Insurance

In Estonia there are 8 insurance companies which offer both property and life insurance. Using insurance services is not yet too widespread in Estonia, compulsory motor third party liability insurance being the only exception. Growth in property insurance has been hindered by the lack of means of the people, the same applies to life insurance. However, both types of insurance have shown rapid growth during the recent years.

Life insurance has been relatively unpopular until now but has recently started to enjoy a quick growth, whereas non-life insurance is quite widespread despite its relatively modest volumes. The biggest share of the insurance activity is provided by car and other motor vehicle insurance (69%), of which the percentage of compulsory motor third party liability insurance makes up 30%. The overall percentage of non-life insurance is about 22%, but there is room for growth as people are actively acquiring real property and more valuable furnishings.

About 10% of Estonia's population have concluded a life insurance contract. The majority of the contracts are funded insurance contracts (38%), life insurance with investment risk (49%) and approximately 18% are pension insurance contracts. Growth possibilities are open also in life insurance as the income, as well as saving initiative of the people are increasing.

Securities market and Tallinn Stock Exchange
All Estonian securities are registered in the Estonian Central Register of Securities where all the share registers of public limited companies, securities accounts and funded pension accounts are registered. Transactions take place either over-the-counter or in the Tallinn Stock Exchange.

The Tallinn Stock Exchange was founded on 31 May in 1996 and since 2001 it belongs to the common trading environment for securities traded in the Helsinki stock exchanges. The Tallinn Stock Exchange has never existed otherwise than in electronic form, which means that securities do not exist on paper but only as electronic entries in the register.

Right after the stock exchange was opened it generated lots of interest as a novel phenomenon and therefore trading was quite active and the prices of securities were rapidly going up. Still, after a short while, problems relating to the financial system as a whole and especially to banking emerged also in Estonia. The eruption of the Russian crisis in August 1998 had a negative effect on the developments as well. Companies transferred to private ownership gradually left the stock exchange that had had a successful start, and new companies failed to supplement them. Thus the Tallinn Stock Exchange was in a state of lethargy for a couple of years. A revival occurred in 2001 when Estonia's economic indicators started to ameliorate and Estonia's accession to the European Union became practically certain. The trading activity at the stock exchange has considerably increased during the recent years. The growth of the Tallinn Stock Exchange is limited by the modest number of securities and the smallness of the companies.

On the Tallinn Stock Exchange there are just 8 companies listed on the Main List, of which 2-3 are actively traded with - Eesti Telekom, Norma, Tallinn Water – the shares of the first two are also traded in London. There are shares of 6 more companies listed on the Stock Exchange and the bonds of five companies are also listed for trading.

Lease
Leasing has been relatively popular in Estonia already for several years – the reason being that for a lease transaction the initial payment is smaller than in the case of a loan. Various vehicles, especially cars are the most popular lease items, the practice of leasing production facilities is also increasing. For the acquisition of apartments, capital lease was widely used in earlier years. Approximately 23% of the leasing volume relates to the people, including 32% to cars and 44% to estate. Industrial and construction companies as well as trade and service enterprises are active users of leasing.

Investment Funds
Investment funds have not enjoyed too much popularity among the Estonians. The reasons thereof are poverty, earlier scandals around a number of investment institutions as well as lack of knowledge about investing. The majority of Estonia's investment funds are linked to local banks – Hansapank, Ühispank and Sampo Bank (more than 90% of the market). In earlier times a lion's share of the overall volume of the funds was comprised by interest funds, money-market funds came second. Together with the initiation of the compulsory pension system the percentages of pension funds have started to go up (by now about one fourth).

Pension reform and pension funds
Estonia's pension system is based on three “pillars” – state pension, compulsory and non-compulsory pension insurance. The first pillar is based on the social security payments of today's workforce and is comprised of the national pension, which is the same for everyone, plus the share depending on the number of years in service and the amount of salary.

The compulsory pension insurance started raising funds since 2003 and presently it is compulsory to people only starting their careers. Others may voluntarily join the system but it cannot be abandoned later. The compulsory pension insurance system requires a person to pay 2% of the salary, to which the state will add 4% from social tax and the aggregated sums are invested into a freely chosen pension fund. Funds can be switched. A system of compulsory pension schemes was launched effectively – more people joined than expected. By now there are more than 454 thousand, about 70% of the entire workforce.

The voluntary pension insurance was started earlier and it offers different possibilities – a life-insurance-type pension insurance contract or investing into pension funds. There is no upper limit for the payments, but pension payments of up to 15% of one's salary are exempt from the income tax.

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