interesting, and Euroins Russia is very well positioned in a number of lines of business that are important for us, such as cargo, travel insurances, etc. The company insures more than 1/3 of Russian tourists in Bulgaria. EIG enters into the company with capital increase, which will help the company to further strengthen its positions and to be established among the TOP 50 insurers in Russia. Through this transaction, EIG’s annual insurance premium revenue will exceed 400 million euro, and the group will be presented on markets with population of more than 200 million people.
To what extent the upsurge of insurance sector in Bulgaria is due to the short-term condition of the economy and to what extent – to the increased trust to Bulgarian insurers? Do consumers better understand that the insurance services are important?
I still do not believe that we can talk about an upsurge in the insurance sector in Bulgaria. I would rather say that the insurance growth in Bulgaria is disproportionately low against the background of the relatively good condition of the Bulgarian economy. On all markets we operate, our growth in Bulgaria is the lowest. We cannot speak about consumer’s understanding when after each natural disaster consumers think that the state is the only saver obliged to recover people’s damages. You don’t need to be an expert to calculate that most of the housings in a smaller town, such as Mizia for example, could be insured for aggregate premium of about 60-70 000 BGN – at least for base risks. And what amount of money was collected to recover the damages caused by the few floods in the country recently? Tens of millions, probably. If I were the minister of finance, I would fund a company for insuring people’s houses against natural disasters. I am sure that such an initiative will be supported by the insurance sector too. Otherwise, this spring, after the rains, we will send SMSs again.
The balance sheet reviews and the stress tests of insurers show that the sector is stable in general. Are there any hidden issues in the sector?
The balance sheet review of both banks and insurers in Bulgaria broke up the myth that the Bulgarian financial system is not stable after the bankruptcy of CCB. In this respect, Bulgaria could be given as an example as a country with very good macro- and micro-financial discipline. And this is a fact that should be pointed out by the government and our regulators during the respective meetings to be held in Sofia during the Bulgarian Presidency of the Council of the EU. No other EU member state has made a full balance sheet review of insurers in accordance with the Solvency II requirements. It is very interesting, however, why this nice example is still not followed by any of the other European regulators in the other member states?
At the same time, we cannot ignore the problems in the sector. We operate in extremely difficult and dynamic environment and every more serious mistake could cause problems to any company. Especially, if we underestimate the risk of the insurance that is bought most on the market – Third Party Liability (TPL). Non-market low and non-risky exemplary prices of TPL insurance are equivalent to non-market high interests on deposits.
Will greater fairness be achieved in terms of Third Party Liability pricing after the introducing the bonus-malus system?
Euroins has been applying the bonus-malus system for years. Every Third Party Liability insurance policy in our company is subject to check of the driver’s car accident history in the information system of the Guarantee Fund and is then reflected in the consumer’s end price. Of course, the introduction of a common system will improve the market price as all companies will then take in consideration this extremely important element of the correct risk assessment. Otherwise, fairness is a relative category. I believe that the TPL prices in Bulgaria have been unfairly low for years, and are to a great extent “subsidized” by the sector. And this is one of the chronic issues of the Bulgarian insurance market, as this results in very low profitability of the sector and brings the need of its frequent capitalization. Especially in the light of Solvency II.
New technologies change and shake the financial industry worldwide. To what extent will they change the insurance sector?
Our clients will be the first driver of changes. Millennium generation will not buy anything it is not able to get by a simple click on the smartphone. Our industry needs to adapt to this new environment too. Distribution channels will change drastically to direct sales instead of traditional insurance brokerage. EIG supported the launch of the digital platform Oli, which has changed the B2C sales of insurances in Bulgaria making them quick, easy, 100% online and at better prices.
Products will significantly change too. For example, the introduction of autonomous motor vehicles will totally change motor insurance. Data protection insurances will considerably increase. New technologies will significantly contribute to the decrease of frauds in the sector. I think that insurtech companies are rather a partner than a competitor of the traditional insurance companies. This is why EIG starts the initiative EIG boosts! by allocating a budget of 2 million levs for investments in innovative financial and insurance products and models. We want to attract talents and innovators with entrepreneurial and digital mindset. Both employees and representatives of the entrepreneurship sector and start-up community. Bulgaria is well-positioned environment for development of insuretech ideas with its strong IT companies and talents.
You are one of the members of the board of the Bulgarian office of the global entrepreneurship organization Endeavor. What is the objective of this project and where do you expect to go to?
The objective of Endeavor is to contribute to the long-term and sustainable economic development by supporting it through a wide range of resources of entrepreneurs with great potential. My commitment to Endeavor is part of my understanding that the success of the organization I am in charge of is directly related to the environment we live and work in.
To this end, my work with Endeavor is part of my belief that everyone is personally responsible for the improvement of this environment and should give their contribution, in accordance with their abilities and expertise. Furthermore, the opportunity to meet with and to help ambitious and successful young Bulgarian entrepreneurs brings me positive energy and great personal and professional satisfaction.
The ambition of Endeavor Bulgaria is to be an important factor for the establishment of a community of successful and responsible entrepreneurs who are a role model and who inspire others to follow them. The Bulgarian office of the organization is only two years old, but to my opinion, for this short period of time we have achieved great success. 12 Bulgarian companies have already passed through the international selection procedure and have become members of the global network. Within the frames of Endeavor’s global network, Bulgaria has been defined as a center for the expansion of the organization across Eastern Europe.
See the interview here