Capital is being brought under OSAGO – Newspaper Kommersant No. 27 (7472) of 02/14/2023

The Bank of Russia may for the first time introduce a progressive scale of capital requirements for insurance companies with a high share in the OSAGO segment. According to the regulator, this will help protect consumers and maintain the financial stability of the segment. Market participants note that insurers will be forced to artificially lower their share. In addition, the new requirements impose serious restrictions on the use of the reinsurance pool.

The Central Bank proposes to introduce a progressive scale of capital requirements for insurance companies whose share in the OSAGO segment will exceed 15%. The regulator posted a presentation with proposals for introducing a provision “On requirements for financial stability and solvency of insurers” on the website on Monday, February 13. Currently, when calculating the capital for insurers, a single coefficient is taken into account. The regulator also proposes to introduce a capital surcharge proportional to the growth of the insurer’s share in OSAGO, and its size will be determined based on the results of each quarter.

The prerequisites for the revision of the current position were the expectation of a deviation in the level of early termination of contracts or a change in the volume of coverage from the forecast. This may lead to a reduction in profits or an increase in the loss of the insurer. The proposed changes will limit the impact of financial stability risks of companies on the segment, the regulator believes. The Central Bank emphasizes that this is a preventive measure and at the moment insurers do not need additional capitalization. The Bank of Russia did not promptly respond to Kommersant’s request.

Insurers emphasize that such regulation is introduced for the first time. The PCA noted that they are currently studying the proposals of the Bank of Russia, holding consultations with insurers and then assessing their impact on the OSAGO market and forming their position on these proposals. According to Aleksey Yanin, managing director for ratings of insurance and investment companies at Expert RA, OSAGO is a socially significant type of insurance, and the financial stability of a major player significantly affects the entire market. RESO-Garantia, Ingosstrakh, AlfaStrakhovanie did not respond to Kommersant’s request.

Experts believe that the introduction of such regulation is associated with the desire of insurers to engage in OSAGO. “Firstly, the level of risks in the economy has increased, which could not but affect the corresponding value of the unprofitability of most insurance segments. Secondly, there was a lack of growth in new insurance contracts in many types of property insurance. As a result, insurers have focused on regulated but low-margin areas like OSAGO,” explains Andrey Barkhota, an independent expert. As a result, the potential growth of OSAGO unprofitability began to put pressure on the capital of companies, he believes.

Market participants consider the offer risky. For many years, competition in the market has kept the market leaders’ shares at a level not much higher than 15%, while OSAGO is a public contract when a consumer chooses a company, Kommersant’s source in one of the large companies notes. According to him, the introduction of new requirements may encourage insurers to artificially lower the share, which conflicts with the goal of ensuring the availability of policies. VSK also believes that the artificial limitation of the maximum share, which requires additional payment, will obviously have a negative impact on the availability of OSAGO policies. And if now this problem is practically solved with the help of a reinsurance pool, now this imposes serious restrictions on its use, they note there. Tatyana Nikitina, senior director of ratings for financial companies at the NRA, adds that another consequence of the imposition of additional capital requirements may be a decrease in concentration in this segment.

Julia Poslavskaya