Insurance Market Development

Financial and Capital Markets 
Low transparency is only a significant issue 
for one third of respondents; however insuf-
ficient variety of financial instruments and 
insufficient trading (and consequent illiquid-
ity) of fixed-income instruments appear to 
be significant concerns for about two thirds 
of the respondents. The valuation of instru-
ments and insurance companies also appears 
to be a concern for over half of those re-
sponding. In this respect, rating agencies 
play an important role. Only 1 out 5 respon-
dents indicated that rating agencies rated 
either all or the majority of insurers in their 
market. A clear majority indicated that rat-
ing agencies only rate half or less of the in-
surers in their markets. With respect to mar-
ket discipline, about 1 out of 5 persons re-
sponding indicated that rating agencies pro-
vided market discipline. This fraction is 
most likely the same 20 percent that operate 
in markets where rating agencies have a sig-
nificant presence. Investors and insurance 
company owners appear to exert the most 
market discipline, while the supervisor is a 
close second. News agencies exert much 
less influence on market discipline in the 
region, although they do play a role. 
Future and Historic Solvency Threats to 
the Market 
Among the factors that have and continue to 
threaten the profitability and solvency of 
insurers, those that stood out in the survey 
responses were: strong price competition, 
economic recessions, political conflicts, loss 
ratio volatility, insolvency or default by a 
reinsurer, volatility in the price or availabil-
ity of reinsurance, ineffective supervisor, 
and underestimation of required reserves by 
the market. 
20

---