XPRIMM: What is SWISS Re's current strategy for Russia? Did the Russian market's realities cause any change in your market approach?
Nicola RAUTMANN: First, we don't change strategies every year, and also when looking at the particular situation of this year in Russia we can confirm that there are no changes in the general outline of our strategy. What we are confronted with is a short term impact in the market, but our strategy is to be committed and to be a reliable reinsurance partner towards our insurance counterparts. That also means that we offer a wide variety of products to our clients. This is an essential part of our strategy in place and we don't want to change that.

Christian KREUTZER: Of course, we had to adapt to realities in the sense that we had to find solutions to deal with the impact of currency and fluctuation risks (note: in the 4th quarter of 2014Russia faced a sharp devaluation of its national currency, trend that continued also in the beginning of 2015). We really need to look at the specific needs of the clients in terms of how the portfolio is composed, if it is more related to business linked to Russian Ruble or if it affects also the international business and how we can reflect those needs with the reinsurance solutions we provide to our clients.

N. R: I would say that this does not state a change in the strategy for Russia as a reinsurer. It's more of what actions we took because of the specific situation which has occurred on the Russian market in 2014.

XPRIMM: Which are the main clients of SWISS Re in Russia?
C. K: I think it's important to say that all the clients we have in Russia are important because the small clients of today might be the big clients of tomorrow. We try to deal with all clients in the same manner. In terms of revenues, for sure the majority of our business is generated by the top 20 insurance companies in this market. That is a reality, a result of how the original portfolio is divided among market participants. We aim to service those large clients in the best possible manner, but at the same time, we try to adapt our business model to the needs of the smaller and medium sized clients. Sometimes is about the speed in response, the ease of doing business, if I may say so, and to lesser extent about the complexity of the underlying risks. That is what we constantly try to improve and to implement within the business models we have in place for the different segments in the market.

N. R: Maybe there is one thing to add - as a reinsurer we have some major lines of business that create the biggest share in terms of the revenue. We are not focused on motor insurance here. In Russia the most important lines for us are property and engineering, marine and aviation. Also, it's worth noting that liability is a growing line.

C. K: P&C is an important segment of our activity in Russia, year after year becoming more important. Life and Health is also a strong growing business segment for us in the Russian market. The business case there is a bit different from P&C. P&C is more about risk protection, large risk solutions. For the Life & Health side, our value proposition is related more to product development, transferring new insurance products into the Russian market and joining insurance companies here for implementing those projects. That is a strong, growing field for us as well.

N. R: This is one of those areas where the reinsurer adds ideas how we can compensate the impact of a tightening economic environment - by introducing new products together with the clients and Life & Health is a good example for that. It can mean new revenue streams for insurers and reinsurers.

XPRIMM: Do you have a specific offering for medium and small sized Russian companies who face some problems in accessing the products or the cover offered by the big reinsurance companies? How do you meet their needs?
C. K: As I said before, for small and medium sized companies, one of the essential valued proposition we, as a reinsurer, have is to provide is the ease of doing business. They need quick solutions and they also need solutions where the level of complexity fits to their needs. What we do, first of all, in terms of the business model is that we are implementing a market underwriter model for this segment where it's basically one person deciding on the maturity of the business cases with those clients. So, it's a face to face costumer solution which improves the ease of handling. In terms of the solutions -with the larger companies, we would often offer a solution for each line of business, where we deal with the complexity of the risks - with the smaller companies, it's more about protecting the overall portfolio. What you provide for them is solutions where they can have on a combined basis protection for their property, for their engineering, for their marine risks without the need of purchasing different reinsurance solutions for different lines of business.

N. R: Just to be a bit more clear because it might be a SWISS Re jargon, what we call market underwriter is a very specific approach. It is one person doing both the underwriting and the client counseling part. It's something we recently introduced on the Russian market and it is also a new resource we add to the team and with that bring more people to the business. This shows our commitment to the segment.

XPRIMM: Speaking about the market, how would you characterize the business environment offered by Russia nowadays?
C. K: When we look at our portfolio development, it's obvious that the economic downturn, the impact of premium production for insurance is influencing premium production for reinsurance. That's an immediate consequence we all need to deal with. On the other side, we can also notice, and I am now talking about the original market, that this demanding environment apparently leads to a certain level of additional consolidation in the Russian insurance market. The Russian insurance market has been a rather unconsolidated market if you compare it with many other regions in the world. With this I am saying that the number of insurance companies is gradually coming down here in Russia and the solid companies in the market actually benefit from this consolidation.

XPRIMM: In 2014 the outward reinsurance (reinsurance premiums ceded abroad by Russian companies) posted an increase of almost 4 times in comparison with the last year, while inward premiums stayed rather flat (increased by 8%). How do you comment on this?
N. R: It has a bit to do with who has been chosen to be the reinsurer and a certain consolidation in the local market. The reinsurance to peers might be partly exchanged for foreign reinsurance to a certain extent. The mechanisms of inward reinsurance and also co-insurance are common in many markets as mechanisms of risk sharing. We believe this principle of risk-sharing will stay, but the extent of sharing amongst peers could shrink. This could be an impact of the current economic situation.

XPRIMM: Let's speak a little bit about sanctions. In your opinion, how are devaluation and sanctions impacting the local insurance-reinsurance market?
C. K: First and foremost, sanctions and, in that sense, the adherence to the sanctions regime has a significant impact on the daily work. We had to implement processes, control mechanisms in order to make sure that at any given point in time, with any business decision we take that we fully comply with the sanctions regime in place. That goes for us and also goes in a large extent for our clients and brokers. It's an additional process which everyone had to implement on each and every business case. That's the first consequence. I think the other aspect which we can observe is that the whole discussion about sanctions - and we've tried to be very proactive and very transparent with how sanction regime might affect our business from a very early point in time - has actually increased the level mutual transparency. I would say this also about the level of cooperation between insurers, brokers and reinsurers because we are all in the same boat, in the sense that we have to make sure that the business we conduct together is in compliance with the sanction regimes and it also shows, from my point of view, the true value of the partnership, in the terms of being transparent, sharing observations, sharing conclusions and take them up in a proactive way at a very early point in time.

XPRIMM: Do you have, in your portfolio, some risks that are now under these sanctions?
C. K: To our knowledge we don't have any risks in our portfolio which would be under sanction. We had certain cases where we had to decline business because of the impact of the sanction regime in place. It's fair to say that this happens primarily to very specific segments, for example, on the marine side.

XPRIMM: Do you have any solutions regarding the high-rated reinsurance protection for a number of large scale, state related and strategically important Russian clients and projects?
N. R: I think this is also a topic for the direct market in Russia. What we do is to observe any developments. We, as a reinsurer, are the second player and if and when a client comes to us with such a risk, we will look at it and hopefully we'll find a good solution respecting legal developments.

XPRIMM: Recently, the Central Bank of Russia announced that they intend to create a state reinsurer to underwrite risks which are under sanctions. What do you think about this?
C. K: First, I have to say, for us this is a development which we primarily follow in terms of media coverage because it's an aspect of the business where we are not involved. There are risks under EU sanctions and therefore the Russian market is seeking for a solution for those risks. It's not something where we will be specifically involved. In the sense that this state reinsurer would finally take further risks which are not related to any sanction risks regime, I think it remains to be seen. We work in different markets where such state reinsurance companies are in place and sometimes it can be helpful - the state reinsurer provides you with a portfolio which reflects the overall market and so you would have some sort of optimization factors.

N. R: Many markets have this kind of state reinsurer, but they all look different, some are regular reinsurers and with that competitor, others are set-up in a way that it is mandatory to go through them. There are many ways to set-up a state reinsurer, it depends what kind of solution Russia presents and then we'll take it from there. The decision is not with us, it's with the market.

XPRIMM: May the existence of such a state reinsurer affect the competition on the insurance market?
C. K: I would say it depends on how large the scale of the state reinsurer, how much of the business is being monopolized by this company and that would be, from my point of view, the decisive aspect on how the competition will be affected.

N. R: There are potential benefits and, at the same time, there can be downsides. Everything comes down to the way it's implemented. It's something to discuss among the parties in market.

XPRIMM: Recently, the Russian market suffered a lot of severe losses. Do you think this will affect the reinsurance rates?
C. K: The existence of losses is not a problem. That is why we provide reinsurance capacity. One can say that when you look at the reinsurance premiums ceded by the Russian insurance market for protections for their large corporate industrial risks and if you compare that with the size of the losses, which we will always face in this market because of its economic structure, you will always have to deal with volatility. The relation of reinsurance premium versus capacity needed to protect Russian insurance companies against these high exposure risks is on a rather low level in comparison with many others European industrial markets, with this the return periods after a loss (pay back) are rather high. That is something we need to work together with our clients on solutions how to make sure that those capacities which the Russian insurance market will always need because of the economic structure of the country can be provided on the long term basis with a view to required returns.

N. R: If we circle back to your question about our strategy, Christian said having a big loss doesn't mean a change in strategy. But one could phrase it this way: When a loss happens our strategy becomes visible. We provide high valued services. This is what we want to bring to the clients. The more complicated the loss is, the better we can show there is a benefit to working with a reinsurer such as SWISS Re.

XPRIMM: What is your estimation regarding the evolution of the Russian reinsurance market for 2015?
C. K: For 2015, we will certainly see the impact of the economic crisis in terms of the premiums volumes we could generate from this market. There is no doubt about it. You can already see when you look at the first quarter results of companies, but the life segment is growing and on a midterm basis we would also see the potential and the P&C, retail business will become more prominent in this market. Now is the time to look into possible product solutions for the retail segment.

XPRIMM: What is your recommendation for your colleagues that are working in the Russian insurance market?
C. K: As a recommendation it goes for the team and to our clients: you have to look at the chances this market has. It comes along with risks, but from my point of view there is a lot more in terms of opportunity and chances.