Russia’s national reinsurer makes its mark in year one
The state-owned Russian National Reinsurance Company (RNRC) has shown more appetite for new business in its first year in business than expected, Nicola Rautmann, market executive Austria & Central and Eastern Europe (CEE) at Swiss Re, told Baden-Baden Today.
RNRC started operations at the beginning of 2017 and was set up mainly to offer reinsurance to firms barred from using western reinsurers due to western sanctions imposed on Moscow over its annexation of Crimea.
The creation of the new player has added reinsurance capacity in the market. Rules force cedants to offer 10 percent of their reinsurance business to RNRC with the latter having the option to decline or take up more.
“RNRC wants to be active more than the 10 percent, mostly in facultative business,” Rautmann said.
Facultative reinsurance is a very transparent form of reinsurance. As only one account is involved, it can be controlled quite well, she explained. This is why facultative business often serves as a way to enter a market, usually followed by treaty reinsurance.
Swiss Re’s core business in Russia is property/casualty. However, this segment has recently experienced an unusual number of sizeable losses, mainly in corporate property, Rautmann said.
Such losses, which include a landslide, a mining event and a poultry farm, may also occur in other portfolios, which have not been affected. These events and the consequences for the market are therefore being discussed with cedants in the upcoming renewals, she said.
Growth in the Russian P&C market remains below its potential, Rautmann suggested. “The P&C market remains attractive, but it’s not growing fast,” she noted.
Despite a rebound of the economy to more than 2 percent GDP growth in 2017, according to estimates, this economic growth has yet to reflect on insurance and reinsurance demand, Rautmann suggested. This is perhaps not surprising as investment in engineering projects, for example, takes time to transfer to the reinsurance business.
Instead, life & health is developing to a growth driver for Swiss Re in Russia. “We are seeing an uptick in life & health insurance and reinsurance in Russia,” Rautmann said. Demand for health insurance is on the rise, including for specific products, for example covering cancer risk.
In CEE, Swiss Re is observing an uptick in motor third party liability losses on the “greencard side,” which means they occur in a different country from where the insurance contract is based. “These losses can be quite sizable from the cedants’ perspective,” she said.
The losses may be higher as in a foreign country other compensation rules apply, and compensation levels may be much higher, she explained.
“We see an uptick there in both frequency and severity,” Rautmann said. This can be caused by an increase in cross-country transportation causing higher claims from truck fleets, as well as locals working abroad and travelling by car between their home country and workplace, she added.
This is something Swiss Re is keen to address: “Prices currently don’t pay for the risk factors,” she explained.
In addition the low interest rate environment is causing some disconnect between prices and costs in the motor business, Rautmann noted. If the discounting rate is lowered, as happened in the case of the Ogden rate in the UK, reserving levels need to rise.
“We are talking to our clients about the trends we are observing; we are discussing how this influences the renewals,” she said.
“From our perspective, there is the need for a higher remuneration for what we cover,” she concluded.
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