Foreigners enter Russian insurance market

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MOSCOW. (RIA Novosti political commentator Alexander Yurov) - In late February it was announced that one of the major players on the Russian insurance market, Nasta, will change hands.

Zurich Financial Services will acquire 66% of the company and will buy the remaining stake by 2010.

The value of the transaction has not been disclosed, but, according to some sources, it exceeded $300 million, i.e. more than Ceska Pojistovna, a Czech insurance group, had offered Nasta earlier. This transaction is not the only big acquisition by foreign insurers on the Russian market. At about the same time, it was announced that the German insurer Allianz had obtained a 97% stake in Russia's Rosno, while the previous owner, Sistema, had kept only 3%.

Foreign insurance majors know what they are doing when they show interest in the Russian market. Although it emerged little more than ten years ago, it has grown 25-fold since then, according to Fitch Ratings. Moreover, its growth rate remains high. In 2005, Russian insurers posted revenues of almost 500 billion rubles ($19 billion) and in 2006 over 600 billion rubles (about $23 billion).

As requirements for the amount of authorized capital, asset structure, business distribution and transparency of insurance operations are getting tougher, the market is being consolidated by the biggest companies. The number of firms providing insurance services has dropped from over 2,000 to 900 over the past 12 years.

The 20 biggest companies control the bulk of the market. Their aggregate share in 2003 was 55%, but last year grew to 65%, Fitch estimates. Experts forecast that the capital consolidation in the insurance business will continue in the next two or three years, and the number of core companies will fall to 12-15. This is all the more likely because Russian insurers have a rather low capitalization.

Now foreign companies are joining in. Russia's forthcoming accession to the World Trade Organization will only intensify the process, as it will eliminate the last obstacles in the way of Western firms' access to the market.

So what will Zurich Financial Services (ZFS) gain for its $300 million (which is quite a significant sum)? Almost 70 branches and over 300 regional offices which belonged to one of Russia's biggest insurance companies, according to the Federal Service for Insurance Supervision, together with a place among the country's top 20 insurers. ZFS's other Russian subsidiary, Zurich Rus, has not even made it into the top 100.

As to Allianz, it has coughed up over $700 million and found itself among the top five companies on the Russian retail insurance market (the Russian rating agency Expert RA ranked Rosno fifth in this segment).

Most probably, foreigners will not confine themselves to buying successful Russian companies. They are now eyeing whole sectors of the Russian insurance business that remain underdeveloped. Fitch forecasts a surge of 40%-50% in the volume of life-insurance premiums in 2007 and 2008. So far this segment has been dominated by Russian players, but now it is attracting the most attention from foreign insurers entering the market.

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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