RUSSIA: S&P: industry and country risk in the property/casualty insurance sector is high

28 November 2019 — Marina MAGNAVAL
S&P Global Ratings assessed industry and country risk in the Russian property/casualty (P/C) insurance sector as high (foreign currency BBB-/ Stable/ A-3 ; local currency BBB/ Stable/ A-2), as the agency stated in its report.

S&P noted sound profitability of the sector, an improving regulatory framework, but at the same time, the agency expects low premium growth in 2019-2020 due to the weak economic growth prospects and tough operating environment. According to the agency, one of the key segments, motor insurance, has prospects limited by MTPL gradual liberalization, competition, low level of disposable income and high use of deductions in Motor Hull.

S&P expects the combined ratio for nonlife companies to be likely below 98% and return on equity (ROE) above 13% in 2019-2020.

According to the agency, the high country risks create a difficult operating environment for insurance businesses. VAT increase, slow real wage growth, tight credit conditions, adverse investment, poor demography, export performance, which is under pressure, are among the negative factors for the Russian P/C insurance growth. S&P expects annualized spending on insurance to remain about USD 115 per capita in 2019, the insurance penetration ratio in P/C sector to be about 1% of GDP, close to Turkey and India.

Industry risk for the P/C sector is assessed by the agency as moderately high, the same as for the U.S., U.K., Turkey, the Netherlands, Ireland, and Japan.

Despite macroeconomic challenges, S&P considers the profitability of the sector as strong. Overall insurance market profitability, according to the report, is supported by corporate lines and personal accident insurance. The P/C insurance market is becoming more concentrated, with the TOP-20 players occupying 88% of the market for 1H2019 (based on GWP), and local players dominating the landscape.

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