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cluding life insurance. Unfortunately, this is not a very easy and quick step.” An area of insurance showing strong growth


in the Russian market is its compulsory lines. But Arefyev points out that some insurers have faced problems covering these, which include motor and third party liability coverage. “Currently, the retail market is developing


Vladimir Arefyev, Alterisk Insurance Brokers F


or Russia’s rapidly growing economy to remain sustainable it is important a healthy


and vibrant insurance and reinsurance industry also exists, which can protect that economy from the risks it faces. While some important strides have been made towards this in recent years, there are still obstacles to overcome. A big challenge is that low standards of liv-


ing also make for low insurance penetration in many sectors of the market. This, argues Vladimir Arefyev, deputy director at Alterisk Insurance Brokers, is one of many challenges the market must overcome. “To improve the insurance culture in Russia


we need to increase standards of living,” says Arefyev. “This will lead to increased demand for property insurance and other retail lines, in-


mostly with the help of compulsory and imputed types of insurance such as motor and third party liability,” he says. “However, on other lines the demand from the retail market is not so signifi- cant. In addition, high competition on the mo- tor insurance market has meant poor financial results and even bankruptcy for some insurers.” Another challenge the industry faces is the


comparatively low credit rating of many of its domestic players combined with the Russia’s low sovereign debt rating. Standard and Poor’s rates Russia BBB/A-3. Changing these ratings will not be easy. A lot of work sourcing new income streams is needed along with develop- ing more transparency—and therefore more trust—in the Russian market, argues Arefyev. “To increase our country’s rating we need first, develop economic areas which are


to,


not connected with the production and export of natural raw materials such as oil, gas and wood,” he says. “This will create a more diver-


the market is likely to – at best – experience only a flattening of rates, says Stefan Holzberger, managing director, analytics, at rating agency AM Best. “The market has been soft for a number of


A case for hardening but a turn unlikely D


espite a troubled investment environment in Europe and a protracted soft market,


years now, with pricing not reaching technical profitability on almost any lines of business. That said, we do not see any conclusive signs that there will be a hardening of the market heading into January 1. On some cat-exposed lines, losses this year and last will likely see high single-digit hardening, but overall we will see a flattening out of rates at best,” he says. But reinsurers’ woes aren’t simply confined


to rates. Carlos Wong-Fupuy, senior director, analytics, at AM Best says the problematic in- vestment environment is equally problematic.


26.10.11 WEDNESDAY


Insurance is critical to Russia’s development


sified economy, which is more stable and not so dependent on the oil price.” Arefyev says that Russia also needs to mini-


mise corruption: in some areas, he claims costs surrounding corruption can represent up to 50 percent of final product prices. “Our government is trying to achieve this,


but this work needs to be supported by the public as well,” he says. “Unfortunately, people are still used to solving their problems by using bribes. Third, we need to implement IFRS as the accounting standard for all companies—this will help to make accounting more transparent and understandable to foreign investors.” Another issue is the Russian reinsurance


market’s need to cultivate more underwriting talent, argues Arefyev. “Russian reinsurance has a deficit of professional underwriters and other experts,” he says. “This deficit, together with a lack of statistics, makes underwriting more magic than science. Such a situation could be resolved by the cooperation between market players and educational centres. “Together they could create and develop


special education programmes for future un- derwriters, accountants and claims handling experts. Reinsurance experts should share their experience and knowledge with students to de- velop a new generation for the market.”


“Whereas re/insurers could previously rely


on investment results to offset their losses, this is no longer the case in today’s turbulent invest- ment environment. The situation in Europe will oblige them to focus more on technical profitability,” he says. And the problems could extend far deeper


than this should a resolution not be found to the macroeconomic concerns in Europe and sover- eign debt crisis. “These are considerable issues,” Holzberger says. “If there is a significant worsen- ing of the situation and contagion spreads into the equities and bond markets, this could seri- ously trouble re/insurers’ investment portfolios.” But he also stresses that the problems the


industry faces must be viewed in context: the industry remains well capitalised despite recent catastrophe losses. “If you take a step back from immediate


18 | INTELLIGENT INSURER —BADEN-BADEN TODAY | Wednesday October 26 2010


Stefan Holzberger and Carlos Wong-Fupuy, AM Best


concerns and what might go wrong in Europe, and instead examine the balance sheets of the major re/insurers, it is clear they are sitting on significant capital despite recent cat losses,” he says. “While we feel there is risk associated with the current crisis in Europe, we believe the in- dustry is well-poised to handle that risk.”


www.intelligentinsurer.com


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