Download Czech Republic

AMB Country Risk Report
August 24, 2016
Our Insight, Your Advantage.
Country Risk Tier
CRT-2
Czech Republic
• The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three
categories of risk: Economic, Political and Financial System Risk.
• The Czech Republic, a CRT-2 country, has low levels of economic,
political and financial system risk. The economy expanded by 4.2%
in 2015, largely driven by improving domestic demand, a more
competitive export sector and an improving labor market. The
growth is expected to continue through 2016, albeit at a rate of
2.5% as low inflation, accommodative monetary policy and weaker
commodity prices support a stronger consumer.
Very
High
Very
High
Very
High
High
High
High
Moderate
Moderate
Moderate
Low
Low
Low
• The majority of countries pictured below are categorized as CRT1 and CRT-2. The notable exceptions are the Eastern European
countries of Bosnia and Herzegovina, Belarus and the Ukraine.
Finland
Iceland
Sweden
Very
Low
Very
Low
Very
Low
Finland
Sweden
Norway
Norway
Estonia
Economic
Risk
Political
Risk
Financial
System
Risk
Isle of Man
Isle of Man
Ireland
Country Risk Tier 5 (CRT-5)
Very High Level of Country Risk
United
Germany
Kingdom
Belgium
Liechtenstein
Guernsey
Luxembourg
Jersey
Switzerland
France
San Marino
Croatia
France
Andorra
Switzerland
Romania
Montenegro
Azores
Monaco
Morocco
Malta
Tunisia
Bulgaria
Macedonia
Turkey
Greece
Cyprus
Malta
Georgia
Armenia
Albania
Monaco
Tunisia
Gibraltar
Montenegro
Greece
Spain
Portugal
Gibraltar
Bosnia & Serbia
Herzegovina
Italy
Albania
Republic of
Moldova
Romania
Croatia
Bulgaria
Macedonia
Ukraine
Hungary
Slovenia
Bosnia & Serbia
Herzegovina San Marino
Italy
Spain
Czech
Ukraine
Republic
Slovakia
Republic of
Moldova
Austria
Hungary
Slovenia
Belarus
Poland
Germany
CzechBelgium
Republic
Slovakia
Liechtenstein
Russia
Lithuania
Poland
Netherlands
Andorra
Portugal
Latvia
Lithuania
Luxembourg
Austria
Jersey
Country Risk Tier 3 (CRT-3)
Moderate Level of Country Risk
Country Risk Tier 1 (CRT-1)
Very Low Level of Country Risk
Denmark
Estonia
Belarus
Netherlands
Guernsey
Country Risk Tier 4 (CRT-4)
High Level of Country Risk
Country Risk Tier 2 (CRT-2)
Low Level of Country Risk
Latvia
Denmark
Ireland
United
Kingdom
Russia
Syria
Lebanon
Israel
Copyright © 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.
AMB Country Risk Report
Czech Republic
Regional Summary: Eastern Europe
Vital Statistics 2015
Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Literacy Rate
Urbanization
Dependency Ratio
Life Expectancy
Median Age
USD bn
mil
USD
%
%
%
%
%
Years
Years
181.86
10.5
17,257
4.2
0.3
99.0
73.0
49.5
78.5
41.3
Insurance Statistics
Insurance Regulator
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (2014 - 2015)
The Czech National Bank
USD mil
USD mil
%
2,537
3,699
-3.2
Regional Comparison
Country Risk Tier
CRT-2
CRT-4
CRT-1
CRT-2
CRT-2
CRT-5
Czech Republic
Romania
Austria
Poland
Slovenia
Ukraine
• Geopolitical conflicts, economic weakness and
recession in major trading partners, as well
as high levels of bureaucracy have restrained
growth in recent years. On average, growth
rates are expected to be higher in Eastern
Europe as they transition to a more market
based economy; however they will remain tied
to economic and geopolitical events.
• Many countries are classified as emerging or
frontier market countries, however steady
growth, low inflation and the implementation
of market based reforms have led to a great
deal of economic stability and political power
for a number of countries.
Economic Risk: Low
Source: IMF, World Bank, Swiss Re, Axco and A.M. Best
• The Czech Republic has a small open
economy, largely driven by manufacturing
exports. Growth in the EU will bode well
for Czech as close to 80% of their trade is
transacted with other EU member countries.
Economic Growth
• The unemployment rate continues to improve,
currently standing at just under 6%. A strong
labor market, combined with a 8.2% increase
in the minimum wage in 2015, have increased
consumption and consumer confidence.
8
Real GDP
• Eastern European countries are at various
stages of transition as some attempt to bring
their legal, economic and political frameworks
more in line with European Union standards.
While the region shows a great deal of
potential with further integration into global
markets through the European Union, all
countries would ultimately benefit from
a more transparent and less cumbersome
regulatory environment.
CPI Inflation
6
4
2
%
0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
• Weaker food and energy prices have put
significant downward pressure on headline
inflation in 2016. While prices are expected
to rebound moderately in 2016, core inflation
should remain well contained.
-2
• Foreign investment has been improving in
the Czech Republic, as the country tries to
expand investment outside the EU. In March
2016, China invested over $12 billion USD in
the country through 2020.
-4
-6
Source: IMF World Economic Outlook and A.M. Best
2
AMB Country Risk Report
Czech Republic
Political Risk Summary
Political Risk: Low
Score 1 (best) to 5 (worst)
Czech Republic
World Average
• In January 2014 a coalition government of
the Social Democrats, the center right party
of ANO and the Christian Democrats took
office with a more pro-Europe less fiscally
conservative stance, a change from the
previous government. Differences amongst
the parties, however, could limit the passing
of legislation.
International Transactions
Policy
5
4
Legal System
Monetary Policy
3
2
1
Regional Stability
Fiscal Policy
• The government has been efficient in
decreasing the fiscal deficit, as economic
growth in 2016 lowered the deficit to less
than 0.4% of GDP.
0
Social Stability
Business Environment
Government Stability
• The ANO party has been increasing in
popularity and is now the country’s most
popular party. If support continues to grow,
this could lead to ANO leaving the coalition
and pushing for an early election, originally
slated for 2018.
Labor Flexibility
Source: A.M. Best
Financial System Risk: Low
• The Czech National Bank (CNB) regulates
the insurance industry in addition to the
banking sector, capital markets, and the
pension system.
• The Czech Republic ranks as one of the best
countries in Eastern Europe in the 2016 Ease
of Doing Business Survey by World Bank,
ranking at 36th out of 189 countries. This
has helped increase foreign investment,
especially from the EU and China.
GDP Per Capita and Population
for Selected Countries
50
50,000
Population
45
40,000
40
35,000
35
30,000
30
USD
45,000
25,000
25
20,000
20
15,000
15
10,000
10
5,000
5
0
Czech Republic
Romania
Austria
Poland
Slovenia
Ukraine
Source: IMF and A.M. Best
3
0
• The Czech banking sector is stable with
strong liquidity and capital buffers, a low
non-performing loan ratio and good credit
growth.
Millions
GDP Per Capita
• While trying to become more incorporated
into the EU, the Czech Republic is still far
away from adopting the currency. In 2016
over 70% of the population oppose the
incorporation of the euro.
AMB Country Risk Report
Czech Republic
GUIDE TO BEST’S COUnTry rISk TIErS
A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims-paying ability of an insurer. Country risk is
evaluated and factored into all Best’s Credit Ratings. Countries are placed into one of five tiers, ranging from “CRT-1” (Country Risk Tier 1), denoting
a stable environment with the least amount of risk, to “CRT-5” (Country Risk Tier 5) for countries that pose the most risk and, therefore, the greatest
challenge to an insurer’s financial stability, strength and performance.
A.M. Best’s Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.
Country risk Tiers
Country risk Tier
Definition
CRT-1
Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.
CRT-2
Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.
CRT-3
Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.
CRT-4
Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.
CRT-5
Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.
Country risk reports
A.M. Best Country Risk Reports are designed to provide a brief, high-level explanation of some of the key factors that determine a country’s Country
Risk Tier assignment. It is not intended to summarize A.M. Best’s opinion on any particular insurance market or the prospects for that market.
Categories of risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are (1) Very Low; (2) Low; (3) Moderate; (4) High
and (5) Very High.
Category of risk
Definition
Economic Risk
The likelihood that fundamental weaknesses in a country’s economy will cause adverse developments for an insurer.
A.M. Best’s assessment of economic risk evaluates the state of the domestic economy, government finances and
international transactions, as well as prospects for growth and stability.
Political Risk
The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity
of the legal system and of the business infrastructure, the efficiency of the government bureaucracy, and the
appropriateness and effectiveness of the government’s economic policies.
Financial System Risk
Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that financial
volatility may erupt due to inadequate reporting standards, weak banking system or asset markets, and/or poor
regulatory structure. In addition, it includes an evaluation of whether the insurance industry’s level of development and
public awareness, transparent and effective regulation and reporting standards, and sophisticated regulatory body will
contribute to a volatile financial system and compromise the ability of an insurer to pay claims.
Political risk Summary
To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of one to five with one being the least
amount of risk and five being the highest amount of risk.
Category
Definition
International Transactions
Policy
Measures the effectiveness of the exchange rate regime and currency management.
Monetary Policy
Measures the ability of a country to effectively implement monetary policy.
Fiscal Policy
Measures the ability of a country to effectively implement fiscal policy.
Business Environment
Measures the overall quality of the business environment and ease of doing business.
Labor Flexibility
Measures the flexibility of the labor market, including the company’s ability to hire and fire employees.
Government Stability
Measures the degree of stability in a government.
Social Stability
Measures the degree of social stability, including human development and political rights.
Regional Stability
Measures the degree of stability in the region.
Legal System
Measures the transparency and level of corruption in the legal system.
Country risk Tier Disclosure
A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Best’s Credit Rating Methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor does it address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.
Version 091714
Copyright © 2016 by A.M. Best Company, Inc.
Copyright © 2016 A.M. Best Company, Inc. and/or its affiliates. ALL RIGHTS RESERVED. No part of this report or document
may be distributed in any electronic form or by any means, or stored in a database or retrieval system, without the prior written permission of
A.M. Best. For additional details, refer to our Terms of Use available at A.M. Best website: www.ambest.com/terms.
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