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Russia Insurance Report Q1 2009
Business Monitor International, March 2009, Pages: 91
The Russia Insurance Report provides independent forecasts and competitive intelligence on Russia's insurance industry.
Russian economic growth is expected to remain highly correlated to global commodities prices through the long term. Already, oil prices have fallen sharply from their July 2008 peak and a collapse to US$50.00/bbl by 2009 can be expected. Should the price remain at this level over a multi-quarter period, we would expect exports and foreign investments to be significantly depressed, dragging on growth as well as elevating risks to overall macroeconomic stability. Indeed, the impact would be felt well beyond the oil sector, with fiscal accounts, the banking system, retail industries, exchange rate stability and fixed capital formation growth all likely to weaken concomitantly with the fall in the price of oil.
We stress that the impact of this oil price scenario will go well beyond the trade account, with the financial account also likely to bear significant downside pressures. Certainly, we would expect Russia's long-running financial account surplus (excluding reserve asset accumulation) to slip into negative territory resulting in serious repercussions across industrial sectors and the economy as a whole. While significant foreign investment has been increasingly redirected to non-oil industries, especially in the retail and infrastructure sector, we contend that much of this investor interest is predicated on the strength of the economy as a whole, which as we have established is directly correlated to energy exports.
While Russian growth would certainly decline significantly in this scenario, we believe there is a fundamental factor that should ensure the country avoids recession. Indeed, our scenario forecasts call for real GDP growth to come in at 1.6% and 2.6% in 2009 and 2010, respectively and thereafter average 3.3% in 2011 and 2012. Government spending, propped up by years of capital accumulation, both in the form of reserves and sovereign wealth funds, should go some way to offsetting the decline in foreign capital inflows. Targeted long-term federal expenditure plans to improve national infrastructure and improve productivity, while likely to be reduced in scope, should remain on the policy table. This will ensure private consumption and gross fixed capital formation growth do not collapse completely. Since the last quarter, we have made two major changes to the data in this report. First, we have – to the greatest extent possible – incorporated hard figures that have been made available by the regulator(s) and trade association(s) in each country. In some cases, therefore, we have begun to include numbers that pertain to the development of the insurance sector through the early stages of the global financial crisis. Second, we have extended our forecasts out to 2013. In all cases, we have reviewed the key growth drivers – non-life penetration and life density – that we had incorporated in our forecasts.
The global financial crisis is likely to affect the various segments of the global insurance industry in different ways. In many countries – especially in Europe – the coming recession points to softness in the non-life segment. In many cases, the numbers of policies may fall so there should be downwards pressure on premiums. By contrast, the main problem for the life segment – in almost all countries – is the extreme volatility of financial markets. Over the longer term, though, the fortunes of life insurance will recover – thanks to the secular growth of organised savings in most countries. China, where the larger insurance companies continue to achieve double digit growth in premium income, is a good example of this. Some particular niches should also do well in the current environment, such as legal liability insurance. In CEE, we profile 22 multi-national insurance companies. In alphabetical order, these are AEGON, AIG, Allianz, Aviva, AXA, Cardif, ERGO, Eureko, Fortis, Generali, GRAWE, Groupama, HDIGerling, HSBC Insurance, ING, MetLife, Prudential Financial, QBE, RSA, UNIQA, Vienna Insurance Group and Zurich Financial Services. We also discuss the regional presence of Belgium’s KBC and Austria’s Erste Bank through a number of insurance subsidiaries and explain the importance, for each of the various countries, of purely domestic firms.
We estimate that, over the course of 2008, total premiums in Russia rose by 26% to RUB930bn. Non-life premiums rose by 27% to RUB920.5bn, while Life premiums rose by 39% to RUB18.5bn. Between now and the end of the forecast period, we expect that annual Non-life premiums will grow by RUB885.61bn, while annual Life premiums should increase by RUB39.07bn. Growth in Non-life premiums should be driven by the general growth in nominal GDP plus a rise in Non-life penetration from the current level of 2.37% to 2.5%. Growth in Life premiums should be driven by the change in the overall population and a rise in life density from US$6.09 to US$15.00 per capita. BMI’s Insurance Business Environment Rating for Russia is 60.4.
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