Writing at the beginning of August 2010, we have been able to ensure that the report includes actual data for 2009. According to the Federal Service for Insurance Supervision (FSIS), total premiums in 2009 amounted to RUB977.53bn. This includes non-life premiums of RUB961.82n and life premiums of RUB15.71bn. In 2014, the corresponding figures should be RUB1,746.75bn, RUB1,725.89bn and RUB20.86bn. In terms of the key drivers that underpin our forecasts, we are looking for non-life penetration to rise marginally from 2.32% of GDP to 2.40%. We are looking for life density to increase from a miniscule US$4 per capita to US$6. BMI’s proprietary Insurance Business Environment Rating (IBER) for Russia is 56.2.
At first glance, the experience of the Russian insurance sector over the last year or so has been similar to that of its counterparts in other Central and Eastern European countries. In the wake of the global financial crisis, the non-life segment has moved from a situation in which it was growing strongly to one where it is stagnant. The life segment has, in terms of gross premiums written, contracted by about 16%. However, it is the differences between the Russian insurance sector and its regional peers that really stand out. Most insurance markets in Central and Eastern Europe are dominated by large multinationals based (mainly) in Western Europe. In Russia, by contrast, the burden of adjustment has been borne by the large locally-owned groups, such as Rosgosstrakh, Ingosstrakh and Sogaz. Further, the decline in the life segment must be seen in the context of a longer-term decline as those Russians who are saving for the long term look for other vehicles. Since 2005, the only year in which life premiums have expanded rapidly was 2007, which was something of a boom year for the Russian insurance sector as a whole. As we note above, BMI currently has little confidence that the life segment will develop to a meaningful extent within the forecast period.
This is not to say, however, that the Russian insurance sector does not present significant opportunities for international insurance companies. Russia is also an exception in a regional context in that, in mid- 2010, we have not revised down our forecasts of premiums for the next four years to a significant extent. This means that, unusually for a country in Central and Eastern Europe, Russia’s Insurance Business Environment Rating (IBER) – our proprietary measure of the attractiveness of a national insurance sector in a global context – has not fallen. In July 2010, Rosgosstrakh released a paper in which it suggested that ‘unless another economic cataclysm breaks out in the world or in Russia, the volume of the Russian insurance market will double in the next five years.’ Basically, we agree. However, we would stress that the growth will come almost entirely from the ongoing growth in nominal GDP. Further, the downside is limited by the importance of Compulsory Medical Expenses Insurance (CMEI). CMEI rose from about 41% of total premiums in 2008, to 47% in 2009.
The structure of the Russian insurance market is another major reason why it should be of interest to leading international insurance companies. Rosgosstrakh and Ingosstrakh are former monopolies, but they are less dominant than their counterparts in other economies that used to be centrally planned. Over the last year or so, Rosgosstrakh and Ingosstrakh have increased their share of the total market (excluding CMEI), but together they still speak for about one-fifth of total premiums. Only five other companies have market shares of over 3% - Sogaz, RESO Garantiya, ROSNO, VSK and Alfa Strakhovanie. In other words, the market is fragmented. The top 50 companies account for just over three quarters of the entire market (including CMEI) and a slightly larger percentage of voluntary lines.
An opportunity for foreign groups comes from their expertise and access to Information Technology. In its July 2010 review of the industry, Rosgosstrakh noted that ‘the types of insurance with the highest potential in Russia are ‘real estate insurance, motor CASCO, voluntary health insurance, accident and life insurance. The development of these lines will require investment and the technical re-equipment of insurance companies.’
Russia’s Insurance Sector In 2010
Despite the optimism for the Russian insurance sector expressed by Rosgosstrakh (which, subject to the qualifications discussed above, BMI shares) there appears to be no common view among the various key players on the medium-term prospects for the market. ING Life announced in September 2009 that it would cease its operations in Russia, and sold its portfolio of clients to Allianz ROSNO. Shortly afterwards, Fortis announced that it would close its Russian business, which did not appear likely to reach the required scale and profitability level within Fortis’ timescale. Although Russia’s miniscule life sector has tended to be dominated by foreign companies, the foreign majors, or at least some of them, appear to have taken the view that Russia is not a market in which they need to have a presence. CiV Life, part of the German Talanx Group, wrote gross premiums of RUB700mn in the first nine months of 2008, and publicly reiterated in late December 2009 that it is committed to developing its business in Russia.
In contrast, some of the Russian insurers are expanding, if only into particular niches. Ingosstrakh announced in mid-November 2009 that it is launching a credit insurance business, which will be structured as a joint venture (JV) with the Belgian public export credit agency ONDD. In mid-2009 SOGAZ confirmed that it had finalised the acquisition of Sheksna Group, whose gross premiums amounted to just less than RUB6bn in 2008. At the end of 2009, Soglassye announced that its sole shareholder, entrepreneur Mikhail Prokhorov, had decided to increase the company’s authorised capital by RUB500mn, to RUB2.8bn.
Issues To Watch
Capital Increases
Press reports indicated in December 2009 that the FSIS is contemplating an increase in the basic statutory capital of an insurance company by 300%, to RUB120mn. The minimum capital for life insurers could increase to RUB240mn, while that of reinsurance companies could increase to RUB480mn. This could result in a dramatic reduction in the number of insurers operating in Russia.
Organised Savings
Russia is emphatically not the only country in Central and Eastern Europe to have suffered a double-digit decline in life premiums in 2009. However, it is the only one to have suffered shrinkage in a segment that is miniscule by any standard. The decline in voluntary insurance in general, and in life insurance in particular, augurs ill for the long-term development of pensions and other forms of organised savings in Russia.
Compliance With Laws Governing Compulsory Insurance
CMEI and CMTPL are the two lines which have underpinned the growth (or prevented a contraction) of the non-life segment. Premiums in these areas will remain firm provided that Russians continue to comply with the relevant laws.

Report Highlights

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Executive Summary 5
Table: Overview Of Russia’s Insurance Sector 5
Key Insights On Russia’s Insurance Sector 5
Issues To Watch 7
SWOT Analysis 9
Russia Insurance Industry SWOT 9
Russia Political SWOT 9
Russia Economic SWOT 10
Russia Business Environment SWOT 10
MetLife’s Acquisition Of ALICO 11
Table: ALICO At A Glance 12
Table: ALICO’s Pre-Tax Profits By Segment And Region Contribution, Year To November 30 2009 (%) 13
Table: ALICO – A Market Leader In Japan 13
Table: MetLife's Acquisition Of ALICO 14
Table: MetLife And ALICO Combined 15
Central and Eastern Europe Overview 16
Table: Gross Premiums Written In Selected Central And Eastern European Countries, 2008-2009 16
Projections And Forecasts 20
Table: Insurance Premiums And Annual Percentage Change, 2007-2014 20
Projections And Drivers Of Growth 20
Table: Growth Drivers, 2007-2014 21
Country Update 22
Macroeconomic Outlook 22
Russia – Economic Activity 25
Political Outlook 25
Long-Term Political Outlook 28
North Caucasus Outlook 31
Table: The North Caucasus – Profile Of The Republics 34
Foreign Policy 37
Insurance Business Environment Rating 40
Table: Russia – Insurance Business Environment Indicators 40
Table: Central And Eastern Europe Insurance Business Environment Ratings 41
Regional Context 42
Table: Non-Life Premiums In A Regional Context, 2009 42
Table: Life Premiums In A Regional Context, 2009 43
Major Players In Russia’s Insurance Sector 44
Table: Principal Insurance Lines - Gross Written Premiums 2009 (RUBmn) 44
Table: Insurance Companies By Gross Written Premiums – Voluntary Health Insurance, H109 (RUBmn) 45
Table: Insurance Companies By Gross Written Premiums – CMPTL, H109 (RUBmn) 47
Table: Life Segment - 2009 Ranking of 20 Largest Companies by Gross Written Premium (RUBmn) 49
Table: Compulsory Medical Expenses Insurance (CMEI) - 2009 Ranking of 20 Largest Companies by Gross Written Premium (RUBmn) 50
Table: Compulsory Motor Third Party Liability Insurance - 2009 Ranking of Largest Companies by Gross Written Premium (RUBmn) 51
Table: Motor CASCO Insurance – 2009 Ranking of Largest Companies by Gross Written Premium (RUBmn) 53
Analysis Of Regional Competitive Conditions 55
Local Company Profiles 57
Ingosstrakh 57
MAKS-M 59
Rosgosstrakh 60
Regional Company Profiles 61
AEGON 61
ALICO 63
Allianz 65
Aviva 67
AXA/ RESO Garantia 69
BNP Paribas/Cardif 71
ERGO 72
Eureko 74
Generali 75
GRAWE 78
Groupama 79
HDI-Gerling 80
ING 81
KBC Group 83
MetLife 85
Prudential Financial 86
QBE 87
RSA 88
UNIQA 90
Vienna Insurance Group/MSK Life 91
Zurich 93
Country Snapshot: Russia Demographic Data 94
Section 1: Population 94
Table: Demographic Indicators, 2005-2030 94
Table: Rural/Urban Breakdown, 2005-2030 95
Section 2: Education And Healthcare 95
Table: Education, 2002-2005 95
Table: Vital Statistics, 2005-2030 95
Section 3: Labour Market And Spending Power 96
Table: Employment Indicators, 2001-2006 96
Table: Consumer Expenditure, 2000-2012 (US$) 96
Table: Average Annual Wages, 2000-2006 97
Methodology 98
Insurance Business Environment Ratings 99
Table: Insurance Business Environment Indicators And Rationale 99
Table: Weighting Of Indicators 100
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