How can Kazakhstan become competitive in the WTO?

26 November 2015 —
marina_shipovalovaKazakhstan's accession to the World Trade Organization (WTO) - is definitely a landmark event that will allow using the trade potential of the country with maximum benefits in the era of globalization. However, it is also important to protect the local market, including insurance one. According to Kazakh Association of Insurers (ASK), the competitiveness of domestic insurance market must be assessed not only in terms of business scale, the size of capital and assets, but also from the standpoint of equal or equivalent regulatory requirements.

In accordance with the local regulations of joining the WTO, the basic restrictions on admission on the domestic insurance market are:

1) for a transitional period of 5 years from the date of accession:

- commercial presence is allowed only for legal entities of the Republic of Kazakhstan by creating a joint stock company;

2) at the end of the transitional period, commercial presence is allowed by creating direct branches; also, Kazakhstan has the right to submit the following requirements:
  • the minimum amount of total assets of the non-resident insurance company, that has filed in an application to open a branch must amount not be less than USD 5 billion;
  • the experience of the parent insurance company of non-resident insurer should be at least 10 years;
  • the current activity of the branch should be controlled by at least two residents of the Republic of Kazakhstan.
What about reinsurance?

Among the key aspects in offering quality and competitive insurance protection are ample opportunities of the insurance organization to provide reinsurance cover for various risks.

When Kazakhstan will access into the WTO, it is possible to be introduced additional restrictions for reinsurance and retrocession operations for non-residents. Namely, the total amount of insurance premiums paid by the cedent company to reinsurance companies - non-residents of the Republic of Kazakhstan, shall not exceed 85% of the total amount of insurance premiums received by the cedent (including premiums paid to reinsurance companies) at the end of the full financial year. A similar requirement (limit) is already in force for insurance companies-residents.

Insurers Association of Kazakhstan, based on the commitments related to WTO, considers that Kazakhstan is not entitled to accept additional requirements (restrictions) to non-residents for reinsurance and retrocession except the ones mentioned above. In addition, after 3 years following the date of entry into the WTO the above limitation regarding reinsurance will not apply in respect of insurance of the following risks:
  • Risks related to maritime transport services (with the exception of cabotage services);
  • Launching and freight of space flights (including satellites);
  • The risks related to transportation of goods, the vehicles themselves and liability.
As a result, after 3 years, starting the moment of ascension to the WTO, subsidiaries of the insurance companies - non residents will have no restrictions for reinsurance related to above mentioned risks. Otherwise, it would be an unfair treatment comparing to insurance organizations - residents of the Republic of Kazakhstan, if the current requirements for reinsurance applied to residents will be maintained.

At the end of the five-year transition period after the ascension to WTO, when non-residents will be represented by branches' on the local markets, mentioned restrictions for reinsurance to non-residents will not be applicable to them for all the list of insured risks.

The Republic of Kazakhstan has the right to apply certain regulatory requirements to branches of non-residents, however, according to the Association of Insurers, there are several aspects regarding reinsurance that not ok:
  • The "cedent" company is treated as a separate legal entity, but braches do not fall in this category according to local legislation;
  • The mentioned above restrictions for reinsurance for non-residents will not apply for them for all insured risks; 
  • The obligation of the Republic of Kazakhstan not to use additional constraints in this regard, following the accession to the WTO.
Any additional restrictions that the National Bank of Kazakhstan is planning to introduce for insurance organizations - residents of the Republic of Kazakhstan on reinsurance and retrocession will put them in an even more unfavorable conditions when compared with non-residents (especially with branches).

Also, after 5 years the local authorities may impose requirements to direct branches of foreign insurance providers, such as: level of capitalization, individual guarantees and deposit requirements, solvency requirements, accounts reporting, issues related to technical reserves, etc.

In addition to all of the above, there are some concerns related to WTO restrictions and conditions in terms of co-insurance activities, such as: insurance brokerage, consulting and actuarial services, risk assessment and claim settlement services. Thus, brokers do not have restrictions for entering such insurance segments as civil liability of owners of vehicles traveling outside the Republic of Kazakhstan (hereinafter - the GPO VTS). This means that agents and brokers of foreign insurers will be able to sell to Kazakh clients Green card policies.

In addition, within the framework of Eurasian Integration (EAEC), it is programmed to implement the Agreement on Trade in Services and Investment and the Agreement on establishment the conditions for ensuring the free movement of capital till January 1st, 2022. This means a harmonization of national legislations in the financial sector in order to create a single financial market, mutual recognition of licenses, to ensure non-discriminatory access to the financial markets etc.

In this regard, the Association of Insurers is making efforts to develop specialized proposals for the development of the competitiveness of Kazakhstan's insurance market, which will provide objective competitive advantages and will raise the importance of the insurance sector in the Kazakhs' economy on following issues:
  • Preventing the regulatory arbitrage;
  • Increasing the country's capacity through creation of insurance and reinsurance capacity for national insurance and reinsurance pools, and the liberalization of the requirements for the pool members regarding solvency, reserves placement and net retention;
  • The transfer of the supervisory functions to self-regulated organizations (SRO) of the insurance market while setting a compulsory membership in the SRO for residents and non-residents;
  • The transfer of some supervisory functions to the SROs, in segments related to development and functioning of key aspects related to infrastructure of the insurance market (Motor Bureau, database, Actuarial and Statistical Office, etc.);
  • Development of economic stimulus equivalent to those found in WTO countries , that refers to instruments of social protection, method of entrepreneurial, technological risks and natural disasters handling etc.

Marina SHIPOVALOVA, Vice President, Insurance Guaranty Fund, Kazakhstan

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