To say that 2020 was a challenging year, is nothing but underwhelming. Across countries and industries, everyone felt the difficulties of the year. Certainly, the biggest hit for the people was the pandemic, which took millions of lives. Others, lucky to survive the disease, were left to face the economic difficulties it brought in. Individuals had to change their routines in terms of work-life balance, some were laid off and struggled to maintain their standard of living. Similarly, businesses were faced with an entirely new business landscape and struggled to navigate in it. Decreased financial performance was guaranteed for most of them and some even were put on the verge of bankruptcy.

For the first time in past 10 years, Armenia had a decreasing level of economic activity compared to previous period. Surely, one can find more than handful reasons for the gap, be it the covid and imposed quarantine, or the 44-day full scale war between Republic of Artsakh and Azerbaijan that Armenia was actively engaged in.

Insurance is an integral part of any state economy, including Armenia. On the contrary to what many might think, while the economy downgraded, insurance market recorded improved financial performance. Almost across all fronts, the net proceedings have increased. One of the worsened figures was gross written premiums that decreased from 47.18 bln AMD of 2019 to 42.82 bln in 2020. The same applied to gross incurred claims, which went from 27.83 bln in 2019 and 22.96 bln in 2020. Investing income on the contrary increased by 37.85% or 1.07 bln AMD and was 3.89 bln in 2020. The net income of the market almost quadrupled, going from 1.15 bln in 2019 to 4.44 bln in 2020.

Almost all insurance lines experienced a decline of premiums and claims, a total of 4.36 bln AMD and 4.87 bln AMD respectively. This can be explained by people’s decreased willingness to pay. The expectations were not as high before, and people tried to retain economic funds for the worse times. Less premiums meant less signed contracts and less paid out claims.

Insurance line with most premiums, CMTPL, also shrunk. The decrease is 11.27% or 2.63 bln AMD. With the lockdown some people cancelled or did not renew their policies, as they were not going to drive in the coming months. Another reason for the shift was not the decrease of 2020, but the abnormal high figure of 2019. The latter was the end of grace period of Armenia’s membership to EAEU, which was going to significantly increase the customs on cars making it virtually impossible for the individuals to import vehicles. Lockdown made people seldomly leave their homes, hence driving less. This yielded a decrease in traffic accidents and less applied claims. The indemnities in 2020 were 2.57 bln or 16.17% less than that of the previous year. 

The positive 4.52% or 0.51 bln AMD change in health insurance had two conflicting components. The compulsory insurance of state employees, also known as social package, had a decrease in premiums, 0.12 bln AMD. Conversely voluntary health insurance increased by 0.63 bln AMD, resulting in the net figure of 0.51 bln AMD increase. This can be explained with raised importance of health insurance in the labour market. Another impact of the pandemic was people’s lower utilization of their health insurance policies in 2020. With more patients contracting the virus, people avoided going to the hospitals where they might have been exposed to the infection.  

The decreases in property and liability insurance lines were 0.83, 0.27, 0.28 bln AMD respectively and were mainly attributable to the construction of power plant in 2019. In the last year, the contract was already fulfilled and was not renewed, resulting in significantly decreased premiums in the mentioned lines. The significant decrease in property insurance claims, 61.38% or 1.15 bln AMD can be explained with fire accident in one of the major electronics chain stores1 of Armenia that was rumored to be insured.

The change in motor insurance premiums, which mainly consists of CASCO policies, is negative 6.88% or 0.16 bln AMD, but slightly positive in the case of claims, 3.16% or 0.03 bln AMD. The less than average change can be explained by low affordability2 of this type of insurance, as most policies’ annual premium is more than average monthly wage of the country. only the well-of population, who were not as affected by the lockdown, purchases this insurance type.

Both the decrease in cargo and travel insurance lines is explained by the lockdown. With closed borders, the imports to the country decreased by almost 20%3, yielding a net decrease of cargo insurance premiums of 0.24 bln AMD or 22.60%. The same can be said about travel: tourists and business travelers were unable to visit other countries due to travel restrictions. Therefore, from 2019 to 2020 travel insurance premiums in Armenia decreased by 0.55 bln AMD, which is 75.43% decline. This is by far the most affected insurance line by the pandemic. The slight increase in premiums of financial risks is 0.05 bln AMD or 8.03%. This is not due to increase in volumes but rather due to its increased rates. For the past couple years, financial risk insurance experienced major losses in Armenia and as local insurance firms cede this risk to their reinsurance partners, the latter increased their reinsurance rates to cover some of those losses. Moreover, as this insurance type is fully reinsured, hence its premiums greatly depend on AMD/USD exchange rate. The depreciation of local currency in 2020 artificially increased the premiums.

Oddly, with people’s less willingness to pay the mean customer acquisition rate has not deteriorated. The figure reflects the companies’ effectiveness of obtaining clients via ads, marketing and most importantly for Armenia, agent commissions. The mean customer acquisition rate, which is the acquisition expense over gross written premiums, went from 11.52% of 2019 to 11.74% in 2020. The overall spending slightly decreased becoming 5.03 bln AMD from 5.44 bln AMD. During last year, INGO ARMENIA and Nairi Insurance improved their figures going from 9.68% and 16.77% of 2019 to 8.08% and 14.57% in 2020, respectively. Conversely, the other 4 insurance firms experienced a decline (Rosgosstrakh from 8.51% to 7.77%, Sil Insurance from 9.56% to 8.20%, Reso from 21.37% to 17.23%, Armenia Insurance from 21.27% to 19.03%).

Regarding investing income, in 2020, almost all insurance firms experienced an increase. In total, investing income of the market has increased by 37.85% or 1.07 bln AMD. The forerunners are Armenia Insurance (1.35 bln AMD), INGO ARMENIA (0.74 bln AMD) and Rosgosstrakh Armenia (0.73 bln AMD).

As previously mentioned, during 2020 the profitability of insurance firms significantly increased. From the average 2.44% net profit margin in 2019, it became 10.37%.

Despite 2020 being an unfortunate year, insurance firms in Armenia had successful performance. Though the gross written premiums and gross incurred claims have decreased during the year, thanks to other savings the companies were able to not only record positive net result, but also one which was significantly exceeding that of the last year.



    About the author

    Underwriting Assistant, Ingo Armenia ICJSC
    Master of Science in Economics (AUA), Bachelor of Arts in Business (AUA)
    Experience in Insurance – since 2020