Where Angels Fear to Trade

Our Men in London

noreply@blogger.com (The Insurer) — Wed, 06 Apr 2011 14:25:00 +0000

Chaucer, Russia-based Nakhodka Re and brokerage firm RFIB have jointly formed SeaLine, which has become Lloyd's first coverholder in Russia.

Sogaz Has New Chairman

noreply@blogger.com (The Insurer) — Tue, 05 Apr 2011 14:39:00 +0000

Vadim Yanov, chairman of the board at Sogaz, is reported to have resigned today. Our sources say the resignation looked more like a lay-off - recently shareholders of Sogaz have been quite unhappy with the top manager. The new chairman is Sergey Ivanov, son of Russia's deputy prime-minister Sergey Ivanov.

The re-shuffle means two things for Russian insurance. For one, the newly found connections in Kremlin technically very much increase the lobbying power of the market (whether Ivanov the junior indeed will be willing to contribute to development of the country's insurance segment, is another question). Secondly, Sogaz gets a bunch of new corporate clients as companies controlled by Kremlin and semi-Kremlin structures will be very much "encouraged" to purchase coverage from the insurer.

Groupama May Enter Russian Non-Life Market

noreply@blogger.com (The Insurer) — Fri, 11 Mar 2011 16:01:00 +0000

Our sources in the Russian market say Groupama considers entering the Russian direct non-life insurance market. The planned investment horizon is around ten years, planned investments - several million euro a year.
We at WAFT/The Insurer are planning to contact the French group early next week for extra info.

PPF Investments and Russian Bribes, or When in Moscow...

noreply@blogger.com (The Insurer) — Fri, 04 Mar 2011 16:23:00 +0000

“When you work in such an atmosphere, some things are more difficult to do and some are easier”, Ladislav Bartonicek, CEO of Czech-based Generali PPF Holding, told Moscow-based newspaper Vedomosti that asked him how the company deals with Russian corruption. “There are companies that complain they can’t work and be successful because of this problem, but we believe it should be just taken for granted, as a fact of life.”

It’s rather difficult to say exactly what Mr. Bartonicek meant by taking corruption for granted, but the following report published today by another Moscow-based publication, Kommersant, may shed some light on Generali PPF’s Russian practices.

(click here for the original full Russian text, we at The Insurer have translated only the key part)

Yesterday, representatives of the Chief Investigative Office of Moscow and the Chief Administration for Economic Security and Anti-Corruption of the Russian Federation seized files from the headquarters of Mosstroiekonombank. The files were seized in connection with the criminal case on embezzlement of USD15 million from the Czech company PPF Investments (PPFI)

According to investigators, in 2007 Russian citizens Vladimir Korovin and Ekaterina Alabuzhina persuaded the Czech businessmen to transfer the money to their Mosstroiekonombank accounts in exchange for help in resolving the conflict around PPFI’s share in Insgosstrakh <a key Russian insurer – WAFT> <..>

As sources close to the matter told Kommersant, legal actions against the fraudsters had been initiated several years ago. According to investigators, in 2007 anonymous persons contacted representatives of the company. They offered to organise a meeting with key state officials of the Russian Federation that could help the Czech businessmen to resolve the conflict over ownership in Ingosstrakh.

For a quick reminder: in May 2007, the Czech-based PPF Investments acquired 38.46% in Ingosstrakh from Alexander Mamut <a Russian businessman – WAFT>. On October 8, 2007, Oleg Deripaska, owner of a 60.1% share in Ingosstrakh, organised a shareholders’ meeting, which decided to increase the charter capital of Ingosstrakh from RUR2.5 billion to RUR10 billion (this effectively would decrease the share of PPFI to 9.6%). In responce, PPFI filed a complaint with the Federal Service for Financial Markets, Office of Attorney General, Office of the Russian President, and the Central Bank of Russia, claiming it didn’t know about the meeting. On October 24, Czech prime minister Mirek Topolanek discussed the Ingosstrakh conflict with Russian vice prime minister Sergey Naryshkin. After that, on November 8, PPFI filed an arbitration claim.

The conflict widely discussed in the media attracted attention of the fraudsters, who decided to take advantage of it, investigators believe. The Czech businessmen were contacted by a woman that called herself Ekaterina Vavilova. She offered them to organise a meeting in Kremlin and showed them several photos of her in the company of senior government officials (the pictures had been photoshopped) and letters of recommendation. Then she organised a meeting with a “high-ranked member of the presidential office”, who also demonstrated fake proofs of being an important political figure.

The parties met several times in the most expensive restaurants of Moscow. Finally, the insurers were offered to transfer USD15 million to Mosstroiekonombank accounts of several companies. “This is not a payment, - the fraudsters noted to the insurers – this is some kind of insurance, to guarantee you don’t back out. Later, when all your problems are settled, you may decide to pay us a compensation out of this money. You’ll get back the rest”. The money, as investigators believe, was indeed transferred to the accounts, and later abroad.

For a long time, investigators couldn’t identify the fraudsters. However, last year, investigation gained momentum, when representatives of the Chief Administration for Economic Security and Anti-Corruption detained Vladimir Korovin. <...> Later, the official bodies learned that Ekaterina Vavilova's real name was Ekaterina Alabuzhina.

PS: Today, we at The Insurer have received the following press release from Jan Piskacek, spokesperson for PPF Investments (translated). “PPF Investment Fund states that information in some Russian media regarding losses in the amount of USD15 million, which some fraudsters were supposed to receive in exchange for a meeting with key state Russian officials, is false. Some media mistakenly pointed to a connection between the Fund and law enforcement actions in Mosstroiekonombank”. Here is the original:

Ян Пискачек, представитель PPF Investments по связям со СМИ :

Фонд PPF Investments заявляет, что информация, появившаяся вчера в некоторых российских СМИ о якобы имевших место убытках фонда в сумме 15 миллионов долларов, которые должны были получить мошенники, обещавшие организовать встречи с должностными лицами ведомств РФ, не является правдивой. Некоторые СМИ ошибочно указали на связь фонда с обысками в Мосстройэкономбанке.

140 Characters About Re/Insurance

noreply@blogger.com (The Insurer) — Tue, 01 Mar 2011 13:02:00 +0000

Forgot to tell you: WAFT has joined the Twitter community. Join us on http://twitter.com/W_A_F_T for quick updates.

Liberty, Equality, Brother/Sisterhood

noreply@blogger.com (The Insurer) — Tue, 01 Mar 2011 12:39:00 +0000

I think it’s really a milestone in our business. The EU Court of Justice ruled to end gender-based discrimination in insurance. Finally, insurers have been made to recognized that a woman is no worse than a man! – and consequently, has to pay as much for her motor policy.

(Wait, is it not a discrimination that due to their lower risk profiles insured females will have to basically cover part of the risk produced by insured males? The EU court keeps silence on this)

The next step the EU should take is to put an end to other risk-based kinds of discrimination. Really, why should customers in highlands pay lower residential property premiums than their neighbours in flood-affected areas? And does it make any sense to impose lower life insurance rates on soccer moms as opposed to skydivers, mountaineeers and lion tamers?

Later on, the solution could be extended to the reinsurance industry, as well. This will forever end the soft-hard-soft-hard cycle story, finally making our business absolutely predictable. Ah, what a future...

It's Bratislava Baby: Erste Enchanted by CEE

noreply@blogger.com (The Insurer) — Thu, 17 Feb 2011 16:23:00 +0000

The days of Vienna as the financial capital of CEE are numbered – or at least that’s how Andreas Treichl, chairman of Erste Bank, sees it.

It’s bad enough for Austria that New Europe is developing at a very fast speed. “The risks of doing business in Central and Eastern Europe have fallen so much that in 10-15 years from now nobody who wants to invest in the Czech Republic will do it via Austria,” the Erste Bank top manager said in the beyondbrics column of FT (actually, we at WAFT thought it’s already this way. Nobody believes in horrors behind the Iron Curtain anymore).

But, adding insult to injury, fiscal constraints imposed by the Austrian government are making the country lose its regional competitive advantage, Treich said. “In this country we pay the highest bank taxes. Higher than in the UK where you have banks who really screwed up, higher than in the US where you have banks who really screwed up and higher than in Germany where you have banks who really screwed up. We as banks have a very strong interest in the country risk of our country. If Slovakia were AAA-rated I would kiss Austria goodbye,” said Treichl.

It seems we won’t have to wait for long for that historic kiss: sovereign ratings of key regional economies, with the exception of the rebellious Hungary, have closely approached the AAA grade. Slovenia is currently rated at Aa2 (Moody’s) and AA (S&P, Fitch), which is on the same level as Japan and Kuwait. Slovakia and the Czech Republic are at A1 (Moody’s), and A+ (Fitch), like Israel or China. Poland stands at the A2 level – not bad, either.

So when are you guys trading Vienna for Bratislava?

UPD: Apparently, Treich is not the only one to have put trust in Bratislava. Today, Slovakia raised EUR1.25 billion in a reopening of its 2016 bond, with total bids reaching EUR1.9 billion. According to Bloomberg, the bond "was priced to yield 80 basis points more than the benchmark mid-swap rate". The higher-rated Italy paid a spread of 89 basis points in a recent offering of its 2015 bond. Experts interviewed by Bloomberg say this demonstrates investors consider the Slovak economy structurally strong.

Another Insurance M&A in CIS

noreply@blogger.com (The Insurer) — Mon, 14 Feb 2011 16:56:00 +0000

Not that we are particularly partial to Axa, but recently all M&A rumours in the region are about the French group. Over the weekend, the CIS insurance market mulled over the possible sale of an interest in Ukrainian leader Oranta, and Axa is said to be among the main bidders, with VIG and Uniqa also on the list, our Ukrainian sources state. Russia-based investment group Troika Dialog is reported to organize the deal.

A well informed market professional in Kiev told our blog that Axa is about to sign the agreement to acquire a share in Oranta for UAH400 million, or approximately EUR37 million.

Our sources estimate the total value of the insurer at “no less than USD100 million”. It’s likely that the interest in question currently belongs to Ukrainian mogul Viktor Pinchiuk.

If the information is indeed correct, Axa will become the largest insurance player in Ukraine, leaving other companies far behind.

In the first nine months of 2010, Axa generated a premium income of UAH537.7 million (EUR52.2 million), up 7.8% on 9M 2009. Oranta’s result for the first three quarters was UAH465.2 million (EUR45.1 million), down 13.5%. The two companies occupied the second and the third place, respectively – but together they could easily beat the market leader Kremen, which in 9M 2010 wrote UAH830 million (EUR80.5 million) in premium.

Insurance Capacity of Social Media

noreply@blogger.com (The Insurer) — Mon, 14 Feb 2011 16:51:00 +0000

It’s a clear sign of recognition. Social media is a power so mighty that one needs insurance against it.

Chartis UK has announced it extends its D&O coverage to include risks resulting from confidential information disclosure in (micro)blogs, social networks and websites.

“The domination of the global news headlines by Wikileaks... is a vivid illustration of the power of social media” David Walters, vice-president for financial lines at Chartis, said. “Although the focus has been on government there is, however, no room for complacency for business. In a recent interview Julian Assange, Wikileaks founder, said that 50% of the leaked material they were holding related to the private sector”.

We are now proud to inform our readers that WAFT (Where Angels Fear to Trade) can now also cause a D&O loss. Anyone willing to share info leading to reputational damage for some company?

PS: With power, comes money. Here’s how much major companies are ready to invest in the next dotcom bubble.

CEE Renewals: Are U Ready For Solvency II?

noreply@blogger.com (The Insurer) — Thu, 10 Feb 2011 15:55:00 +0000

Last September, KPMG polled over 80 CEE-based insurance companies on their preparedness to introduction of the Solvency II regime. Results of the findings demonstrated that regional players were not too concerned with the looming changes. Little seems to have changed in time for the January renewals.

47% of those companies that had launched preparation for SII, confesssed they had done so because of the pressure from their owners, mostly large Western players, another 17% had experienced pressure from the supervisory authorities. Only 28% proudly stated that SII preparation steps were their own idea.

Preparations for the SII implementation didn't really increase the companies' staff: just one company out of the polled 88 appointed a fully dedicated SII team. 52% expected their existing staff would be enough to bear the SII preparation burden, and just few percent believed they may need some external resources to that end some time in the future.

Almost half a year later, the situation doesn’t seem to have changed, opinions of our experst indicate. “Solvency II is in its early stages in CEE, and some larger foreign-owned groups are already underway with their preparations, while many local domestic insurers, with a few exceptions, have yet to react to the forthcoming regulatory requirements”, Guy Carpenter stated in its review of the renewal trends. On the bright side, the new regime “has impacted reinsurance buyers' awareness of protecting themselves against catastrophe losses up to a recommended return period and consequently heightened the interest in usage of probabilistic catastrophe models to support PML estimate,” the broker added.

Hannover Re’s Guerassimenko expects that with the introduction of the Solvency II regime, ceding companies will pay greater attention to ratings of their reinsurance partners. If this indeed is the case, domestic-owned reinsurers may find themselves under pressure.

Although, according to KPMG, as much as 59% of the participants had launched preparations to SII, only 35% took steps to cover all three pillars of the new regime (quantitative requirements, internal and supervisory control, and disclosure standards). Most other conscientious companies concentrated their efforts on the first pillar, which deals with capital adequacy.

CEE Renewals: Cat and Non-Cat Pricing Trends

noreply@blogger.com (The Insurer) — Tue, 08 Feb 2011 14:22:00 +0000

Despite ample capacity, CEE was one of the world’s few regions where experts registered substantial, sometimes low double-digit rate increases. However, harder pricing was limited to segments and layers affected by nat cat losses over 2010. “Based on preliminary results, pricing of loss-affected layers increased by approximately 15%”, Aon Benfield stated. Hannover Re’s Alexander Guerassimenko also estimated the average rate increase for loss-affected cat programmes at around 15%. According to him, especially noticeable increases – as much as 30% – were registered for Polish cat programmes.

In its renewals report Guy Carpenter provided a detailed, layer-by-layer, analysis of regional pricing developments: “Catastrophe excess of loss rates on line were generally down 5% to 10% for loss-free programs, with those affected by losses up by as much as 20% to 30% at the lowest layers”, – exactly the layers that were most affected by weather-related losses. “Middle layers were up around 7.5%, and top layers were flat or slightly reduced. Per risk working layers were also up 5% to 10%, generally as a result of either losses and/or increased exposure. Higher layers were flat to down”.

Rates for non-cat/loss-free programmes tended to reflect pricing developments in the primary market and capacity increases. “Risk excess of loss rates in the region decreased slightly or remained unchanged, depending on the loss experience. Motor third party liability programmes have seen slight decrease as well”, Aon Benfield stated. According to Hannover Re’s Alexander Guerassimenko, loss-free segments registered either flat pricing dynamics or a softening of 5-10%, like in the case of CEE civil and professional liability programmes.

An average reduction across the programmes reached approximately 5%, Guy Carpenter’s Hamish Dowlen told our blog. Aon Benfield registered an average softening of around 2% on loss-free layers and a softening of approximately 3% across the whole regional market.

CEE Renewals: Capacity & Retenions

noreply@blogger.com (The Insurer) — Mon, 07 Feb 2011 18:21:00 +0000

This week – if nothing really sensational happens in the CEE/CIS (re)insurance markets – we’ll be posting insights about regional trends during the 2011 January renewal season. Today, our experts speak about the reinsurance capacity demand and supply in CEE and changes in retention levels of local ceding companies.

According to Aon Benfield, in the first nine months of 2010 the global reinsurance capital exceeded the record level set at 2007 and reached US$470 billion. The 17% capital increase on 9M 2009 was predominantly achieved due to realised and unrealised investment returns. Just as the broker predicted at the Monte-Carlo Rendez-Vous, deployment of the additional capital remained the key task for the industry. In the absence of attractive M&A targets and in presence of extremely low interest rates, ample capacity flew into basically all key regions of the world, and CEE was no exception.

Experts don’t give an exact capacity figure for the region; however, according to Guy Carpenter estimations, nat cat capacity, which takes up the bulk of the total volume, reached around EUR1 billion, with approximately EUR300-400 million allocated for risk excess of loss.

Opinions vary on whether this figure is enough or more than enough for CEE. “In the recent years, ceding companies have been actively increasing demand for cat protection, therefore Hannover Re considers the existing capacity in the segment quite sufficient and did not register a major increase during the January 2011 renewal season”, Alexander Guerassimenko, senior CEE treaty underwriter at Hannover Re, told our blog. Hamish Dowlen, Guy Carpenter’s senior vice-presidend responsible for the region, believes the existing capacity was even “in over-supply”.

The key reason for interest of global reinsurers in the CEE treaty market is quite obvious: most local P&C players are subsidiaries of major insurance groups and their treaty risks are reinsured as group business. However, this past renewal season attracted new players to the regional market. According to Guy Carpenter, capacity was offered not only by established reinsurance companies but also by “new Lloyd’s syndicates and Zurich-based start-ups”. The newcomers were attracted by “increased rates and retentions for loss-affected programs,” Guy Carpetner stated.

2010 saw an increased frequency and severity of nat cats in CEE: according to Aon Benfield’s estimations, the region’s total economic losses related to natural disasters reached around US$12 billion. However, this development didn’t have a substantial impact on the total capacity demand. “Overall catastrophe capacity purchase in the region remains stable”, Aon Benfield noted in its renewal report. However, spring and summer floods and winter storms “resulted in an increased demand for frequency protection through catastrophe aggregate covers and increased pressure on loss affected layers,” the broker added.

However, costlier nat cats brough higher retention levels. “In general, reinsurers were reluctant to continue to support working layers and preferred to encourage an increase of retention levels to avoid the attritional losses ”, Guy Carpenter’s Hamish Dowlen, stated to our blog. “Retentions did increase for some of the loss-affected programmes where pricing on first layers would have reached an uneconomical level.” In addition, experts polled by our blog noted a higher demand for aggregate excess of loss programs protecting net retentions as an alternative method of reinsuring against multiple attritional losses.

Nat Cats in CEE: USD12 Billion Loss and Little Coverage

noreply@blogger.com (The Insurer) — Thu, 03 Feb 2011 13:12:00 +0000

During the January renewals in CEE, reinsurance brokers operating in the region noted a previously unregistered trend: extreme frequency of medium-size catastrophe losses. While this in some case resulted in higher demand for cat protection, overall catastrophe capacity purchase in the region remained stable. Why the discrepancy?

According to Aon Benfield’s “Annual Global Climate and Catastrophe Report 2010”, last year, total nat cat-related economic losses in CEE exceeded USD12 billion. Floods remained the single most destrictuve type of natural disasters in the region: inundations in May-July alone generated an economic damage of around USD12.3 billion (for a list of CEE nat cats click here).

Calculating insured cat losses amassed in the region is apparently a rather challenging task, Aon Benfiled provide figures for few selected natural disasters. However, even incomplete data demonstrates a relatively low cat insurance penetration Economic damage related to May floods in CEE reached around US$5.8 million, half of the total loss figure for the region. At the same time, insured losses came to just US$690 million. In other words, insurance companies covered just a little more than 10% of the damage caused by natural forces. No wonder that despite a loss level of US$12 billion, the nat cat reinsurance capacity purchased in CEE, according to Guy Carpenter, reached only EUR1 billion.

To significantly increase the figure, the region would need to work harder on developing financial solutions for nat cat relief. However, CEE states are reluctant to come up with suggestions. Of all CEE countries, a cat pool has been established only in Romania. Poland, where nat cat-related losses were highest in the region, has been discussing a cat pool for three years, with no decision taken as of late January. Attempts of other regional markets to create similar financial mechanisms have been even less significant.

The international reinsurance industry provides limited, tuned to demand, traditional protection to CEE markets but seems rather reluctant to offer alternative solutions: despite the ongoing cat bond boom, no risk transfer instruments so far have been developed to specifically cover natural disasters in CEE.

“The demand to transfer risk to the capital markets via insurance-linked securities (ILS, or cat bonds) is mainly driven by the size of a loss potential”, Luzi Hitz, CEO and Eduard Held, head of sales&products at PERILS AG, explained to The Insurer.

“The top-five insurance loss potentials are US hurricanes, California earthquake, European windstorm, and Japanese earthquakes and typhoons. This is why the vast majority of cat bonds provide protection against these perils. The CEE insured cat risk, although significant (e.g. floods or earthauakes), is still considerably lower than these five loss potentials.”

“Therefore, to date, there has not been a cat bond issued covering CEE natural catastrophe risk. There are, however, industry loss warranty reinsurance contracts (ILW) in place, which include, among other territories, coverage for CEE cat risk. These covers are triggered by the insurance industry loss, are private placements and are mainly used by reinsurers to transfer risk to specialized retrocession companies.”

Therefore, CEE region remains dependant on two non-commercial sources of nat cat protection: national and sub-national. In late January, the European Commission approved a multimillion aid package “to help Poland, Slovakia, Hungary, Romania and the Czech Republic rebuild parts of their countries ravaged by floods”. Poland will receive EUR105 million, Hungary – EUR22 million, Slovakia – EUR20 million, the Czech Republic and Romania - EUR5 million each. Croatia, thanks to its EU candidate status, is in for around EUR4 million.

In the future, however, EU funds are unlikely to be an unlimited sourse of aid. The Commission seems firmly intended to reduce or at least keep a tight control over the nat cat relief budget. In late autumn, EurActiv cited Kristalina Georgieva, commissioner for international cooperation, humanitarian aid and crisis response, as saying that “in recent years, the EU has spent more than it had set aside for its disaster response budget”. Later, through her spokesperson Ferran Tarradellas, Georgieva added that "since the 1970s, the number of disasters has increased around five-fold and our budget is indeed under pressure. If this trend continues, it will be under more pressure. But this is a call to be more cost effective in terms of the economic crisis".

In the future, it seems, countries of the region will have to increasingly more rely on their national disaster funds – that is, when the funds are there. Czech citizens that suffered from massive inundation in May 2010, for example, were quite surprised to find out that around a third of the country’s disaster relief fund amouting to CZK3 billion (EUR0.12 billion) had been spent on... financing general elections. "When we presented the budget, it was assumed an election would be in October 2009," spokesman for the ministry of finance Jakub Haas had to explain. "There is therefore no option but to release funds from the reserve due to the postponment of the election." So far, this has been a unique case, but with CEE governments trying to stretch their shrinking budgets, who knows what may happen this year.

There are of course, all kinds of special measures to refill disaster funds, for example, introduction of a flood tax, as it happened in Australia this year (see below). Yet the Australian know-how is rather out of the question in CEE: regional taxpayers are already burdened with increased VATs, extraordinary financial levies etc.

With state and sub-state measures of financial relief almost exhausted, international commercial involvement insignificant, and local solutions limited, the region seems to have no proper disaster protection at all but is not worried about it. Apparently, it would take a particularly devastating nat cat to bring a fresh wind to CEE cat coverage initiatives.

TAX NEWS FROM DOWN UNDER

In late January, the Australian government proposed a one-off income tax to provide aid to victims of the recent flood and rebuild the damaged infrastructure. The tax, to apply for a year starting from July 2011, is expected to generate around A$1.8 billion. Total costs of the flood, which swamped Eastern Australia in late December–early January, are estimated at A$5.6 billion. The government plans to cut or delay some other spendings to provide the rest of the funds.

Under the draft, the flood tax would be set at 0.5% of annual income above A$50,000 (US$49,900) and 1% on income over A$100,000 (US$99,800). The lowest earners and flood-stricken households are to be exempt from the levy.

The opposition has critisised the move claiming it would create “another government spending programme for which no-one is going to be held accountable if things go wrong”, as quoted by BBC. The opposition believes the reconstruction and aid to victims should be funded by budget cuts only. Despite massive flood costs, the Australian government still hopes to return to budget proficit by 2012-2013.

I'm the Operator With My Pocket Calculator

noreply@blogger.com (The Insurer) — Fri, 28 Jan 2011 15:00:00 +0000

We have been waiting for it, and it has finally happened. The first contract has been placed at Lloyd's via iPad. http://www.ameinfo.com/254552.html

Return of Kaliningrad Fried Chicken

noreply@blogger.com (The Insurer) — Wed, 26 Jan 2011 17:26:00 +0000

Do you remember the multimillion barbeque at Kaliningrad-based meat plant Konkordia this past June? Well, somebody had to pay for the party – and this somebody has finally dug deep in their pockets.

A couple of days ago, Russian insurer VSK made the first insurance settlement tranche to Konkordia’s owner, Miratorg. The tranche amounted to RUR1.002 billion (around EUR24 million), which, according to VSK, is the largest ever payment in the history of Russian industrial insurance. Last fall, Scor estimated the total insured losses of Konkordia at approximately EUR90 million, or around 60% of the country’s industrial insurance premium.

Under the contract agreement, VSK covered property and business interruption risks of the plant, as well as damage to Konkordia’s machinery and equipment.

Loss adjustment firm Cunningham Lindsey Russia has assessed property and, partly, BI damage to Konkordia - apparently, the first tranche has absorbed these loses. Currently, CL is assessing damage to the plant’s machinery and equitment and the remaining BI damage.

According to VSK’s somewhat mysterious statement, the fire at Konkordia was caused by the “emergency operation mode in the local electricity supply network”.

The current loss amount was paid by VSK and its reinsurance providers, with Swiss Re leading the treaty. The Russian insurer lists the following players that participated in paying the damage: GIC of India, Hannover Re, Milli Re, Partner Re, Polish Re, Sava Re, Scor, and Sirius – on the international side; Energogarant, Gefest, Kapital Re, Progress-Garant, Reso-Garantia, Russian Re, Surgutneftegaz, Transsib Re, Ugoria, and Unity Re – on the Russian side (we may safely assume that Russian groups have ceded a large part of their Konkordia risks to the West, so international players will pay twice). Perhaps, it would have been easier to say that the ‘barbeque’ losses were covered by basically all key players in the Russian P&C segment.

Triglav: Looking for Strategic Partner

noreply@blogger.com (The Insurer) — Mon, 24 Jan 2011 14:37:00 +0000

In early December 2010, Triglav Group, the largest insurance provider in South-Eastern Europe, announced plans to find a strategic partner for Triglav INT (Triglav International), the recently formed entity that unites the group’s subsidiaries outside

Slovenia

. The Insurer talked to Igor Stebernak, member of Triglav’s management board, about the group’s expansion joys and troubles, and the financial standing of its international subsidiaries.

- Mr. Stebernak, why has Triglav opted for such a major overhaul of its corporate structure?

- We have decided to establish Triglav INT to have a more clear split of costs related to group management. Besides, the new structure gives us an opportunity to invite a strategic partner. Our strategy for 2010-2013, which was approved in spring 2010, is based on the assumption that we will have enough equity to perform all key projects. We identified three options of obtaining the equity. Finding a strategic partner for Triglav INT would be one of them. The other two are an additional share issue or divestment of our interest in Abanka, which is our biggest equity investment. Currently, Triglav Group holds around one third of Abanka shares <as of mid-January 2011, according to Abanka, Triglav owned 25.6% of the shares with a total value of approximately EUR86.6 million– The Insurer>.

- What type of a strategic investor would Triglav be willing to attract?

- As we are not even close to any decision regarding a strategic partnership, it’s rather difficult to describe an ideal ‘candidate’. It could be an international financial institution, like EBRD or IFC. We also don’t exclude partnership with a major insurance or reinsurance player; which could bring additional know-hows and expertise to our international unit.

- So far, Triglav hasn’t made a decision, which of the options to pursue. Do you have any timeframe for this?

- Triglav INT was established in December 2010. Now, we are going to apply for approvals to regulatory bodies of all markets the international unit operates in. Basically, we’ll have to undergo an approval process similar to that when you make a new acquisition: we’ll apply to competition, financial market and insurance regulators. Our estimation is that it may take up to one year before the shares are transferred from Triglav to Triglav INT. All this time, our group will remain the only owner of the international unit. Once all shares have been properly transferred, we’ll be able to make our choice and possibly start talking to potential investors.

- Could you comment on the recent performance of Triglav INT companies?

- Our strategic goal is that by end-2013 all our international subsidiaries are profitable, which for the moment is not the case. All our subsidiaries outside Slovenia are fulfilling all local regulatory requirements but in some cases insurance technical provisions are not yet calculated according to internal Triglav standards. Once the level of insurance provisions for each individual subsidiary is increased to the standards of Triglav, loss appears in the local profit and loss account and in soma cases the increase of the subsidiary’s capital is necessary. Adopting Triglav standards for insurance technical provisions in subsidiaries does not impact consolidated results of the group.

As for the premium dynamics, in the first nine months of the year, we recorded premium and market share increases in Croatia and Serbia. In

Bosnia and Herzegovina

, we retained the market share, while the premium figure rose. In

Macedonia

, Triglav’s subsidiary Vardar Osiguranje remained the market leader, despite insignificant decreases in the market share and premium. Our premium figure for

Montenegro

decreased 5%, but so did the total market figure. So I would say, Triglav’s international nine-month dynamics is all in all quite positive. The only notable exception to the trend is the performance of our Czech company, but in the Czech Republic we are a niche player.

- What about Triglav’s regional claims dynamics?

- Over the last several years, claims dynamics in our operating markets, including Slovenia, has been affected by natural catastrophes ,but thanks to reinsurance protection, the net impact of the nat cats is rather insignificant. In the last year we saw some positive changes in claims dynamics in our subsidiaries in Croatia, Montenegro and Macedonia and some deterioration in Serbia, Bosnia and Herzegovina and especially in the Czech Republic. Again, higher claims were not a general trend for all our international subsidiaries.

- In April 2010, Triglav closed its Slovak branch office and announced a temporary halt to international expansion. How would you comment the move?

- Indeed, in 2010, Triglave made a decision to close the Slovak branch office, but we continue to be present in the market on the freedom of services basis. The group has decided for the moment to concentrate on improving management of the existing subsidiaries, but we’ll keep entering other markets of the region. For example, in April 2010, Triglav acquired 9.9% of Albania-based Albsig. We have performed due diligence of the company and are planning to increase our stake in it to majority. I think this may happen already in the first quarter of 2011.

Extra info:

Triglav Group plans to write a total insurance premium of EUR1.06 billion in 2011, including a non-life premium of EUR755 million, a life premium of EUR222 million, and a health premium of EUR81 million. By 2013, as stipulated by the group’s strategy for 2010-2013, the total figure is to increase to EUR1.12 billion, the non-life result – to EUR778 million, the life premium is expected to drop to EUR221 million, the health figure – to grow to EUR94 million.

Triglav sets its 2013 RoE target at 10% and its net combined ratio target at 98.7%.

The Slovenian group lists the following facts that are likely to influence its regional operations in the strategic period:

- economic stagnation on all key markets with frequent turbulences,

- the resulting changes in customer behavior (stagnation of the local purchasing power, attempts to lower debt burdens on the individual, corporate and national levels)

First Russian Insurance M&A in 2011

noreply@blogger.com (The Insurer) — Fri, 14 Jan 2011 11:36:00 +0000

Axa has just increased its share in Reso-Garantia, one of the largest players in the Russian insurance market, two industry sources have independently told our blog. Axa's media department denied the info, but the sources are too informed to simply ignore them.

Besides, under the 2008 agreement, the French group acquired not only 36.7% of Reso but also the option to buy out the remaining interest in 2010 or 2011, so the rumour seems twice as plausible.

In late 2010, Axa bought 51% in Azerbaijani-based MBASK (a top-five company) and 80% in Belarusian B&B insurer (a 10% market share, #2). Since 2007, the French also own a 50% stake in Axa Ukraine and Axa Insurance (11% of the Ukranian market, #1). If the Reso rumour proves true, Axa has become the largest foreign insurance investor in the CIS region putting Allianz on the second place. Quite an achievement for the group that until recently was considered an also-ran.

Axa's recent acquisitions in Romania and Serbia (Omniasig de Viata and Credit Agricole Life Serbija) only support the impression that the French are firmly intended to fight for leadership in the whole New Europe region.

Small Big Bang

noreply@blogger.com (The Insurer) — Wed, 12 Jan 2011 16:41:00 +0000

Another story from the latest issue of The Insurer

The crisis may be over for more developed European emerging markets, like Poland, the Czech Republic or Slovenia – but in the CIS, the effects of the recession are still very visible. Therefore, a sharp increase in the number of players in any of the regional insurance industries has been very rare recently.

Azerbaijan is exactly such a rare case. According to estimations of local companies, early 2011 may see establishment of three to six new life insurers in the country. However, the reason for the surge is more legal than economic:
Starting from March 2011, Azerbaijani insurers will be required to run separate entities for their life and non-life business. Under the law, local life companies will have to have a capital of no less than AZN5 million (EUR5.1 million).

Currently, Azerbaijani clients can buy life policies from five insurers: Pasha Sigorta, Ateshgah Life, Standard Insurance, Ata Sigorta and, most recently Qala Heyat. So far, only two players – Ateshgah Life and Qala Heyat – are specialised L&H services providers. While, under local standards, Ateshgah Life can be considered a seasoned player (the company entered the market in 2009), Qala Heyat received its operating licence only in early December, so it is basically “the child” of the new legal requirement.

By early 2011, two more companies may join the list. As first depity chairman of the board of Standard Insurance, Aidyn Rakhmanov told The Insurer at the VI Moscow conference “World Views for Life Insurance” in mid-November, his company will establish a separating life unit “within the next several months.” In early December, day.az reported that Axa Group, which recently acquired Azerbaijani insurer MBASK, is considering the same move. Top management of Axa was reported to prepare the business plan by the next shareholders’ meeting.

Ayten Huseinova, chairperson of the board at Ateshgah Life, believes that shortly up to four specialised life insurance providers may join the country’s market. By year-end 2011, the figure may reach five to six, Igor Smaga, CEO of Ateshgah, opined in a conversation with The Insurer reporter. “I believe, only the companies that are in for a long-term presence in the segment, will obtain specialised life licences”, stated Standard Insurance’s Rakhmanov. “By long-term, I mean at least five to ten years”.

According to Huseinova, the Azerbaijani life market will presumably grow thanks to the recently adopted requirement on compulsory A&H insurance of employees. “The law that introduced this compulsory class was passed in July 2010. Under it, employers are obliged to provide coverage against workplace accidents and occupational diseases to all of their employees. Minimal rate in the class has been set at 2% of the total salary fund of the company; however, depending on the type of work performed by each individual employer, the figure may vary. According to the legislative piece only specialised life insurance providers may engage in this class“, Guseinova stated to our publication..

Chair of the Ateshgah Life board believes that local players will beging with providing classical products like term and universal life. “It’s still too early to talk about introduction of some other life lines in our market”, she opined.

According to the Azerbaijani insurance regulator, in H1 2010, the local market generated AZN704 thousand (EUR718.4 thousand) in life insurance premiums, up 77% on January-June 2009. Life claims over the same period reached AZN172 thousand (EUR175.5 thousand), demonstrating a 34% decrease on H1 2009. In the first half of 2009, the bulk of the life premium, or 59%, was generated in the death insurance segment, annuity took up another 16%, with endowment accounting for the rest of the premium figure. However, in H1 2010 the premium structure changed significantly: endowment accounted for as much as 66% of the total figure demonstrating a six-fold increase. Death insurance premium, on the opposite, grew only 1%, while annuity business was not written at all. (see a table here)

Ateshgah Life in H1 2010 wrote AZN480 thousand (EUR489.8 thousand) in premium and paid out AZN10 thousand (EUR10.2 thousand) in claims. The company’s share in the total market premium reached 0.62%.

Authored by my colleague Ksenia Makidonskaya, edited and translated by me.

Belarusian Challenges

noreply@blogger.com (The Insurer) — Mon, 10 Jan 2011 15:02:00 +0000

Belarusian insurance affairs didn’t make it to the top of our events-of-the-year poll yet charms of the local market are not lost on major international players.

Right before New Year’s Eve French-based Axa announced acquisition of 80% in B&B, second largest – and simply the largest private – insurer in Belarus. As the M&A tradition goes, Axa claims the Belarusian insurance industry has “a very significant potential for growth as less than 20% are covered with casco insurance and less than 15% of households benefit from home insurance”.

Judging by this description Belarus of tomorrow, with its ten million population, will be something like the Czech Republic today – small but successful. It just needs some help from experienced players.

However, according to Irina Merzlyakova, head of the Belarusian Association of Insurers (BAI), and some other local experts, penetration rates are by far not the only thing the market should work on. In their conversation with The Insurer (find the full version in the latest issue of our magazine), Belarusians named several key challenges of the country's insurance environment. Although head of BAI and her colleagues mainly described them in the context of the planned life market liberalisation – which, as we know now, didn’t happen in 2010 – some of the issues are rather relevant for non-life companies like B&B as well.

Thirdly, the legislative piece abolishes compulsory approval of policy wording, terms and conditions by the regulator. If the draft is adopted, Belarusian insurance players will be obliged simply to notify the regulator of any changes in policy wording, terms and conditions rather than seek their approval.

Even if the life insurance draft is indeed adopted, investors shouldn’t hope for an easy entry to the Belarusian market, other local experts believe. Some restrictions are here to stay, and general economic trends that limit the insurance industy development should also be taken into account.

Among the restrictions is the legal act, under which management costs of an insurer may not exceed 12% of the gross written premium. According to the experts, the

Belarus

regulator is really keen on checking the ratio, and if the company exceeds the allowed limit, it is fined twice the amount of the excessive costs.

However, Merzlyakova believes, the overall Belarusian market development is rather positive. “In 2009, we registered premium growth in all popular classes from personal insurance to residential property and homeowners’ liability”. The growth dynamics of claims was lower than that of premiums, she added. The highest loss level, “around 90%”, was registered in the motor hull segment, according to BAI. State companies, on average, demostrated lower loss ratios than private players, Merzlyakova estimated.

The draft on life market opening is likely to contain several important changes: first of all, it will allow foreign-owned companies to operate in the Belarus life segment. Secondly, it will introduce tax reliefs for clients of private insurers. Currently, a company can book its insurance premium as costs only if the risks are covered with a state-owned insurer. As Merzlyakova opined, the tax rules are one of the reason for market domination of the state-owned companies.

Poll Results

noreply@blogger.com (The Insurer) — Fri, 31 Dec 2010 23:17:00 +0000

The year 2010 is over, and so is our first ever poll. They will be remembered... :) Ok, done with nostalgy, here are the results - of the poll, of course.
MetLife's entry into the CEE market was not just loud - it brought the Americans the first place in our survey, with 55% of all votes.
Thanks to all our Russian readers, the country's hot-hot summer and the resulting damage to the crop ranked second, with 33%.
11% of the votes each went to the return of unit-linked products, Lloyd's decision to open a Moscow office, troubles of the Ukrainian insurance regulator, non-opening of the Belarus life market and to the "none of the above" option.
Suprisingly, the success of Eureko's peacemaking efforts, the Hungarian fiscal revolution and the red sludge spill didn't seem too attractive to our readers: none of the options gained a single vote.

Thanks to all of you guys who took part in the survery. Stay with us in the year 2011, there are more posts and polls to come. Happy New Year!

It Should Actually Be Top-11

noreply@blogger.com (The Insurer) — Fri, 24 Dec 2010 14:42:00 +0000

In line with the end-of-the-year tradition, Guy Carpenter has published its own list of most significant events of 2010 focusing on catastrophes. The following lines attracted my attention: "Central and Eastern Europe was hit by two waves of flooding in May and June, triggering insured losses of at least USD280 million", GC experts noted.

Considering the total volume of non-life premiums generated in the region this year should be around USD65-70 billlion, the loss figure seems indeed quite signficant. So I have decided to include the floods into our top list, bringing the events to 11. Since we are heading into the year 2011, the update is not only logical, but will look good on the screen as well :)

Please Mr. Postman...

noreply@blogger.com (The Insurer) — Wed, 22 Dec 2010 11:30:00 +0000

Here's what our mailman has brought to us this morning: over 300 returned letters we have sent to regional branches of Russia-based insurers. All envelopes are marked with the stamp "addressee not found". Plainly speaking, the branches have all closed down - according to our estimations, between early December and (at least) early September.

Talk about an emerging market with huge prospects.

Photo courtesy of Ksenia Smirnova

Top-10 for 2010

noreply@blogger.com (The Insurer) — Mon, 20 Dec 2010 16:32:00 +0000

The end of the year is approaching fast, key newsmakers are leaving for their winter vacations (BTW, Merry Christmas and a Happy New Year to all of you!), so nothing meaninful is likely to happen in the CEE/CIS insurance markets until 2011. The timing is perfect to think about key CEE/CIS insurance events of 2010.

Here they are, randomly listed:

MetLife purchases CEE life operations of AIG and becomes one of the largest regional players
PZU resolves its decade-long conflict with Dutch Eureko and goes public
Hungary introduces harsh fiscal measures for its financial market
The red slugde spill at the MAL aluminium plant demonstrates weakness of the ELD
The three-pillar pension reform in CEE states proves harmful – at least when it comes to calculating the countries’ public debt figures
Summer draught in Russia nearly collapses the world’s grain market and draws the government’s attention to inadequacy of the local crop insurance system
Return of unit-linked: the life product regains popularity among CEE clients
Lloyd’s decides on establishing the Moscow office
The Ukrainian market revolts against its newly-appointed insurance regulator

And finally – the much expected event that never happened –

The Belarusian life market remains closed to foreign investors.

It would be fun to know which of the events our (re)insurance community considers most meaningful. So I have put together a small poll. Please take a second to make your own choice - and don't limit yourself, multiple answers are possible. The poll closes on December 31.

Oh, and if you disagree with the list, suggest your own top event in the comments below!

Photo courtesy of Ksenia Smirnova

UPD (Dec 24): Thanks to Guy Carpenter's hint, I am adding Number 11, "May-June floods swamp Central Europe"

ELD in CEE: As Seen by Swiss Re

noreply@blogger.com (The Insurer) — Thu, 09 Dec 2010 18:18:00 +0000

Balint Putnoky, senior client manager Hungary, Swiss Re

What is the traditional insurance and reinsurance coverage conditions for environmental liability and industrial property risks in CEE?

For highly exposed industrial risks property insurance coverages are still oftentimes not according to Western standards in the CEE region. In many cases sums insured are calculated on book value, limited risk surveys are conducted and more comprehensive covers, e.g. BI, are only slowly picking up.

Liability insurance standards are in most cases based on historic loss experience, neglecting increasing exposures from rising claims awareness, revised liability regimes and technological and economic progress. On the reinsurance side we therefore prefer to cover such complex risks on a facultative basis, where we can assure a dialogue and a proper assessment of the risk.

Does Swiss Re expect a change in pricing and conditions in the CEE segment following the MAL disaster?

In consequence of the loss the risk awareness as well on the insured´s and on the legislation side will increase. There is a call for higher liability coverages for specific activities and a well functioning risk management, and eventually even compulsory covers. Swiss Re especially sees a chance that the loss will trigger an increased demand for ELD covers in the CEE markets, which are currently not widely sold as industry demand remained low up till now. Many insurance companies however are prepared to offer the coverage based on best practice and products already introduced in other markets. Following the sludge spill we already see an increased demand for facultative coverages for such risks.

ELD in CEE: As Seen by Munich Re

noreply@blogger.com (The Insurer) — Thu, 09 Dec 2010 18:06:00 +0000

Harald Etzdorf, senior underwriter, Casualty Facultative, Munich Re

It is difficult to make any general comments in respect of the coverage of environmental liability in Central and Eastern Europe, as this topic is handled different in every country. The awareness of environment protection and all questions connected with it are not yet a central topic in all countries. In April 2007, a new environmental liability directive was due to be transposed into national law throughout the EU. We expected by then that the individual markets in the EU would be looking for innovative insurance solutions in this field as a result of this directive, but these expectations were not fully met. There will be a report by a EU commission this year about the respective developments since 2007 in the Member States. Maybe the accident in Hungary will put more pressure on national legislations to put more emphasis on environmental protection as well as insurance solutions and protection. In CEE countries outside the EU, it does not look any better. Insurance products for environmental liability do not exist in every country.