Expert word

Problem Still Unresolved

June 27, 2007 saw the registration of Directive #53N by the Ministry of Finance in amendment of Directive #100 on the structure of assets which are accepted to cover insurance reserves. Directive #100 was of paramount importance to the whole insurance market. Following its amendment the Finance Ministry’ directive #100N became clearer and more realistic from the point of view of its execution.

One of its major positive innovations was to equate bank bills and deposits on a legal level. Previously bank bills were considered to be "bills of organizations", now they can be accepted on a par with deposits which will have a positive effect on revenues from reserves placement given the constant level of reliability and liquidity of the insurance companies’ assets.

The new amendments to Directive # 100N have eased the strain on insurers operating with big risks in conformity with the requirements as set in the insurance reserves placement regulations. They increased insurance companies’ limits for the total share of re-insurers in the insurance reserves. They also extended the volumes of the debtor indebtedness accepted in coverage of the insurance reserves that will help to secure the compliance of insurance companies which receive a significant share of the premium by installments.

The new amendment provides no regulations for the placement of mutual fund (PIF) investments. It also removes the question about the possibility of a sudden loss one of the assets accepted in coverage of insurance reserves. In this case the resulting violation is to be eliminated within three months from the date of such violation was or should have been detected.

Despite some new positive changes in the amendments, the contradiction regarding the use of Russian rating agencies’ reliability ratings has remained unresolved in the norms for the placement of insurance reserve funds. The new edition of the Rules replaced the wording “the rating of a similar level by Russian rating agencies" with “the rating by one of the Russian rating agencies of a category (class) which corresponds to the level of satisfactory credit status (financial reliability)". In doing so the directive failed to specify the notion of “the satisfactory credit status (financial reliability)".

Expert RА analysts believe that to avoid misinterpretation and possible abuse the Russian regulating bodies should urgently formulate their requirements for the rating agencies and define what mark on the scale of the relevant rating agencies should be recognized as "satisfactory" in order to secure the insurance companies’ compliance with the Russian Finance Ministry’s revised Directive #100N.