Russian Reinsurance Market: Hidden Development

Hidden Growth: real reinsurance premiums grow up notwithstanding the crisis, official premiums - are still going down. Real reinsurance premiums amounted over 9 months of 2009, according to estimates of Expert RA, to 20.0 billion rubles (61.2% of the aggregate reinsurance premiums according to official data), having increased compared to the similar period of 2008 by 4.8%.

According to forecasts of Expert RA, the amount of real reinsurance premium will amount in 2009 to 25.1 billion rubles (40.7 billion rubles according to official data). In 2010 the real market will continue to grow up mainly on account of the international segment and new types of imputed insurance. The amount of real reinsurance premiums received by Russia re-insurers in 2010 will be 26.7 billion rubles (34.7 billion rubles according to official data).

Real rates of increase in reinsurance premiums in 2010 compared to 2009 will be equal to 6.2%, official - minus 14.7% (on account of continuation of the tendency of cleaning of the Russian reinsurance market from schemes).

Both protection and business growth: the crisis resulted in increase in the share of mutual reinsurance aimed, in particular, at increase of turnovers of direct insurers. The share of premiums transferred for reinsurance by Russian insurance organizations, increased from 13.2% in 2008 to 17.7% over 9 months of 2009, mainly, on account of premiums transferred to universal insurance companies. Rates of increase of reinsurance premiums received over 9 months of 2009 in comparison with 9 months of 2008 by universal companies amounted to 13.5%, professional reinsurers - minus 15.2%. Reduction of reinsurance premiums received by professional reinsurers is associated with reduction of expenses for reinsurance and increase of the amount of own retentions, conducted by Russian insurers within the framework of anti-crisis activities.

The crisis helped: attractiveness of the Russian reinsurance market in the eyes of foreign reinsurers increased as a result of the crisis. International reinsurers, trying to cover losses from investment operations, increased the cost of reinsurance protection by 10-15% while Russian reinsurers turned out to be more stable to volatility on stock exchanges and are able to maintain prices for reinsurance at the previous level. The share of reinsurance premiums received by Russian insurers from abroad increased from 10.6% in 2007 to 24.6% over 9 months of 2009.

Internal destruction: increasing demand for reinsurance may pass to other reinsurance markets due to deterioration of reliability of Russian reinsurers. The crisis facilitated strengthening of damping in the Russian reinsurance market. The prices for reinsurance protection reduced in average in 2-3 times. Thus, real reinsurance premiums in prices of 2007-2008 are higher than the nominal indicators in 2 times approximately, i.e. the amount of assumed risks grew up twice approximately.

In the first half of 2009 the extremely negative tendencies were observed which evidence on increase of financial problems of professional reinsurers. Net losses from motor hull insurance increased over the same period of time by 15.3 percentage points (up to 78.1%), net loss from operations associated with reinsurance of risks on insurance of liability for non-fulfillment or improper fulfillment of obligations under state and municipal contracts increased from 5.3% in 2008 to 76.6% over the first half of 2009.

Reputation capital: for development Russian reinsurers need not only increase of capital but increase of reputation. In the opinion of national reinsurers, the main restriction of development of the Russian reinsurance market is the low level of capitalization. However, statistics refute this statement: indicators of adequacy of own funds at professional reinsurers exceed the average market level twice (according to data over 2008, 117% against 54.6% at universal insurers), i.e. companies have excessive capital but it does not work. No sudden growth of reinsurance premiums has been observed with companies who increased their capital. Increase of capital is only the necessary condition for development of the Russian reinsurance market but it is not sufficient. The second necessary conditions is increase of the level of reliability and reputation of market participants.