Russia Insurance Report Q2 2010

This report differs from its predecessors in several respects. In our analysis of competitive conditions, we provide a much more comprehensive ranking of insurance companies in the major segments from the point of view of the organisation that is providing the data (in practice, almost always the national insurance regulator or the national insurance trade association). In Russia, for instance, the three largest life companies in the first half of 2009 – in terms of gross written premiums – were ALICO, Rosgostrakh Life and Geopolis, with 18.9%, 10.5% and 5.4% of the market respectively. The three largest providers of voluntary healthcare coverage were SOGAZ, Ingosstrakh and ROSNO, with 22.2%, 7.2% and 7.0% of the market respectively. Over time, we hope to derive insights from observing how market shares change. We emphasise though, that a decline in share of gross written premiums is not automatically a bad thing and is often the result of a deliberate corporate decision to focus on more profitable business lines.

Writing in January 2010, we have been able to ensure that the report includes actual data for 2008. FSIS figures cited by Russian Polis RP Newsline indicate that non-life premiums rose from RUB754,180mn in 2007 to RUB927,500mn in 2008. The same set of figures indicate that life premiums fell from RUB22,029mn in 2007 to RUB18,700mn in 2008.

We have generally been able to use data that have been published over the course of 2009 to adjust our forecasts for the year as a whole. We estimate total premiums in 2009 of RUB992,231mn. This includes non-life premiums of RUB970,345mn and life premiums of RUB21,886mn. In 2014, the corresponding figures are forecast to be RUB1,861,349mn, RUB1,817,888mn and RUB43,462mn. In terms of the key drivers that underpin our forecasts, we are looking for non-life penetration to rise from 2.36% in 2009 to 2.54% in 2014, and for life density to rise from US$5 to US$13. Our proprietary Insurance Business Environment Rating for Russia is 58.3 out of 100.

As we have explained in its reports over recent quarters, the various countries of Central and Eastern Europe entered the global financial crisis in late 2008 from a position of weakness. In most cases, policymakers had to deal with some or all of: substantial and growing current account deficits; substantial budget deficits; external debt; and the constraints imposed by maintaining exchange rates at particular levels relative to the euro. This quarter, we include a discussion of developments within regional markets on the basis of results published by major cross-border companies in relation to Q209 or Q309 and the latest information provided by regulators and/or trade associations.

Russia’s Insurance Sector In Q210 In late November 2009, the Federal Service for Insurance Supervision (FSIS) reported that total premiums for the first nine months of 2009 amounted to RUB722.4bn, or 1.5% more than in the previous corresponding period, although premiums in the underdeveloped life segment slumped by 26.7% to RUB10.5bn. The overall expansion has been driven by the growth in the major compulsory lines.

Compulsory medical expenses insurance (CMEI) premiums, for instance, were 18.9% higher in the first three quarters of last year at RUB331.0bn. Compulsory motor third party liability (CMTPL) premiums rose by 5.4% to RUB62.8bn. The only voluntary line for which premiums rose was liability insurance, where they increased by 12.5% to RUB19.6bn.

There appears to be no common view among the various protagonists about the medium-term prospects for the market. ING Life announced in September last year that it would discontinue its operations in Russia, and sold its portfolio of clients to Allianz ROSNO. Shortly afterwards, Fortis announced that it would close its Russian business, which did not appear likely to reach the required scale and profitability level within Fortis’ timescale. Although Russia’s miniscule life sector has tended to be dominated by foreign companies, the foreign majors – or at least some of them – appear to have taken the view that Russia is not a market in which they need to have a presence. CiV Life, a part of the German Talanx Group, wrote gross premiums of RUB700mn in the first nine months of 2008, and publicly reiterated in late December 2009 that it is committed to developing its business in Russia.

By contrast, some of the Russian insurers are expanding, if only into particular niches. Ingosstrakh announced in mid-November last year that it is launching a credit insurance business, which will be structured as a Joint Venture (JV) with the Belgian public export credit agency ONDD. In mid-2009, SOGAZ confirmed that it had finalised the acquisition of Sheksna Group, whose gross premiums amounted to just less than RUB6bn in 2008. At the very end of 2009, Soglassye announced that its sole shareholder, entrepreneur Mikhail Prokhorov, had decided to increase the company’s authorised capital by RUB500mn to RUB2.8bn.