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EUROPE – SMALL Markets




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Market Intelligence


January 2010




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 RUSSIA: country dashboard                                                                                                      Back To > Regional Dashboard




                         GDP 2008                               GDP SIZE IN USD BN                    OVERVIEW
                        USD 1675BN                              AND GDP GROWTH                        GDP SIZE: 8th worldwide (UK ranks 6th)
                           Agriculture                      2000                            30%       EASE OF DOING BUSINESS: 120th worldwide
                                                                                     1675
ECONOMY




                               5%                                                                     GLOBAL COMPETITIVENESS: na
                                                            1500              1294          20%
                                                                        989                           STRENGTHS: wide range of natural resources,
                                                            1000
                                                Industry                                              low public sector debt and the world’s 3rd largest
                                                                                            10%
                                                  37%         500                                     foreign exchange reserves.
                   Services
                                                                   0                        0%        CHALLENGES: uncertainties surrounding
                     58%
                                                                       2006 2007 2008                 structural reform and growth, a faltering
                                                                                                      privatisation process and a declining population.

                  NON-LIFE DWP 2007                           DWP SIZE IN USD BN                     OVERVIEW
                     USD 37.3BN                               AND DWP GROWTH
                                                                                                     SIZE: 16th worldwide (UK ranks 3rd)
                    Health                                     50                           40%
                                                                                                     TOP INSURERS: Ingosstrakh, Reso-Garantiya,
INSURANCE




                     38%                                       40             29     37
                                                                                            30%      Sogaz, Rosno and VSK together control 18% of
                                            Property
                                                               30                                    market share.
                         Misc                 36%                        22                 20%
                                                               20                                    KEY CLASS: health (compulsory) and property.
                          1%
                                                               10                           10%
                                                                                                     REINSURANCE: unknown
                                            Liability 3%
                    Motor               Personal                 0                          0%       GWP PENETRATION: ~ 2.2% (2008)
                    10%                   12%                          2006 2007 2008


                    NON-LIFE GWP 2008                         GWP SIZE IN USD MN                       OVERVIEW
                       USD 150MN                              AND DWP GROWTH                           SIZE: 22nd for Lloyd’s (UK ranks 2nd)
                                                            160                      150    40%        TOP 5 MAs: write 14% of non-life GWP
                Misc 1% Health 4%
                                                                                                       KEY CLASSES: MAT and property
LLOYD’S




                                         Misc

                                MAT
                                         8%
                                                            120        107    108
                                10%
                                       Property 19%
                                          Motor
                                           1% Property                                      20%        REINSURANCE: USD 144mn (2008)
                                                35%
                                    Liability
                                                             80
                                      46%

                                      Liability 8%                                                     GWP MARKET SHARE: ~ 0.4% (2008)
                                                                                            0%
                                                             40                                        STATUS: no direct licence. Reinsurance is
                      MAT                                                                              permitted.
                                                               0                            -20%
                      68%
                                                                       2006 2007 2008                  NO OFFICE


                                                                                                                     COMPULSORY CLASSES: 3rd party
DISTRIBUTION




                                                                                                       REGULATIONS




                 AGENTS used to be the sole distributors during the
                 communist era but now play a smaller (but significant) role.                                        liability (aviation & motor), professional
                                                                                                                     indemnity (notaries, real estate brokers
                 BROKERS currently play a small role estimated at 10% -
                                                                                                                     custom agents & auditors), workers
                 15% of market share. Major international brokers include
                                                                                                                     compensation and health.
                 Aon, JLT, Marsh and Willis.
                                                                                                                     REGULATOR OF INSURERS AND
                 BANCASSURANCE despite the strong relationship                                                       INTERMEDIARIES: www.fssn.ru
                 between Russian insurers and banks, this channel remains
                 weak and is estimated to hold a 3% market share.

                    CATASTROPHES                           Susceptible to frost (high), winter storms and flooding (med) and earthquakes (low).
               click for basic           Market Intelligence data based on: Clyde & Co articles, Global Edge, Global Opportunities, Ingosstrakh, Lloyd’s Crystal,
               information               Lloyd’s Xchanging, Munich Re, PricewaterhouseCoopers, Swiss Re Sigma and the World Economic Outlook Database.
               click for detailed        DWP = direct written premiums. GWP = gross written premium (includes reinsurance). Claims ratio = claims as % of GWP
               information               earned from 2005 to 2008.                                                                                        Disclaimer
RUSSIA: economy                                                                                           Back To > Country Dashboard




            Russia is amongst the world’s key emerging markets. Its economy has demonstrated very strong growth over
            the last few years and the IMF has forecast a CAGR of 13% (in local currency) over the next 5 years to reach
            a total of approximately USD 2,127bn by 2014.
overview




            The Russian economy is attracting increasing volumes of foreign direct investment as it continues to grow and
            is developing good trade relationships with both China and Japan. Key sectors of the economy demonstrating
            strong economic growth are: construction (momentarily slowed), banking, retail and IT. The Russian economy
            does however face some challenges to future growth stemming from a strong oil dependency, political
            uncertainties, a faltering privatisation process and the burden of an ageing population.




RUSSIA: insurance market
             HISTORY: From 1918 through to the collapse of the Soviet Union, the Russian insurance market was a state
             monopoly. The state insurance company, now known as Rosgosstrakh, was founded in 1921. Ingosstrakh,
             established from Rosgosstrakh to conduct international business, followed in 1947. With the creation of the
             Russian Federation in 1991, the insurance market was liberalised and a Federal Law on insurance passed in
             1993. Since liberalisation, the market has witnessed a strong transformation on the back of increasing personal
             wealth, a broadening of the products range and the introduction of compulsory health and motor.

             MARKET TRENDS: Positive aspects of this market transformation include: (i) strong premium growth, (ii)
             changing market structure through consolidation, (iii) an increase in brokers’ market share, (iv) an improving
             regulatory regime and (v) a growing presence of foreign players. Some challenges still remain however, and
             include: (i) inadequate capitalisation of local (re)insurance companies, (ii) public distrust of financial services,
             (iii) insufficient qualified staff and (iv) low reporting transparency.

             MARKET GROWTH: Growth in the Russian insurance market has been very strong over the last decade
             (CAGR of approximately 30%), although it has been slowing down perceptibly, from 50% in 2000 to 25% in
 overview




             2008. Note that DWP growth figures are based on local currency, to eliminate the effect of foreign exchange.

             MARKET PROFITABILITY: The Russian insurance market is characterised by high premiums and low claims;
             the latter possibly due to a lack of major catastrophe events and a low litigiousness levels. Local insurance
             companies however, report low profitability levels, most probably due to their need to invest heavily in
             improving their IT system and relatively unskilled workforce.

                                     NON-LIFE DWP SIZE IN USD BN AND GROWTH FROM 1998
                        50                                                                                                 120%
                                                                                                                  37       100%
                        40
                                                                                                         29                80%
                        30                                                                      22
                                                                                        17
                                                                                                                           60%
                        20                                                      13                                         40%
                                                                       9.2
                        10     3.0     2.5
                                                      4.7      6.3                                                         20%
                                              3.2
                         0                                                                                                 0%
                             1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008


 For further information read ‘Summary of the development of the insurance market in Russia in 2007’ by Ingosstrakh, ‘Russian Insurance Market
 2009’ by PWC and ‘Russia 2010: A Lloyd’s view’ from Lloyd’s Market Intelligence department.                                           Disclaimer
RUSSIA: insurance market                                                                                   Back To > Country Dashboard




              MARKET STRUCTURE: Like most emerging markets, Russia suffers from a low level of capitalisation, which
              combined with a regulatory structure and legislation in force since 2004, has led to a significant reduction in the
              number of insurers present within the Russian market. The number of registered insurers in 2008 was 786, with
              the top 5 (see below) controlling approximately 18% of market share.

              INGOSSTRAKH: Established in 1947 as state run but now privatised. Earned USD 1.37bn in 2008 (3.7% of
              market share). The majority of its portfolio is property (60%). www.ingos.ru/en/

              RESO-GARANTIYA: Established in 1991 as one of the first privately owned Russian insurers. Earned USD
              1.23bn in 2008 (3.3% of market share). The majority of its portfolio is property (55%) and motor (20%). AXA
              acquired a 36.7% stake in 2008, with an option to increase the stake to 100% in 2011.

              SOGAZ: Established in 1993 as a subsidiary of GazProm (the state owned gas company), it has strong
              connections to the Russian gas industry. Earned USD 1.16bn in 2008 (3.1% market share). The majority of its
players




              portfolio is property (55%) and personal (38%). www.en.sogaz.ru

              ROSNO: Earned USD 0.9bn in 2008 (2.4% market share). The majority of its portfolio is motor (40%), voluntary
              health (25%) and property (21%). Allianz acquired a 97% stake in 2008. www.rosno.com/en/

              VSK: Earned USD 0.69bn in 2008 (1.8% market share). www.vsk.ru/

              FOREIGN INSURERS: There has been a growing interest on behalf of foreign insurers to enter the Russian
              market since its liberalisation, most notably Allianz in 1990, AIG in 1994, ACE in 2005, Zurich in 2007 (66% stake
              in Nasta – a major personal lines player) and AXA in 2008. Foreign players can enter the Russian market either
              by (i) establishing a subsidiary or (ii) entering into a joint venture with a Russian partner. The establishment of
              branch offices is currently not allowed, although this may change as Russia enters WTO (World Trade
              Organisation). Challenges currently facing foreign insurers in the Russian market are: (i) a lack of strong brand
              recognition and (ii) a domination of distribution channels by state owned insurers.


              REINSURANCE BREAKDOWN 2007
                            Motor                         The current reinsurance market is dominated by domestic insurers
                    Personal 2%                           Ingosstrakh and Rosgosstrakh, and by specialist domestic reinsurers
reinsurance




                      13%                                 such as Kapital Re, Transsib Re and Russian Re. This dominance is
              Liability                                   set to change and shift towards foreign reinsurers as regulations and
                10%                                       capitalisation requirements tighten.

                                  Property                Current foreign reinsurers active in the Russian market include Swiss
                                    75%                   Re, Munich Re, Hannover Re, Axa Re and Lloyd’s.




  For further information read ‘Summary of the development of the insurance market in Russia in 2007’ by Ingosstrakh, ‘Russian Insurance Market
  2009’ by PWC and ‘Russia 2010: A Lloyd’s view’ from Lloyd’s Market Intelligence department.                                           Disclaimer
RUSSIA: insurance market by class                                                                           Back To > Country Dashboard




                     NON-LIFE DWP 2007 USD 37.3BN                             CLAIMS RATIO FOR 2006                 AND 2007

                            Health                             200%                                                   172%
                             38%                               150%
                                         Property
                                           36%                                                                                      94% 96%
                                Misc                           100%                                                         70%
                                 1%                                                            55% 55%     52%57%
                                                                 50%     28% 33%
                                           Liability 3%                             8% 8%
                            Motor      Personal                   0%
                            10%          12%                            Property   Liability Personal       Motor       Misc        Health

                    The Russian insurance market is dominated by two key classes: property (voluntary) and health (compulsory).
                    The other compulsory class in Russia is motor, and together the two compulsory classes account for
                    approximately half (48%) of non-life DWP. Health dominates the compulsory sector of the market accounting for
                    75% of premiums in 2007, whilst property dominates the voluntary sector of the market, accounting for 68% of
                    the premiums in 2007. Lloyd’s writes a very small proportion of the compulsory market (approx 0.03%), but a
                    considerably larger proportion of the voluntary market (approx 0.75%).
ANALYSIS BY CLASS




                    HEALTH: Health premiums aimed at providing basic medical cover for the Russian population are paid by the
                    government to specific insurance companies, most established specifically for this purpose. Health accounted for
                    USD 14.2bn worth of premiums in 2007 and is characterised by a high claims ratios (approx 95%).

                    PROPERTY: The penetration in Russia remains low, with an estimated 15% of properties insured, and good
                    scope for future growth. Property alone accounted for approximately USD 13.4bn in 2007 and is characterised by
                    a low claims ratio (approx 30%). Lloyd’s wrote USD 30m worth of premiums in 2007 – a 0.08% market share.

                    MOTOR: Third party motor liability was made compulsory in 2003, and initially acted as a major driver for growth.
                    Claims ratio for motor are medium (approx 65%).

                    LIABILITY: This class is underdeveloped in Russia and has been growing very slowly over the last few years.
                    Rosno and Ingosstrakh dominate the liability market (worth approximately USD 1.1bn in 2007), where D&O
                    insurance is the dominant product. The class is characterised by a very low claims ratio (approx 8%). Lloyd’s
                    wrote USD 12m worth of premiums in 2007 – a 1.1% market share.

                    MAT: the size of this class in Russia is currently unknown. It is believed that the marine sector is dominated by
                    large domestic insurance companies (the main player being Ingosstrakh with an estimated 60% of market share).
                    The aviation market is underinsured and remains one of the most dangerous aviation sectors in the world.
                    Ingosstrakh is a major player in the aviation sector, and foreign companies play an important role as reinsurers.

                    CAR: Penetration is low but the class is growing and there is talk of making it compulsory. With its close ties to
                    the gas industry, Sogaz is a major player in this class.




   For further information read ‘Summary of the development of the insurance market in Russia in 2007’ by Ingosstrakh, ‘Russian Insurance Market
   2009’ by PWC and ‘Russia 2010: A Lloyd’s view’ from Lloyd’s Market Intelligence department.                                            Disclaimer
RUSSIA: insurance market by district                                                                            Back To > Country Dashboard




                                                 THE 7 FEDERAL DISTRICTS OF THE RUSSIAN FEDERATION
ANALYSIS BY DISTRICT




                       (1) Central FD, (2) Southern FD, (3) Northwestern FD, (4) Far Eastern FD, (5) Siberian FD, (6) Urals FD and (7) Volga FD.




                           NON-LIFE DWP BREAKDOWN                             CLASS BREAKDOWN BETWEEN THE CENTRAL FD
                               BY DISTRICT 2007                                           AND OTHER FD’s

                                              (4) 2%                  100%
                                     (2) 6%
                                                                                             70%                                              68%
                              (5) 7%                                   75%                                                   61%
                                                                                50% 50%                  50% 50%
                            (6) 9%                                     50%                                             39%
                                                                                                  30%                                  32%
                                                       (1) 51%
                          (3) 11%                                      25%

                               (7) 14%                                   0%
                                                                                Property     Liability   Personal        Motor          Health

                       Just over half of the insurance market (USD 19bn) is concentrated within the Central Federal District (CFD),
                       which includes the city of Moscow. The majority of liability in Russia (70%) is written in the CFD, along with half
                       of the property and personal lines business. The breakdown by class within the CFD is property (43%), liability
                       (5%), personal (14%), motor (9%) and health (29%).




  For further information read ‘Summary of the development of the insurance market in Russia in 2007’ by Ingosstrakh, ‘Russian Insurance Market
  2009’ by PWC and ‘Russia 2010: A Lloyd’s view’ from Lloyd’s Market Intelligence department.                                            Disclaimer
RUSSIA: Lloyd’s position                                                                                  Back To > Country Dashboard




            LLOYD’S GWP SIZE (USD MN) AND GROWTH                                        CLASS GWP AS % OF TOTAL DWP

            160                                           80%                          100%
                                                                      LIABILITY

            120                                                      PROPERTY           80%
                                                          40%
                                                                         MAT            60%
             80
                                                                         MISC           40%
                                                          0%
             40                                                        HEALTH           20%
OVERVIEW




              0                                           -40%                            0%
                   02 03 04 05 06 07 08                                                          01 02 03 04 05 06 07 08
           Lloyd’s GWP growth since 2002 has been erratic but largely positive. CAGR since 2002 has been approximately
           20%.

           The chart on the right illustrates how the different classes have been fairing within Lloyd’s, as a percentage of
           total GWP written by Lloyd’s, from 2001. Lloyd’s key class (MAT) has always contributed the majority of Lloyd’s
           GWP.

           Lloyd’s top 10 managing agents write approximately 30% of GWP, whilst Lloyd’s top 10 brokers place
           approximately 50% of Lloyd’s GWP



RUSSIA: distribution
           Prior to the liberalisation of the Russian insurance market, tied agents were the sole distributors. They still remain
overview




           significant today, with Rosgosstrakh (established during the communist era) benefiting from an unparalleled
           network. Brokers entered the market at liberalisation and are now estimated to handle a 10% to 15% market
           share. Bancassurance is believed to control a 3% market share.

           The top 5 insurance brokers in Russia control approximately 70% of the broker’s market share. Of these 5
           players, 3 are Russian (Insurance Broker NBSK, Insurance House Vostochnye Brokery and Insurance Broker
           Malakut) and 2 are international (Marsh and Aon). The top insurance broker (NBSK) controls approximately 45%
           of the brokers’ market share.

           The number of registered brokers has been on the rise from 67 in 2006 to 87 in 2007 and 127 in 2008. In 2008,
           total brokerage income comprised approximately USD 130m, equivalent to 0.3% of 2008 total premiums. 88% of
brokers




           brokerage service contracts concluded in 2008 were on behalf of individuals, 11% on behalf of legal entities and
           the remaining 1% on behalf of insurance companies.

           Brokerage business is largely concentrated in Moscow (58%) – the financial centre of the country. St Petersburg
           sees the second largest concentration at 9%.

           It should be noted that, due to existing legislation, brokers may not be remunerated directly by insurers. Some
           brokers have however put in place some service agreements with insurers, to take into account any work they
           may do for them.

 For further information read ‘Summary of the development of the insurance market in Russia in 2007’ by Ingosstrakh, ‘Russian Insurance Market
 2009’ by PWC and ‘Russia 2010: A Lloyd’s view’ from Lloyd’s Market Intelligence department. Lloyd’s data from Xchanging.               Disclaimer
RUSSIA: regulations                                                                                        Back To > Country Dashboard




               Russia’s insurance market now benefits from a developed regulatory and legislative structure. The regulatory
               body is the Federal Insurance Supervision Service; a division of the Russian Ministry of Finance. Since 2004,
               new regulations have (i) required an increase in capital reserves, (ii) required all brokers to obtain a licence, (iii)
               prescribed how to allocate assets and (iv) required the separation of business lines.
OVERVIEW




               This tightening of regulations has lead to many insurers leaving the market or merging together. Minimum capital
               requirements are still comparatively low, with the consequence that, notwithstanding the decreasing trend, the
               number of licensed insurers is still very high.

               There is currently continuing discussion regarding the possible extension of compulsory insurance to embrace
               other classes.




RUSSIA: catastrophes
               In the last decade, Russia has been hit by earthquakes (Sakhalin, 2007, ~USD 500m), cold fronts (Moscow,
               2006, approximately USD 1bn) and flooding (Southern Russia, 2002, approximately USD 1bn over 2 events).
               The most recent event was an explosion at the RusHydro dam in 2009 (estimated at USD 1.4bn), whilst the most
CATASTROPHES




               expensive recorded event to date (at an estimated USD 2bn) were the floods of 1991 in Volgograd.

               Climate change is likely to affect Russia in terms of the frequency and nature of future natural disasters. Russia
               will likely see an increase in forest fires, droughts and flooding, but may benefit from reduced temperatures and
               cold related incidents. Russia could also potentially stand to gain from an increase in arable land as permafrost
               melts.




     Data on distribution from a PWC report on the Russian Insurance Market. Data on Lloyd’s from Xchanging.                             Disclaimer
Appendix: Lloyd’s Data Limitations                                                      Back To > Regional Dashboard




  Please note the information contained in this document is based upon data collected from Xchanging and
  may be incomplete for some classes of business; for instance a substantial figure, which is missing from the
  REG 258 data set is comprised of UK Motor, which is not processed by Xchanging.


  Gross Premiums: Original and additional inward premiums, plus any amount in respect of administration fees
  or policy expenses remitted with a premium but before the deduction of outward reinsurance premiums.

  Lloyd’s figures are based on gross written premiums based on figures processed by Xchanging by processing
  year and country of origin.
  Country of Origin: denotes the country from where demand for the insurance / reinsurance emanates; i.e. the
  coverholder or policyholder, irrespective of the country to which the risk is classified for regulatory reporting
  purposes.
  Processing Year: relates to the calendar year in which the premium, additional or return premium is
  processed by Xchanging, irrespective of the actual underwriting year of account of the risks (which is
  determined by the inception date of each risk).


  Example: A policy holder in the UK insuring a holiday home in France would be classified as a UK risk by
  Country Of Origin, but French for regulatory reporting purposes. Similarly a risk incepting on 1st December
  2007 would be classified at 2007 underwriting year of account but may not be processed by Xchanging until
  2008 and so be allocated to the 2008 processing year




                                                                                                                       Disclaimer
Disclaimer
This document is intended for general information purposes only. Whilst all care has been taken to ensure the
accuracy of the information Lloyd's does not accept any responsibility for any errors or omissions. Lloyd's does not
accept any responsibility or liability for any loss to any person acting or refraining from action as a result of, but not
limited to, any statement, fact, figure, expression of opinion or belief obtained in this document.

				
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