Russia Domesticates Its Insurance Market

Foreign owned insurers in Russia showed a significant reduction in fees during 2022. The sharp drop was caused both by the suspension of the conclusion of new contracts and the departure of foreign clients, as well as by the peculiarities of the portfolio, including those related to reinsurance. However, the Russian insurance industry believes that previously foreign invested insurance companies that have passed to new investors, primarily banking groups, will be able to restore their performance.

Against the background of a small 0.7% increase in the collection of insurance premiums for 2022 in Russia to RUB1.82 trillion, several insurance companies showed a serious decline in performance. This follows from the published statistics of the Central Bank and primarily affected insurers that had foreign beneficiaries at the beginning of last year.

In particular, large companies as Alliance Life, RB Life Insurance (former Societe Generale Life Insurance), and Raiffeisen Life saw their premium collections reduced by 37-44%. Smaller companies such as Turikum (formerly Zurich) saw their premiums cut by almost half, while insurers such as Chubb and AIG Insurance Company saw their premiums cut by nearly twenty times.

According to Expert RA, at the beginning of 2022, about 20 insurance companies with foreign capital were present on the Russian market. They accounted for about 5% of direct insurance premiums. In April 2022, Inteross Group acquired Societe Generale Insurance and Societe Generale Life Insurance (now RB Insurance and RB Life Insurance) as part of a deal to acquire Rosbank. In May, the Swiss Zürich Insurance Group handed over the Russian business to the top managers of the Russian company. Interholding agreed in July to purchase a 50%+1 share stake in Allianz Group’s subsidiaries. American International Group has sold its Russian subsidiary to private investors.

The fees of both companies that have passed to new owners and those that continue to work with the previous owners have significantly decreased. Aleksey Yanin, Managing Director for Ratings of Insurance and Investment Companies at Expert RA, explains that in February-March 2022 such companies received instructions from their Western owners to stop entering into new contracts and attracting new customers. All they have left is customer service under existing contracts.

Some foreign insurers focused on the corporate segment, and mainly provided coverage to companies with foreign shareholders.

Due to many of these either suspending operations, exiting the Russian market or changing shareholders, there have also been certain losses in insurance premiums.

The structure of the insurance portfolio also affected the performance. Alla Borisova, Deputy Director of the ACRA Group of Financial Institutions Ratings, points out that companies where banking and life insurance prevailed showed a decrease in premiums simultaneously with a decrease in the activity of banks in issuing loans and mortgages, as well as a decrease in customer interest in investment and endowment insurance.

In addition, if the portfolio of companies with foreign participation was dominated by types that were reinsured, in particular, in parent companies or in general abroad, then they faced restrictions imposed on the reinsurance market, Borisova notes. So, a year ago, the State Duma adopted a law prohibiting reinsurance in companies from unfriendly countries.

This indicates that the position of companies that have not yet changed from foreign ownership will continue to deteriorate.

There are already precedents for the transfer of business to management, which can help in the event of a buyback when the market changes, says Alexander Tsyganov, a professor at the Financial University under the Government of Russia. In some cases, after the change of ownership, companies will focus on the parent business, which is especially typical for banking groups. Such companies, he believes, while maintaining the business of the parent bank, will also restore insurance premiums.

Source: Julia Poslavskaya for Kommersant.

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