VZCZCXRO8513
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHTI #0148/01 0581248
ZNR UUUUU ZZH
P 271248Z FEB 08
FM AMEMBASSY TIRANA
TO RUEHC/SECSTATE WASHDC PRIORITY 6738
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 TIRANA 000148 
 
SIPDIS 
 
SIPDIS 
 
DEPARTMENT FOR EUR/SCE (ERIN KOTHEIMER AND YOULIANA IVANOVA) 
 
PASS TO TREASURY FOR VIMAL ATUKORALA 
 
E.O. 12958:N/A 
TAGS: ECON EINV EFIN AL
SUBJECT:  ALBANIA'S INSURANCE SECTOR PRIVATIZES, EXPANDS 
 
Summary 
------- 
 
¶1.  The GOA is preparing to privatize INSIG, the state-owned 
insurance company, as the Government moves to sell off one of its 
last remaining state enterprises since the fall of communism 17 
years ago.  The forthcoming privatization is almost an afterthought 
for an insurance sector that has been marked by high growth and 
increasing interest by foreign investors that have flooded into the 
market over the last two years.  End Summary. 
 
¶2.  Ten companies compete in the Albanian insurance market.  All but 
INSIG are privately held, and INSIG is already partially privatized, 
with outside investors owning 39 percent of its shares.  In 2007, 
INSIG had 16.2 percent of the market, trailing its competitors Sigal 
and Sigma, which held 27.8 percent and 17.8 percent, respectively, 
of the non-life insurance market.  An open international tender for 
INSIG is expected to be announced later this spring after the GOA 
completes legal and financial due diligence. 
 
¶3.  INSIG's privatization was initiated three years ago, but was 
postponed due to a lack of interest from qualified bidders.  So far, 
one of Croatia's major insurance companies, Croatia Osiguranje, is 
the only potential investor to publicly express interest in bidding 
on INSIG.  Reportedly, prospective bidders might include insurance 
giants that have a presence in Eastern Europe, like Allianz 
(Germany), Generali (Italy) and AIG (Italy).  Other interested 
companies might be Erste (Austria), Ergo (Germany), KBC (Belgium) 
and Grawe (Austria).  Experts estimate that the GOA could realize 
between Euro 32 million up to 48 million for INSIG's privatization. 
(Note: According to the enabling law passed by Parliament for 
INSIG's privatization, if the Government fails to sell the entire 
package of state-owned shares (61%) to a strategic investor, the 
remainder of the shares will be offered to the public.) 
 
Growing Market for Insurance 
---------------------------- 
 
¶4.  INSIG was established in 1991 as a state-owned insurance carrier 
and was the first company to offer insurance following the collapse 
of communism.  In June 2004, the GOA privatized 39 percent of the 
company, equally divided between the European Bank for 
Reconstruction and Development (EBRD) and the World Bank's 
International Finance Corporation (IFC). 
Due to the entrance of private operators into the insurance sector, 
INSIG has lost its dominant market position in recent years. 
However, it has managed to remain one of the largest insurance 
operators in the country, ranking third in non-life insurance and 
second in life insurance in market share for 2007.  INSIG has also 
expanded its operations into Kosovo and Macedonia.  (Note: In 2000, 
INSIG opened a branch in the UN administered territory of Kosovo and 
in 2004 the company began operating in Macedonia.) 
 
¶5.  Albania's insurance industry has experienced high rates of 
growth over the last seven years, but still lags behind neighboring 
countries.  In 2007, the sector grew by 30 percent compared with 
2006, with total revenues reaching Leke 5.9 billion (USD 65.6 
million).  The insurance industry remains largely untapped and 
continues to rely heavily on compulsory insurance, mainly third 
party automobile liability premiums, which in 2007 accounted for 70 
percent of total non-life written premiums.  Servicing life 
insurance policies is still in its infancy in Albania and last year 
represented only 6.9 percent of the insurance market.  However, life 
insurance continues to experience remarkable growth; in 2006 it 
increased by 29 percent compared to 2005 and grew another 33 percent 
in 2007.  The number of insurance contracts issued last year 
increased by over 74 percent from 2006. 
 
Foreign Companies Stake a Claim 
------------------------------- 
 
¶6.  Foreign companies began to enter the Albanian insurance market 
in 2006/2007.  TBIH Financial Services Group, N.V., 60 percent owned 
by Vienna Insurance Group, purchased 75 percent of Sigma's shares, 
the second largest insurance company in the market.  Greek-owned 
Aspis Holdings Public Company Ltd. purchased 51 percent of 
InterAlbania's shares, the fifth largest sector competitor, and 
UNIQA International Beteiligungs-Verealtungs GmbH (Austria) 
purchased 46 percent of SIGAL, the market leader last year. 
 
¶7.  Insurance supervision and regulation are improving and an 
amendment to the country's insurance law was adopted in early 2007, 
increasing the guarantee fund for insurance companies.  The Albanian 
Financial Supervisory Authority, the GOA's insurance regulatory 
agency, was established in 2006 and has undertaken a number of 
initiatives to supervise the market.  Also, the GOA's Competition 
Authority has been active in trying to improve competition in the 
market which is beset by charges of price-fixing.  The 
underdeveloped state of Albania's insurance market is expected to 
 
TIRANA 00000148  002 OF 002 
 
 
improve as the steady economic growth during the last seven years 
(averaging over 5.5 percent), increasing per capita income, the 
entrance of experienced foreign operators, and improvements in the 
legal and supervisory framework act in concert to boost the market. 
 
 
WITHERS