The Achilles heel of Russian insurers

When the June 11, 2010 at the production complex "Concordia" in the Kaliningrad region there was a fire, it seemed improbable event. The country's largest manufacturer of finished and semifinished products made of meat, part of the holding "Miratorg" was practically new - was commissioned in late 2008. The plant had no analogues in Russia in terms of organization of production processes, standards, sanitary and hygienic safety and applied technologies. There were five advanced production lines for more than a hundred kinds of products. It would seem that a fighting unit there should be all right. Nevertheless, the incident occurred. The fire completely destroyed the factory building, which was in its equipment and inventory. As it turned out, the cause of fire was electrical emergency mode. The consequences were disastrous fire. To determine the extent of damage VSK Insurance House - the insurer of the enterprise - has attracted one of the most reputable companies - "Cunningham Lindsey Rush." She estimated that losses exceeded 2.8 billion rubles, including the building - 858 million rubles for equipment - 1.071 billion rubles, according to trade stocks - 142 million rubles. In addition, losses due to a break in production was estimated at 680 million rubles. Fortunately, almost all of the risks insured by the company in full: buildings, equipment, furniture, equipment, office equipment, inventory holdings and even loss of a break in the economic activity of up to 12 months. The total amount insured under a contract with RCS exceeds 3 billion rubles. This loss is recognized as one of the largest in the history of agriculture insurance. Cover the full amount even for such a big insurer, as the FAC, it would be difficult, if not a contract of reinsurance. As reported by "F." in the VSC, on its own holding company has left only 64 million rubles plus the cost of recovery of reinsurance limits - another 160 million rubles. The bulk of the responsibility was transferred to reinsurance agreements leaders of foreign and domestic markets. In reinsurance syndicate includes companies such as Swiss Re, Hannover Re, SCOR, Partner, Sirius, GIC of India, Polish Re, Milli Re, Sava Re, Liberty, «Capital Reinsurance", "Russian Reinsurance Company", "Energogarant" "Hephaestus," "Progress-Garant", "Unity Re", "Reso-warranty", "Yugoria", "Transsiberian Re" and "Surgutneftegas". From the Russian reinsurers share in the biggest loss was in "Capital Reinsurance." According to "F." Deputy CEO "Capital Reinsurance" Alexander Korolev, the company has already reimbursed the FAC over 198 million rubles, and in general the results of two tranches of "Concordia" has received from the VSC about 2 billion rubles in compensation. These funds are holding is already using to restore production. The full coverage was saved from serious business losses, and competent reinsurance protection has allowed the insurance company on time to fulfill the obligation without prejudice to its financial condition. Chain risk is not broken. However, such stories are the exception rather than the rule. The western area is only available reinsurance market leaders, and the internal Russian market over the past decade have not had time to form. He - a real Achilles heel of our insurers. His volumes are not comparable with Western markets. He is weak, undercapitalized and opaque. The trajectory of the fall. For several years the Russian market reinsurance of non-bias shrinks. Actually, this process began long before the crisis - from the moment the combat began Rosstrakhnadzor schemes. If in 2005, reinsurance premiums received by Russian companies exceeded 96 billion rubles, to 2008mu they were reduced almost by half - to 53.5 billion additional negative acceleration process has given the crisis. In 2009 and in 2010 the market lost 20%, leaving from the old volumes of 35 billion rubles. "The trend is obvious. The financial crisis was the catalyst for all the negative processes. He who led a dangerous policy, now in serious trouble - or already gone from the market, or go in the near future ", - considers the head of the incoming reinsurance" Ingosstrakh "Igor Alekseev. Did not change the trend in the first quarter of this year. According Rosstrakhnadzor, despite the steady growth of most segments, the volume of reinsurance continue to shrink. During the first three months of decline of nearly 12% over the same period last year. The reasons for the continuing fall in short supply. First of all, reduce the number of direct insurers. Over the last two years Rosstrakhnadzor withdrew more than 200 licenses. Meanwhile, the small and medium-sized companies reported their risks to domestic reinsurers. According to leading analyst of Standard & Poor's Financial Institutions Insurance Viktor Nikolsky, also affected the abolition in 2010 of liability insurance for state contracts. Meanwhile, these contracts were given for reinsurance in the domestic market and accounted for a significant share of it. In addition, in anticipation of raising capital (and reinsurers from the beginning of 2012 to increase its capital to 480 million rubles) is a process of consolidation. This year, "Seek Re" combined with "Titus", "Eastern Reinsurance Company" - the "megacity", "Megaruss Re" merges with "Megaruss D". And the process is likely to continue. According Rosstrakhnadzor, at the end of the first quarter of the 169 companies licensed to reinsurance, only 65 meet the new requirements for the authorized capital. 104 companies in the aggregate do not have 27.8 billion rubles. So, perhaps someone from this list will look for options for merging with stronger players. But most rely on is not worth it. "These transactions will be isolated. Most likely, the majority of companies by the end of the year will take the bulk license for reinsurance "- Viktor Nikolsky. The black square. Reinsurance segment is considered the most opaque business. "The market is shrinking mainly due to the continuing care of reinsurance schemes. This is illustrated in particular by the fact that the absolute value of the paid reinsurance losses for several years remained about the same ", - the Deputy Director General of" Unity Re "Dmitry Garmash. He estimated that the number of players steadily reduced by 20-25% per year, however, called reinsurance absolutely transparent business while it is impossible. "According to various estimates, the proportion of schemes in the market volume is still high - 40-50%," - he said. It is also noteworthy that the increasing role played by large market for generic companies, rather than specialized reinsurers. All the major players have a solid defense obligatory. The capacity of this protection is quite high. It allows large companies to reinsure up to 90% of all the risks that are in the insurance portfolio. Last year in the top 10 incoming reinsurance included only two specialized reinsurance company - "Unity Re" and "Moscow Re." An estimated S & P, the share of specialized companies is about 20-25% of all incoming premiums. On the way of dumping. Situation worsens even more price reductions. During the crisis, dumping became the main weapon of the insurers in competition. "We are working in the regions and see that the tendency to increase dumping persists. And it applies to all lines of business, except where the pricing is almost completely determined by the Western market, "- the director of underwriting and reinsurance" SOGAZ "Dmitry Tala. An estimated "SOGAZ" Over the past five years, rates on property insurance decreased by 40-50%. A very strong decrease occurred in insurance liability risks, nuclear risks - here prices have fallen by 40-60%. Even more sad statistics lead experts "Capital Reinsurance." They estimate that over the past three years, almost double the rates declined in property reinsurance, reinsurance goods. "Real market companies combined ratio is already close to 100%. This suggests that the reduction of tariffs in the past year, used very widely. Foreign tariffs on certain risks that we receive in reinsurance - for example, Asia or South America - several times larger than Russia's according to the same risks in the regions ", - says Alexander Korolev. What carries this practice - it is obvious. It can also lead insurers and reinsurers to this collapse. The consequences of dumping is not so dangerous to the more inertial species - such as car insurance or accident insurance. The most risky for such a policy of property insurance, construction risks with huge limits. Constant practice will not allow the reinsurer nedotarifitsirovaniya to create the necessary reserves and at the first serious case of insurance can cause significant damage to the financial well-being of the company. It must be remembered that the frequency of large insurance claims for the years of crisis has increased dramatically. According to Igor Alekseev, due to increased losses in the reinsurance business into segments become less profitable. "Last year was a series of serious losses in energy, property insurance and agricultural insurance in the - in terms of price wars all it is more hits on reinsurance market", - he said. "Rates drove up to the psychologically marginal marks, below which the reinsurance is for most companies is actually free, not even carrying any economy. In contrast to the global market, where insurance cycle "works" is stable, in Russia it is not at all ", - says Dmitry Garmash. Risks go abroad. Weakness and nedokapitalizirovannost - a real vicious circle for the Russian reinsurers. The market does not develop, because it does not convey an adequate amount of premiums. But the big players are not at risk in Russia reinsure serious risks - it lacks not only the capitalization, but also the necessary ratings. And reliability of reinsurance companies under a big question. "There is no certainty that the time to get money at the time of the loss. In any case, we have such a situation this year clashed repeatedly. A number of Russian reinsurers do not pay on time for its obligations, so we are seriously reduced its securitization sheet "- said" F. "Dmitry Tala. Company back in 2009 sequestered a list of Russian reinsurance partners, and even more clipped him in the 2010m. "Now," Sogaz "works only with a limited number of Russian companies with a license for reinsurance: it is" Ingosstrakh "," Rosno "," Reso-warranty "," Alliance "," Energogarant. " Of specialized reinsurers in the range of our partners is "Unity Re", "Moscow Re" and the Russian Reinsurance Company ", - said the" F. "Dmitry Tala. Most of the risks the company places on the western areas - especially when the required rating of reinsurance and it is a high-priced, technically complex facilities. So do the other major insurers. Russian companies, they prefer large international reinsurers with high ratings. Of the 87.5 billion rubles reinsurance premium of almost 54 billion rubles, "gone" in the past year to Western markets. And no wonder. "After the financial crisis, insurance and reinsurance companies that protect their portfolios became focus of security deployment - they want to receive damages in the case of guaranteed compensation. The main indicator were ratings. As the Russian market as a whole has no rating, and ratings of individual companies are not sufficient to speak of himself as a reinsurer of high reliability, the insurers sought better protection and went to the international markets - to reinsurers with a high level of reliability ", - says Igor Alekseev . Hazardous savings. "Insurers are cutting back on re-insurance - it is obvious" - commented on the situation in the market for the first quarter head Rosstrakhnadzor Alexander Koval. In a crisis all the more risks the company is left to its own holding. Small - for lack of funds and the unavailability of the western areas, large - because of distrust of the Russian reinsurers. For example, "Sogaz" can leave on your own risk retention insurance liability of owners of dangerous enterprises of up to 1 billion rubles. In "Ingosstrakh" own retention volume depends on the type of insurance. For example, for fire insurance, this amount, according to Igor Alekseev, ranging from 2 million to 5 million euros, Marine Program - $ 2.5-3 million This volume, in some cases may reach $ 15 million "net retention increases, because large companies have the resources, they have a large amount of fees. But none of the big players do not bluff and will hold more than he can. Everyone understands what is at risk. By choosing the limits of their own retention are very responsible. Plus, the whole of the financial statements of large companies is an external audit. So adventurous there can be no ", - says Igor Alekseev. Another thing is the small and medium-sized companies - for their "savings" for reinsurance may result in financial collapse. "Someone might get lucky and some do not. Take the "Innogarant": the company insured the liability of "Capital Tour" with a limit of 100 million rubles, but this risk was reinsured. Now pay for it and the tour operator and insurer, and their customers ", - says Igor Alekseev. In order not to allow companies with insufficient capitalization to take unnecessary risks and unnecessarily increase the net retention, the regulator launched an initiative to limit insurers' limits for the retention of their own risk. In late January, the State Duma bill was introduced with a proposal to limit the sum insured under the insurance policy up to 10% of the equity of the insurer, and the total sum insured on any contracts of five - up to 30%. All that is in excess of these limits, the insurers asked to send in reinsurance. However, the bill has caused a lot of controversy and was eventually withdrawn. But Viktor Nikolsky said that such a law would have died in the appetite for risk is not enough reliable players. Especially because most of the major reinsurers, according to S & P, have long held this strategy and do not take the proper retention of more than 10% of the equity. In the CIS. The answer to the question of the need to own the Russian reinsurance market does not seem to look unique. It seems quite possible and then continue the practice of appeals to the proven Western companies with sufficient capital, reliable ratings and centuries of history. Most experts, however, and do insurers are convinced that such a market in Russia is needed. The fact that not all risks can reassure Russia in the West. There are those who can not access western reinsurance markets. For example, some types of responsibilities, financial and business risks, the risks of the nuclear industry. All of them so far that are reinsured in Russia. Interesting for the Russian market and our closest neighbors - the insurers of the CIS area. According to S & P, the proportion of foreign to total risk premiums on incoming reinsurance is about 25%. The main part, according to Viktor Nikolsky, comes from CIS countries - first of all, Kazakhstan and Ukraine. This year, Ukraine will eliminate restrictions on Russian reinsurers, so that we can expect the flow of premiums from the country. In addition, according to Dmitry Talaeva to work in the CIS countries easier - still has not lost until the end of the economic and cultural ties. Our companies are well understood the risks, closer and clearer ways of economic activities in these countries, are familiar features and specific risks, many of which - the technical heritage of the former Soviet Union. From abroad, according to Alexander Korolev, attractive regions of Southeast Asia, Latin American countries. "Russian brokers are actively working with these regions. "Malakut" recently opened offices in the Middle East, South America. So that the flow of premiums there is growing ", - says Alexander Korolev. According to him, these risks, although not first class, but quite acceptable quality, financial results for these regions are satisfactory. The main danger to the Russian market has not turned into an enclave, where the dumping prices will reinsure risks questionable, which do not take the leaders of the world industry of reinsurance. "The Russian reinsurance market needs. For him, there are certain niches, there are risks, which makes no sense to turn to the West - because of the limits of small or because of our Russian specifics. But the market should be different. It should be cleaned on a number of companies - financially unstable involved in certain reinsurance scheme. It should be a reliable market, receiving high-quality and adequately tariffied risks ", - says Dmitry Tala. If the Russian reinsurance market sees its future is uncertain as to take risks at a lower price, it's a dead end road. He, eventually, lead to the disappearance and the companies and the market itself. Companies - Leaders reinsurance company in 2010 Awards, thous. Payments, thousand rubles. Ingosstrakh Insurance 3434657 1880513 2207807 1153170 Capital Sogaz 1913465 632332 1285834 198947 Business Community Sothis 1133288 1034568 38 721 36 337 Alliance Alliance East in 1516 1,025,076 1,025,059 My insurance company 178 320 335 832 1,022,866 Unity Re Moscow Re 1,017,785 333 410 997 940 119 614 Eastern European software 828 241 103 889 Consent 774 780 490 885 Transsiberian Re Insurance Ace Rosno 740930 428384 727510 774685 724 489 77 632 Vertical 651 594 67 213 Patron 632 923 249 199 Alfa Insurance 620 794 505 949 Capital Reinsurance Southeastern Reinsurance Company 574 213 354 413 572 837 hyalite-21 770 Bastion policy online 60 916 561 367 474 775 89 556 ECC Capital Reinsurance 462 072 29 970 Centre Russian Reinsurance Company 458 580 141 489 Munich Reinsurance Company Interpolistrast 418686 124176 388926 159793 387505 338944 Lighthouse RESO-Guarantee 387385 197533 385 627 32 513 NESO Source: Leaders Rosstrakhnadzor reinsurance company * Region Prize thousand Ingosstrakh, Moscow 955 940 796 030 Sogaz Moscow Capital Insurance Kogalym 401 420 Moscow Re Moscow 345 572 341 236 Unity Re Moscow Ace Insurance SCOR Reinsurance 332 301 Moscow Moscow Moscow 255 944 239 956 Reinsurance Capital Accord, Moscow 239 825 East 215 198 Moscow alliance leaders outward reinsurance company * Region Prize thousand Sogaz Moscow 2005742 Moscow AlphaStrakhovanie 1,747,108 1,465,382 Capital Insurance Kogalym Ingosstrakh ONDD Credit Insurance Moscow 1323013 Moscow 768 068 Russian Social life insurance 612 733 center of Moscow RESO-Guarantee Moscow 519 061 499 096 Moscow Alliance National Insurance Group Dolgoprudny 452 880 431 734 * Consent of Moscow for the first quarter 2011 Source: Rosstrakhnadzor leaders of the world reinsurance market Company the aggregate adjusted stockholders 'equity (shareholders' funds - $ billion) 2009 2008 Berkshire Hathaway Re 64,146 50,795 Munich Reinsurance Co. 30,372 28,235 Lloyd's 28,930 20,524 Swiss Reinsurance Co. Lrd. 26,152 20,266 Tokio Marine Group 20,776 15,883 Mitsui Sumitomo Insurance Co. Ltd. 18,506 15,793 Sompo Japan Insurance Inc. 15,572 12,294 Hannover Rueckversicherung AG 8,114 6,637 PartnerRe Ltd. 7,646 4,199 NIPPONKOA Insurance Co. Ltd. 7,307 6,412 Everest Reinsurance Co. 6,102 4,960 SCOR SE 5,581 4,806 AXIS Capital Holdings Ltd. 5,500 4,461 Transatlantic Holdings Inc. 4,034 3,198 Validus Holdings Ltd. 4,031 1,939 Arch Capital Group Ltd. 3,794 3,010 Odyssey Re Group Ltd. 3,555 2,828 Aspen Insurance Holdings Ltd. 3,305 2,779 Catlin Group Ltd. 3,278 2,469 RenaissanceRe Holdings Ltd. 3,191 2,383 Toa Reinsurance Co. 2,819 2,592 Endurance Specialty Holdings Ltd. 2,787 2,512 Amlin AG 2,538 1,760 Platinum Underwriters Holdings Ltd. 2,078 1,809 White Mountains Re Group Ltd. 2.057 2.157 Total 282.170 224.702 Source: S & P, Global Reinsurance Highlights