The Central Bank will add risks to insurers – Kommersant

The Central Bank plans to introduce an additional risk into the practice of insurance companies – termination of the contract when assessing the financial stability of insurers. According to experts, the most profitable segments of insurance are exposed to this risk. However, the insurers themselves are more worried about the costs of restructuring the calculations.

The Bank of Russia plans to include the risk of termination of contracts when assessing the financial stability of insurers, Ilya Smirnov, director of the insurance market department of the Central Bank, told reporters at a conference of the All-Russian Union of Insurers (ARC). “We have an interest rate risk, we have a credit risk, there is a currency risk, and there will be another new one – the risk of termination of contracts,” said Mr. Smirnov (quoted from “Interfax”). This, in his opinion, should free up capital for insurance companies.

At the time of the conclusion of the insurance contract, the insurance company, analyzing the type of contract and the sum insured, reserves capital for it, explains independent expert Andrei Barkhota. In case of early termination of the insurance contract, the previously reserved part of the capital is released, and the insurer can replenish its portfolio with new insurance premiums and customers, he explains.

At the same time, the risk of terminations is a negative factor, since in the event of early termination of the insurance contract, the amount of lost premium increases, which was included in the budget of the insurer when planning cash flows – in the event of accumulation of terminations, the total loss of the insurance company may increase, which leads to an acute need for capital , the expert notes. A shortage of the insurer’s regulatory capital may result in sanctions from the Central Bank up to the revocation of the license (see “Kommersant” dated February 4, 2022).

According to experts, the most risky segments in terms of terminating contracts are profitable segments of insurance. In particular, property insurance, as well as life insurance.

The risk of termination is less typical for compulsory types of insurance and liability insurance. The largest percentage of terminations of contracts falls on credit insurance, adds Olga Basova, senior director for ratings of insurance and investment companies at Expert RA. In the case of early repayment of loans, borrowers apply to the insurance company to terminate the relevant insurance contracts (mortgage insurance, consumer credit insurance) and return part of the insurance premium they paid for the unexpired policy, she explains.

According to independent expert Andrei Barkhota, it would be reasonable to limit the depth of this risk to 10% of the insurer’s capital as of the reporting date. In the market as a whole, this value is estimated at 120 billion rubles. If we consider this level as the maximum for the capital of an insurance company, then the impact of new requirements will be largely amortized, the expert believes.

Meanwhile, insurers are worried not so much about the pressure on capital, but about the cost of accounting for this risk.

“We do not see fundamental changes in the size of regulatory reserves when the risk of termination is introduced, however, the calculation of this risk itself is extremely laborious both in terms of volume and time, which creates an additional burden in the monthly closing process,” VSK noted. It is obvious that with the introduction of the risk of termination due to additional settlements, an increase in the terms for closing contracts will be required, says Tatyana Orekhova, chief actuary of Rosgosstrakh. According to Vladislav Radchenko, Deputy Director of the Actuarial Department of Ingosstrakh, in the context of constant changes in legislation that require regular restructuring of systems, simple tools to reduce the regulatory burden are more preferable, such as releasing excess stabilization reserves accumulated by insurers or expanding the list of assets, in which are allowed to invest.

Julia Poslavskaya