Insurers received capital benefits

The Bank of Russia has secured relaxations for insurers in terms of capital requirements. First of all, they will affect blocked foreign assets, the value of which can be written off within ten years. This initiative will have a positive impact on the financial condition of insurers. However, experts note that due to rising interest rates and a possible deterioration in the situation on the stock market, new measures may be required, including recapitalization.

The Central Bank has introduced relaxations on the capital of insurers, as follows from the regulator’s instructions published on September 14. Thus, companies will have the opportunity to take into account in their capital the price of non-traded shares of the largest issuers with high credit quality.

In fact, we are talking about an “installment plan” to write off the value of blocked assets over ten years for companies that do not pay dividends, the Central Bank explains.

The directive comes into force on September 25.

The new requirements are aimed at increasing the financial stability and solvency of insurers. Changes regarding the procedure for accounting for “blocked” assets for the purposes of calculating capital standards were in effect previously, however, as relaxations provided for by the decision of the board of directors of the Central Bank of December 23, 2022, they are now formalized in a regulatory document, notes B1 associated partner Tatyana Samsonova.

The installment plan to write off the value of blocked assets, as well as the expansion of investment opportunities, will have a positive impact on maintaining the financial condition and development of the insurance market, according to the Russian Union of Auto Insurers.

Experts confirm that the measures will seriously support the market.

“In anticipation of rising interest rates and increased financial market volatility, some of the assets recognized as part of the capital of insurance companies may be overvalued downward, which creates a threat to reduce the capital adequacy of insurers,” notes independent expert Andrey Barkhota. The instruction neutralizes the negative effect of such a revaluation, he notes. In addition, according to Olga Basova, senior director for ratings of insurance and investment companies at Expert RA, the opportunity to invest in project bonds will help diversify the investment portfolio of insurers.

At the same time, the problem of blocked assets itself remains; “installment payments in the process of depreciation of such assets are an essential tool for mitigating pressure on insurers’ capital,” Mr. Barhota emphasizes.

The Central Bank also establishes, as a preventive measure, a progressive scale of capital requirements for MTPL insurers, whose share in this segment exceeds 15%. The size of the company’s bonus will be determined based on the results of each quarter. According to the regulator, this will limit the impact of the risks of loss of financial stability by individual large insurers on the MTPL segment as a whole. The prerequisites for the revision 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 losses for the insurer (see “Kommersant” dated February 14).

Changes regarding the calculation of insurance reserves are targeted, the dialogue with the market continues, and as experience is gained in applying the new rules for calculating insurance reserves by both market participants and the regulator, additional clarifications in the methodology are possible, Ms. Samsonova believes. However, if the situation worsens dramatically, including rising interest rates and depreciation of the ruble, new support measures may be needed. According to Mr. Barhota, they may relate to easing the indicative value of the capital adequacy standard and installment plans for the recapitalization of individual market participants.

Yulia Poslavskaya