Summary of the development of the Russian insurance market in 2000: Quantity is transformed into quality

Let us review some results of the development of the Russian insurance market in 2000, the last year of the XX-th century. Before we get deeper into the analysis of the statistical data, we would like to consider the decree of the Government of the Russian Federation No. 1139 "Basic Guidelines of the Development of the National Insurance System in the Russian Federation in 1998 Through 2000" (below - Basic Guidelines) adopted two years ago, i.e. on October 1, 1998 . The main purpose of this document was "to set up an effective system of the insurance protection of the property interests of the citizens and corporate entities in the Russian Federation" as well as to publish forecasts of the insurance market development for three years. A moment has come when one can estimate the results of the activity of the participants of the Russian insurance market for this period and compare the "quantitative indices of the domestic insurance market" planned by the RF Ministry of Finance in 1998 with the real ones.

In 2000, the volume of insurance contributions has significantly exceeded the index planned for 1998 (a growth of 2 to 2.5 times was projected; actually, the volume has increased nearly by 5 times). The highest appraisal was received by the Basic Guidelines in the field of forecasting the development of voluntary and mandatory sectors of insurance. A statement that "a faster growth of the voluntary insurance by 2 to 3 times would be secured in 2000 as compared with a 1.5 to 2 times increase of the scale of the mandatory insurance" has proved to be fully correct. The mandatory insurance growth has come to 2.3 times, the increase of voluntary insurance sectors amounting to 6.6 times. Such a high voluntary insurance level has been achieved due to a rapid development of life insurance, the contributions for the latter increasing in 2000 by 6.5 times as compared with 1997. In 2000, the property insurance contributions and those for liability insurance have grown by 5.9 and 4.7 times, respectively compared with 1997. In 2000, a significant growth rate increased the insurance market as compared with 1999. And what is more, its qualitative structure has changed. The leading part in the increment of the indices has been taken by life insurance, the 4Q00 insurance collections being the greatest ones in the year whereas in 1999 liability insurance and property insurance were in a strong leading position. The last year's leaders, one may say, have gone through their rush-hours, and they comfort themselves modestly in the rearguard of the sector list in 2000 (see Table 1).

Although the personal insurance contributions have slowed in growth rate (83.8 %) as compared with 1999, they remain at the level of 80 %. A high increase of life insurance premiums in 2000 is observed not only in the absolute measurement but also in the relative one (the increase constituted 124.6 %). The life insurance quota in the integrated payments grew by 11.5 % as compared with 1999 and came to 62.3 % whereas the quota in the insurance contributions amounted to 46.7 %. A similar situation is observed in the mandatory insurance, too: the quota in the aggregate payments constituted 23.2 %), the quota in integrated contributions coming to 17.8 %.

Oable 1 Indices of the insurance market development in 2000^*

^* Source: Department of Insurance Supervision of the RF Iinistry of Finance

Oable 2 Concentration index of Harfandahl-Hirschmann* (as per contributions)

^* A sum of the squares of quotas of each insurance company in integrated insurance contributions: values are considered as optimal ones nearing 0; when having to do with an absolute market minipily, it is equal to 1.

Oable 3 Distribution of contributions in the insurance sectors by groups of companies laading in collecting the aggregate insurance premiums in 2000, %

The disappearance of weak and insolvent companies from the market which began in 1999 continued in 2000 as well. Thus, according to of the Department of Insurance Supervision, this year 1,131 insurers were operating in the market which is by 128 companies less than in 1999: the reduction of the company number constituted 10.2 %. But the concentration index of the whole market increased not so much due to the reduction of the company number as owing to the continuing market differentiation (see Table 2). This year, some very great companies have "broken off" from the rest in their indices, and the PSK company, a leader in collecting contributions has collected an amount by an order greater than other market participants (a double superiority over the 2nd place company).

In Table 3, all the insurers ranking by the decrease of the value of the aggregate contributions collected in the course of the year are divided into groups of ten, a quota of integrated contributions of companies being members of the former in the contributions of all the companies rendered an accounting in all insurance sectors being calculated for each of such a group.

In 2000, ten biggest Russian insurance companies which managed to attract the maximum amount of insurance premiums did not offer mandatory insurance. The quota of these companies in the integrated contributions in this insurance sector is constituting less than 1 per cent. The principal quota of all the money collected by the leaders is falling on the life insurance sector, i.e. 68.1 % of contributions from all the insurers. But this is not the only priority field of insurance for the biggest insurance companies; a substantial market share (38/3 %) is held by them in the liability insurance sector. The insurance portfolios of the companies entering the 2nd and 3rd groups, ten companies in each group, can be characterized as the most diversified ones as the quotas of insurance premiums collected by them in the integrated indices are fluctuating at about the same level. This is particularly typical for the ten companies in the 2nd group.

A similar situation has evolved with the payments. The big companies are paying much more than other market players. This is explained not only by the principle "the more collected, the more paid" but also by a series of other factors, for example, by short-term insurance contracts concluded, especially in the life insurance sector. The quota of payments in the integrated indices in all the insurance sectors of the 1st ten leaders is exceeding the analogous indices of the same market subjects in the contributions. This shows that the big companies are truly paying, i.e. the payment market is appreciably shifting to the 1st ten. Sudden changes in the payment quota compared with the analogous contribution index can be explained by the company presence in this or that group the payments in which exceed those of other companies by several times. Thus, very high payments are effected by the SOGAZ company in the property insurance sector, in the 2nd group of ten companies (its presence in this group increases the payment quota of this group in the aggregate payments of all the companies from 6.7 % to 32.9 %). In the liability insurance sector, relatively large payments have been made by the "Priroda" company, and it accounted for more than a half of all payments in the respective group. To characterize the market competition, let us see Table 4. As the biggest companies are increasing their presence in the market for life insurance and personal insurance, the smaller insurers are trying to become stronger in the property insurance and liability insurance fields. This is testified by the growth of collecting the contributions in these two insurance sectors, compared with 2000, by the companies ranging from 21 to 100. For all this, the companies in the 3rd and 4th groups of ten managed to increase the collections in the personal insurance sector. But, in spite of these trends, the competition in the voluntary and mandatory insurance markets could be described as normal. The insurance companies entering the top ten leaders collect in all the insurance sectors by an order of magnitude more than other insurers. For all this, if we are to look past the 1st ten companies, "the speed" of the insurance contribution decrease is not great when moving down the rank list. The most uniform distribution of contributions is observed in the property insurance field.

Oable 4 Distribution of insurance contributions by groups of the biggest companies in 1999-2000, %

^* Insurance companies in the lists were rated according to insurance contributions

A testimony of a low competition is confirmed also by data presented in Table 5. This looks particularly astounding in the life insurance sector where the 1st four companies cover 50 % of the whole market. The same can be said also about the liability insurance sector; true, a half of all the contributions are collected by the 1st ten companies here. A real cut-back of concentration took place in the property insurance and liability insurance sectors. In these fields, the quota of the biggest insurance company in the integrated insurance contributions has reduced itself by 0.71 % and 2.8 %, that of four leaders by 7.43 % and 7.59 %, that of ten companies by 6.43 % and 6.89 %, and that of 25 companies by 7.17 % and 7.48 %, respectively. Thus, redistribution of the contributions in these insurance sectors occurred, mainly in the framework of the first 25 biggest companies. For all this, the situation in the life insurance sector is developing exactly vice versa. In 2000, the quota of the first 25 companies in the integrated contributions in the life insurance sector increased by 6.58 % as compared with 1999; true, this growth took place, primarily at the expense of quota increase by 6.76 % of the companies leading in this market segment.

Oable 5 Insurance market concentration (quota of the largest companies in the aggregate insurance contributions), %

Like a year ago, the biggest number of companies are engaged in personal insurance: accident insurance contracts or voluntary medical insurance covered by 86.4 % of all the insurers offering voluntary insurance. But in this case, the quantity has not turned into quality: about 36 % of all the companies doing personal insurance could not manage to collect contributions exceeding RUR1 mil. (all things considered, almost every other company collected less than RUR100 thousand). Nevertheless, such a situation points to a substantial improvement of things with premium collections in the personal insurance sector because the share of such "kiddies" constituted 48 % last year.

As was the case in 1999, the liability insurance sector is in the lead, taking into account the number of the market participants with very little contributions. Here, the quota of the insurers whose collections did not exceed RUR1 mil. amounts to 54 %, these companies also lead in the absolute expression as compared with any other insurance sector and include 307 entities.

The least number of companies engaged in the voluntary insurance sector is offering life insurance. And the fact that corporate contracts with solid clients are prevailing in this market segment explains availability of insurance premiums exceeding RUR1 billion collected by 12 companies.

Tables 6 to 9 show lists of the biggest companies in various insurance sectors. Life insurance is the principal insurance sector for the majority of the companies engaged in rendering such kinds of services which is being proved by the quota of this sector in the portfolios of the biggest companies.

Oable 6 The largest companies in life insurance sector, 2000

Several years in succession, the PSK and "Spasskiye Vorota-L" companies remain unconditional leaders in the life insurance sector. As always, the first place is retained by the PSK company and, for all this, it is among the leaders in the risk insurance sectors. Indeed such a scope of activities is impressing with life insurance quota is constituting 93.6 % in the company's contributions in the voluntary insurance sector. Among the companies which do not attach great significance to the life insurance there are "RESO-Garantiya", "Spasskiye Vorota" and "Progress-Garant" companies which should be noted among the first 20 leaders. Although the first two companies have worsened their positions in this insurance sector as compared with the last year, they keep their positions among the leaders. The"Progress-Garant"company which has changed its signboard is engaged mainly in the property insurance, having managed to rise up to the 15th place in the life insurance sector.

The novices among the two tens of the best companies: the "National Insurance Group" which has gone up from the last year's 27th place; the "Novaya Insurance Company" whose life insurance contributions are growing, in fact, all its integrated contributions allowed it to move up from the 44th to the 7th place as well as to take the 10th place among the leaders in integrated contributions. Similarly, the "LK-City" company of the "LUKoil" holding has made a leap from the last year's 90th up to the 8th place; the 15th place has been won by the "Delta-Polis" company, little known on the market. Serious changes in the list of companies leading in the life insurance sector are indicative of an unpredictability of the situation on the life insurance market and lack of control over the "grey" salary schemes. As for the personal insurance, leading positions are taken by both the narrow sector "Gazprommedstrakh", "Medved-LK", SOGAZ, etc. and by the universal ROSNO, "RESOGarantiya", PSK, MAKS, "Ingosstrakh" et al. companies (see Table 7).

Oable 7 The largest companies in the personal insurance sector, 2000

There are no such important changes in this market segment as in the life insurance sector - practically, all the leading companies are moving up the list within the first twenty ones. But there are other emerging companies here as well: as per results of 2000, the "Progress-Garant" company went up to the 13th place from the last year's 39th, the "Sibir" company of Nizhnevartovsk and the "SKM" of Magnitogorsk having moved from the 45th to the 17th place and from the 44th to the 20th place, respectively.

Many insurers have increased the personal insurance contributions substantially. In 2000, no more than three insurance companies' contributions have exceeded RUR1 billion. The greatest universal ROSNO giant has collected the premiums 1.5 times more than last year. Good results are demonstrated by the captive "Gazprommedstrakh" and "Medved-LK" companies: the growth has come to 160% and 369 %, respectively. The basis of these companies' insurance portfolios is constituted by contributions in the voluntary medical insurance of the corporate clients.

The situation with the payment level of all the insurers continues to improve. The number of companies with the payment level of more than 80 % is gradually decreasing. But there are companies in this index: the "Profstrakh" company taking the 12th line in the list of the biggest insurers in the personal insurance sector has, on the contrary, a very low payment level of 1.2 % which is not typical for the personal insurance sector. A list of 20 companies leading in the property insurance sector (see Table 8) is headed by the "Interros-Soglasiye" company, which had moved to this position from the last year's 4th place. Now, bearing this in mind, the last year's favorite, the SOGAZ company, has decreased the insurance contributions by 2.1 times, which resulted in the 5th position in 2000.

Oable 8 The largest cimpanies in the property insurance sector, 2000

The value of property insurance contributions collected in 2000 exceeded the last year's figure by 55.4 %. In 2000, the five leaders' performance did not change as compared with 1999, the companies moving into the leaders' list. The maximum increase in this field of insurance was displayed by the "Kremnik" (957.9 %), "Rosgosstrakh" (911.9 %), "National Insurance Group" (786.4 %) and "Priroda" insurance companies. The record growth (13,394.2 %) was shown by the "Neftepolis" company, having risen in the list of property insurance ranking by more than by 600 position in one year. Such a progress is not a novelty for the insurance market: suffice it to recall an example of nearly the same progress by the "Yukos-Garant" company, having occupied the 795th place arising from the results of as back as 1998 among all the companies in integrated contributions, but it has ended up in the 20th line in the list made up from this index already in 1999. Like the "Yukos-Garant" (since 2000, renamed as "Progress-Garant") company, the "Nefteplos" company managed to achieve such results, in the first place, because of its subordination (its owner is the "Rosneft" company). Besides, the last year's payment level of the "Neftepolis" company constituted only 0.34 % which is the lowest figure among the leaders and is connected with the initial phase of the company's activity (it was set up in 1999).

As for the payment level index of various insurers, the "Gazprom"'s SOGAZ insurance company, its value of this index equaling 177 %, is arousing the keenest interest. Such an abundance of payments can be easily explained by the specialty of this entity's activity in the insurance market. The Gazprom is insuring with SOGAZ its gas exports to Western Europe through the territory of Ukraine. Unfortunately, the case is not rare when the Russian gas is stolen in Ukraine, that is why when our Slavic brothers are "making use" of our property, the SOGAZ company is paying compensation and is receiving a reinsurance protection, the problems with Ukraine being resolved by a foreign reinsurance company.

Quite an opposite situation is to be observed with the largest Russian companies, such as "Interros-Soglasiye", "LUKoil" and "Progress-Garant", the payment level fluctuating in the range of 1.5 % to 3.5 %. This is explained by the fact that the risks insured by these companies are very great in terms of money, the frequency of insured losses for risks of big industrial damage is negligibly small.

In the liability insurance sector, the payment level index calculated for all the companies amounted to 8.3 %. Thus, the above index of only three companies out of the first 20 leading companies (See Table 9) is exceeding the average market value, these being the "Ingosstrakh" (35.14 %), "Voyenno-Strakhovaya Co." (10.83 %) and "Moskva" (11.54 %) insurance companies. In general, the majority of insurers' payment level in this insurance sector does not exceed 3 %. This year, large payments were made by the "Jupiterus" company ranking in the 553rd line, its payment rate coming to 3,308 %; indeed, in terms of money, the amount paid is not so very substantial, constituting RUR82.7 thousand while the sum collected equals RUR2.5 thousand. The difference in the amount does not present difficulties for this insurer, as the company is engaged, as a whole, in property insurance and has not made any payments in this insurance sector for the annual results of its activity.

Oable 9 The largest companies in the liability insurance sector, 2000

Again, the ranked list of companies leading in the liability insurance sector displayed its instability. The large Russian "Interros-Soglasiye" insurance company gained the lead in this list, having outperformed the last year's champions - "Ingosstrakh" and ROSNO. The "LUKoil" insurance company rolled down from the upper line of the list in 1999 to take the 9th place which enabled the East European insurance agency to rise to the 4th step. The most successful newcomer in the first twenty in liability insurance was the "Russian Insurance Traditions" company which began to go in for the liability insurance only this year and, having won the 6th place, joined the Russian insurance market elite in this insurance sector. Not a bad result was shown by the "RESO-Garantiya" company which was in the third group of ten companies as far back as last year and, having increased the collection of insurance premiums by 11 times, occupied the 5th place based on the results of 2000.

It should be noted that leading places on the liability insurance market are occupied by large companies which have been insuring very great risks for more than one year, such as space and aviation risks. The third part of companies out of the list presented above are collecting solid premiums when insuring specifically these risks. Thus, this market segment has been divided into shares long time ago by the companies which are firmly holding to their positions and are not going to leave such a profitable business. Nevertheless, the bottom of the list is occupied by absolute novices in the liability insurance market, these being "Aurora-Garant", NSG and "RVS-Absolut". Such a success in the recent years is difficult to explain as these companies are very young, and the data on their owners and purposes of their activity was not made public. One can only assume that these companies managed either to develop yet another method of minimizing revenues or find large corporate clients.

In a list of the 20 most universal insurance companies compiled on the basis of a versatility index (see Table 10), some substantial changes took place compared to last year. Only 12 companies from the last year's list managed to safeguard their versatility; though they could not keep their ground, and preferred, as before, to go in for all the insurance sectors and not to stake on one sector, e.g. life insurance.

Oable 10 Universal insurance companies in 2000^*

Companies considered are included into the list of 200 companies, the largest ones in the voluntary insurance sectors.
^** A value inverse to the sum of squares of quotas of various insurance types in the company's portfolio; when marking out the four insurance sectors, it fluctuates from 1 to 4 where 4 means the most diversified portfolio.

As for the diversity index, the leading five ones underwent a complete change. The first place went to the "Nika" insurance company which occupied the 8th line last year. It managed to reach such a diversification of the portfolio thanks to developing the life insurance and personal insurance sectors. This year the newcomers in the first twenty - the "Avesta" and "Renessaince Insurance Group" companies - moved quickly into the leading group and took the 3rd and 4th places, respectively. The "Renessaince Insurance Group" company changed the nature of its activity and underwent transformation from a company generally engaged in property insurance into a universal one owing to an active part in the life insurance market (the life insurance quota in the voluntary insurance sector contributions increased from 3.9 % in 1999 through 33.1 % in 2000). The "East- Siberian ZhASO" company rounding off the best five increased its index of versatility too (from 2.9 %) through a more balanced attraction of life insurance and property insurance contracts. The "Investstrakh" company overtook its five insurance market colleagues at one go by underwriting life insurance and property insurance sectors. For the same reason, the ROSNO company, the largest one in this list as per insurance premium collections, shifted its positions (from the 7th place in the list) as well. A tendency to increase the versatility compared to previous years was maintained by the "AIG Rossiya", "Spasskiye Vorota" and MAKS companies. Considering all this, these insurers rose in the rating list of the most universal companies due to their life insurance activity.

Looking at the market as a whole, one can note a growth in insurance product diversity. If the 20th company in the rating list of the most universal ones had a versatility index equal to 2.5457 as by the results of 1999, then this year's figure is 2.6019. Despite this fact, the insurance market leaders, as before, are represented by the companies which have significant presence in one particular insurance sector rather than two or more (the PSK and "Spasskiye Vorota-L" companies: life insurance; the "Interros- Soglasiye" and "Ingosstrakh" companies: property insurance). A more balanced portfolio is held by the ROSNO company, but the life insurance sector is prevailing in its collections.

Also, the Russia's insurance market is operated by companies engaged exclusively in one type of insurance. Their versatility index equals 1. These are the "Spasskiye Vorota-L", "Novaya SK", and "KAMS" companies (life insurance), "Gazprommedstrakh", Medved-LK", "Voyenno-Meditsinskaya SK" and "Sheksna-M" (voluntary medical insurance), "Progress", "Universalnaya SK", "Promyshlenno-Strakhovoy Alliance" and "Izhtrans-Polis" (property insurance).