The second longest river in Europe, the Danube originates in the Black Forest in Germany before flowing some 2850 km (1771 miles), passing through four Central and Eastern European capitals, until it finally empties into the Black Sea via the Danube Delta in Romania and Ukraine.

Passing as it does through a mix of central and Eastern European states, it crosses backwards and forwards through European Union member states and through former states of the USSR.

It meanders through an equal mix of highly advanced and mature economies as well as those that have developed rapidly, and those which still have some way to go to catch up with their neighbours.

Mirror image
The insurance markets in these countries mirror the local economies in many ways and the pattern of development, including any appetite for merger and acquisition activity, vary enormously from country to country.

For some, M&As are seen as a quick and easy route to market, using an existing brand name to develop a market presence and capture market share. Others see opportunities in entirely new areas of business and prefer to develop their presence as a new entity in a particular territory.

Axa is a case in point. At the end of last year, Axa Central & Eastern Europe acquired 80% of Belarus' second largest insurer, and largest private insurer, B&B Insurance.

"We would like to replicate Axa's success in Ukraine, where we've become market leader in three years." De Montgolfier

Significant potential
At the time, the company said "With this operation, Axa pursues its expansion in Central & Eastern Europe, one of its key growth areas. The Belarusian insurance market offers Axa a very significant potential for growth."

Cyrille de Montgolfier, chief executive officer of Axa CEE, added: "The acquisition of B&B is an excellent opportunity for Axa to enter a fast developing Belarusian market. In this market, we would like to replicate Axa's success in Ukraine, where we've become market leader in three years, by leveraging on geographical and cultural ties between the two countries."

Getting to number 1
Axa already has a presence in the life market in five countries: Poland, Czech Republic, Hungary, Slovakia and Romania and its market share between 2006 and 2009 has increased from 2% to 3% in life and from 5% to 10% in pension funds.

On the property and casualty side, Axa operates business through greenfields in Czech Republic, Slovakia and Poland, as well as through a 36.7% participation in Reso-Garantia in Russia and joint-ventures in Ukraine with Ukrsibbank. In three years, Axa claims to have become number one in the Ukrainian market with 11% market share. Axa is also present in the retail banking business in Hungary (4% market share in 2009).

"Culture plays a major part in development." Kleiter

Making inroads
But Axa is far from the only western European company to be making inroads to these markets. XL insurance has taken a slightly different approach as, regional manager for Austria and CEE Michael Kleiter explains. "XL focuses on industrial and international clients," he says.

XL caters for international clients with operations across the region as well as with local businesses with outward facing operations. XL operates from a hub in Vienna, servicing individual countries according to its needs, either employing local specialists who are then based in Vienna or by partnering with local business."

Much of the region's development still hinges on its politics, says Mr Kleiter, and working with local partners helps the firm through those issues. It also helps with compliance and regulation.
"Culture plays a major part in development," he says, "perhaps that is why Austrian insurance companies have acquired a lot of companies in neighbouring countries. It is not simply having the money and wanting to do business somewhere, you need to be aware of how the market works."

Problems fusing
XL business development manager for Russia and CIS countries, Eric Bentz, agrees, adding Russia is a good example of that. "If you look at Russia and at some of the large mergers and acquisitions, you see that some companies still have problems fusing together and then you also have some large international players, like AIG and Chartis, which started out 10 years ago and are only now considered to be local players."

Andy Heffron, a partner from Mazars insurance practice, likens the decision to either buy in or start up to the decision made by those looking to have a second home abroad. "Do you buy a ready-made home and enjoy it instantly or do you decide on a plot of land and develop it yourself with all the issues of managing that remotely?

"Some companies still have problems fusing together." Bentz

Reliability issues
He continues: "It maybe the cheaper option up-front but can you rely on those helping you to build the house? It is the same for insurers. They need people they can rely on and who know what they are doing."

"The rewards may be greater at the end but there is no guarantee of success," he warns.

Added to that, he says, this region is tricky just because it involves so many different territories and cultures - what works in one place will not necessarily work elsewhere.

Foreign dominance
In some of the emerging markets, he says, start up operations will find they earn little premium income, while for insureds the challenge can be in actually receiving a payout if they make a claim. Mr Heffron says, however, that these days countries like Hungary and Slovakia are very well developed economically - reflected in Slovakia's early membership of the EU while Hungary has been dominated by foreign owned insurers for some time.

Population numbers also drive insurance development, according to Mr Heffron. "Insurance penetration in the region is low when compared to western Europe but it is relatively high in Hungary, for example, while Romania has the lowest figures. Romania, with its population of around 20 million offers opportunity for growth."

"The rewards may be greater at the end but there is no guarantee of success." Heffron

Limited by populations
Looking at the other Danubian countries, Mr Heffron says Serbia remains a limited market thanks to politics and questions over Kosovo. Moldova is split with half the country leaning towards Romania and the other half to Russia and remains in the early days of development. While Croatia is limited by its small population.

Commentators agree, the Danubian countries may be linked by a mighty river and by history, but today they all have their individual challenges and opportunities.