Reinsurance in the CIS - the main trends and forecasts for 2014
The objective of the reinsurers is to undertake some risks of the insurers, which they are not willing to keep due to their impact on the company's results. More precisely, the business model for the reinsurance sector is characterized by a high level of risk and volatility.
- Russia - the Russian reinsurance market is supportive but not leading the global reinsurance
- Belarus: The national insurance and reinsurance market growth trend in 2012 has continued in 2013
- Ukraine: Global reinsurers are not very active and Ukrainian insurers hold a large part at self-retention
- Kazakhstan: New requirements encourage insurance companies to work with large reinsurers
- Azerbaijan: Companies have grown regarding capitalization as well as their rising retention limits
- Moldova: The main direction of reinsurance activities of Moldavian insurance companies is outgoing reinsurance
- Uzbekistan: In 2013 outgoing reinsurance significantly declined
Russia - the Russian reinsurance market is supportive but not leading the global reinsurance
Today there are about 1,000 insurance companies which operate in the CIS, 300 of which are licensed for the reinsurance activity, including 16 specialized reinsurers which are not engaged in direct insurance. Moreover, about 10-15 high rating reinsurers are well-capitalized, their qualifications allowing them to work not only in the open markets of the post-Soviet space, but also in the Middle East, North Africa, Southeast Asia, South and Central America, and even in some cases, to participate in the risks originating in Europe and the USA.
Despite this, the share of Russian companies in the global reinsurance market in 2012 was 0.7%.
Dmitry GARMASH, Deputy CEO, UNITY Re
Speaking about dynamics and giving a comparative description of the insurance market of the post-Soviet space, Dmitry GARMASH, Deputy CEO, UNITY Re, the leader of the reinsurance market in Russia, noted that as per the volume, the FSU market already outbids the CEE one. However, in relation to the world insurance its share is still very modest - just 2-3%,- i.e. falling far below the levels of historical leaders such as the USA, Europe, China, and Japan. The volume of the non-life insurance market within the FSU territories reached about EUR 22.7 billion in 2012. For 2013, this figure is likely to exceed EUR 30 billion, taking into account the average market growth domestically. Russia remains an indisputable leading market within the region.
In 2012, the reinsurance market in CIS/FSU grew to EUR 1.5 billion (inward reinsurance) and respectively to EUR 3.5 billion (outward reinsurance). It seems that these figures would remain rather at the same level in 2013. But for this reinsurance segment, the share of the market within the global worldwide reinsurance is even smaller, amounting to just 1%. However, during the last 2 years FSU reinsurance has stopped its continuous drop trend started in 2005 and now shows stabilization and even some growth. The ground for this change comprises the qualitative consequences of the financial crisis of 2009-2010, new regulating legislation initiatives imposed recently (including a significant rise in a minimum paid-up capital requirement for reinsurers), some M&As, the market consolidation, costs optimization and the development of new business strategies.
Moreover, the FSU market remains less-exposed to any global reinsurance trends: here there is still no insurance cycle with relation to reinsurance pricing and conditioning, and the dynamic record of claims is different from the rest of the world.
With respect to UNITY Re we are delighted to outline that the company keeps on developing as an indisputable market leader among the specialist reinsurers in the FSU territories. As per 2012 we wrote over USD 52 million in premiums and finished the year with a combined ratio of 76% and a recorded net profit of over USD 11 million per IFRS. The 2013 year results seem to appear even more outstanding - somewhat around USD 65-70 million in GWP, while the loss environment looks rather negative compared with previous years. However, we do feel optimistic about the 2014 perspectives and forecasts and look forward to strengthening and extending our business positions further.
Irina POSTNIKOVA, General Director, TRANSSIBERIAN Re
The Russian reinsurance market is supportive but not leading the global reinsurance. Its share is essential for the CIS, Eastern Europe and the low-rating Asian markets. If we have a look at the volume of continental, English, Japanese and Bermudan reinsurers, then it does not make any sense to calculate the share of the Russian reinsurance market.
If in 2012 there was significant growth in the Russian reinsurance market (+21.6 %) the first time after several years of decline and stagnation, then in 2013 we forecast that the growth will not be as impressive - about 5%. Thus, the Russian reinsurers could collect much more, taking into consideration their capital. However, the Russian economy does not give such prizes, and expansion into foreign markets is constrained by the low ratings of Russian companies, largely due to the low sovereign rating of Russia.
The Russian reinsurance market substantially integrated into the international one. In Russia remain single risks with premiums from 300-500 to 3000-5000 USD, meaning those which are not considered by Western companies (underwriting profitability calculation). There is optional reinsurance worth over USD 20-50 million which is transferred abroad and also shares in obligations of all major insurance and reinsurance companies. Consequently, the Russian market is totally dependent on the global market when buying reinsurance capacities and large losses, and in recent years we have had them enough.
TRANSSIBERIAN Re - the oldest Russian reinsurer and the main market is Russia. For the last seven years the share of received premiums from abroad for the Company has reached half of the volume of gross premiums or even exceeded it. The company has significant capacities for the Eastern European and CIS insurers, amounting to USD 35 million for Property and Construction & Assembly risks. The company's capacity for the rest of the world covering Property risks is USD 5 million and for Marine risks - USD 6 million. Its capacity for on shore Energy risks for business in Russia and the CIS countries is USD 10 million. The company's strategy is to fill up those capacities with risks corresponding to our underwriting policy. During 2013 the volume of reinsurance increased by 20%.
Belarus: The national insurance and reinsurance market growth trend in 2012 has continued in 2013
Mikhail I. BULAVKIN, General Manager, BELARUS Re
There are 25 companies on the insurance market of the Republic of Belarus. However, only BELARUS Re specializes in reinsurance. The key activity of all other insurance companies is direct insurance while the reinsurance is used exclusively to secure the balance risk portfolio. BELARUS Re has been on the reinsurance market since 2007 and its international risk share increases year on year. Active area diversification with international insurance and reinsurance companies along with continuous search for new markets and partners contribute to that. At present BELARUS Re underwrites international risks based on the leader's terms and conditions. The scope of the inwards reinsurance by the standards of the international markets is insignificant. While analyzing the whole Belorussian market in the structure of international reinsurance capacity, it can be stated that its capacity is also insignificant. The growing need for reinsurance requires acquiring reinsurance coverage abroad.
Today it can be said without doubt that the national insurance and reinsurance market growth trend in 2012 has continued in 2013. Much of it is owed to the implementation of the large-scale infrastructure projects in the Republic of Belarus, in particular the beginning/start of the Belarusian nuclear power plant construction and the country's preparation for Ice Hockey World Championship in 2014.
Capitalization of the main players of the Belarusian market, including BELARUS Re, is of special importance. It has a positive effect on the company's business development. As for the 2014 business expectations, we pursue to the optimistic forecast in respect of the future development of the national insurance market. Next year's milestone moment can be the insurance legislation change. The adoptions and amendments will focus on the further liberalization and creation of more competitive business.
As stated before, Belarusian insurance companies are mostly oriented towards the national market and, to a lesser extent, they are connected to the international reinsurance. Meanwhile, it should be noted that BELARUS Re's priority is the activity on the international reinsurance market. Our company acts properly with international partners, accumulating the necessary experience in the sphere of international reinsurance and developing new directions of cooperation with international insurance and reinsurance companies. While implementing large-scale national projects, BELARUS Re purchases retrocession coverage from international companies. The existing surplus capacity on the international market allows choosing the optimum alternative and coverage cost. Quotations offered by the international partners serve as a guideline and have a great impact on insurance pricing on the national market and also allow adopting international experience and standards in the sphere of insurance and reinsurance.
It is worth mentioning that international market segments such as catastrophe risk reinsurance are of high priority now. This trend can be explained by the global growth of the number and the scale of natural disasters and natural catastrophes. Our company sees this line of activity as prospective and puts efforts into broadening its participation in these risks.
As of BELARUS Re's activity for the first 3 quarters of 2013, premiums written compared with the same period have grown by 205%, the combined loss ratio being 22.2%. The company takes the 2nd place in net profit volume among non-life insurance companies of the Republic of Belarus.
Ukraine: Global reinsurers are not very active and Ukrainian insurers hold a large part at self-retention
Sergey CHERNYSHOV, Chairman of the Board, LEMMA
The Ukrainian market is weakly affected by the international market, because it is poorly integrated into it. The share of Ukrainian companies is not very significant because of the risk structure and taxation.
In respect to the share of coverage bought from global reinsurers by the Ukrainian market, it is not significant due to the fact that Ukraine is in a zone which is not exposed to catastrophic losses and therefore global reinsurers are not very active on this territory; risks are not large enough and well-diversified. More so, Ukrainian insurers hold a large part at self-retention.
Redistribution of reinsurance premiums abroad is not very welcomed for two reasons: 1) a 3% tax on premiums and 12% on indemnities to non-rated reinsurers - non-residents, 2) at the same time rated reinsurers provide scanty coverage at expensive prices.
The main innovation in 2013 is the introduction of advance payments of income tax for the Ukrainian insurance companies, and this is a problem for the Ukrainian insurance market. Ukrainian insurers pay income taxes respective of the loss. Aditionally, in 2013 they also have had to pay advance tax payments of income tax on the basis of the previous financial year's results, and regardless of the results of the current year. Also, in 2013 there was a redistribution of spheres of influence in Ukraine, which particularly affected the MTPL market.
Now, in what concerns the expectations for 2014 everything will depend very much on the perception of Ukraine by external rating agencies and adjusters. Unfortunately, they do not often have objective information but mostly use the information from mass media, which does not always reflect the real situation as it just hyperbolizes problems.
LEMMA has successfully worked on the insurance market of Ukraine since 1994 specializing in insuring complex risks of the corporate sector: financial, export credit, construction, nuclear, space risks and oil & gas industries. Over 10 years, the Company has firmly held the primacy of public Ukrainian insurers on key indicators of financial stability and is a leading exporter of insurance services. In 2012 its export share represented 86.33%. LEMMA follows the international financial reporting standards; it is audited by the international auditing company BDO; it is assigned an investment category rating by accredited Ukrainian and Russian rating agencies, and since 2006 it has been the only company in Ukraine that each year receives the rating process by one of the most reputable international rating agencies AM Best.
Kazakhstan: New requirements encourage insurance companies to work with large reinsurers
Renat TEMIRBEKOV, Underwriter, Reinsurance Department, EURASIA
According to the information provided by the Committee for Control and Supervision of the Financial Market and Financial Organizations of the National Bank of the Republic of Kazakhstan, on 1 October 2013 the total assets of insurance/reinsurance organizations amounted to KZT 526,219 million (USD 3.4 million). The volume of total reinsurance premium was KZT 60,432 m. (USD 395 million) or 30% of the total market insurance premiums. Out of the total insurance premiums, 25.2% were given for the reinsurance of foreign companies. Total reinsurance premiums received by insurance/reinsurance organizations under reinsurance agreements equals KZT 19 059.4 million (USD 124 million), of which reinsurance premiums accepted from foreign companies reached KZT 10.2 billion (USD 67 million).
The reinsurance market in Kazakhstan is developed and supported through the improvement of reinsurance rules by the Regulator making the requirements for reinsurance companies tougher. For instance, rating requirements for foreign reinsurers have been established. In order to transfer a risk to a foreign reinsurer with a low rating, a local insurance company first has to offer the risk to ten local reinsurers. If the local reinsurers decline the risk or if it is not fully placed, the insurance company has the right to transfer the risk to a foreign reinsurance company with a rating lower than "A". The new requirements encourage insurance companies to work with large reinsurers, to increase the capital and the Kazakhstan content in reinsurance.
The international reinsurance market plays a very important role in the development of the insurance industry in Kazakhstan. There is a high development potential of the Kazakhstani insurance / reinsurance market. There are more than 4 thousand insurance products in Europe and the USA, whereas in Kazakhstan there are only about 40-50 products.
EURASIA currently participates in the reinsurance (facultative and treaty) of risks located in over 130 countries worldwide. Eurasia Insurance Company underwrote 49% of the total reinsurance placements on the Kazakhstan insurance market, and about 90% of the total reinsurance placements from abroad (USD 60 million).
Eurasia has had a rating assigned by AM Best of 'B++' which was reaffirmed on 27 February 2013; Eurasia continuing to be one of the highest rated companies in the region. Eurasia Insurance Company is included in the number of insurance leaders in the CIS countries and is approved by the leading insurance brokers - Marsh, Willis, AON, Guy Carpenter and Cooper Gay - in an international reinsurance market.
Azerbaijan: Companies have grown regarding capitalization as well as their rising retention limits
Fuad KULIYEV, Chairman of the Management board, AZ Re
Analyzing the development of the local reinsurance market in Azerbaijan in 2013, one can say that despite the significant increase in overall insurance market premiums the reinsurance market, although in line with expectations, did not grow proportionally to the direct market. The reason for this is the raising capitalization of Azeri insurance companies as well as their rising retention limits. We also expect to see the development of this trend in 2014. The share of Azerbaijan in the international reinsurance market is very small indeed - far below 1%. The Azeri reinsurance market depends of course on the international market conditions, e.g. the price for the reinsurance coverage; however, it depends to a greater extent on the in-country direct market, which is rather isolated.
The Parliament of Azerbaijan has recently passed amendments to the insurance law to take immediate effect with the President's signature which is expected any day now. One of the changes awaited is the introduction of obligatory licensing for reinsurance operations. Earlier a license for a certain line of insurance allowed inward reinsurance for the same line of business, now this is to be changed. The amended law will also impose higher requirements for the assets of a company that wishes to obtain a reinsurance license than those for a direct insurance license. After the changes come into effect we expect that some of the insurance companies on the local market will have to quit the inward reinsurance business. On the other hand, the further increase in companies' insurance premium income will naturally lead to more treaties to be bought by the local players as well as to the increase in the limits under the already existing treaty programs.
Another development trend that we expect in 2014 is the increase in the Azeri risks cessions to the internationally-rated reinsurers. We base our expectations on the growing demand of the local companies for rated reinsurance. Being the leading reinsurer in Azerbaijan with a local market share of about 40-45%, we aim at maintaining a high growth rate in 2014 relying not only on the enrichment of cooperation with the in-country market but also on a more active cooperation with the international markets. We hope that a rating awarded by a well-known international rating agency will help us in both of these directions. We have been already involved in the process of preparation for the rating and plan to complete this project in the first half of 2014. As for the results of 2013, we shall announce a 25% increase in reinsurance premiums compared with last year, as well as a 20% capitalization increase.
Moldova: The main direction of reinsurance activities of Moldavian insurance companies is outgoing reinsurance
Vitalie POLIVENCU, Director of Insurance-Reinsurance Department, MOLDASIG
Currently, on the insurance market in the Republic of Moldova there are no reinsurance companies engaged only in reinsurance activities; at the same time the main focus of the reinsurance activity of Moldavian insurance companies is outgoing reinsurance assumed by placing risks on direct insurance contracts. Incoming reinsurance is developed in small volumes by Moldavian insurance companies and as an exception they support partners for reinsurance.
The main factors affecting the participation of the reinsurance market in large international programs are the lack of an international ranking of economic stability of the country and companies in particular, as well as the small amounts of possible participation in these programs.
Taking into consideration the fact that the main direction of the reinsurance activity is the placement of direct insured risks, the fundamental task of each of the companies is to coordinate favorable terms of reinsurance programs better and more economically.
In the structure of the reinsurance premiums the dominant position traditionally falls to property insurance, which in recent years shows positive results on the territory of Republic of Moldova due to the lack of manifestations of catastrophic risks and large losses. While in large reinsurance companies the number and volume of reinsurance payments in different international regions is growing from year to year, these conflicting indicators attract international reinsurance market players to participate in the reinsurance program of Moldavian insurance companies. On the other hand, a negative result in other European and worldwide regions is causing more inflated reinsurance rates. Having this background, the drop in insurance rates continues in the context of the critically small insurance market of the Republic of Moldova, which often leads to the minimization of the reinsurance revenues, and in some cases, the rejection of the placement of large risks by unfavorable reinsurance conditions. Also, from year to year the situation is getting worse as for the placement of motor risks, on condition of a high level of negative profitability at the same time when some companies can afford to use dumping policies in the pursuit of statistical results.
As a long term leader on the insurance market of the Republic of Moldova, MOLDASIG is very carefully monitoring its liquidity, trying each year to implement more reliable and cost-effective reinsurance programs. As the leader of collected premiums, the company proudly complies with its obligations to pay insurance claims, leading the rating of paid losses, at the same time being far ahead in the index of reinsurance premiums paid. All major obligatory reinsurance programs are implemented with the participation of international rating reinsurance partners. Respectable and proper application of reinsurance policies by MOLDASIG is the basis for long-standing and reliable cooperation with the leaders of the international reinsurance market.
Uzbekistan: In 2013 outgoing reinsurance significantly declined
Ravshan E. DJURAEV, General Manager, SAIPRO
The insurance market grew rapidly in parallel with the increasing demand for high quality reinsurance services. It should be noted that today Uzbek insurers actively use reinsurance instruments on both local and foreign markets. The local market for reinsurance risks are taken over by insurers whose authorized capital meets the minimum requirements for reinsurance companies (up to the equivalent of EUR 6.0 million). In addition, the presence of various major risks such as energy, aviation insurance, etc. requires the use by local insurers of the capacities of international insurance markets.
Analysis of the dynamics of reinsurance operations volume shows that for 9 months of 2013 the outgoing reinsurance has decreased significantly compared with the same period of the last year. During the first 9 months of 2013 the insurance companies transferred for reinsurance the premiums for about UZB 26.9 billion, which is 28.2 percentage points less than the same index of the corresponding period in 2012. In contrast to the 9-month results of the previous year for the first 9 months of 2013 the turnover for incoming reinsurance premiums has increased and amounted to UZB 20.5 billion. Judging by the 9-month results of the year 2013 in terms of insurance premiums transferred to reinsurance, the first three positions in the market are occupied by the following insurance companies - ASIA Insurance (54.27%), UZBEKINVEST (13.88%), and SUGURTA Uz (12.84 %).