Kazakhstan: Enhancing Insurance Market Efficiency and Outreach

Sovereign (Public) Project | 48037-001

The TA will support the Kazakhstan government to enhance the efficiency of insurance markets and expand their outreach. The TA will help improve the quality and efficiency of supervision of the insurance system, including cross-border supervision, and deepen insurance penetration through better product design and pricing and use of alternative distribution channels. The enhanced capacity of the NBRK to implement and observe international insurance principles and standards and promote customer protection will also contribute to greater confidence and trust of market participants.

Project Details

  • Project Officer
    Martinez, Inmaculada
    Central and West Asia Department
    Request for information
  • Country
  • Modality
    • Technical Assistance
  • Sector
    • Finance
Project Name Enhancing Insurance Market Efficiency and Outreach
Project Number 48037-001
Country Kazakhstan
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 8738-KAZ: Enhancing Insurance Market Efficiency and Outreach
Financial Sector Development Partnership Special Fund US$ 500,000.00
Technical Assistance Special Fund US$ 300,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector

Finance / Insurance and contractual savings

Gender Equity and Mainstreaming No gender elements
Description The TA will support the Kazakhstan government to enhance the efficiency of insurance markets and expand their outreach. The TA will help improve the quality and efficiency of supervision of the insurance system, including cross-border supervision, and deepen insurance penetration through better product design and pricing and use of alternative distribution channels. The enhanced capacity of the NBRK to implement and observe international insurance principles and standards and promote customer protection will also contribute to greater confidence and trust of market participants.
Project Rationale and Linkage to Country/Regional Strategy

In 2013, Kazakhstan had an insurance market penetration of 0.8% of the country's gross domestic product, which is low compared with the global average of 6.3% and emerging markets average of 3.0%. Insurance spending per capita is also low in 2013, the insurance density rate equaled $101 per capita, compared with the global average of $652. Most insurance activity is limited to urban areas, concentrated around Astana and Almaty. Although the subsector is small, it has been growing significantly, with total assets of T521 billion ($3.4 billion) in 2013. Premiums reached T253 billion ($1.4 billion) in 2013, a 20% increase from the end of 2012. Premium growth is associated with the government's health and pension reforms and a growing economy that has boosted per capita incomes and insurance demand.

The country has 34 licensed insurance companies (including 7 life insurers) and 14 registered insurance brokers. The subsector is moderately concentrated, with the three largest companies holding 40% of assets. These insurers, however, are very small by international standards, and unable to benefit from economies of scale. Two of the insurers are state-owned. Foreign insurers are practically nonexistent, with two insurers recently leaving the market. Due to their small market capitalization, insurance funds are insufficient to underwrite and they retain significant proportions of large corporate risk on their balance sheets. As a result, almost 90% of the corporate risk is reinsured outside Kazakhstan.

Reinsurance activity remains a key concern for the regulator given the significant share of reinsurance that takes place outside of Kazakhstan and the difficulty of monitoring these activities. Without large local reinsurance companies, most risks are ceded to reinsurers outside of the country (mainly Russian and European companies). In many cases, the primary insurer cedes all, or virtually all, of the risk of loss to a reinsurer who also controls the underwriting and/or claim-handling process (fronting process). Similarly, Kazakhstan insurers accept inward reinsurance premiums from foreign companies on a reciprocal basis. Since foreign reinsurers are not licensed or monitored by Kazakh regulators, concerns focus on reinsurance placements with or from institutions with low credit quality and without adequate transparency. The supervisor lacks the capacity and resources to monitor ceding company transactions, particularly for risks being reinsured through entities in offshore jurisdictions. New regulations were introduced in 2012 to increase domestic risk retention. As of 1 October 2013, only 25.2% of the insurance premium was ceded by way of reinsurance to foreign insurers and reinsurers. Rating requirements have also been increased for the placement of risk with foreign reinsurers. The new requirements encourage domestic insurers to work with large reinsurers and increase the domestic share of reinsurance, but concerns remain.

The National Bank of the Republic of Kazakhstan (NBRK) is responsible for insurance regulation and supervision. Most of the regulations are modeled on European Union directives. Consolidation of the insurance industry is under way, including tightening the prudential regulatory regime. Kazakhstan s participation in a customs union with Belarus and the Russian Federation, as well as the ratification of the protocol on the creation of a single insurance market for the Eurasian Economic Community member countries, are driving forces for harmonization of insurance legislation and unification of insurance markets by 2019. Protocols and procedures for cross-border supervision of branches, subsidiaries, and insurance intermediaries through supervisory colleges are likely to be established. This will help avoid the unintended consequences of regulatory arbitrage, while preserving the stability of the insurance market.

The insurance subsector has growth potential but faces several major challenges. Constraints include (i) fragmented market structure, with many insurers not having the critical size to build adequate risk pools, underwrite contracts, and innovate; (ii) weaknesses in regulation and supervisory capacity, and in consumer protection, which undermine confidence and trust, and the sound development of the market; (iii) grossly underdeveloped life insurance subsector, dominated by annuities; (iv) catastrophic insurance, which is rarely sold or reinsured for the risks taken; (v) limited availability of professionally qualified staff, including in insurance companies; and (vi) limited development of other segments of the finance sector allowing for long-term investments, which results in insurance companies having difficulty finding profitable placements for their funds.

ADB's country operations are guided by the Country Partnership Strategy (2012-2016). A diversified financial sector, with robust insurance markets that assess and price risks appropriately and support an efficient allocation of capital is a cornerstone for the development of the private sector.

Impact Greater outreach of insurance achieved
Project Outcome
Description of Outcome Strengthened policy and regulatory framework for insurance supervision and product design
Progress Toward Outcome The TA activities have been completed on 31 July 2017 and the overall achievement of the TA outcome will be assessed during the TA completion review.
Implementation Progress
Description of Project Outputs

1. Risk-based supervision strengthened

2. Reinsurance, and group and cross-border supervision improved

3. NBRK staff capacity to regulate and supervise the insurance subsector improved

4. Actuarial database for insurance product' design strengthened

Status of Implementation Progress (Outputs, Activities, and Issues)

For outputs 1 to 4, the following TA activities have already been completed.

Assessment of existing policy and regulatory framework and compliance with international standards;

Presentation of recommendations on revisions to regulatory framework to National Bank of Kazakhstan and other stakeholders;

Assistance in drafting of revised regulations and legal acts;

Preparation of a risk-based supervision internal guidelines, which include new tools developed with the support of this TA: (i) an Early Warning System, (ii) a risk profiling tool and (iii) sensibility testing;

Assessment of compliance with relevant insurance core principles and standards, and identification of gaps;

Preparation of guidelines for reinsurance, and cross-border supervision;

Supporting the establishment of protocols to cooperate and exchange information and assistance in the completion and submission of application form to IAIS;

Conducting a needs assessment for training for NBK staff and insurance market participants in areas related to risk-based supervision, risk transfer, and group and cross-border supervision;

Actuarial school in Kazakhstan;

Review of premiums for compulsory insurance lines, assess appropriateness of databases, and provided recommendations;

Revision of mortality and disability tables;

Solvency II Quantitative Impact Study exercise, in agreement with NBK;

Training of actuaries;

Development of a market wide stress test methodology;

Standardization of sensitivity tests;

Development of training materials and conducting training on reserve calculations for NBK actuaries;

Review of reserve calculation methodology of workers' compensation and annuities;

Assessment of the technical provision for workers' compensation on selected companies;

Report for stress test and incorporate into the supervisory activities of NBK prepared; and

A high level roadmap to keep NBK on track for a successful supervisor highly compliant of the IAIS principles has been provided.

Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design Initial stakeholders' consultations with the Ministry of Economy and Budget Planning, the National Bank of the Republic of Kazakhstan (NBRK), relevant associations and insurance companies have taken place during review missions for other projects in 2012 and 2013. The scope, outcome and outputs of the proposed PATA were firmed up during fact finding.
During Project Implementation The TA co-funded the fourth Actuarial School event with the Actuarial Society of Kazakhstan and the NBRK from 16 to 18 September 2015 in Almaty. The team engaged with industry representatives, actuaries and regulators from the region. A regional seminar on insurance was conducted in October 2016 in Almaty as an additional TA activity.
Business Opportunities
Consulting Services

The technical assistance (TA) will require 34 person-months of consulting services-- three international consultants for a total of 12 person-months, and two national consultants for 22 person-months. The consultants will be recruited as individual consultants in accordance with ADB''s Guidelines on the Use of Consultants (2013, as amended from time to time). The team of individual consultants will be required to provide deliverables consistent with the design and monitoring framework activities, outputs, and delivery dates. Precise work timelines and deliverables with dates will be defined at inception, documented in the final inception report, and agreed with the executing agency and the ADB.

Approval of a new position of Actuary (national) and revised terms of reference for the positions of Actuary (international) and Project analyst (national) has been granted after the TA inception mission fielded on 3 February 2015. In addition, approval for engagement of a Risk Management Expert (international) was granted in April 2016. The expert will speak at and assist the team leader in conducting the regional seminar on insurance in October 2016. Resource persons were also recruited throughout the TA implementation for presentations, seminars, workshops, and conferences.

All TA activities were completed as of 31 July 2017.

Procurement Not applicable.
Responsible ADB Officer Martinez, Inmaculada
Responsible ADB Department Central and West Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, CWRD
Executing Agencies
The National Bank of Kazakhstan
Koktem-3, 21, Almaty 480070
Republic of Kazakhstan
Concept Clearance 19 May 2014
Fact Finding 09 Apr 2014 to 11 Apr 2014
Approval 17 Oct 2014
Last Review Mission -
Last PDS Update 28 Sep 2017

TA 8738-KAZ

Approval Signing Date Effectivity Date Closing
Original Revised Actual
17 Oct 2014 21 Nov 2014 21 Nov 2014 30 Nov 2016 31 Jul 2017 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
800,000.00 0.00 0.00 0.00 0.00 0.00 800,000.00 07 Sep 2021 693,189.15

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