XPRIMM: How do you evaluate the development of the Russian re/insurance market in the first half of 2015? How would you characterize the growth of the insurance market by 2%?
Vasily KOZLOV: As predicted in my last interview, 2015 will be a good stress-test for the Russian Insurance market. The local players continue to experience an increase of statutory and regulatory pressure on the market from the Central Bank of Russia. The Regulator has done a good job on cleaning the market of dubious and unstable players through an increase of reporting demands, hardening investment policy requirements and controlling the assets of Insurers. Almost 50 re/insurance companies have been forced to leave the market in nine months of 2015, while the number might seem huge, most of those companies had either something "fishy" with their assets, investments or were used for other purposes than pure re/insurance. While to most players such toughness from the regulator came as a certain shock after almost 25 years of the market being under-regulated we sincerely feel that such actions can increase the transparency of the market and help us build a more civilized, regulated market. We anticipate that the market will "lose" another 100 players in the next year or so.

The so-called "growth of the insurance market by 2%" is actually a serious downfall of the market. In the last year the Rubles' exchange rate dropped almost two times (from RUB 33.84 per USD to RUB 66.49 per USD), so basically the market went from USD 7.21 billion for the first half of 2014 to USD 3.79 billion. Another reason for the market to show such poor results - is that the Regulator ceased about 30 re/insurance licenses from the local market, among which where a few quite large players. The only reason why the market showed growth in the ruble results is, in my opinion, that the rates for Motor Compulsory Liability rose in the beginning of the year.

XPRIMM: What were SELECTA's achievements this year?
Vasily KOZLOV: Contrary to the general market trends Selecta project was promptly developing throughout this year. As a matter of fact we decided to avoid the most problematic areas of domestic insurance business like compulsory lines, travel agencies' and developers' liability and at the same time - benefiting from our team skills and experience - to put emphasis on development of our international reinsurance portfolio and domestic corporate lines of business. As a result we are rapidly spreading our nationwide network and have registered some 25 branch offices by now. We are planning to open another 10 offices in Russia by the end of the year. Our flow of business is steadily growing and after a year of our start-up we have occupied the 22nd position in the national reinsurers' ranking and significantly climbed up the rankings in the direct sector (we have increased our direct portfolio by 632% in one year). While we have performed significantly better than the market, we managed to achieve such results with very prudent and conservative underwriting - the main areas of growth are in such lines of business as property, general liability, engineering and not so much in motor, actually we try to keep our motor portfolio well-balanced and the idea is to keep it well below a 20% level in our portfolio.

XPRIMM: What were the main effects on insurance market after this year's sanction extension? How was the insurance business affected by the economical situation? What types of insurance are more affected by the national currency's devaluation and temporary increase of the bank rates?
Vasily KOZLOV: I cannot say that something significantly occurred after this year's sanction extension - the effect from the "first wave" of sanctions was rather moderate and the biggest problem local players face is finding reinsurance capacity for their clients, who were unfortunate enough to be added to the sanction list. While most of such projects are rather small and capacity can be found locally the market does sometimes see risks valued above USD 1.0 billion, which makes them significantly harder to place. I would say that mortgage insurance and motor hull insurance have been affected the most by temporary increase in bank loan rates and the rubles' devaluation, but gradually things are returning back to normal - with the bank rates returning to late 2013 levels.

XPRIMM: The higher level of losses might be the most important trend of the year 2014 for the Russian market. How do you comment about the Russian re/insurance market in the first half of 2015 in terms of losses?
Vasily KOZLOV: There haven't been a lot of large losses in 2014, however quite a large number of power generation losses, which happened earlier were settled in 2014 - this might have affected the loss ratio. Also the market experienced an enormous increase in motor losses. The first half of 2015 looks more positive for the re/insurance markets without any large/catastrophic losses, even the space industry has been performing better than in previous years.

XPRIMM: More than 40 companies have left the market in the previous 2 years. How do you comment on this aspect and what measures have been taken by SELECTA Insurance Company to adapt its business to current realities?
Vasily KOZLOV: Actually more than 40 companies have left the market in just the first half of 2015. As mentioned earlier the Regulator is cleaning the market from unstable players and this trend is likely to continue. With our capitalization and investment structure we are quite confident and are feeling safe. Such turmoil in the market is actually a bitbeneficial for us: when some insurers are forced to close their nationwide operations and are getting rid of their local networks we have an opportunity to be very selective and choose the best available options for creating our own sales network.

XPRIMM: Given the economical sanctions framework some Russian risks cannot obtain reinsurance coverage, determining the Central Bank to create a national reinsurer. As a specialist, will establishment of the national reinsurer solve the problems with reinsurance coverage for the risks under the sanctions scope or will it go in counterbalance with free-market principles?
Vasily KOZLOV: The answers are actually contained in your question. Of course, creation of a state-owned reinsurer to some extent means interference into free-market principles. On the other hand you can find successful cases of similar national reinsurance market arrangements in some countries, such as France, Belarus, Iran. In each country the national reinsurer is a bit different and how he operates is also unique.

I believe the outcome will depend on particular details of the project, which are not yet clear.

XPRIMM: What is your forecast for the end of current year for the Russian market?
Vasily KOZLOV: All trends that we have mentioned today will not change until the year-end. The Central Bank will be stick to the policy of tightening regulatory controls over the financial industry in general and insurance sector in particular. The continuous recession is unlikely to provide sufficient grounds for any improvement of the domestic insurance market or to help the market grow significantly.

The market can easily lose another 35-40 players by the end of the year.

XPRIMM: What is SELECTA's strategic plan for the Russian and CIS re/insurance market?
Vasily KOZLOV: Our company vision consists of two main points. First, we would like to see Selecta among the top players in corporate lines on the Russian market concentrating on developing the most attractive niches we can find. Second, we tend to create a portfolio that is well balanced between local direct risks and international inward reinsurance business. With this in view we look forward to developing apart from contacts with other, more distant markets, further cooperation with insurers in CIS countries. We have already been accredited in Azerbaijan and undertake efforts to expand our relations with our partners in Central Asia.