Benchmarks of insurance companies following the results of 2009: unearned profit

Profitable but not reliable: increase in rates of return on assets of Russian insurers hides decline in their financial stability. Averaged rate of return on assets of domestic insurance companies amounted in 2009 to 3.3% (1.4% in 2008), the averaged rate of adequacy of own funds increased from 49.3 to 56.7%. At the first sight, the year of 2009 turned out to be more successful for Russian insurers who managed in general to straighten their financial indicators. This impression is deceptive: the rate of return on assets grew up as a result of under-reservation for corporate risks and operations with off-balance obligations. In addition, the financial result often do not take into account overdue indebtedness and impaired investments which have not been derecognized as loss. All these risks will affect profits of insurance companies next year.

Currency blow: devaluation of the ruble exchange rate (and corresponding increase in cost of spare parts) as well as damping transformed insurance retail over one year from the perspective business into a problem and loss generating business. The averaged value of the combined coefficient of net losses for retail companies amounted in 2009 to 106.9% increasing in comparison with 2008 by 6.5 percentage points. In corporate insurance the combined net loss ratio is still low - 92.7% but it may at any time grow up in case of occurrence of any major insurance events obligations under which are not secured by adequate reserves, mostly because of damping.

The averaged values of the combined net loss ratio for all insurance companies exceeded in 2009 the 100% level and amounted to 100.1%.

Insurance in debt: the crisis led to a sharp deterioration of quality of receivables of Russian insurers. According to estimates of Expert RA, the fifth part of receivables of Russian insurers are overdue. The real amount of premiums received by Russian insurers in 2008 fell down not by 7.5%, as shown in official statistics, but more, since not all accrued premiums will be paid. Decline of the market in 2009 without taking into account overdue receivables amounted, according to estimates of Expert RA to 12.5%.

Not many insurance companies form reserves for impairment of quality of receivables or derecognize overdue receivables as loss. According to estimates of Expert RA, the averaged ratio of receivables derecognized as loss to the total amount of receivables in 2009 amounted to 2.2%, for captive companies - 4.9%, reinsurance - 9.9%.

Out of the balance - beyond control: Russian insurers more and more often assume off-balance obligations. The averaged ratio of off-balance obligations of Russian insurers to their own funds amounted in 2009 to 4.1% (+1.1 percentage points in comparison with 2008). Regional and captive companies, except for a rare exclusion, do not assume any off-balance obligations while large insurers of the federal level (two thirds of companies in the group) actively issue guarantees and sureties. Average and small insurers registered in Moscow more rarely assume off-balance obligations, but at that, their average ratio of issued guarantees and sureties to their own funds is much higher than in case of major insurers (62 against 11%). Such high amounts of off-balance obligations represent a material risk factor of reliability of insurers and are yet not limited anyhow. However, amendments on prohibition of issue by insurers of bank guarantees are at present being considered in the State Duma.