M&A in Russia: ROSGOSSTRAKH and OTKRITIE will establish the largest private financial group

22 December 2016 — Olesea ADONEV
OTKRITIE Group and ROSGOSSTRAKH Insurance Group negotiations are in course to reach an agreement on the M&A operation to be concluded in 2017, writes the RBK Russia news portal. The merger operation will allow participants of deal to create the largest private financial group with assets of more than RUB 4 trillion and a customers database of about 50 million.

According RBK the deal is more likely to offer support for ROSGOSSTRAKH as it is currently dealing with a difficult situation, due to significant losses especialy on MTPL segment. In order to improve its financial position, ROSGOSSTRAKH needed an additional capital injections either from the shareholder or a potential investor. More details - here.

The future transaction will include the ROSGOSSTRAKH insurance company and its subsidiary bank - BANK of ROSGOSSTRAKH (ranked in the top-50 among of Russian banks). After the M&A transaction will be finalized the control of ROSGOSSTRAKH banking and insurance business will be transferred to OTKRITIE Holding, where Danil KHACHATUROV, actual owner of ROSGOSSTRAKH, will become minority shareholder, said RBK.

After the acquisition, both brands will be further kept: "This is a logical decision, because ROSGOSSTRAKH keep a strong position on the Russian insurance market, while OTKRITIE on the banking and investment segment", wrote gazeta.ru.

About the transaction participants:

OTKRITIE is the largest Russian financial group by assets and OTKRITIE Holding is the parent company of the Group. Banking is OTKRITIE's key business estimated at RUB 3.3 trillion. The Group holds a controlling stake in OTKRITIE Bank, the largest full-service private bank in Russia that ranks among the world's top 350 banking groups and is a top 10 in Eastern Europe. At the same time, the Group's investment banking business develops on the basis of investment units of OTKRITIE Bank and OTKRITIE Capital. Moreover, the other Group's companies OTKRITIE Broker and OTKRITIE Asset Management are leaders of brokerage services and asset management markets. OTKRITIE also holds minority stakes in top companies in their segments of the financial market: Baltic Leasing, Qiwi, Lukoil-Garant Non-State Pension Fund, Non-State Pension Fund of the Electric Power Industry and RCB Bank (Cyprus). OTKRITIE operates mostly in Russia, but also has investment arms in the UK (London) and the USA (New York).

ROSGOSSTRAKH, also called RGS or RGS Group, is the successor of GOSSTRAKH, the old state company for domestic insurance and has become one of the Russia's market leaders in terms of GWP after privatization. ROSGOSSTRAKH (RGS) has been around for over 88 years. ROSGOSSTRAKH includes several companies: PJSC Insurance Company ROSGOSSTRAKH, RGS Life, RGS Health, Non-State Pension Fund RGS. At the beginning of 2000, ROSGOSSTRAKH Group carried out business in a number of CIS countries: Armenia (ROSGOSSTRAKH Armenia), Ukraine (PROVIDNA), Belarus (ROSGOSSTRAKH) and Moldova (MOLDASIG).

ROSGOSSTRAKH Armenia was established in 2008 and holds a leading position on the Armenian market. Thus, in 2011 ROSGOSSTRAKH Armenia ranked second, with a market share of 24.87%. Moreover, during two consecutive years ROSGOSSTRAKH Armenia came out on the first place in the market ranking with a market share of 27.83% (in 2012) and, respectively, 29.99% (in 2013).

It is important to note, that in 2010-2012 two local insurance companies as LONDRA-EREVAN and ALFA Insurance have transferred their portfolio to ROSGOSSTRAKH Armenia. Moreover, in 2014, ROSGOSSTRAKH Armenia acquired GARANT Insurance, an insurer specialized in health insurance (with 3.42% of market share), which helped to strengthen its position on the domestic market. So, in 2014 the company's volume of business on the Armenian market, in terms of GWP, totaled EUR 18.30 million or 35.16% of market share (editor's estimation).

Untill the 2015 sale, ROSGOSSTRAKH owned in Ukraine, PROVIDNA Ukraine, (with 90.0001% of shares, while a 9.9992% share was hold by the Dutch company International Insurance Consortium). The Russian insurer acquired PROVIDNA Ukraine (former name IFD Kapital Insurance) in 2006. PROVIDNA Ukraine mainted throughout the years a 2-5% market share, ranking among the top 10 non-life insurance companies. The worsening political situation between Russia and Ukraine in the recent years, resulting in the severe restriction of the activities of Russian companies and investors in Ukraine, determined ROSGOSSTRAKH to step out from the PROVIDNA's ownership in favor of its former Dutch parner.

ROSGOSSTRAKH Belarus
was active on Belarusian insurance market between June 2010 - October 2014, when the Ministry of Finance of Belarus revoked its license, at the insurer's own initiative, as stated by the state institution. ROSGOSSTRAKH's Belarusian subsidiary had a very small market share, of 0.05% in 2011 to 0.10% in 2013. In 3Q2014, the insurer's GWP decreased by 30%, to EUR 0.27 million.

ROSGOSSTRAKH entered the insurance market of Moldova through the acquisition of a 80% stake in the local insurer MOLDASIG, the leader on the Moldavian insurance market founded in 2002 by the Financial bank (51%), the Railway of Moldova (25%) and the Moldavian Post (24%). The acquisition took place through the agency of a subsidiary from Cyprus LINEKERS Investments Limited and the company's name was changed to I.M. Moldo-Cypriot International Insurance Company MOLDASIG.

At the end of October 2011, the leader of the Moldavian insurance market extended on the Romanian market, MOLDASIG being authorized by ISC to buy the company ASITO KAPITAL. At the middle of 2012, ROSGOSSTRAKH sold its 80% of MOLDASIG's shares because "the Russian group wants to focus on the development in the Russian Federation".

The volume of ROSGOSSTRAKH business in the CIS countries reached to EUR 70 million, between 2013-2014, is the author's estimation.

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