The 11th Russian Reinsurance Conference, organised by the Russian Association of Insurers and Reinsurers at Moscow, from the 29th to the 30th of March this year, gathered 472 leaders and experts from 18 countries, representing 185 insurance, reinsurance and brokerage companies, public authorities, relevant associations , as well as media.
As media partner of the event, PRIMM - Insurance & Pensions Magazine was present at the conference as well with two representatives: Alexandru CIUNCAN, Head of International Relations Department, and Oleg DORONCEANU, Consultant, International Relations Department.
The Russian reinsurance market went through major changes in 2006, like Russia’s imminent accession to the World Trade Organisation and its impact on the Russian reinsurance market, recent mergers and take-overs that took place on the market, new legal regulations regarding the registered capital of insurance and reinsurance companies, means of structuring company assets, as well as insurance and reinsurance broker licensing. All these issues were presented at the main Conference opening by Ala PLATONOVA, Head of Strategy Department of the reinsurance company NAHODKA Re.
In order to help you get the big picture, we have to start by mentioning that, in the last years, the Russian insurance market recorded an increase of financial indicators. Thus, gross underwritten premiums increased by 35.7% in 2005 and by 22.7% in 2006.
The market dynamics was supported, among other things, by an increased state budget funding of compulsory insurance expenses and individuals’ voluntary insurance costs as a result of the new public policy of oil export-generated income distribution.
Thus, after having examined the features of this dynamic growth, the conference audience reached the conclusion that it was substantially due to internal factors of insurance development. This theory is also proved by the decrease of the insurance percentage in the GDP from 2.81% in 2004 to 2.27% in 2005 and 2.26% in 2006.
As the number of insurance company customers has dropped, the capitalisation of Russian reinsurers has grown, and the number of premiums ceded to Western European countries has increased (by 40% approximately), there is a tough battle over market redistribution, which could inevitably lead to dumping, to less efficient reinsurance operations, and losing trust in the Russian market.
Ilya LOMAKIN-RUMYANTZEV, Chair of the Russian Federal Insurance Supervisory Service (FSSN), detailed these issues and talked also about a 20% sector drop as compared to 2005, which only reflects the serious problems direct insurance market has to face due to a decreasing trend. Under these circumstances, it is necessary to identify ways to increase the number of customers by attracting new consumer groups.
According to the Chair of FSSN, in 2006, the reinsurance market was covered by 30 expert reinsurers and 291 insurance companies, whereas underwritten premiums reached a total worth of EUR 2.3 billion and the total paid claims were of EUR 547.2 million. In addition, the market concentration trend was mentioned as well, anticipating a sort of market “cleaning“ or recovery and getting closer to European standards.
Another aspect discussed was the fact that, starting with mid 2007, the reinsurance market might go through some crucial changes after the new insurance law comes into force.
The new legislation stipulates that companies need a reinsurance licence, which was not the case previously. Thus, 197 companies caught the attention of supervisory authority and if they don’t manage to meet the newly set requirements, they will have to close down their business, added the Chair of FSSN. Moreover, 20% of the companies collect 90% of the reinsurance premiums, which mirrors a significant market concentration trend.
At the same time, there are insufficient provisions regulating reinsurance operations. In other words, the unjustified interference of tax control bodies in the claim reserves for reinsurance contracts was a real threat to the stability of national reinsurance service providers and to their capacity to meet the duties they have to their customers.
The reinsurance mechanism is the best means to guarantee financial stability to insurance companies. Currently, it is not used for the best interest of insurers, declared Vera BALAKIREVA, Vice-chair of Finances Department of the Russian Ministry of Finances. She also pointed out that the companies needed to focus more on the internal reinsurance market and that a major role in that respect would be played by insurance pools to be set up with government help. Moreover, measures will be implemented to create a transparent insurance sector, to strengthen reserves, to refine the balance sheet layout used by companies, and to raise the quality of the HR working in the area and in other relevant institutions.
The conference participants also outlined specific measures to be taken in order to minimize the trend of accumulation of major risks, ceded to the Russian reinsurance market, recommending to the Russian Association of Insurers and Reinsurers to draw up risk classification criteria, and to companies insuring these risks to provide, at the reinsurers’ request, all the necessary information related to the organisations that reinsured the risk and its quota.
Last but not least, there were talks about insurance and reinsurance intermediaries, whose work is restricted by the current tax specific legislation, insisting on the fact that their work should be done in line with the provisions of the European Union Directive 2002/92 on insurance intermediation. Consequently, it is envisaged to change the legislation in the area accordingly. World practice has showed that VAT exemption is necessary in order to ensure proper working conditions to reinsurance brokers.
Russian reinsurance companies have reached a certain level of professionalism, they acquired sufficient expertise and knowledge to handle insurance cases and to considerably extend reinsurance operations and increase the Russian capital invested in Eastern European countries and emerging economies. At present, the exports of these services stumble on obstacles like relative small service size compared to world capitalisation standards and lack of good rating as to their financial stability. Currently, the macroeconomic stability of the country increases the chances of quality reinsurance development in Russia and of exporting these services.
As far as these issues were concerned, it was recommended to turn to the incentives provided by the new state corporation, the Bank of Foreign Development and Economic Initiatives. It is estimated that the guarantees delivered by this newly created structure will bring a great boost to the Russian reinsurers’ service export as well as protection from the risks raised by medium and long-term investment projects, implemented based on the new foreign economic policy strategy of the Russian Federation.
