The Insurance Market In Russia - MAPFRE
The insurance market in RussiaVladimir KalininMAPFRE RE’s Commercial Adviserfor Russia and the countries of the CISMoscow – Russia16 /61 trebol ing.indd 1661 / 201217/07/12 12:18
Among the markets of theemerging countries, the RussianFederation’s insurance marketis turning out to be the mostimportant and to have the greatestpotential in Central and EasternEurope. In 2010, Russia, with apopulation of some 140 million andabundant natural resources, rankedninth in the world in terms of grossdomestic product (GDP), with USD1,803 billion, placing it betweenItaly and Canada. [1]Russian insurance in the worldmarket1Russia’s share of the world insurancemarket is 0.96% of total premiums, put atUSD 4.3 billion in 2010.In 2010, Russia ranked 19th in the worldin terms of total premium income (USD41,644 million), behind Ireland and ahead ofBelgium.As regards Non-Life premium income,Russia ranks 12th in the world (USD 40,742million), after Spain and ahead of Australiaand Brazil. Its share of the world market is2.24%.On the other hand, with per capita premiumof USD 296.8, Russia comes behind Brazil,occupying 48th place in the world ranking.As regards insurance penetration, Russiadrops to 55th place, with an insurancemarket accounting for 2.3% of its GDP in2010.General view on the Moscow financial cityIn 2010, total Russian premium accountedfor 47.4% of the total premium in Centraland Eastern Europe (USD 87,806 million),1Data from Swiss Re,Sigma No. 2/2011. “WorldInsurance in 2010”.61 / 2012 /61 trebol ing.indd 171717/07/12 12:18
having overtaken the figures for Poland(USD 17,763 million) and the Czech Republic(USD 7,914 million).BackgroundAfter the demise ofthe USSR in 1992,Russia abandonedthe state-controlledobligatory insurancesystem in favour of avoluntary insurancemarket based onprivate property18 /61 trebol ing.indd 18After the demise of the USSR in 1992, Russiaabandoned the state-controlled obligatoryinsurance system in favour of a voluntaryinsurance market based on private property,although some types of compulsory socialinsurance were maintained to cover the needsof the State.The old state monopoly for domestic insurance,Gosstrakh, became the privatised Rosgosstrakh,Russia’s current market leader. The samething happened with the old state monopoly for“external insurance” (international), Ingosstrakh,which was also privatised and, with Westerninvestors now also having a stake in it, remainsone of the most important Russian insurers.During the transitional phase up to 2006, themain features of the Russian insurance marketwere:Strong presence of captive insurance companies created by influential private economic and financial groups (Alfa, Interros,Lukoil).Use of schemes to optimise tax payments tothe State, these being channelled throughinsurance (chiefly Life and reinsurance).High number of not very viable insurerscreated to implement the schemes in ques-61 / 201217/07/12 12:18
Tube at Moscowtion. In 1995, there were 2,217 insurancecompanies in the Russian State Register.Non-Life insurance predominates over Lifeinsurance for various reasons, including thesituation of the Russian economy during thepolitical transition, the low level of insuranceculture among the population and the lackof confidence in private insurance.Compulsory social insurance accounts fora large part of the market’s total portfolio(around 50%).The decisive return to the real, classicinsurance market, geared to Westerninsurance legislation, occurred in Russia from2006 under pressure from State regulatorybodies. The market was then restructured, withprocesses of concentration among insuranceThe decisivereturn to the real,classic insurancemarket, geared toWestern insurancelegislation,occurred in Russiafrom 2006 underpressure from Stateregulatory bodiescompanies being triggered at the same time.The presence of international capital in theRussian insurance market also increased. Asa result, a substantial number of insurers losttheir licences.Insurance in the Russian economyRussia currently has 604 registered insuranceundertakings, comprising 597 insurancecompanies and 7 mutuals [2]. Under recentamendments to the “Federal Law on theOrganisation of Insurance Activity in the RussianFederation” which came into force on 1 January2012, Non-Life insurers will have to have equitycapital of at least EUR 3 million in order to beable to operate in the market. For Life insurers,the figure will be a minimum of EUR 6 million.61 / 2012 /61 trebol ing.indd 191917/07/12 12:18
As for reinsurers or insurance undertakingslicensed to transact reinsurance, the equitycapital has to be at least EUR 12 million.According to official estimates, more than 100insurance undertakings were expected to losetheir licences with effect from January 2012through being unable to meet these requirements.According to the Russian Federal Servicefor Insurance Supervision (FSIS), in 2010the aggregate equity capital of all Russianinsurance companies was equivalent to USD6,008 million. Their combined assets cameto USD 38,380 million and their combinedtechnical reserves totalled USD 21,040million [3].Table 1: Development of premium and losses in Russia 2004-2010.Source: FSIS – Russian Federal Service for Insurance Supervision.Reports 2005-2011.YearTotal premiumin USD millionLossesin USD million% 673.85%Table 2 : Distribution of premium/losses by class of business in 2010.Source: FSIS (data at 17.03.2011) [2].Total 20101. Total voluntary insurance:Life insurancePersonal lines (excluding Life)Property/casualty insurance(excl. liability)Third party liability insuranceCorporate and financial risks insurance2. Total compulsory insurance:Motor third party liabilityinsurance (“OSAGO”)Compulsory health insurance (“OMC”)Compulsory insurance(excl. OSAGO and OMC)PremiumUSD million% 9,445276LossesUSD million% loss ratio98%95%USD RUB 2520 /61 trebol ing.indd 2061 / 201217/07/12 12:18
Table 3 : Top 20 Russian insurance undertakings by premium income in 2010.Source: FSIS 23.04.2011 ertakingTotal premiumUSD millionLossesUSD million% loss Reso-GarantiaVSK “Strakhovoy Dom”Rosno (Allianz)Alfa-StrakhovanieSoglasieRenaissance StrakhovanieUralsibMSK (Moscow Insurance Company)ZhasoMakcKapital StrakhovanieSpasskie VorotaYougoriaZurichGenerali PPF LifeRostraBTB Strakhovanie(excl. OMC)USD RUB 25Table 4 : Distribution of premium/losses in property/casualty insurance in 2010.Source: FSIS (data at 17.03.2011) [2].Voluntary property / casual insurance(excl. liability)PremiumUSD million% ofpremiumLossesUSD million% loss ratioTotal 2010Land transit insurance excludingrail transportRail transit insuranceAir transport insuranceMarine transit insuranceCargo insuranceAgricultural insuranceLegal entities’ and natural persons’property 03091.10613.5%31%70.5%12%79%27%USD RUB 2561 / 2012 /61 trebol ing.indd 212117/07/12 12:18
Moscow Panoramic viewOn 1 January2012 the firstFederal Law onthe State Supportof AgriculturalInsurance inRussia, based onthe principles of apublic and privatepartnership model,entered into forceThe dominant role of property/casualtyinsurance (around 30% of the premium forvoluntary insurance) is due to industrial growth,the housing construction sector and the motorindustry in the period preceding the crisis.The low volume of Life insurance in Russiastands out, in contrast to the structure ofthe insurance market in the countries ofWestern Europe.As for the regional structure of the Russianmarket, the area of concentration is theCentral Federal District, which is theEuropean part of the country, as it accountedfor 56% of premium in 2010 (excluding OMCcompulsory health insurance), amounting toUSD 12,497 million.Property/casualty insuranceAfter the negative dynamic of 2008-2009, thevoluntary property/casualty insurance marketin Russia grew again, reaching total premium22 /61 trebol ing.indd 22of USD 11,182 million in 2010, compared withUSD 10,788 in 2009.Of the premium for natural persons’ propertyinsurance, 71% corresponds to motorphysical damage insurance and 11% to homeinsurance. The concentration is strong in thisclass of business, as the 20 biggest insurancecompanies account for around 70% of thepremium.Agricultural insuranceRussia possesses considerable potential inagriculture, having 8.9% of the world’s arableland, 2.6% of its pasture, 20% of its freshwaterreserves and 8.3% of its fertiliser production.Agriculture and the food industry forma priority activity sector of the Russianeconomy. In 2010 they accounted for around8.5% of GDP (agriculture: 4.5% of GDP) andemployed 7.1 million people (10.6% of thetotal workforce).61 / 201217/07/12 12:18
The dominantrole of property/casualty insurance(around 30% ofthe premiumfor voluntaryinsurance) isdue to industrialgrowth, the housingconstruction sectorand the motorindustry in theperiod precedingthe crisisThe Russian government has set itselfthe strategic target of increasing Russia’scontribution to world agricultural and foodproduction – it currently accounts for around5% of world milk production, 3% of world cerealand grain production and 2% of world meatproduction. In this way it intends to guaranteethe country’s food supply while at the sametime supporting export growth.Today, agricultural insurance has a modestplace in the Russian insurance market (3.5%of property/casualty insurance premium in2010), but its importance and weight will growin the future. In 2010, premium from Russianagricultural insurance stood at USD 391 millionand losses amounted to USD 308 million, givinga loss ratio of 79%. In 2010, Russia insured only13% of its cultivated land (8 million hectaresout of a total of 63 million). The Russiangovernment is currently proposing to increasethis figure to 40% in 2012 [4].The severe drought that hit various parts ofRussia in 2010 prompted the government totake strong measures to speed up reformsin agricultural insurance. On 1 January 2012the first Federal Law on the State Support ofAgricultural Insurance in Russia, based on theprinciples of a public and private partnership model,entered into force. The amount of state subsidyannounced for 2012 will be USD 200 million.It is interesting to note that the first law onagricultural insurance in Russia is the outcomeof Hispano-Russian cooperation which hasbeen developing through the AgriculturalInsurance Cooperation Agreement signedin 2007 between the Russian and SpanishMinistries of Agriculture jointly with ENESA(State Agricultural Insurance Institute),Agroseguro and other Spanish private andpublic undertakings for the fruitful exchange ofTable 5 : Development of total reinsurance premium and losses from2007-2010, in USD million.Source: FSIS 2008-2011.Total reinsurance premiumTotal reinsurance 743261 / 2012 /61 trebol ing.indd 232317/07/12 12:18
experiences between Spain and Russia in thearea of agricultural insurance.Experts say that, as the reform in agriculturalinsurance prospers, the capacity of the Russianagricultural insurance market may reachbetween USD 1.6 billion and USD 1.9 billionin the medium term. Hence the interest thatit is arousing among traditional internationalreinsurers of this class of business.Foreign capital in the Russianinsurance marketIn 2011, the share of foreign capital in theaggregate equity capital of Russian insurersexceeded the maximum limit of 25% set by law(USD 1.5 billion for 2010). For example, Germancapital (from Allianz and Ergo) is represented inRosno, the Dutch Fortis group has invested inOranta, the British capital represented comesfrom Ace and Aviva and the Swiss capital fromthe Zurich Group, while France’s Axa hasinvested in Reso-Garantía, the Czechs andItalians have put money into Generali PDF andUnited States capital is represented in Chartis.The global financialcrisis did nothave any radicaleffect on theRussian insurancemarket, as it hadnot received anyeconomic supportfrom the StateWith the foreign shareholding limit exhausted, theregulator has currently stopped new shareholdingsand acquisitions from outside Russia.Nevertheless, pending Russia’s accession to theWorld Trade Organization (WTO) in the courseof 2012, the Russian government is showingits willingness to increase the aforementionedlimit to 50% in 2012, thus seeking the possibilityof increasing the capitalisation of the domesticinsurance market.Reinsurance in RussiaAccording to data from the FSIS, in 2008 therewere 82 insurance companies in Russia withforeign shareholdings, the total insurancepremium of which amounted to USD 7,869million and the reinsurance premium to USD512 million.It is striking how much interest foreigninvestors are showing in Life insurance, asegment which is considered to have goodprospects in the medium term as the Russianmiddle class acquire economic importance asmodernisation progresses.24 /61 trebol ing.indd 24According to official data (FSIS), in 2010 theRussian reinsurance market’s capacity wasput at USD 1.5 billion [5]. Total estimatedreinsurance premium income in the markets ofthe republics of the former USSR is calculatedat USD 2-3 billion, of which Russia accountsfor around 80%, Ukraine about 12% andKazakhstan about 4.6%.In 2010 there were some 156 companies inRussia transacting reinsurance, 22 of thembeing professional reinsurers. Russian61 / 201217/07/12 12:18
Oil well. Siberiareinsurers generally offer the service for theRussian insurance market and those of the CIScountries. Various segments of this regionalmarket generate profits and are attractiveto insurers. The segments in question ce, industrial and construction risksinsurance, marine insurance and motorinsurance.On average, Russian companies cede between9% and 13% of their premium from directinsurance abroad, the figures being higherin the case of property/casualty and liabilityThe first lawon agriculturalinsurance in Russiais the fruit ofHispano-Russiancooperationthrough anAgriculturalInsuranceCooperationAgreement signedin 2007 betweenthe Russian andSpanish Ministriesof Agriculturereinsurance, which stand at 16% and 21%,respectively. The tendency in recent yearshas been to obtain increased support frominternational reinsurers.For types of reinsurance involving large numbersof contracts, over 50% of contracts arranged byRussian companies are proportional and therest are non-proportional. The main classes ofbusiness are CAR and EAR, property/casualtyrisks and cargo.Russian insurers place their motor business(motor own damage, compulsory third party) in61 / 2012 /61 trebol ing.indd 252517/07/12 12:18
the domestic market, with relatively low limitsof cover. Property/casualty, marine, aviationand other more complicated risks tend to bereinsured abroad.As to the channels for placing risks, the majorityof Russian cedants prefer to contact the headoffices of reinsurance companies direct orcede risks through a broker. More than 70%of cedants choose continental Europe as theirpreferred market [6].The reduction in total reinsurance premiumin recent years reflects the consequencesof the measures imposed by the regulatorto eliminate unacceptable practices fromthe market. For example, companies withreinsurance premium income of USD 656million in 2008 -or 30% of the market- hadtheir licences withdrawn in 2009.26 /61 trebol ing.indd 26Outlook for the Russian insurancemarketThe global financial crisis that began in2008 did not have any radical effect on theRussian insurance market. The voluntaryclasses of insurance like the corporateproperty/casualty insurance sector andthe motor insurance sector were the onesthat really suffered from the recession.The fact that, even in a crisis situation, theRussian insurance industry did not receiveany economic support from the State issignificant.Experts at Standard and Poor’s consider theRussian direct insurance market to haveconsiderable growth potential, to be welldiversified geographically and not to havemuch exposure to catastrophe risks.61 / 201217/07/12 12:18
Attainment of a greater degree of liberalisationwith the establishment on Russian territory ofbranches of international insurers, supportedby the expected increase to 50% in the limit offoreign investment in the total equity capital;Spread in the use of new technologies andproducts through the arrival of Westerninsurance culture, giving rise to a portfolioof clients with purchasing power around theemerging Russian middle class.The damage caused to the Russian economyduring the summer of 2010 by the wave offorest and house fires, as well as by the severedrought, obliged the Russian authorities tourgently devise and implement measuresaimed at encouraging the population and theRussian business community to use insuranceas the most appropriate risk management toolin a modern, developed economy.The result of this strategy will have to be theadaptation of current insurance legislation,techniques and practice in Russia tointernational regulations and standards.BibliographyZhivopisny bridge. MoscowAccording to AXCO analysts, the potentialvolume of a developed insurance market inRussia has generated great interest in theinternational insurance industry and hasincreased investment in recent years. Precrisis estimates suggested annual growthpercentages of 30%, with premium income inexcess of USD 60 billion from 2012 [7].Other Western experts like Ernst & Young alsocontinue to rate positively the possibilities forgrowth and the investment potential of theRussian insurance market [8].Russia’s imminent accession to the WTO isexpected to have the following effects on itsinsurance market:Recovery of strategic value as the mainmarket of Central and Eastern Europe;[1] Swiss Re, Sigma No. 2/2011. Worldinsurance in 2010.[2] www.fssn.ru (website of the Russianinsurance supervisory authority).[3] Reports on the Russian insurance market.Moscow, Russian Federal Service for InsuranceSupervision (FSIS), 2009-2010.[4] Report on the subsidised agriculturalinsurance market in Russia in 2010.Moscow, Federal Agency of State Supportof Insurance in Agroindustrial Production(FASSIAP), 2011.[5] “The Russian reinsurance market”, EXPERTRating Agency, Moscow, 2011.[6] “The state of and outlook for the reinsurancemarket of the CIS”, Russian Polis Group,Moscow, 2008.[7] Insurance Market Overview: Russia NonLife (P&C), AXCO 2011.[8] Ernst&Young, Second annual business riskreport 2009.61 / 2012 /61 trebol ing.indd 272717/07/12 12:18
In 1995, there were 2,217 insurance companies in the Russian State Register. Non-Life insurance predominates over Life insurance for various reasons, including the situation of the Russian economy during the . compulsory health insurance), amounting to USD 12,497 million. Property/casualty insurance After the negative dynamic of 2008-2009, the
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