Reinsurance in Russia: 2017 MOSCOW 2018
Data Source and Report Purposes "We are pleased to present our regular overview of the reinsurance market, which was made by RNRC on the basis of the public statistics of the Central Bank. Nikolay Kuznetsov, Chief Actuary, RNRC Nickolay.Kuznetsov@rnrc.ru Our aim is to provide the market and all interested parties with a fair view of the changes on the Russian reinsurance market. The Report is based on quarterly statistics published by the Bank of Russia. As the Bank of Russia prepares its statistics using reports that are subject to adjustment, some indicators for some of the companies have been adjusted. In particular, the Report contains RNRC's final data from financial statements. We are always ready to answer any questions concerning these reports which have become our regular practice." 2
TABLE OF CONTENTS Inward reinsurance o Premium growth dynamics o Market structure o Leaders o Geography o Market concentration Outward reinsurance o Dynamics o Structure o Geography o Leaders o Loss ratio o Balance with the international market Paid claims 3
Inward reinsurance market dynamics Dynamics of the inward reinsurance market (million RUB) In 2017, the downward trend of the inward reinsurance market continued. The market declined by 2.6% only. If not for RNRC, the decrease would have reached 24%. 44 732 12 803 48 447 16 063 35 233 35 890 34 952 17 211 16 818 13 290 The Russian inward reinsurance market has grown by 13.6%. If not for RNRC, the market would have seen a 26% drop in premiums. What is worth noting is an unexpected reduction of inward business placed from Russia with SOGAZ and ROSGOSSTRAKH. SCOR has become considerably less active on the Russian market. The decrease in international risk premiums of Russian companies continued and made 21% of that recorded in 2016. In 2017, the share of international business was notably less than in 2016: 38% vs. 47%. 31 929 32 384 18 012 19 072 21 662 2013 2014 2015 2016 2017 premiums ceded by international market The decrease in premiums was partly due to the strengthening of the Russian ruble being 12% on an annual average basis. A notable impact was made by the reduction of international business by INGOSSTRAKH, CAPITAL INSURANCE, AIG, SCOR, and SELEKTA. The latter has had its license suspended and eventually withdrawn. Such reduced performance in both segments was significantly due to winding-up of UNITY RE. premiums ceded by Russian insurers 4
Inward reinsurance market structure Inward reinsurance market structure 2016 Inward reinsurance market structure 2017 3,2% 6,6% 4,2% Financial risks 10,2% 3,5% 7,5% 4,8% Agricultural 10,9% 2,0% 53,8% 9,1% 4,5% 1,8% 4,0% Liability, including hazardous industrial facilities Compulsory insurance of hazardous industrial facilities Compulsory carrier liability insurance Voluntary medical and accident insurance 55,1% 7,5% 4,1% 1,4% 2,8% Marine Despite significant changes in individual companies, the overall structure of the market remained stable. What is special about 2017 is that the shares of certain types of business changed in opposite directions in the 1st and 2nd half of the year: growth of the share of compulsory liability insurance (hazardous industrial facilities and carriers liability) and decline of the share of corporate property business in the 1st half of the year were followed by respective opposite trends in the 2nd half. Changes in compulsory business are technical and are due to changes in the accounting regulations. The less significant among these changes in absolute terms is a drop in the share of land transport hull business (mainly due to a decrease in premiums of SCOR from the Russian market). A considerable growth of the share of personal property business due to SOGAZ gave way to negative premiums under this type of contracts for the year as a whole. 5
Leaders of the inward reinsurance market RNRC SOGAZ INGOSSTRAKH CHUBB SCOR P.O. VTB INSURANCE ALFASTRAKHOVANIE AIG INSURANCE RUSSIAN REINSURANCE RESO-GARANTIA ROSGOSSTRAKH ALLIANZ CAPITAL INSURANCE VSK SOGLASIE TIT ENERGOGARANT MEGARUSS-D CREDENDO-INGOSSTRAKH MAKS 148 485 779 025 805 252 596 192 559 677 552 482 1 181 397 527 771 810 275 444 717 476 677 383 331 375 563 266 254 326 169 231 334 43 275 168 175 240 652 127 635 157 408 1 507 378 2 219 392 1 416 069 1 478 474 1 411 562 1 397 451 1 079 696 1 651 313 985 836 915 703 605 238 2 694 986 2 082 950 5 351 872 5 665 628 22% 2017 2016 7 703 667 6 689 677 8 242 974 RNRC's share in the total amount of premiums (thousand RUB) RNRC has increased its market share and for the first time ranked first among the leaders. The previous leaders, SOGAZ and INGOSSTRAKH, showed a reduced performance in their reinsurance business. For SOGAZ, the fall was mainly due to a decline on the domestic market, while INGOSSTRAKH lost its ground on international markets. UNITY RE and SELEKTA have fallen out of the top list. 6
Leaders of the inward reinsurance market in the Russian Federation RNRC INGOSSTRAKH SOGAZ VTB INSURANCE SCOR P.O. ALFASTRAKHOVANIE RESO-GARANTIA RUSSIAN REINSURANCE ROSGOSSTRAKH ALLIANZ VSK SOGLASIE ENERGOGARANT CAPITAL INSURANCE TIT MEGARUSS-D AIG INSURANCE MAKS UNITED INSURANCE PARI 148 285 1 074 439 935 239 726 125 764 366 680 986 533 672 552 245 1 955 182 531 105 525 780 453 957 695 255 383 018 420 914 250 586 302 853 239 082 316 294 234 380 259 044 203 377 43 270 182 298 142 279 119 601 150 137 112 704 134 857 98 661 116 663 1 870 104 3 254 539 1 273 682 1 187 030 1 221 325 1 716 223 3 017 885 2 547 514 [VALUE] 2017 2016 34,6% RNRC's share in the total amount of premiums written in the Russian Federation (thousand RUB) RNRC accounts for about 35% of the Russian inward reinsurance market. If not for written premiums of RNRC, the inward reinsurance market would have seen a 26% drop instead of growing by 13.6%. INGOSSTRAKH posted a 18% increase and SOGAZ saw a 43% decrease in inward reinsurance premiums. The latter was due to almost a twofold decrease in premiums under corporate property insurance contracts. A significant drop in premiums of ROSGOSSTRAKH was caused by a decrease in premiums in the corporate property business, probably due to no intra-group operations with CAPITAL INSURANCE to place insurance of Lukoil. SCOR saw a drop in premiums due to decreased premiums under hull and machinery and accident insurance contracts. 7
Leaders of the market of inward reinsurance from abroad 0,5% SOGAZ CHUBB INGOSSTRAKH AIG INSURANCE ALFASTRAKHOVANIE CAPITAL INSURANCE RUSSIAN REINSURANCE SCOR P.O. RNRC CREDENDO-INGOSSTRAKH TIT VTB INSURANCE LEKSGARANT VSK LIBERTY INSURANCE SELEKTA ALLIANZ SOGLASIE ARSENAL ROSGOSSTRAKH 337 123 462 212 313 400 865 103 304 850 382 031 286 053 503 169 205 106 200 168 175 240 652 148 951 116 519 142 387 291 444 90 588 104 571 73 814 115 020 71 310 36 825 66 090 414 467 65 087 33 897 61 699 55 763 54 291 50 756 52 993 127 768 897 398 1 509 034 2 630 762 2 691 184 2 333 987 3 118 114 1,5% RNRC's share in the amount of premiums written abroad 2017 2016 4 819 573 4 988 435 (thousand RUB) All notable players of the market of inward reinsurance placed by foreign insurers experienced a decrease in their business. One of the reasons was the strengthening of the ruble, leading to a decrease in the Ruble equivalent amount of premiums. The largest loss was suffered by INGOSSTRAKH. Its premiums decreased notably in all types of business, with the largest drops observed in corporate property and aviation hull sectors. CAPITAL INSURANCE has lost a significant amount of inward reinsurance business from Bulgaria. SELEKTA essentially left the market in 2017. The international business of RNRC has not reached any significant volume yet, as its operations on international markets started in Q2 2017 after international rating assignment by Fitch (BBB-). 8
Countries ceding premiums to Russia Top 20 leading countries in terms of the amount of premiums ceded to Russian insurers UK GERMANY INDIA FINLAND UNITED ARAB EMIRATES CHINA KAZAKHSTAN BELARUS UKRAINE SLOVENIA MOLDOVA FRANCE KOREA GEORGIA BULGARIA SWITZERLAND UNITED STATES TAJIKISTAN ARMENIA UZBEKISTAN 1 106 675 996 022 494 841 827 806 1 498 882 725 888 669 323 683 329 458 398 501 400 757 875 437 682 407 699 408 452 622 499 309 249 75 509 298 894 242 901 286 880 451 910 230 909 245 777 200 599 245 059 199 719 740 112 190 147 220 740 188 370 206 066 140 448 163 312 138 850 210 120 108 548 131 537 2 657 430 2 862 265 2 355 396 (thousand RUB) 2017 2016 The amount of premiums ceded to Russian reinsurers has decreased for the majority of countries. The most notable decrease is recorded for Germany. This is due to a dramatic reduction of inward business placed from this country with SOGAZ. At the same time, SOGAZ was able to make up for the lost business on account of India, China and the UAE, resulting in growth for these countries. A small drop in premiums from the United Kingdom was due to a decrease in premiums of INGOSSTRAKH, as well as a decline in Kazakhstan. For Finland, almost a twofold decrease in premiums was due to AIG. For Bulgaria, the decline was due to CAPITAL INSURANCE. The growth of premiums from Slovenia is also associated with this company. 9
Inward reinsurance market concentration Market shares of Top 2 and Top 10 leaders of the inward reinsurance market 85% 77% 70% 65% 47% 50% 51% 37% 39% 35% 41% 20% 23% 23% 2012 2013 2014 2015 2016 2017* 2017 excluding RNRC including RNRC Top 2 Топ-10 The trend towards the concentration of the inward reinsurance market continues. Following a decrease in premiums from international markets, the share of Russian companies among the top 10 players is growing. In 2017, the Top 3 companies accounted for more than half of the market. 10
Outward reinsurance market dynamics Dynamics of the outward reinsurance market (million RUB) 120 157 83 172 138 448 101 398 36 985 37 050 120 633 98 449 112 548 87 588 22 184 19 568 22 013 2013 2014 2015 2016 2017 premiums ceded in Russia 132 116 109 601 In Q4 2017, the decline of the outward reinsurance market became somewhat faster. While at the end of the 1 st half of 2017, the market decreased by 10% and at the end of 9 months by 13%, the aggregate drop for the year was 17%. This was partly due to the effect of the transfer of some placements, first of all, of Lukoil. The assessment of 2017 performance should take into account changes in the accounting policies. The effect of this factor cannot be assessed without obtaining detailed information from each company; however, it could be assessed as several billion rubles. Premiums ceded to international markets have continued to go down and by the end of the year, decreased by 22% (9 months: 21%; half year: 14%). On the contrary, the Russian market grew by 12%, but only due to RNRC which transferred some premiums from the international market. If not for RNRC, premiums ceded in Russia would have dropped by 27%. Consequently, the share of international business in the total ceded premiums decreased from 85% in 2016 to 80% in 2017. Ceded premiums totaled RUB 110 billion. No significant growth of premiums is expected in 2018. The dynamics will largely depend on the ruble exchange rate. In addition, premiums under property developers liability reinsurances are expected to decrease, and the general trend towards market consolidation and increase in retentions will continue, also resulting in negative effects on the amount of outward reinsurance. premiums ceded abroad 11
Dynamics of the outward reinsurance ratio Ratio of ceded premiums to direct and assumed premiums, excluding life insurance and compulsory motor third party liability insurance 16,4% 17,8% 17,0% 17,2% 13,6% 2013 2014 2015 2016 2017 In 2017, ceded premiums not only showed a decline in absolute terms, but also substantial structural changes. The ratio of ceded premiums to total direct and assumed reinsurance premiums dropped notably (excluding life and compulsory motor third party liability business, as such risks either may not be ceded or are insignificant). As premiums are carried forward between the years, this indicator will be adjusted to some extent, approximately up to 14.3%, which is, however, much below the rather stable figures posted in previous years. 12
Risks with smaller shares Ratio of ceded premiums to direct and assumed premiums (voluntary business) Total life Total personal Total liability 0,3% 0,4% 2,9% 3,6% 28,5% 25,7% In 2017, the shares of ceded risks in certain segments changed significantly. Corporate property business was strongly impacted by the transfer of premiums of CAPITAL INSURANCE and a notable decrease in the share of ceded premiums of ALFASTRAKHOVANIE and INGOSSTRAKH. On the other hand, the market leader, SOGAZ, notably increased the amount of premiums ceded in this business. Total property Corporate property Business risk Cargo Hull and machinery 5,9% 8,0% 19,7% 23,9% 26,7% 28,2% 42,6% 48,5% 64,2% 75,8% In liability insurance, there was a significant increase in the share of ceded premiums in aviation liability business. Both the share and absolute amount of ceded premiums in contractor default business also grew, presumably due to growth of written premiums in property developers liability reinsurance. A decrease in the share of ceded business risks was almost totally due to the leader of the segment, SOGAZ, which was able to increase its direct premiums while keeping the reinsurance premium unchanged. Aviation hull Financial risks 8,3% 10,3% 51,4% 62,8% The share of business risk reinsurance is notably higher than that of corporate property business, mainly on account of business interruption insurance. Marine 21,4% 27,9% Personal property 0,9% 3,6% Agriculture 22,8% 16,5% 2017 Railway 12,2% 11,2% 2016 13
Outward reinsurance market structure Outward reinsurance market structure 2016 Outward reinsurance market structure 2017 0,7% 1,4% 4,5% 5,3% 7,3% 1,2% 11,4% 4,8% 5,8% 0,5% 8,1% 0,9% 14,1% 0,5% 2,5% 0,7% 2,4% 46,5% 6,8% 1% 45,1% 7,0% 0,9% 10,5% 8,8% Financial and business risks Liability including hazardous industrial facilities Compulsory carrier liability insurance Marine Corporate property Life Agriculture Compulsory insurance of hazardous industrial facilities Voluntary medical insurance and accident insurance Hull and machinery Personal property Railway 2017 saw a notable decrease in the share of hull and machinery insurance, although we expected a larger fall in this segment. The share of liability insurance has somewhat increased due to growth of aviation liability and property developers liability businesses. The share of corporate property insurance decreased to some extent, largely due to the transfer of reinsurance of Lukoil, as was mentioned above. The share of personal reinsurance has dropped dramatically by more than RUB 1 billion in absolute terms mainly due to ROSGOSSTRAKH. 14
Share of treaty reinsurance TOTAL SOGAZ INGOSSTRAKH SOGLASIE ALFASTRAKHOVANIE VTB INSURANCE RESPECT ALLIANZ RESO-GARANTIA AIG INSURANCE CHUBB VSK CAPITAL INSURANCE ZURICH RELIABLE ROSGOSSTRAKH RSKHB-INSURANCE PROMINSTRAKH ENERGOGARANT RENAISSANCE HDI INSURANCE SCOR P.O. 50% 52% 8% 19% 63% 58% 95% 97% 30% 34% 25% 25% 100% 58% 78% 49% 13% 18% 100% 93% 82% 78% 86% 84% 25% 42% 90% 90% 59% 60% 83% 72% 96% 90% 89% 94% 85% 76% 100% 100% 100% 100% The structure of the market in terms of the prevailing form of reinsurance looks quite stable, although the share of premiums under treaties went down below 50 percent in 2017. This was mainly due to a decrease in the respective share of the market leader, SOGAZ, and a decline in the total weight of subsidiaries of international insurers and reinsurers. 2017 2016 4,3% The share of treaties of subsidiaries of foreign insurers (usually for the benefit of the parent) is, as a rule, equal to 100 percent. 15
Countries where premiums go to from Russia Top 20 leading countries in terms of the amount of premiums ceded by Russian insurers UK GERMANY SWITZERLAND FRANCE UNITED STATES BERMUDAS CHINA CAYMAN ISLANDS IRELAND BELGIUM BAHRAIN BARBADOS LUXEMBOURG INDIA CYPRUS KOREA, REPUBLIC AUSRIA NETHERLANDS FINLAND SWEDEN 9 201 632 9 518 876 6 337 622 464 341 6 043 422 7 912 005 2 336 305 3 224 489 2 245 767 1 983 994 2 126 385 745 750 1 785 601 2 113 989 1 732 779 1 201 386 1 682 945 2 266 267 1 541 489 1 277 064 1 419 146 1 040 818 1 395 558 1 845 373 1 373 997 488 194 1 048 510 1 314 814 780 804 822 715 765 542 929 965 767 370 1 423 898 757 641 1 012 245 20 059 986 17 367 717 20 799 997 (thousand RUB) 2017 2016 30 690 959 A wide-scale decrease in ceded premiums was due to changes in exchange rates. The transfer of premiums of CAPITAL INSURANCE has most strongly hit the UK (about RUB 2 billion) and Kuwait (about RUB 880 million). As a result, Kuwait dropped out of the Top 20. Premiums going to Germany decreased compared to the previous year, due to a drop in ceded premiums in hull and machinery business of SOGLASIE and a decrease in premiums of ROSGOSSTRAKH and INGOSSTRAKH. Among larger companies, premiums ceded to Germany were increased by SOGAZ. The Cayman Islands appeared in the Top 20 list due to RESPECT's decision to have its risks reinsured in this country. 16
Leaders of the outward reinsurance market SOGAZ INGOSSTRAKH SOGLASIE ALFASTRAKHOVANIE VTB INSURANCE RESPECT ALLIANZ RESO-GARANTIA AIG INSURANCE CHUBB VSK CAPITAL INSURANCE ZURICH RELIABLE ROSGOSSTRAKH RSKHB-INSURANCE PROMINSTRAKH ENERGOGARANT RENAISSANCE HDI INSURANCE SKOR P.O. 3 260 917 3 244 697 3 216 884 3 258 218 3 169 614 3 135 161 2 652 703 2 784 137 2 548 512 2 764 425 2 513 321 1 587 864 1 901 897 1 854 199 2 103 222 1 750 023 1 719 729 1 954 797 1 308 173 92 320 1 015 513 1 372 974 1 003 529 767 163 831 277 892 081 830 660 1 121 634 8 277 235 8 878 746 7 369 216 8 598 040 5 466 421 5 937 859 9 625 359 12 386 271 9 346 427 12 940 327 RNRC s share in total ceded premiums 31 817 431 26 852 853 7% (thousand RUB) 2017 2016 The majority of companies reduced the amounts of ceded premiums. The most notable decrease was reported by CAPITAL INSURANCE (Lukoil's property) and ROSGOSSTRAKH (hull and machinery, corporate and personal property businesses). 4,3% The companies with a notable increase in the amount of ceded premiums in 2017 include SOGAZ and VSK. Also worth mentioning is a significant amount of reinsurance premiums written by PROMINSTRAKH, nearly all of which were written under contractor default liability contracts or, as a matter of fact, in property developers liability business. 17
Dynamics of claims paid by reinsurers Dynamics of claims paid by reinsurers (million RUB) 62 341 49 169 54 967 25 807 17 013 38 728 26 624 49 432 41 977 47 330 8 794 12 104 12 909 7 192 7 637 2013 2014 2015 2016 2017 within Russia from abroad The last years were very unsuccessful for reinsurers. An unusually high value of the reinsurers' share in paid claims in the first half of 2016 was due to the loss claimed under Achinsk Refinery reinsurance (the loss of SOGAZ). However, this figure was exceeded in 2017 after the final settlement of loss in respect of Berezovskaya GRES (the loss of CHUBB), which amounted to about RUB 26 billion, of which about RUB 20 billion were paid in 2017. 18
Loss ratio Dynamics of premiums growth outward reinsurance (million RUB) Loss ratio (%) 120 158 138 448 120 633 132 116 109 600 52% 21% 28% 37% 50% 2013 2014 2015 2016 2017 total premiums paid claims Despite the fact that the last years were very unsuccessful for reinsurers due to a number of large paid claims, the reinsurance market remains generally attractive according to a significant positive balance between premiums and paid claims. 19
Dynamics of outflow of funds outside Russia 80 000 Balance 70 000 60 000 50 000 40 000 30 000 2013 2014 2015 2016 2017 A major portion of the positive balance between premiums and paid claims goes to the international market. A considerable decrease in the positive balance in 2017 was due both to large paid claims and a decrease in ceded premiums, partly due to transfer of some premiums from international markets to Russia in connection with the establishment of RNRC. Certainly, this simple figure should be viewed warily, as it does not take into account any reserved outstanding claims. Nevertheless, it can be indicative and as such is quite useful. 20
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