Tashkent, Uzbekistan (UzDaily.com) — According to Fitch Ratings, the rapid growth of Uzbekistan’s insurance sector is driven by high-underwriting-risk areas, which could lead to volatility in the financial results of insurance companies.

A significant impact on the growth of gross written premiums (GWP) in 2024 came from financial risk insurance, which is characterized by a high proportion of liabilities relative to capital, as well as inbound reinsurance with largely unstudied underwriting policies.

The total GWP increased by 21% in 2024, reaching 9,770 billion soums (756 million USD), with the market still dominated by general insurance.

In recent years, the structure of Uzbekistan’s insurance market has changed significantly, with financial risk insurance and property insurance gaining increasing importance, supported by growing volumes of inbound reinsurance. However, life insurance volumes sharply declined after tax benefits were canceled in 2023, with its share falling from around 25% in 2022 to only 2% in 2024.

The GWP for financial risk insurance tripled from 2021 to 2024, significantly outpacing the overall GWP growth. This type of insurance protects banks and non-bank financial institutions from borrower defaults. However, its active development could lead to volatility in payouts and a reduction in company capital, especially under macroeconomic stress, as the volumes of risks often significantly exceed insurers’ capital reserves. In 2024, the claims-to-premiums ratio was 44%, higher than for other types of insurance, and according to Fitch’s forecast, it could rise in 2025 due to the expected peak in non-performing loans.

The GWP for inbound reinsurance grew by 30% in 2024, reaching 2,735 billion soums, accounting for about 28% of the total GWP and 92% of the sector’s total allowed capital. The main sources of this business are international brokers, with companies mainly participating in property reinsurance pools with small shares. Despite geographic diversification, a significant portion of risks is related to property in the U.S., where disproportionate reinsurance is mainly used. Fitch notes that the risks and underwriting strategies in this segment remain largely unstudied, which could lead to unstable results.

From an investment and asset perspective, Uzbekistan’s insurers face high risks due to limited diversification.

The primary investments are in fixed-income instruments, mainly deposits in local banks, which Fitch rates at "B" and "BB." This makes insurers vulnerable to credit and market risks within the country’s banking system. Moreover, the underdeveloped bond market in Uzbekistan limits the potential for portfolio diversification.

Amid tightening regulations, increased capital requirements are being introduced in the country. Insurers involved in reinsurance will need to ensure a minimum capital of up to 120 billion soums by October 2029, with the threshold set to 80 billion soums by October 2025. According to Fitch, as of the end of 2023, all rated insurers in Uzbekistan had "weak" capitalization according to the Global Prism model, and many will require recapitalization from shareholders to meet the new regulatory requirements.