The EAEU will distribute insurance risks – Newspaper Kommersant No. 156 (7357) of 08/26/2022

Today in Kyrgyzstan, in the resort town of Cholpon-Ata, within the framework of the Intergovernmental Council of the EAEU, the heads of government of the countries of the union are to sign an agreement on the establishment of the Eurasian Reinsurance Company – EIC. Its main founders will be the Russian Federation and Belarus with shares of 45% and 30% of the authorized capital: the urgency of launching a “union” reinsurer for them has grown after the introduction of international sanctions in connection with the military operation in Ukraine and the refusal of Western companies to work with their risks, which are not affected sanctions Kazakhstan, Armenia and Kyrgyzstan will have only a quarter of the contribution to the EPC. Experts, however, note that the EPC itself will not be protected from sanctions, while the success of its work in the union’s markets will depend on conditions that are yet to be determined.

Documents on the creation of a supranational reinsurer, which Kommersant got acquainted with, almost verbatim repeat the rules by which the Eurasian Development Bank has been operating in the EAEU since January 2006. Thus, the draft charter of the EPC describes the future company as an international organization established by Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia and open to accession of new members – it is assumed that it will work as a legal entity in the EAEU countries in order to “promote an increase in the volume of mutual trade and investments, development of economic integration, increase of investment attractiveness and expansion of trade and economic relations with third countries”. The main goal of the EPK will be to insure export deliveries and risks that cannot be reinsured in developed countries. Recall that the design of the modern insurance market suggests that some of its companies do not retain risks, the execution of which may threaten their financial stability, but transfer them to reinsurance in order to distribute the burden among all market participants. The refusal (often voluntary) of Western companies to reinsure Russian and Belarusian risks poses a threat to national financial markets, as the insurance sector is increasingly integrated into them.

In the Eurasian Economic Commission, the preparation of the EPC agreement was coordinated by Minister of Trade Andrey Slepnev, who until February 2020 headed the Russian Export Center (REC). It should be noted that the project to create a “union reinsurer” was discussed long before the start of the Russian military operation in Ukraine, but the growing problems with the insurance of Russian and Belarusian export contracts due to the sanctions of developed economies obviously accelerated this work. The authorized capital of the EPC under the draft agreement on its establishment will be 15 billion rubles, 3% will be contributed by Armenia, 30% by Belarus, 20% by Kazakhstan, 2% by Kyrgyzstan and 45% by Russia. The participation shares of the EAEU countries reflect the degree of their interest in the “allied” reinsurance capacity: the largest – in the sanctioned Russian Federation and Belarus, and the share of Kazakhstan not affected by the sanctions is less than the Belarusian one with a significantly larger economy.

A significant part of the draft EPK charter is a description of immunities and benefits for the company in the countries of presence, including the protection of employees from the “pressure” of the founders, the “non-interference” of employees in politics on their part, complete exemption from taxes, searches, arrests, confiscation and judicial harassment of her assets. The details of the work of the reinsurer in the national markets will be fixed in the agreements that he will conclude with the national authorities. “It is difficult to predict at this stage what exactly the agreements will consolidate,” says Anton Imennov, Senior Partner at Pen & Paper Bar Association. “Of course, the rules of the game that will be set by the shareholders for EPK will be very important – support for the sanctions business, types of insurance operations for which support will be provided, market strategies,” adds the interlocutor of Kommersant in the insurance market. “If the company fits into the general landscape of the EAEU insurance market, then its capacity will be in great demand, especially for the markets of countries that currently have limited access to international reinsurance,” he notes.

According to the interlocutor of Kommersant, the statistics of the Bank of Russia for more than a decade records a surplus of reinsurance operations in favor of foreign reinsurers – that is, the work of the EPC can be profitable for shareholders in the long term if they themselves do not block it. However, the status of an international company will not be able to protect YPC from Western sanctions, Anton Imennov notes. Keeping union risks only in the markets of the union, we note, will be more expensive, and their capacity is limited – which, however, fully fits into the logic of any import substitution.

Oleg Sapozhkov, Diana Galieva