The increase of price for reinsurance on the international market and of clients requirements regarding diversification of coverage have represented a good opportunity for business development of Russian reinsurers in Central and Eastern Europe. The impact of the financial crisis, low capitalization and rating requirements have reduced this enthusiasm, but the long term perspectives are promising...
The results registered by the Russian insurers in the previous year, as well as the analysis of this year’s trends have represented the starting point for a new event on the profile Russian market – The Old/New Year of Reinsurance, organized by the Specialty Review REMARK, during 21-24 January 2010.
The conference is at its second edition and has reunited, at VELES complex, located about 200 km from Moscow, away from urban congestion, leaders of major insurance and reinsurance companies. Participants at the event discussed, in a less formal framework, about the most important problems facing the Russian reinsurance market and tried to identify ways to unify the efforts for developing the profile segment. Presentations by renowned speakers of the supervisory authority, by rating agencies and by reinsurers managed to shape the overall picture of the market and have started numerous discussions among guests.
Crisis pulls down the prices
For the past four years, the Russian reinsurance market is on a downward trend, so in the first nine months of 2009 the volume of reinsurance premiums cashed by the 174 profile companies, of which 25 specialized companies, fell by 20% compared to the same period of 2008, cumulating EUR 763 million.
Also, the volume of claims paid by companies on reinsurance contracts decreased by 12%, to EUR 264 million, according to REMARK Review, based on official data.
Reinsurance tarrifs have decreased almost three times compared to the previous year, phenomenon caused mainly by the fact that insurers began to save money when it comes to reinsurance, by increasing their own retention capacity, explains Olga SIGALOVICH, General Manager, EASTERN Re.
Also, in the opinion of participants at the event, during this period, there is paid increased attention to the degree of capitalization of the reinsurers, to the cashed premiums, to the portfolio structure and to rating, issues where Russian profile companies still have to recover, compared with their Western partners.
Russian insurers prefer foreign reinsurance
Regarding the volume of reinsurance premiums received by Russian companies from abroad, they have cumulated EUR 187 million in the first nine months of 2009, up compared to the previous year (EUR 243 million for the whole year 2008), these risks having been undertaken by 30 companies. An explanation in this respect is increasing the price for reinsurance abroad, by an average 10-15%, while in Russia it decreased 2-3 times. The most important share in the volume of premiums ceded by Russian reinsurers, geographically, corresponds to countries such as Kazakhstan (27.9%), Germany (19%), Turkey (9.5%) and Ukraine (8.9%). Already, in the first half of 2009, the share of business ceded abroad exceeded 50% for the major players on the market: INGOSSTRAKH, TRANSIB Re, ROSSIA and KAPITAL Re.
In terms of volume of premiums ceded in reinsurance by the Russian companies, they have cumulated EUR 1.7 billion, at the operations participating 457 companies, of which 433 composite ones and 24 specialized reinsurance companies. 95% of this sum represents the premiums ceded by insurers and only 5% - retrocession of the reinsurers. In conclusion, the Russian reinsurance market, from the perspective of specialized reinsurers, works on its own retention.
Where do reinsurance premiums leave?
In the first nine months of last year, 56 percent of total premiums were ceded abroad. Russians insurers reinsure mainly risks on the voluntary insurance segment - 99.5% of ceded premiums, of which over half represents property for legal persons insurance (44.7%). During the crisis, the share of premiums ceded in reinsurance increased, from 13.2% in 2008 to 17.7% in the first nine months of 2009, says Alexei IANIN, Head of Rating Department, EXPERT Ra.
What are the factors hampering the market development?
Russian companies are weakly capitalized, compared with Western partners; at the same time, we do not have the necessary experience to adjust major claims, because risks so high are not even undertaken, considers Olga SIGALOVICH. Also, an important factor is the company's reputation, as well as the lack of cohesion within the market. If outside there were built reinsurance pools and trade unions, the Russian market is far from consolidating in order to undertake really high risks, as a result, premiums are dispersed in the market, completed the quoted official.
From official data to realities
The real volume of reinsurance premiums cashed by Russian profile companies is increasing, although according to official data it is declining, according to a study of the rating agency EXPERT Ra, presented at the event. Explanation is simple: increasing the co-insurance quota, having as purpose to increase business volume of direct insurers. Thus, in the first nine months of last year, the premiums cashed by the companies amounted to EUR 472 million (61.2% of total volume of reinsurance premiums, according to official data), up 4.8% compared to the same period of 2008. The rating agency also forecasts that in 2010 the real volume of reinsurance premiums will continue to grow. So, this year, revenues of reinsurance companies will cumulate EUR 630 million (EUR 820 million according to official data).
Also, the dynamic of growth of reinsurance premiums of composite companies in the first nine months of last year was 13.5%, and for specialized reinsurers it was registered a 15.2% decrease. This involution comes following the reduction of reinsurance costs and the increase of the retention capacity of Russian insurers.
Trends in 2010
According to experts present at the event, this year Continental Europe will remain the main market for placing the risks from Russia, the most important players being SCOR, PARTNER Re, HANNOVER Re and MUNICH Re. London market will lose some ground in the new year, so will SWISS Re, who is oriented towards improving technical results. Also, it is already felt a growing interest in the Russian profile market, from the middle sized companies from CEE, Asia and Middle East, although they are far from being an alternative to the reinsurance programs offered by Western partners. At the same time, the insurance brokers start to have a bigger and bigger importance, providing access to their companies to yet unexplored niche markets, helping reinsurers diversify programs and gain experience in the loss adjusting field.
Speaking of numbers, the real dynamics of growth of the reinsurance market in 2010, compared with 2009, will be 6.2%, compared to -14.7% according to official information, due to the tendency of "cleaning" of the market, explains Alexei IANIN. The most important conclusion reached by the participants at the event is related to the need of capitalization of the companies, parallel with increasing the degree of stability and of reputation of players, which represent the "access pass", both among customers and among external partners.
