Sogaz has created a subsidiary for risks

It is a rare event in the Russian insurance market: a private insurance company has established a reinsurance subsidiary. This was done by the market leader Sogaz. According to experts, a reinsurer is needed in order to reduce the transfer of risks to the state-owned RNPK and the burden on capital. In the near future, the capital of the new reinsurance company will have to be increased to fully operate in the market, including to accept risks from other insurance companies.

The largest Russian insurance company Sogaz has registered a subsidiary reinsurance company New Reinsurance Company (NPK), reported Interfax with reference to data from the Unified State Register of Legal Entities. A company with an authorized capital of 600 million rubles. was registered on January 15, the post of general director was taken by Sogaz executive director Elena Epishina. In addition to reinsurance, NPK plans to engage in risk and damage assessment and carry out other activities in the insurance market, with the exception of the field of compulsory social insurance. Sogaz did not respond to Kommersant’s request.

According to insurance market participants, since the creation of the state-owned Russian National Reinsurance Company (RNRC) in 2016, this is the first time an insurance company has created its own reinsurance company. Previously, insurance groups included reinsurance companies, in particular, Capital and Capital Re, MSK and Moscow Re, RESO and Unity Re. However, after the emergence of the state reinsurer, market participants liquidated their reinsurance subsidiaries, notes Kommersant’s interlocutor from a large insurance company. In this case, insurers assume risks in reinsurance.

According to experts, the subsidiary reinsurance company was created primarily for its own needs. This may be due to the exemption from the need to comply with regulatory requirements for the transfer of 50% of the risk to reinsurance to RNPK (valid from March 2022), if the transfer is carried out within the same insurance group, according to Kommersant’s interlocutor in the insurance market. According to Kommersant’s interlocutor from a large insurance company, Sogaz can transfer up to 10% of its “multi-billion-dollar portfolio” to its reinsurer, primarily retail types of insurance.

In addition, the company can thus reduce the burden on its own capital, another Kommersant source points out. From January 1, 2023, the threshold value of the normative ratio of the insurer’s own funds and assumed liabilities was set at 1.01, followed by an increase over two years to 1.05.

However, the declared authorized capital of the new company is sufficient only to obtain a reinsurance license.

For full-fledged work in the market, its further increase will be required, since with such capital not a single company can start operations, because the signing of insurance contracts creates a burden on capital, which immediately leads to its decrease, warns one of Kommersant’s interlocutors. In addition, the company begins to eat up capital, paying salaries to employees, renting an office, and buying an IT solution, he adds. The capital will need to be increased to at least 3 billion rubles, notes Kommersant’s interlocutor from a large insurance company.

Additional reinsurance capacity may well be in demand in the insurance market, especially if the proposed coverage conditions may be broader than those offered in RNPK, and where the total own retention of insurers is not enough, notes Elena Orlova, head of the sector for working with corporate clients of the insurance broker Nobilis.

Yulia Poslavskaya