Russian insurance market, first half of 2008

Table 1. Companies – leaders of the Russian insurance market by collections (without OMI), including re-insurance, first half of 2008
Table 2. Russian insurance companies by size, first half of 2008
Table 3. Financial indicators of the leading Russian insurers (30.06.2008), thousand rubles
Table 4. Leaders in collected premium – net re-insurance, first half of 2008
Table 5. Life insurance, first half of 2008
Table 6. Voluntary medical insurance, first half of 2008
Table 7. Outgoing tourism insurance, first half of 2008
Table 8. Accidents and diseases insurance, first half of 2008
Table 9. Ground transport insurance, first half of 2008
Table 10. Water transport insurance (including liability insurance), first half of 2008
Table 11. Aviation risk insurance (including liability insurance), first half of 2008
Table 12. Space risk insurance (including liability insurance), first half of 2008
Table 13. Motor vehicle liability insurance (voluntary), first half of 2008
Table 14. Cargo insurance, first half of 2008
Table 15. Cargo carriers liability insurance, first half of 2008
Table 16. Insuring property of legal entities from fire and other risks, first half of 2008
Table 17. Insuring construction-erection risks (including liability insurance), first half of 2008
Table 18. Individual property insurance, first half of 2008
Table 19. Financial risk insurance, first half of 2008
Table 20. Insuring liability of enterprises – sources of increased danger, first half of 2008
Table 21. Professional liability insurance, first half of 2008
Table 22. Agricultural risk insurance, first half of 2008
Table 23. Incoming re-insurance, first half of 2008
Table 24. Obligatory medical insurance, first half of 2008
Table 25. OSAGO, first half of 2008
Table 26. Obligatory personal insurance (excepting OMI), first half of 2008

Looking for profit

Aleksey Yanin

The first half of 2008 at the Russian insurance market witnessed two tendencies: leveled tariffs and declined credit insurance acceleration. At present insurers seem to care more of their business stability and profitability, than their market share.

In the first half of 2008 Russian insurers collected 293 bln rubles through direct insurance (without OMI) - 44 bln rubles or 17.6% over the same period of the previous year. Currently the contribution increment slowed down – in the first half of 2007 it was 3.1 percentage points higher. The largest segments of the Russian insurance market are still autocasco (according to Expert RA, autocasco contributions in the first half of 2008 amounted to 76.4 bln rubles), VMI (53.0 bln rubles), OSAGO (39.1 bln rubles) and insurance of enterprise property from fire and other risks (31.3 bln rubles).

Slowing down

Three out of four main types of insurance at the Russian market showed reduced contribution increment: autocasco contributions in the first half of 2008 went down by 5.6 percentage points comparing with the first half of 2007 and amounted to 35.1%, OSAGO – 4.8 percentage point reduction down to 12.9%. Retail insurance follows the same trend, in case of insuring property of legal entities reduction has been 6.3% (the first half of 2007 saw increase by 5.6%). Only VMI showed some growth - from 15.6 to 23.4%.

Andrey Bondarenko from analytic department of Capital Strakhovanie said: “minimum growth of premium for fire and other risks and cargoes reflects a general trend in the segment of corporate insurance. Main factors of negative influence in the segment are lowered tariffs – due to tougher competition and cheaper re-insurance protection in Western companies, - and sufficient departure of scheming from the market”.

Chopped contributions of property of legal entities is an old trend, but slowing down of auto insurance is really new and unpleasant phenomena for Russian insurers, caused by outside reasons. Autocasco high growth had a lot to do with auto-crediting imputed insurance, which was booming a year ago. The world financial crisis, particularly, influenced the Russian economy by slowing the procedure of crediting by Russian banks. Credit autocasco, as a consequence, slowed down, too.

Majority of players at the auto insurance market are quite pessimistic about the future. Aleksander Fedonkin, deputy general director of Moscow insurance company, said: “Dramatic growth of salaries in advance of labor productivity achievements, conditioned by work-force deficit, cannot continue for long, and speedy inflation makes people postpone expensive purchases and taking credits due to limited funds for even essential goods. Changing structure of consumption would lead to decelerated growth of auto-insurance”.

According to Edgar Pleskanovsky, deputy general director for strategic development in VTB Strakhovanie, “it is too early to call it a trend, but by the end of this year and at the beginning of the next one we expect casco premium reduction for credit-purchased auto. Loss of momentum in industrial production, outflow of foreign investments, reduced growth of the population real revenues - here are additional prerequisites for possible insurance deceleration next year”.

VMI growth also leaves much to be desired. “The market of voluntary medical insurance does not develop as fast as we wish, - says Ilya Solomatin, Ingosstrakh vice-president. – The state has still failed to determine what obligatory medical insurance is about: is it social security or an element of insurance? That is why it is hard to make a precise forecast of the VMI market: is it to be a separate component, unrelated to obligatory medicine, or it will be a good complement to obligatory program of medical insurance”.

Un-profitability is still on the upswing

Consistent un-profitability growth of motor insurance (OSAGO and casco) became even stronger in the first half of 2008.

Obligatory motor liability insurance pulls the market down – un-profitability in many Russian regions has crossed the critical level long ago, and some insurers quietly sabotage this type of insurance, placing OSAGO policy outlets to some hard-to-reach areas without attracting attention of vehicle owners to OSAGO insurance. According to many insurers, the motor vehicle insurance, due to all-round coverage and its obligatory nature for vehicle owners, turns out to be a political problem instead of a purely economic one. Since OSAGO tariffs are set, the issue may be resolved by the state only, but the state is not in a hurry.

Several leading insurers publicly announced their losses in autocasco – which is quite new for domestic insurance. In reality autocasco proved to be un-profitable for many more companies. That is especially true about autocasco insurance through automobile sales centers.

In autocasco financial results go down mostly due to exorbitant commissions to agents, not because of inadequate tariffs. Non-insurance intermediaries, like automobile sales centers, who impose their conditions on insurers, are extremely greedy. According to many market participants, commissions are out of all proportions – if they go up or even remain at the existing level, motor insurance activity will become totally un-profitable. Consequently, it is possible to expect a gradual reduction of intermediary commissions.

According to Nikolay Nikolenko, first deputy chairman of Russian Insurance Center board of directors, “many insurers while preparing to be sold to the Western market develop distribution nets and build up volumes of insurance premium in a very simple way: price dumping and increased commissions to intermediaries. Low investment profits of Russian insurers are followed by increased combined un-profitability ratio – under such circumstances insurers have to do something about profitability of their business”.

Profit or volumes?

Even those in favor of the most brazen dumping have to think now about profitability of their business. Many Russian insurers are in the process of readjusting their individual autocasco portfolios. Numerous dumping “champions” with especially low tariffs last year consumed their financial resources – but their expectations for speedy growth of premium, increased market share and selling out to a foreign investor mostly fall through.

In the first half of 2008 many insurance companies launched internal transformation – a tendency to catch the largest possible market share at any price was replaced by another targets. Insurance business, same as any other business, should be profitable – the majority of insurers gradually grab the idea. As a result for the first time in the market post-scheming history tariffs grow leveled – different companies tend to the average market level.

According to Viktor Dymov, RSK deputy general director, “Last year many insurance companies decided against tariff wars and dumping operations in favor of credibility, good reserves and insurance portfolio stability. In the first half of 2008 the trend was even more obvious to look as a regularity, not as a chancy outbreak. Another visible tendency relate to new methods of fighting for clients – in line with client-oriented policy of Western companies. You need not be a visionary to see: next to size of tariffs clients would be more interested in the quality of service”.