ÜNVAN Bakı, AZ1078, C.Məmmədquluzadə küç, 998-ci məhəllə TELEFON/FAKS [994 12] PERSPECTIVES OF LIFE INSURANCE IN AZERBAIJAN

22 Market share of life insurance premiums in total volume of insurance premiums

3 Mostly used life insurance products in Azerbaijan insurance market  Compulsory insurance against disability as a result of industrial accidents and occupational diseases  Credit life insurance via banks  Term life insurance (death and/or disability of insured person during insurance period)  Endowment life insurance  Critical illness insurance Classes of life insurance in Azerbaijan legislation  Annuity insurance  Endowment insurance  Death insurance  Disability insurance  Critical diseases insurance

44 Growth of life insurance premiums by products, thousands AZN

5 The main factors stimulating the development of life insurance in Azerbaijan  Separation of insurance companies’ activity into life and non life insurance business since March The emergence on the market of specialized companies dealing exclusively in life insurance is destined to become another fairly powerful impulse. Now there are 3 specialized life insurance companies: Ateshgah Life IC Gala Life IC Pasha Life IC  The adoption of law on “Compulsory insurance against disability as a result of industrial accidents and occupational diseases” gives drive to the development of the insurance market and voluntary life insurance in particular.  Development concerned with financial growth of the market via mortgage and consumer credits. For example, most of commercial banks expanding into mortgages and other personal loans (e.g. cars) more often require the purchase of life insurance to approve these loans. Likewise, the greater availability of private income instruments allowing higher spreads for insurers could motivate them to offer life policies at more attractive terms and increase sales of life products.  Adoption of new law in 2005 about Mortgage insurance that demands the compulsory property and life insurance of the borrower. The maximum amount of mortgage credit is AZN with annual 8% rate and maximum 25 years period.

6 The main factors stimulating the development of life insurance in Azerbaijan  The legislation of Azerbaijan Republic that stimulates the development of life insurance in Azerbaijan. For example:  Exemptions of insurance premiums and payments from all kind of taxes according to the Tax Code of AR under endowment and pension life insurance contracts concluded by Employer with Azerbaijan insurers for a minimum term of 3 years. Till 2010 the minimum term for conclusion of such contracts was 5 years.  Exemptions of insurance premiums and payments from social insurance premiums according to the Social Insurance Law under endowment and pension life insurance contracts concluded by Employer with Azerbaijan insurers for a minimum term of 3 years.  Exemptions of insurance premiums and payments from income tax under the contract of endowment life insurance concluded by natural person with the minimum term of 3 years.

7 The main reasons of non development of life insurance in Azerbaijan.  The lack of knowledge of the necessity of insurance services  Distrust to the long-term life insurance policies  Low income of population  Poor marketing information system  Lack of advantageous investment instruments  Some changes to be undertaken in law. For example: According to the Tax Code of AR insurance premiums and payments under endowment life insurance concluded by natural person are only exempted from income tax, but not social insurance premiums.  The average term of mortgage contracts issued by banks is 15, max 25 years. However, life insurance contracts issued for this reason are concluded for 3 years due to complicated administration.

8 What steps to be taken to develop life insurance in Azerbaijan?  To develop new investment instruments for long-term life insurance policies  The events and measures aimed to increase people awareness in life insurance  The presence of foreign insurers would be expected to contribute to market development through product innovation and marketing techniques  To undertake changes in legislation base of Azerbaijan Republic to stimulate life insurance  To improve marketing system  To improve compulsory types of insurance segment and etc.  To undertake some pension reforms to develop pension life insurance

9 The role of life insurance in the economy of government  It provides macroeconomy stability  As financial intermediaries with long investment horizons, life insurance companies can contribute to the provision of long-term finance and more effective risk management.  Due to the long term nature of their liabilities, sizeable reserves, and predictable premiums, life insurers can serve an important function as investors providing capital to infrastructure and other long term investments  The sector also improves the efficiency of other segments of the financial sector, such as banking and bond markets (e.g., by enhancing the value of collateral through property insurance, and reducing losses at default through credit guarantees and enhancements).  Increase of people’s belief to financial institutes

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