In 2009 the Russian insurance market faced a decrease in written premiums, mainly in the voluntary insurance classes. But this does not mean that reinsurance operations got to smooth water. The most severe problems of the year were dumping practices and a fall in the number of insurance companies, including regional ones.
Last year 101 licences were revoked, including 17 of insurers specialising in the MTPL market. Consequently, at the beginning of 2010 there were 702 insurance companies in the market and 144 brokers.
Russian insurance companies reported written premiums of RUR977.8bn (EUR24bn) in 2009, down 2.4% on the previous year. At the same time, paid claims rose by 17%, to RUR734.6bn (EUR18bn). In addition, according to the local insurance supervising authority, insurance companies reported a positive result in 2009, increasing their premiums in the last quarter compared to the first nine months when GWP fell 9.7%. But although insurers managed to increase their financial indicators in 2009, it does not mean that 2010 will see improvements on the market.
Excluding mandatory health insurance, Russian players collected total premiums of RUR513.65bn (EUR12.5bn) and paid out claims of RUR285.3bn (EUR7bn), representing gains of 93% and 114% respectively compared with the 2008 results. Overall, companies underwrote business worth RUR420.8bn (EUR10.2bn) in premiums on the voluntary insurance classes, which represented a decrease of about 10% compared to 2008.
Local companies have felt the impact of the financial crisis throughout 2009 as premiums consistently decreased. According to the head of the Federal Insurance Supervision Service, Alexander KOVAL, the first quarter of 2009 saw a 7% fall, the second a 9% fall, the third – about 12%, but only 1% in the fourth quarter, validating forecasts made in late 2008.
Crisis in inward reinsurance
According to the national watchdog, 176 companies were involved in inward reinsurance operations in 2009, including 24 specialized reinsurers and 152 general insurers. The previous year the number stood at 191.
Looking at the results, premiums from the inward reinsurance operations of Russian companies fell 20% to RUR42.9bn (approximately EUR1bn), from RUR53.5bn (EUR1.3bn) in 2008. Specialist reinsurers were most affected by the crisis, recording a 40% fall in premiums. General insurers lost about 10%. It is worth noting that specialized reinsurers lost RUR7bn (EUR171m) of capacity as a result of the withdrawal of licences from four companies whose written premiums accounted for 89% of the total capacity loss. Excluding companies with revoked licenses, premiums collected by the remaining reinsurers fell 7% in 2009.
Less than a quarter of inward reinsurance premiums (24%, or RUR10.2bn) were collected by specialist reinsurers. Thus, the total share of these players decreased by 8%. At the same time,general insurance companies increased their share to 76%, or RUR32.7bn (EUR780m).
In addition, approximately RUR32.8bn (EUR802m), or 76% of total reinsurance premiums, came from resident, and RUR10.1bn (EUR247m) from non-resident companies. Specialist reinsurers saw a 44% fall in premiums in 2009 and this influenced the overall fall in paid claims. The aggregate amount of payments totalled RUR14.8bn (EUR361m), down 12% on 2008. Also, claims paid by general insurers for inward operations rose 6.2% to RUR11.3bn (EUR277m).
A higher drop rate in premiums influenced the growth level of paid claims. During 2009, this indicator rose by three percentage points to 34.4%. In this context, specialist reinsurers registered a 2% decrease in losses, to 33.6%, while general insurers managed to “achieve” a 5.3% increase of the losses to 34.7%.
Federal companies against regional insurers
Local specialists forecast that regional insurance companies are likely to disappear from the Russian market. At the same time, dumping practices have become more popular at a regional level than in Moscow. According to analysts of the Expert RA rating agency: Large insurers at the federal level can redress their lossmaking due to geographical diversification and a bigger share of their Moscow business. Regional insurance companies competing with federal insurers do not have this capacity. As a result their losses are growing rapidly and their market share is falling.
Besides the central federal district, all other Russian districts showed a decline in written premiums in 2009. Similarly, the share of regional business in Russian reinsurers’ portfolios is also strengthening. The withdrawal of Russian reinsurance companies from the regions and a shift of the main focus to the Moscow’s market could be a new trend.
Given the sharp reduction of local insurance and reinsurance companies, it becomes inappropriate for the big reinsurers to develop their network. Many federal insurance offices operating in the regions do not have the authority to transfer risk in reinsurance – all reinsurance business is carried out from Moscow.
New tendencies in 2010
Continental Europe will remain the main market to absorb the risks coming from Russian companies, SCOR, PARTNER Re, HANNOVER Re and MUNICH Re being the most important players. But the London market and SWISS Re, being more concentrated on technical results improvement, will lose some of their positions. Also, local experts believe that medium-size insurers from the CEE, Asia and Middle East are becoming more interested in the Russian market. However, they are likely to offer the same reinsurance programmes as Western players.
At the same time, insurance brokers have increased their activity on the market, offering tailor-made solutions to the new business segments and helping insurance companies to diversify the offer. According to the most optimistic prognosis, the reinsurance market will grow by 6.2% in 2010.
