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Russia Insurance Report Q2 2008
Business Monitor International, May 2008, Pages: 34
The Russia Insurance Report provides independent forecasts and competitive intelligence on Russias insurance industry.
As was the case in Q108, the main focus of this report is BMI’s proprietary Insurance Business Environment Rating (IBER). The rating brings together a number of pieces of relevant quantitative data, together with BMI’s Country Risk Rating (CRR). The IBER makes it easier for the business environment for the insurance sector in a particular country to be compared with the business environment for any other industry in that country that is surveyed by BMI. The IBER also allows an objective and meaningful comparison of the business environment for the insurance sector in one country with the business environment for insurance in another country. Over the coming months, we will substantially change the format of the BMI insurance reports. In essence, we will focus to a much greater extent on the companies that are active in the non-life and life segments.
We have revised upward our real GDP growth forecasts for Russia and are now anticipating economic expansion to average 6.4% until 2012. Our core views regarding the trends in the drivers of future growth remain unchanged however. While developments in net exports will continue to weigh on overall growth, an acceleration of capital investments and government consumption, alongside sustained robust private consumption, will keep the economy humming over the long term.
United Russias dominance of parliamentary elections held on December 2 2007 reinforces our view that President Vladimir Putin and Kremlin-backed institutions will continue to dominate the Russian domestic policy agenda over the long term. With Putins popularity reinforced by United Russias success, we can expect him to remain in a position of significant authority after he steps down as President. Russia’s IBER is 60.4. Relative to other countries in Central and Eastern Europe, it is a moderately attractive insurance market for foreign insurers. Within the region, Russia stands out for the current size of the non-life segment and the likely absolute growth in non-life premiums. The economic outlook is germane. Government policies are likely to remain constant over the long term. However, the IBER is held back by the underdevelopment of the life segment and the financial infrastructure. It is also held back by the legal framework and bureaucracy in Russia.
Over the forecast period, we anticipate that non-life premiums will grow by 20% annually in local currency terms and by 25% in US dollar terms. Life premiums are expected to increase by 22% annually in local currency terms and by 28% in US dollar terms. The key drivers of growth in the non-life segment in 2007-2012 are the anticipated rise in nominal GDP from around US$1,212bn to US$2,872bn and an expected increase in non-life penetration from 2.32% of GDP to 3.00%. The key driver of growth in the life segment is the envisaged rise in life density from a miniscule US$9 per capita in 2007, to US$30 per capita in 2012. Russia’s total population is declining.
The competitive landscape, in both the non-life and the life segment, is fragmented. Both segments are open to participation by foreign groups, although foreigners are more important in the life than in the non-life segment. Even Rosgosstrakh, the former domestic state-owned monopoly insurer of the Soviet Union and still the largest player overall, appears to have only a single-digit market share. The number of very small insurers - some of them effectively captives - is still in the hundreds, but is falling steadily. Russia’s non-life segment is relatively new, but has clearly moved beyond Compulsory Third Party Motor Liability (CTPML) business which, in press and official reports, is sometimes referred to by its Russian initials OSAGO. Unusually, Compulsory Medical Expenses Insurance (CMEI) is one of the largest lines, and accounts for just over one third of the non-life segment (and, therefore, effectively the entire insurance sector). Voluntary property insurance - including voluntary motor insurance (CASCO) - accounts for another third of total premiums. By contrast, CTPML is less than one tenth of the total.
The main weakness of Russia’s insurance sector is that Russians hardly use life insurance for long-term savings. To the extent that they do, they appear not to trust local groups: major foreign companies appear to have a far stronger position in the life segment than they do in the non-life segment.
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