Prime-Tass28_04_2010_Klementyev

How will new requirements to authorized capital affect the reinsurance market?

Will all-lines insurers waive their licenses? Will reinsurers set up within groups join all-lines companies?

Vadim Klementyev, General Director of Profile-Re OJSC:

New requirements to authorized capital will lead to:

· a more intense M&A process.

· weak players being squeezed out of the market, which will cause even greater concentration of the market among several major players.

· a possibility that the share of foreign reinsurers will increase.

Whether all-lines reinsurers will waive their licenses or not will entirely depend on the tasks and objectives of their owners and management. I suppose we should not wait for mass waiver of reinsurance licenses by all-lines insurers, since the scope of their business allows for an acceptable level of profitability, so reinsurance is just one line in their business.

Will reinsurers set up within groups join all-lines companies? We need to know the tasks and objectives of their management. From my point of view, amalgamation will not be beneficial for market development. Although insurance and reinsurance are closely related, each has its own specific features: all-lines insurer is a company with a wide network of branches and agents that provides better security to its customers, however with a relatively low level of professionalism /as to reinsurance/, while a professional reinsurer features small size, but supreme professional level of its employees, quality of skills and knowledge. Therefore, they have different corporate management culture and functions.

 Olga Sigalovich, General Director of Eastern Reinsurance Company, CJSC:

It is quite natural that the authorized capital of a company dealing with reinsurance and collecting reinsurance premium of, let’s say, 1 billion rubles, shall be not less than 480 million rubles. When introduced, such new requirements to authorized capital will make small companies leave the market, while large reinsurers will stay, which, in general, is a positive thing.

On the other hand, there are examples of companies with large authorized capital, but minimal revenues, i.e. authorized capital is not always equal to a sound market position. That’s why a close review of companies is required.

All-lines insurers will waive their licenses as currently many of them are facing a problem of increasing authorized capital to 120 million rubles, so they think little about reinsurance.

M&A tool is still in available. Having no alternative opportunity to increase their authorized capital, companies will have to merge not only within insurance groups, but also with companies without common shareholders. It is quite a different issue whether top management of insurance and reinsurance companies is ready for this, for in order to initiate such mergers before shareholders managers are to be morally ready to quit. Liability to customers and shareholders is to be an incentive in such case.

A two-year gap stipulated by law for such requirements to authorized capital to come into effect is absolutely adequate. So, those willing to really engage in reinsurance will find a way to stay in the market.

Irina Postnikova, General Director of Trans-Siberian Reinsurance Corporation:

It is obvious that the number of companies dealing with inwards reinsurance has significantly decreased. Waiver of inwards reinsurance licenses by many direct insurers will be the easiest way out, as there is a great difference between 120 million rubles and 480 million rubles.

For major all-lines insurers, increasing authorized capital to the amount required to keep inwards reinsurance is also unlikely to be expedient. Cash inflow will not affect their financial stability. Most of them already have enough capital vs. risks they have assumed. Should authorized capital grow, their efficiency and business profitability will decrease, as there shall be no automatic adequate premium growth.

It is also unlikely that specialized reinsurers and all-lines companies will merge within one group. Reinsurance is a special business. Equally well you can merge reinsurers with banks or investment companies. We have specific underwriting, marketing, loss settlement, etc. As a rule, all-lines companies dealing with inwards reinsurance are unable to offer an entire scope of services offered by a specialized reinsurer.

Tatyana Dakhnova, Head of Outwards Reinsurance Department, Moscow-Re OJSC:

Many small companies and companies dealing with schemes will waive their licenses. Nevertheless, this measure will not lead to complete elimination of scheme companies. Large and middle-size companies will increase capital, as waiver of license will lead to a business fall, which is unfavourable for everyone.

Dmitry Garmash, Deputy General Director of Unity Reinsurance Company Ltd. (Unity-Re):