DEVELOPING LIFE INSURANCE IN THE ECONOMIES IN TRANSITION

OECD Secretariat

I. The advantages of developing life insurance

A. Enhancing individual financial security

A study of human history reveals a universal desire for security.1 This quest for security has been
a potent motivating force in material and cultural growth. Early societies relied exclusively on family and
tribe cohesiveness for their security. With industrial development, this security source weakened, being
augmented by privately purchased and government-provided security programs. Among the private
programs, life insurance has been a universal response.

From the individual’s perspective, life insurance offers many advantages:

− Life insurance guarantees to pay a stated sum to a family on the death of its income earner(s). In so
doing, it affords families a measure of protection against the adverse financial consequences of
premature death, gives individuals a greater sense of economic security, and can help reduce worry and
distress and thereby increase initiative.2 No other privately purchased financial instrument can perform
this function.
− Cash value life insurance can serve as a means through which individuals save. Many persons who
might not otherwise save consistently will, nonetheless, regularly pay their life insurance premiums;
thus, life insurance might constitute a type of quasi-compulsory savings.
− Life insurance products, especially annuities, provide a convenient, if not unique, means by which
individuals can make financial provisions for retirement.

1
This section draws on Kenneth Black, Jr. et harold D. Skipper, Jr. called Life Insurance, 12 Edition (Englewood
Cliffs, N.J.: Prentice-Hall, Inc., 1994), Chap. 3.
2
See UNCTAD (1982), The Promotion of Life Insurance in Developing Countries, Geneva.

1
− Life insurance can permit more favourable credit terms to borrowers – both individuals and businesses
– and can decreases the risk of default. Life insurance can also minimize the financial disruption to
businesses caused by the death of key employees.

B. Easing the burden of government social welfare spending

Private life insurance can supplement, if not substitute for, benefits provided by government. This
assertion is substantiated by a significant negative correlation between social spending and life insurance
premiums. Moreover, the sharp rise in life premiums in the OECD countries may be attributed in great part
to the mounting financial difficulties of pension schemes. Governments can now concentrate their efforts
on core social protection benefits, while allowing individuals to choose for themselves their desired level
and type of additional protection.

C. Impact on economic development

Apart from the social role it plays by relieving government of some of the burden of meeting
financial security needs, life insurance can assist economic development in general and the development of
financial markets in particular. Because they have thousands of policyholders, insurance companies are
able to amass quantities of funds that are important in supporting investment and the national economy.
They thereby serve as financial intermediaries between investors and economic agents that lack sufficient
financing: households, businesses and in some cases even governments. The emergence of this new type of
intermediaries, with features different from those of banks, with regard to the timeframe of investment in
particular, makes a major contribution to the development of financial markets. In the OECD countries,
insurance companies are the largest institutional investors.

1. Quantitative impact on savings

A great many studies have looked at how the development of life insurance and funded pension
schemes have impacted the level of aggregate savings. When such schemes are instituted, they generally
have a positive effect.

A number of arguments have been advanced to explain this. First, when they are instituted on a
compulsory basis, contractual savings plans (life insurance and pension funds) raise the level of aggregate

2
savings if they involve a rate of mandatory savings that is higher than the rate for which households would
have opted voluntarily.

In addition, if a system that is still recent lacks credibility, households are not necessarily inclined
to alter their prior savings behaviour, because the new products do not give them the level of financial
security they desire. As a result, they increase their rate of savings. This latter effect is only temporary,
however, and it goes away when the system becomes more mature and thus more credible. It should be
noted, however, that the long-term impact of a temporary rise in the savings rate could be very important if
the funds are invested wisely and prompt a virtuous circle of growth and savings.

Lastly, the development of contractual savings also encourages savings by offering individuals
and businesses a way to diversify their assets. Not forgetting, however, that the subsequent increase in
aggregate savings may only be slight if consumers merely shift their funds between different types of
investments but keep the overall level of their savings unchanged.

2. Qualitative impact on savings

While there may be some doubt as to the quantitative impact on savings of the development of
life insurance, the qualitative impact is very clear: unlike many commercial banks specialising in deposit-
taking and short-term lending, contractual savings institutions usually adopt a longer-term perspective.
Their longer-term commitments and the stability of their cash flow provide ideal sources of term financing
for governments and businesses.

3. Impact on the development of financial markets

The development of contractual savings is greatly increasing the supply of long-term financial
products, thereby triggering a series of effects on the development and structure of the financial markets:

− Specialisation in the sector, insofar as the banking system is making adjustments in order to
reap the benefits of its comparative advantage on short-term products. This has prompted a
sharp reduction in risk stemming from maturity differentials between bank assets and
liabilities. The stability of the banking system is therefore reinforced.

− Reduction of the differential between short- and long-term interest rates (the rate curve is
becoming flatter). This is prompting an improvement in the financial structure of business

3
 enterprises thanks to a lowering of the cost of long-term capital and a lessening of the risks of
refinancing.

− Reduction of the implicit debt of defined-benefit pension schemes.

− Development of the market for long-term government bonds, which greatly expands the
options for government debt management. This argument has also been used against the
development of contractual savings, out of a fear that without a sufficiently developed bond
market, the funds accumulated by life insurance companies and pension funds might become
captive sources of financing for the government’s deficit. Implementation of sufficiently
flexible investment regulations, allowing insurance companies and pension funds to diversify
their investments in equity markets and in international markets should be sufficient to avoid
this pitfall.

− Enhancing the efficiency of financial markets. Contractual savings institutions, like all
mutual investment instruments, prompt a higher level of specialisation and professionalism
on the part of financial market players, making it possible to finance projects that are bolder
or riskier (and thus more lucrative), exploiting economies of scale, trimming transaction costs
and encouraging financial innovation. Furthermore, such institutions are able to exercise
tighter control over the performance of businesses they finance and thus help to improve
corporate management and foster greater transparency.

II. The life insurance market in economies in transition : taking stock

A. Low penetration of life insurance in the emerging markets

Life insurance is still fairly undeveloped in the Baltic States, as in all Europe’s emerging markets,
since in 1998 the penetration of life insurance (direct gross premiums / GDP) was only 0.43% in the
Central and Eastern European countries and the new independent states3. Premiums ranged from 0.06% in
Romania to 0.90% in Slovakia and 0.81% in Slovenia. In comparison, in 1998 the OECD countries
devoted 4.58% of their aggregate GDP to life insurance.

3. Source: Insurance Regulation and Supervision in OECD Countries, Asian Economies and CEEC and NIS
Countries, OECD. The countries in question are: Albania, Armenia, Belarus, Bulgaria, Croatia, Estonia,
Latvia, Lithuania, Moldova, Romania, Russia, Slovakia (OECD Member State since 2000), Slovenia and
Ukraine.

4
 The timid development of life insurance is also plain to see from the clear domination of non-life
insurance in total premiums: in 1998, life insurance accounted for only 16% of total premiums in the
Central and Eastern European countries and the new independent states1, the percentages in each country
ranging from nearly 30% in Russia and Slovakia2 to less than 2% in Ukraine. In comparison, life insurance
accounted for 54.34% of total insurance premiums in the OECD countries in 1998.

This low volume of life insurance business stems, first, from the role played by government
provident schemes. But the State’s involvement varies widely from one country to another.

B. Bright prospects for growth

Although the levels of their life insurance premiums have remained fairly low, the countries of
Central and Eastern Europe have recorded sharp growth rates for those premiums—in many cases in
excess of 10%—over the past decade, with the notable exception of Russia, where life insurance premiums
registered a decline.

The fact that the penetration rate of life insurance is still lower in the emerging markets of Europe
than it is in other emerging markets4 gives hope that growth rates will remain high. In candidates for
membership of the European Union in particular, further financial market deregulation and adoption of
new Community directives ought to give growth in these markets a boost.

C. Structure of the insurance market

1. Separation of life and non-life business

Among the insurance companies operating in the emerging markets, few are specialised.
Together with Bulgaria and Ukraine, the Baltic countries are an exception: all of the Central and Eastern
European countries and new independent states1 report the existence of composite insurers.

Indeed, to engage simultaneously in long-term business, such as life insurance, and shorter-term
business, such as casualty insurance, creates a risk that one class of insurance will be forced to support the
other. The OECD recommends in its Twenty Guidelines for Insurance Regulation and Supervision in the
Economies in Transition, that “[l]ife and non-life activities should be separated (in distinct companies), so

4. In 1998, the emerging countries of Asia (excluding South Korea) devoted 2% of their aggregate GDP to
life insurance.

5
that one activity cannot be required to support the other.” As an exception to this principle, however,
authorisation may be granted to write business involving other classes of personal insurance (e.g., accident
or health) as well as life insurance.

2. Market concentration

Except in Russia, Eastern European insurance markets are still extremely concentrated, in the life
and non-life sectors alike. In 1998, the combined market share of the five largest life insurers varied
between 85 and 98%. This is because in many cases the former monopolies still have market shares of 50%
or more, even if some of them have been separated into a number of independent companies in order to
introduce a measure of competition. In 1998, the top five insurers accounted for 71 % of the market
Estonia, 60 % in Latvia and 69 % in Lithuania.

Even so, market concentration can be expected to subside as markets become more open to
foreign insurers, and as new domestic companies spring up.

III. The forces driving development

A. Growth

The first factor in the development of insurance, and of life insurance in particular, is
incontestably the population’s standard of living. As average household income or wealth increases, it
generally prompts a rise in the savings rate, with savings being channelled first to bank deposits and other
liquid instruments, and then to products that meet more specific needs, such as life insurance products.

Insurance is one of the sectors with above-average growth in the contribution to GDP. A study of
insurance in the economies in transition5 estimates that for each percentage point of GDP growth in the
Central and Eastern European countries, life insurance premiums will grow by 1.1 to 2.2% (versus 1.1 to
1.5% for non-life premiums). Swiss Re projects a slightly narrower range, since its forecasts regarding the
penetration of life insurance in Eastern Europe assume that premiums will rise by between 7 and 10% per
year, depending on the country, if overall annual growth is between 4 and 5% between now and 2005. In
addition, Swiss Re has forecast that a more stable economic environment will enable Central Europe to

5. Importance of the Insurance Companies in the Capital Market Development of Transition Countries.

6
record real premium growth in life and health insurance of between 2 and 4%—higher than the average in
Eastern Europe.

B. Regulatory environment

While the existence of an appropriate regulatory framework is an important factor in the

development of any industry, it is absolutely crucial to the development of life insurance.

1. Guarantee the solvency of insurance companies

The first objective must be to protect the consumer by supervising the solvency of insurance
companies, since an insurance policy represents a promise to pay a future benefit if and when certain
stipulated events occur. The transaction is therefore based on the customer’s confidence that his or her
chosen company will honour its commitment. This confidence is particularly necessary with regard to life
insurance, because the amounts of money involved may be very large and, especially, because
commitments span a long, if not very long, period of time. But in emerging economies, public confidence
is particularly fragile because insurance is not yet an established part of the culture, and in many cases
because of financial disasters and insurance company failures that are still fresh in people’s minds.

2. Ensure a properly functioning competitive market

If policyholders are to be given a high quality of service, regulations must also lay the
foundations for a competitive market. Only within such a framework can market forces ensure that insurers
offer competitive prices and products that correspond to the consumers’ demands. Regulations must
therefore give supervisors enough authority to prevent or sanction behaviours that are detrimental to
competition, such as price fixing, market sharing and other anticompetitive practices.

Even so, policyholders will reap the full benefits of competition only insofar as they are able to
make discerning choices. Here, regulations can ensure that the most salient features of policies be
conveyed clearly. The complexity of life insurance contracts demands a special effort along these lines. For
example, in addition to stating technical elements—guaranteed rate of interest, minimum term, redemption
penalty, expense rate, etc.—regulations may require that prospective customers be given a table in which
redemption values are calculated explicitly for a number of years and not just at maturity (which
highlights, for example, the impact of pre-paid expenses). Supervision of insurance distribution networks
may be an important element in making sure that customers are given all relevant information. Such

7
supervision may be carried out directly by the supervisory authority or indirectly through the imposition of
a licensing procedure based on fit and proper criteria, supplemented by the industry’s own self-regulation.

3. Exercise effective supervision

The supervisory authorities should have sufficient human and financial resources to accomplish
their task – however, that is rarely the case in economies in transition. Besides, the various market players
could also be more actively encouraged to assume responsibility and become accountable. Regulation
might provide, for example, for mandatory imposition of auditing procedures and certifications by
independent actuaries and auditors. Principles of corporate governance and fit and proper criteria for
company executives can lessen the probability of inadequate or fraudulent management. The supervisory
authorities would then be able to focus their efforts on cases causing the most concern.

Supervision of products and tariffs is recommended in OECD’ s Twenty Guidelines for Insurance
Regulation and Supervision in the Economies in Transition: “initially at least, it may be advisable for
economies in transition to request the submission of premium rates and insurance products for prior
approval. Supervision of tariffs and products should however be adapted to the situation of each country
and reassessed at a later stage according to the development and progress of the market”.

Lastly, lead time is an essential factor in the effectiveness of supervision. It is much easier to find a
solution for the difficulties encountered by an insurance company if those difficulties are detected in time.
Supervisory authorities should be able to take a whole series of measures before triggering an actual
liquidation procedure. Formulation of a rehabilitation plan is a procedure provided for in all of the OECD
countries. Moreover, in a majority of OECD countries, supervisory authorities are empowered to intervene
by amending contracts or policy clauses, replacing company executives or appointing temporary
administrators.

4. Institute a transparent and stable regulatory framework

Government must ensure that existing laws and regulations are readily available to all, i.e. to
customers as well as insurers and to domestic as well as foreign companies. This provision is especially
necessary in economies in transition because the laws governing insurance are in many cases recent and
subject to rapid change. Regulatory authorities should not exercise their power in a discretionary manner
but, on the contrary, should clearly explain their licensing procedures (defining, inter alia, the criteria for
the licensing decision), the way in which supervision is implemented and the steps taken to alleviate the

8
financial difficulties encountered by certain companies. Insurers’ attitudes towards supervision will be
more co-operative if they have the conviction that they are dealing with authorities who are qualified and
independent.

In addition, regulations must be stable enough so that insurers and consumers may enter into
contracts knowledgeably and with confidence. For example, proposed new tax concessions for life
insurance products will fail to produce the desired effect if consumers are afraid that the favourable
provisions are only very temporary.

Of course, this must not keep the supervisory authorities from undertaking necessary reforms.
Application of the principle of transparency demands only that the various parties concerned be informed
and involved in the reform process, and that they be involved from the outset. In this way, each party
would be able to prepare gradually for any changes that were needed.

C. Reforms of social protection systems

Institutional reforms constitute the second growth factor for insurance. Life insurers in Central
and Eastern Europe should benefit from pension scheme reforms, which are calling the preponderance of
government-administered programmes into question. Insurers have a role to play in the provision of
pension products or related services (such as asset management) for the second pillar as well as for the
third pillar.

In Latin America, a change in the system gave private life insurers a large boost. Since 1982,
their premium volume has recorded 17% real growth per year. While life and disability insurance
dominated at the beginning, annuities have now taken the lead. In Chile, 80% of life insurance premium
income comes directly from compulsory old age cover. Optional supplemental insurance has grown, since
1982, by nearly 11% per year. Similar trends are expected in countries that undertake extensive reform of
their social protection systems.

D. Potential benefits from foreign insurers and reinsurers

The need to protect a recently created domestic industry can prompt some countries to limit, if
not prohibit, the access of foreign insurers to certain segments of their domestic markets. This sort of
domestic market protection has a number of drawbacks, however. First, the competitiveness of all
economic sectors may be affected by higher loading of premiums or the provision of insurance services
that are less efficient than the ones that would have been offered in an open market. Moreover, the

9
development of the insurance sector itself could be hampered by limited access to foreign capital and
know-how. Lastly, domestic insurers will ultimately find it difficult to adjust when barriers are removed,
and to develop outside the domestic market.

Another solution is to encourage access to reinsurance, which enables small insurers to

underwrite risks that are more extensive than prudence would otherwise allow them to assume.
Furthermore, in many cases—in connection with proportional treaties in particular—reinsurers also
provide insurance companies with a wide variety of assistance in estimating and managing risks and claims
that would otherwise be unavailable to them.

E. Tax concessions

A majority of OECD countries grant tax concessions for the purchase, ownership or execution of
life insurance policies. These benefits vary widely. In some cases relatively slight and designed merely to
simplify tax administration, they may also be substantial and intended to encourage people to purchase or
maintain policies in order to encourage a shift in national savings towards life insurance, promote long-
term savings or prompt individuals to help ensure their own financial security. Policies that focus primarily
on the customer’s survival (e.g. mixed policies and pure annuities) are the main targets of these tax
concessions. A detailed analysis of tax policies with regard to life insurance is available in the document
entitled Policy Issues in Insurance: Investment, Taxation, Insolvency, published by the OECD in 1996.

The effectiveness of such tax policies is clear with regard to shifting national savings to life
insurance and promoting long-term savings. One negative example comes from Russia, where the repeal of
certain tax concessions was one of the primary factors explaining a decline in life insurance premiums
from USD 1 514 million in 1996 to USD 1 335 million in 1997. On the other hand, aggregate savings will
not necessarily rise because of the choices made by savers, and also because the reduced tax revenue may
lead to a reduction in government savings. Lastly, it is difficult to ascertain the extent to which tax
incentives encourage the purchase of life insurance products geared more towards protection than towards
savings (death and disability benefits and term life insurance). Even so, the fragmentary elements available
would suggest that the effects may be positive.

It has been found repeatedly that countries wishing to adopt a three-pillar protection model have
worked out the details of tax concessions for life insurance before instituting the compulsory second pillar
in a subsequent phase. This method, coupled with an active public information policy, makes it possible to

10
educate a population that tends to know little about life insurance products, and thus to prompt them to opt
for a sufficient level of cover.

IV. The difficulties to be surmounted

A. Inflation

In stable economies, insurance guarantees are often expressed in nominal amounts. Furthermore,
insurance premiums are generally set at the beginning of a contract; there may be provision for adjustment
clauses, but such clauses are still relatively rare. High inflation, which is frequent in emerging economies,
makes it essential to take this problem into account, since the expression of guarantees in nominal amounts
constitutes a major risk for the holders of life insurance policies. Policyholders are not necessarily aware of
the fact that they are running this risk, which can give rise to mistrust and feelings of having been duped.

On the other hand, to express guarantees in real terms is a highly risky solution for insurance
companies, especially insofar as financial instruments that could be used to cover inflation risk (e.g. bonds
indexed to financial indices closely correlated with domestic inflation) are in most cases not available.
Moreover, total or partial indexation clauses tend to further complicate products that are already very
unfamiliar to consumers.

High inflation is therefore a definite obstacle to the development of insurance, and of life
insurance in particular. Moreover, the volume of premium revenue in the sector is highly sensitive to this
factor. In Bulgaria, for example, where the rate of inflation jumped from 123% in 1996 to 1100% in 1997,
life insurance premiums dipped sharply, from USD 42 million to USD 13 million, while GDP rose from
USD 9.2 billion to USD 10.1 billion.

B. Consumers’ lack of familiarity with insurance products

The range of life insurance products marketed in an emerging economy must necessarily take
account of the fact that consumers know little about the workings of financial markets. In the centralised
economies in particular, it was extremely rare, to purchase financial products that could shift income from
one phase of a person’s life to another and provide for various contingencies. Similarly, many Central and
Eastern European countries enjoyed comprehensive social cover which guaranteed universal access to
healthcare, retirement benefits and survivors’ pensions. Consumers are therefore unfamiliar with savings
products or precautionary cover.

11
 This argument has often been expounded to explain the imposition of supervision of life
insurance products, since producers have little incentive to develop high-quality products if consumers are
incapable of telling the difference between them and products of far lower quality. As the public’s financial
education increases, however, these controls should be relaxed. The ultimate objective is for consumers to
be able to exercise this supervision themselves, in order to choose the products best suited to their
individual needs. To this end, campaigns to inform the public, and the preparation of prospectuses that
explain the main features of life insurance products are imperative.

C. Underdeveloped domestic financial markets

In order to do business confidently and effectively, insurance companies need to be able to invest
their assets in markets that are sufficiently well developed and efficient. And yet, in most emerging
markets, financial markets still offer a choice of products (bonds with a variety of maturities and issuers,
shares in domestic or foreign companies, etc.) and auxiliary services (auditing firms and rating agencies,
for example) that are limited. Extensive insurance operations can therefore not develop unless companies
have sufficient access to foreign financial markets. With the exception of Slovenia and Moldova, all of the
Central and Eastern European countries and the new independent states now allow insurance companies to
invest some of their assets abroad. However, fear of depriving the national economy of too important a
source of investment prompts many of them to limit the proportion of investments that may be made
abroad (20% under Russian regulations) or to require prior government authorisation. Other countries,
including Romania and Estonia, impose no such restrictions.

D. Lack of experience and insurance techniques

In most emerging economies, the population starts out with little understanding of insurance.
There is little or no specialised training in the subject. As a result, domestic insurance companies often lack
experience and qualified staff, which makes it difficult to estimate risks. To a large extent, this problem
can be solved by opening domestic markets to international insurers, which bring with them their
experience and risk management techniques: actuarial methods, risk selection policy, new product design,
etc. Transfers of technical and managerial know-how are especially important in the insurance industry
because insurance companies, unlike industrial multinationals, cannot merely divide their production
processes between their home country and emerging markets to take advantage of differential production
costs, and wage costs in particular.

12
E. The lack of actuarial data

Insurance companies in emerging economies also suffer from the lack of reliable data bases, on
which to base their actuarial calculations and tariffs. In countries where notably statistical data on health
problems were not recorded properly, if at all, and in which ways of life have undergone or are undergoing
sudden change, life expectancy data cannot provide a sufficient basis for computing life insurance
premiums, even if the most sophisticated actuarial methods are used. It is only by instituting a
comprehensive and reliable system of data collection that this obstacle can be overcome. To set up such a
system is probably a matter for the State, but private insurance companies can help by constituting their
own databases and pooling them.

As long as data are still insufficient, substantial margins of error will have to be factored in to
ensure that pricing does not cause a deficit. Some of the resultant income should then be returned to the
insured in the form of profit-sharing.

13
BIBLIOGRAPHY

“The Taxation of Life Insurance Products in OECD Countries” by H.D. Skipper

Policy Issues in Insurance: Investment, Taxation, Insolvency
OECD, 1996.

Insurance Regulation and Supervision in OECD Countries, Asian Economies and CEEC and NIS
Countries
OECD, 2000

Twenty Guidelines for Insurance Regulation and Supervision in the Economies in Transition
OECD, 1997

Contractual Savings and Stock Market Development: Which Leads? by M. Catalan, G. Impavido and
A.R. Musalem.
World Bank, 2000.

Contractual Savings and Emerging Securities Markets by D. Vittas

World Bank, 1992

The Role of Non-Bank Financial Intermediaries in Egypt and Other MENA Countries by D. Vittas
World Bank, 1997

Foreign Insurers in Emerging Markets: Issues and Concerns by H.D. Skipper

International Insurance Foundation, 1997

The Coming of Private Insurance to a Former Planned Economy: the Case of Slovenia by M.S. Dorfman
and K.C. Ennsfellner
International Insurance Foundation, 1997

“Life and Health Insurance in the Emerging Markets: Assessment, Reforms and Perspectives”
Suisse de Ré, Sigma No. 1, 1998

14
“Insurance Industry in Central and Eastern Europe: Increasing Competition - Different Prospects for
Growth”
Suisse de Ré, Sigma No. 7, 1998

“Emerging Markets: the Insurance Industry in the Face of Globalisation”

Suisse de Ré, Sigma No. 4, 2000

Importance of the Insurance Companies in the Capital Market Development of Transition Countries by
M. Duvnjak
University of Split

15
ANNEX 1: KEY FIGURES FOR LIFE INSURANCE IN OECD COUNTRIES (1998)

Total gross life premiums USD 1 106 937 million

Life insurance share 54.34% of total premiums

Density USD 954 per capita

Penetration 4.58% of GDP

Retention ratio 95.05%

Ratio of reinsurance accepted 5.13%

OECD share of the global 94,6 %

insurance market

Source: Insurance Statistics Yearbook 1991-1998, OECD, 2000 edition

16
 ANNEX 2: TAX TREATMENT OF LIFE INSURANCE IN THE OECD COUNTRIES

Country Existence of Special Tax regarding1 Special Rules Purpose Other

1 2
Ins. Co. Policyholder Others Deductibility Benefit of Other Contributi

Contract Succession Ins. Co. Policyholde Public

Australia Y Y Y N Y N Y N N
Belgium Y Y Y Y Y Y Y

Czech Republic Y N Y N Y N Y N N

Denmark Y Y Y N Y Y Y Y NA

Finland N Y N N N Y Y Y Y

France Y Y Y N Y Y Y Y Y

Germany N Y N N Y Y N N N

Hungary N N N N N Y N N N

Iceland Y Y Y Y Y Y N Y N

Italy Y Y Y N N Y Y N Y

Japan N N N N Y Y Y N N
Korea N N N N N Y N N N

Luxembourg N Y Y N N Y Y N N

Mexico N N N N N Y Y N N

Netherlands Y Y N N N Y Y N N

Norway N Y Y N N Y Y Y Y
Poland N N N N N N N N N

Portugal Y Y Y Y N Y Y NA NA

Spain Y Y Y N N N Y Y Y

Sweden Y Y Y Y N Y N Y N

Switzerland N Y N NA N Y Y N N

Turkey Y Y Y N Y Y Y N N

U.K. N Y N N Y Y Y N N

United States Y Y N Y Y Y Y Y Y

E.U. N N N N N N N N N

17
Source: Comparative tables on insurance regulation and supervision in OECD countries

Country
Tax1

Tax on Premiums Tax on Capital Value Added Supplementary

Life Yield Tax Taxes
Australia
Austria
Belgium Y (group ins./pension funds: in life 10%,16.5% or 33%, 9.25% on profit-
4.4.% + 8.86% on précompte mobilier: N except sharing
allowances of employer) in limited cases
Canada
Czech Republic N 15% N N
Denmark
Finland N N N
France N CSG + RDS: 3.9% N Y
repurchase under 8 years:
37% or 17%
Germany N N N solidarity
surcharge:7.5%
municipal tax
between 13 and
21%
Greece
Hungary N 12 or 25 % local taxes on
buildings,
communal taxes
Iceland stamp duties NR N NR
Ireland
Italy 2.5% N N
Japan N N N N
Korea N N N education and
inhabitant tax
Luxembourg N N N Y (fire)

18
 Mexico 34% 15% (in border income tax of
cities : 10%) 34 % on
policyholder
dividends
Netherlands N NA N N
New Zealand
Norway N Y(mutuals and pension N N
funds)
Poland N N N N
Portugal
Spain N N N N
Sweden max. 15% paid to co. outside life: 15 or 27% of a standard NR NR
Sweden, reduction poss. yield on the net asset value
Switzerland
Turkey 5% N N 10% in fire
United Kingdom
United States

Source: Comparative tables on insurance regulation and supervision in OECD countries

Country
Tax Deductibility

Insured Policyholder
Australia
Austria
Belgium Y for individuals, groups, pension funds with Y in group ins. and for pension funds
variable limits calculated on average tax with min for the employer
30% and max. 40%, see T 34 cont.2
Canada
Czech Republic N N
Denmark
Finland N Y for employers and in compulsory
pension ins.(if voluntary only under
certain conditions)
France N Y (heirs)
Germany if identical with policyholder Y
Greece

19
 Hungary 20% of annual premium (contract for 10 years) as for “Insured”
Iceland N in case of lump sum
Ireland
Italy 22% annually
Japan from income tax: 50 000Yen in case of lump sum; in case it is
from residential tax: 35 000Yen taxable: heir can benefit from
exemption up to amount of 5 000 000
Yen multiplied by the number of the
heirs-at-law
Korea N pension products/risk-oriented ins.: up
to 500 000 resp.720 000 WON
Luxembourg N Y
Mexico if insured is policyholder and legal person only for legal person
Netherlands in principle expenses associated with business as for “Insured“
operations are tax-deductible (see part III)
New Zealand
Norway Y ( ceilings to premiums for pension
ins.)
Poland N N
Portugal
Spain N for individuals as for “Insured”
Y for commercial companies
Sweden pension ins.: ca. SEK 16 000 for individual; for as for “Insured”
employer within limits
Switzerland
Turkey NR 25-55 % depending of income tax level
United
Kingdom
United States
EU NR NR

Source: Comparative tables on insurance regulation and supervision in OECD countries

20