AM Best forecasts more M&As in Commonwealth Independent States

Insurers working across the Commonwealth Independent States (CIS) of former Soviet Russia can expect to see further consolidation in their sector, according to the latest special report from AM Best.

The report said mergers and acquisitions (M&As) have been driven in part by companies trying to gain the “critical mass” they need to operate efficiently in a challenging market. Companies will “seek to improve efficiency and strengthen their business profile” through consolidation, it said.

The report identifies various pressures for re/insurers from evolving regulations to limited options for investment and fluctuating currencies.

“The typically high costs of sourcing insurance business in the CIS, combined with relatively high claims inflation, has put pressure on technical results,” it said. “A number of companies have sought to achieve economies of scale through acquisitions in an attempt to reduce their operating expenses and improve profitability. At the same time, increased regulatory oversight has resulted in some companies voluntarily exiting the market leading to higher industry concentration - especially amongst the largest players.”

Market pressures are being accentuated by rising geopolitical instability. This uncertainty is particularly strong in the CIS market as Russia has a significant economic presence there, while its relations with Western Countries become ever more strained as further sanctions are imposed.

In December 2018 more than a third of AM Best rated insurers had a credit rating in the range of bb+ and below, in part because of their “marginal performance, deficiencies in the enterprise risk management or relatively low levels of risk-adjusted capitalisation. Higher rated companies either had consistently good performance or established market positions, it said.

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