Crisis year 2009 and the accompanying recession had a major effect on many countries in Central and Eastern Europe, particularly with respect to labour markets, investment and increasing debt. Most CEE countries will continue to be confronted by these effects in 2012. Due to budget consolidation, governments have less freedom of action and unemployment remains at a relatively high level. After a temporary interruption in growth, however, the process of catching up with Western Europe taking place in CEE countries is resuming.
The Vienna Institute for International Economic Studies (Wiener Institut für Internationale Wirtschaftsvergleiche – wiiw) is forecasting GDP growth of 2.4% for the new European member countries (NMS-10) in 2012. Its growth forecast for the European Union as a whole, however, is only 0.7%. This comparison shows clearly that the countries of Central and Eastern Europe are growing faster in terms of economic output than Western Europe.
The CEE is, however, still a heterogenous region. wiiw, for example, expects GDP to grow in 2012 by 3.3% in Poland but only 0.3% in Hungary.
Overall, the CEE region will be confronted with three major challenges in 2012. First, Central and Eastern Europe face currency risks, as a great deal of borrowing was done in foreign currencies in the past. Second, the region’s exports are heavily dependent on Western Europe. And third, the banking system is also closely interwoven with the rest of Europe.
Insurers in EU member states also face another challenge. The introduction of Solvency II, with implementation planned for the beginning of 2013, is greatly affecting business activities and could lead to another wave of consolidation among small insurance companies.
Non-life insurance, which still currently represents, by far, the larger share of total premium volume in the CEE region, will feel the greatest effects of a slowdown in economic momentum. Swiss Re nevertheless expects solid growth of 4.3% for this segment in Eastern Europe in 2012. In contrast, global growth is only expected to be 2.6%.
Swiss Re is forecasting strong growth in the life insurance segment, particularly over the long term. The increasing prosperity of private households, healthcare and pension reforms, and increasing public awareness are helping to maintain demand for life insurance products in the region. A general European trend toward greater consumer demand for less complex products has been identified for this segment. Insurance providers will increasingly promote products with hedging components and sell less pure savings products.
On the whole, the low insurance penetration rate in the CEE region compared to Western Europe continues to offer great potential for organic growth. Since, as previously mentioned, economic conditions vary greatly among the different countries of this region, using a differentiated market strategy will continue to provide a major advantage in the future.