Limits are placed on reinsurance – Newspaper Kommersant No. 220 (7421) dated 11/28/2022

The State Duma adopted in the first reading a draft law, according to which insurers can limit the range of risks transferred for reinsurance to the Russian National Reinsurance Company (RNRC). Market participants believe that it is not worth reducing the cession, otherwise a number of companies will face serious problems. First, in their opinion, it is necessary to find an alternative to RNPK.

According to the draft adopted by the State Duma in the first reading, the Board of Directors of the Central Bank will determine the risks and obligations that may not be transferred to the RNPK. In addition, the bill provides for the extension until the end of the year of the ban on transactions with insurers, insurance brokers and reinsurers from unfriendly countries, as well as transferring money to them under previously concluded agreements. The RNPK declined to comment. The Central Bank did not respond to Kommersant’s request.

Aleksey Khutoryansky, director of the underwriting department for corporate types of insurance at Soglasie, draws attention to the fact that earlier there were no hints of a possible restriction of mandatory assignment in the RNPK, on ​​the contrary, this year it was increased from 10% to 50%. According to Tatyana Nikitina, Senior Director of Financial Companies Ratings at NRA, the structure of the reinsurance market that has emerged this year carries risks of high concentration: the share of premiums transferred to Russian companies in the first half of 2022 was 88% against 23% in the first half of 2021.

Market participants believe that it is premature to limit the mandatory cession in RNPK. There is a shortage of reinsurance capacity in the market in certain types, especially in those that have historically been placed in the West, in particular directors and executives liability (D&O) insurance and financial risks.

“For RNPK, such types are not targeted, and alternative markets are closed for insurers,” says Yevgeny Ilchenko, director of the underwriting and reinsurance department at Absolute Insurance. Aleksey Khutoryansky, director of the underwriting department for corporate types of insurance at Soglasiya, adds that the mandatory assignment increases the chances of reinsurance of risks in the current conditions.

As part of the mandatory assignment, RNPK generally tries not to refuse to accept risks. But if some risks are removed from the mandatory cession, this will mean that the authorities do not consider such risks important, Mr. Khutoryansky explains. In this case, in his opinion, RNRC may begin to refuse to accept risks in reinsurance and there may be a lack of capacity.

Mr. Ilchenko believes that the category of risks that do not require transfer to RNPK should be limited to intra-group reinsurance, where the risk is distributed among insurers formed by a single holding or representing the interests of one shareholder.

At the same time, Olga Vostrikova, a partner at B1 Group, believes that the reduction in the list of risks subject to mandatory transfer to RNPK “will provide legislative prerequisites for the emergence of alternative reinsurers.” Mr. Khutoryansky explains that at the moment, RNPK, realizing that there is no alternative, can provide non-market rates and conditions, and sometimes completely block risk placement, while earlier risks were cheaper and easier to reinsure on the international market.

When making a business decision, RNRC must combine sometimes divergent factors, for example, to be profitable and at the same time provide reinsurance protection against sanctions risks – a segment, the volume of market quotations for which is limited for one reason or another, director of ratings of insurance companies of the NKR agency Evgeny Sharapov. In his opinion, “the ideal combination is possible only in a free market.”

Julia Poslavskaya