Boston, MA -- (SBWIRE) -- 12/19/2012 -- Key Insights And Key Risks

Conditions remain fairly challenging in Latvia's insurance sector. The life sector is chronically underdeveloped - apparently because Latvians who are able to afford life insurance do not understand its benefits. In early 2012, the regulator intervened to close LKB Life, an affiliate of Latvijas Krajbanka, which had collapsed in November 2011. Although the life insurance company is able to meet its obligations to policyholders, this episode probably would not have helped public perceptions of life insurance. In fact, one of the strengths of the segment (like its counterparts in Lithuania and Estonia) is that is dominated by subsidiaries of very strong multinationals such as SEB Life & Pensions International, Swedbank Life Insurance, ERGO and Mandatum Life.

Meanwhile, Latvian non-life insurers have been escaping the stagnation (or worse) of premiums in their segment by expanding (aggressively) into Estonia and Lithuania. The limited data available to us as of September 2012 suggests that they have exchanged cutthroat competition in motor related lines (especially) at home for the same in Estonia (if not in Lithuania). The regulator notes that, collectively, Latvia's non-life companies were well capitalised through 2011. However, a number of the companies (and indeed, entire lines) were unprofitable.

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In this report we have incorporated:

- BMI's latest forecasts for the Latvian economy.
- Official data, published by the regulator in relation to developments in the sector through H112.
- Comments from several of the leading players in relation to conditions in late 2011 and H112.

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