|return to : MA
Institute of International Studies
of the Russian Insurance
May 3, 2002
Project was completed as part of the
requirements for the program of Master of Arts in Commercial Diplomacy at
the Monterey Institute of International Studies.
purpose of this project, I will assume the role of an independent
consultant to the Ministry of
Economic Development and Trade of the
The Russian Federal Law on Insurance
(1999) prohibits the sale of life and mandatory/compulsory types of
insurance by majority foreign owned (>49%) insurers. Foreign
participants in the insurance sector are unsatisfied with the level of
protection for domestic companies. According to the Law, foreign insurers
cannot make investments that would provide control over their Russian
subsidiaries without losing mandatory and life insurance licenses. This
recommended that the Ministry of Economic Development and Trade of the
a reformulation, conducted in accordance with the proposed strategy, will
help the Russian negotiating team move forward accession talks with their
WTO counterparts, while advancing the much needed modernization of
insurance related policies and domestic legislation.
recommended timeframe for the implementation of the proposed strategy is
2002 through the first half of 2003. At the end of this period,
Benefits to the National
Foreign companies’ access to the Russian insurance market benefits the national economy in the following ways:
held belief that foreign companies’ access to the Russian insurance
market will significantly increase outflow of the capital is disproved by
examples in other transition economies. The protection of the domestic
insurance market does not solve the problem of capital outflow from the
country. Domestic insurance companies equally contribute to the capital
outflow through reinsurance and placement of investments abroad. Further
elaboration of legislation regulating placement of capital and reinsurance
abroad is necessary to address the issue of capital outflow.
to reformulate the WTO accession negotiating position on insurance and to
amend existing discriminatory insurance legislation it is recommended that
the Ministry builds a coalition that includes the following: the
All-Russian Insurance Association (ARIA), the Russian Union of
Industrialists and Entrepreneurs (RUIE), the Ministry of Finance, the
Prime Minister, and the President.
Ministry’s support for ARIA’s
strive to become an independent self-regulatory body as well as the
explicit intent of the proposed reforms to streamline the insurance
regulation will guarantee ARIA’s cooperation. With respect to the matter
of the proposed reform RUIE’s membership is interested in speedier
accession to the WTO and in being able to bring their own captive
insurance companies to the foreign markets. Considering the relationship
between ARIA and RUIE, ARIA’s support for reform support of RUIE. The
business community’s backing for this proposal facilitates the further
strengthening of the coalition by engaging the Prime Minister and the
coalition built along the lines described above will make possible the
implementation of the legislative
strategy, that will secure foreign access to the Russian non-state
mandatory insurance market. The strategy will ensure passage through the
Federal Assembly of
sufficient combination of insurance legislations: a) Law on Insurance; b)
Law on Insurance Supervision and Regulation; and c) Law on Mandatory
The Russian Federal Law on Insurance (1999) prohibits the sale of life
and mandatory types of insurance by the majority foreign owned (>49%)
insurers. Citizens of
The mandatory insurance sector is poised
to expand after the upcoming adoption of legislation on mandatory
insurance. Foreign insurers invest in the established leaders of the Russian
insurance market. Prohibition on the sale of mandatory insurance limits
foreign companies’ ability to make additional investments that would secure their control over their subsidiaries.
insurance in the mind of many Russian legislators, government officials,
as well as the general public, includes mandatory insurance for government
needs; such as military and police force casualty insurance, state
property insurance. Mandatory insurance also includes compulsory insurance
to be paid by private citizens and corporations like automobile owners,
auditors liability, liability from running high risk operations.
This project addresses only the latter part of mandatory insurance: collected from the private citizens and businesses. This project excludes the consideration of mandatory government insurance for the following reasons:
There are two survivors of the Soviet era
insurance sector: Ingosstrakh (International State Insurance) and
Rosgosstrakh (Russian State Insurance). Over the years of economic reforms
both of these enterprises have been privatized to different degrees. Due
to the privatization that started in 1991 initial capital of the
Ingosstrakh was diluted by 650%. Later, ownership of Ingosstrakh
transferred from different industrial groups to a single majority owner
However, in late October of 2001 the companies of Nafta-Moscow, Millhouse
Capital and SibAl formed an alliance to purchase Ingosstrakh.
The new alliance is closely related to the Russian Aluminum Consortium.
Ingosstrakh has a widely recognized brand
in the foreign markets. Ingosstrakh received the golden prize “Brand of
the Year/EFFIE-2001” in the nomination “Insurance”.
Ingosstrakh has more than 50 years of international market experience.
Before the reform, the company’s only drawback was limited to
insufficient experience in working in the consumer sector. However, now
the company is one of the leaders in all insurance sectors.
Due to numerous dilutions of company’s
capital and government’s inability to purchase new stock in the company,
The future of the company’s ownership is
indeterminate at this point in time. However, there are speculations that
the final recipient of the company’s stock will be AIG.
AIG needs the investment in Ingosstrakh to be able to compete with its
long-time rival in the Russian market German Allianz AG.
Fate of Rosgosstrakh is quite
different. The company has not been privatized since the beginning of
reform. It was only in 2001 that the Russian Government decided to sell
50% minus 1 share of Rosgosstrakh. The Investment Company “Troika
Dialog” purchased 9% of Rosgosstrakh for 201 million rubles on
Analysts conclude that Troika Dialog is working on behalf of a foreign player, in this particular case - AIG. In early 2002, Troika purchased a second lot in Rosgosstrakh during the privatization auction. Troika’s management introduced new members to the Rosgosstrakh’s board of directors. Troika’s president also admitted that AIG was among the investors who formed the coalition to purchase the Rosgosstrakh.
of Economic Development and Trade, Minister Gherman Gref.
The Ministry of Economic Development and Trade is responsible for the
development of federal socio-economic policy of the
The Ministry drafts laws and comments on
the proposed legislation that affects socio-economic development of the
Minister officially chairs the new independent
of Finance, Insurance supervision department
Ministry of Finance through its executive
by-laws develops the legal framework for the insurance sector. The
Insurance Supervision Department is the main regulatory/supervisory body
for the insurance sector.
ISD openly denounces its role in
formulating insurance policies – it performs only the supervisory
function. However, the Insurance Supervision Department is known for its
opposition to foreign companies access to the Russian insurance market.
the ISD is staffed with almost 200 employees but is unable to successfully
perform all its supervisory functions. For example, licensing a company
for operations in a certain sector takes more than two months,
certification of insurance companies’ managers also takes a long time.
ISD used to generate insurance market statistics. All companies are
required to submit information, financial statements, and to fill out
special supervisory forms. ISD is the organization that possesses the most
accurate and updated information about the conditions of the insurance
market. Nevertheless, since 2001, ISD stopped providing statistical
information about the insurance markets. ISD now only makes available the
total numbers of premiums collected, and payments made in five insurance
market sectors, as well as a breakdown of these numbers by the seven
Mikhail Kasyanov, the Prime Minister, and the former Minister of
Finance, exercises strong influence over all divisions of the government.
At the economic forum in
If ISD cannot provide enough arguments for further protection of the
insurance market, the Prime Minister will issue an order to reformulate
Russian Head of State has enormous power and political clout in
formulating the policies towards specific sectors in Russian economy.
Vladimir Putin is the President who set the
Earlier in the 2001, President supported the new tax legislation that exempts insurance expenses from income taxes. This was the beginning of a new policy toward insurance. “The Kremlin started to adopt industry policies founded on a reasonable consensus of domestic interest, instead of the favoritism and privateering of the recent past… when a single American insurance tycoon could purchase letters of demand from the U.S. Congress and State Department, hand-carry them to the Kremlin and the State Duma, and cash them at Boris Yeltsin’s door into special favors for his Russian interest.”
The President not only exerts political
pressure in resolving policy issues, but his Administration possesses $600
billion in assets, some of that property requires insurance. The
President’s administration is also a big buyer in the insurance market.
However, the insurance expenses are to be paid by the enterprises
servicing the administration, rather than from the state budget.
Federation Council (the upper house of the Parliament) after 2001 reformed
its procedures for electing its members, which consists of representatives
from legislative and executive branches of power of the regions –
subjects of the
Federation Council structures its work by committees, similarly to the
work of the State Duma. The committee important to solving the problem at
hand is the Committee of the Federation Council on Financial Markets and
Money Circulation. Its chair, Serguei Vasilyev, was appointed by the
government of the Leningrad Oblast’ in 2001.
to the Russian Constitution, the Duma is vested with the power to adopt
and change federal laws. In the present political situation in
Duma structures its work, as any other parliament, by respective
committees. The Committee on Credit Organizations and financial
markets (CCOFM) deserves
special consideration. Its chair, Alexander Shokhin, is a member of the
Duma faction “Peoples Deputy”. The faction supports modernization of
the Russian economy.
Committee on Credit Organizations and financial
markets contains the insurance
Subcommittee. The Insurance Subcommittee is led by Alexander Koval’, a
member of the Unity faction. Mr. Koval’ is also the president of the
All-Russian Insurance Association.
the exception to mandatory insurance, the issue of liberalization of the
insurance sector is not subject to party politics. Party politics become
important only to overcome the Communists’ resistance to the expansion
of number of risks to be covered by mandatory insurance.
1. State Duma factions:
Russian Union of Insurers unites the best specialist in the insurance
field. Many top managers of Russian insurance companies lead working
groups within the
In early 2002, ARIA decided to fight for status of independent federal regulatory body. ARIA proposes its own view of the appropriate policy toward the insurance sector. ARIA’s proposal does not contradict the policy proclaimed by the Government; however, it does not cover the introduction of free competition with foreign companies, or granting national treatment to foreign companies.
February 2002, ARIA members elected a new president of the association –
Alexander Koval’ – a current member of the State Duma. He belongs to
the pro-president Unity party and does not plan to relinquish his Duma
seat. In Duma he is an active member of the Committee on COFM, and a chair
of the Insurance Subcommittee. Such a disposition provides ARIA with
greater political leverage in the State Duma.
RUIE was created to represent interests of
the largest industrial enterprises and financial groups. Two other
industrial associations were formed: OPORA (Union of Entrepreneurial
Organizations of Russia) to represent the small enterprises and
“Delovaya Rossiya” (Business Russia) to represent the interests of the
medium-size enterprises. However, both these organization continue to lack
political clout with the executive branch.
The strength of RUIE lies within its board
members who are regularly invited to update the President on the current
state of the Russian economy as well as the current policy needs of the
RUIE vocally supports
development of the Russian insurance sector allowed for creation of small
regional insurance companies that serve a certain region or a group of
regions. Some of those companies are likely to face tough competition from
foreign insurers. Governors of Russian regions could be interested in
protecting those companies.
Federal legislation assumes universality of federal regulation of
insurance throughout the entire
different mandatory insurance:
firefighters, aviation safety etc. They are likely to be willing to retain
control over the mandatory insurance flows associated with their agencies
or the supervised economy sectors.
American International Group
AIG is one of the leaders of the global
insurance market, which operates in 130 countries. In most of the foreign
markets AIG is involved in the life-insurance sector. AIG-Russia was
created in 1991 and enjoys full, unconditional and irrevocable guarantees
of the parent company.
Amendments to the law in 1999 did not affect either AIG or subsidiaries of
Allianz AG. Both of these companies were able to grandfather their rights
of working in both mandatory and life insurance sectors.
However, AIG-Russia was only able to become a leader in the
Furthermore, these grand-fathered rights
do not apply to new investments that AIG has made, namely Ingosstrakh and
The Government does not plan to fully
privatize Rosgosstrakh. Therefore, it is unlikely that AIG’s further
investments will limit Rosgosstrakh’s ability to work in all licensed
sectors of the market.
Ingosstrakh’s situation is different.
Should AIG or other foreign investor acquire more than 49% of the company,
Ingosstrakh will find itself excluded from both markets of life and
Allianz AG is
In late June 2001 Allianz AG purchased 45%
of ROSNO (Russian insurer #3, total premium collected 2000).
Allianz AG finds itself in a situation similar with the one AIG and
Ingosstrakh have to face. According to the law, should the foreign-owned
company acquire more than 49% in the insurance company, that company
automatically is excluded from a number of lucrative sectors of the
Besides from purchasing 45% stock in ROSNO,
Allianz purchased an option to acquire more shares.
Allianz would be willing to execute the option in case the limitation on
foreign participation is lifted.
ROSNO represents not only wide client base
but it also has quite elaborate regional network of branches.
Igor Yurgens, in November 2001, quit his
position as the president of ARIA and assumed a post on the board of
directors at ROSNO.
Igor Yurgens is considered the strongest lobbyist for the insurance
sector. Such a move can be interpreted that foreign capital (Allianz AG
– owner of 45% of ROSNO) is hiring the best Russian talent to lobby the
Russian Government and the State Duma for liberalization of the insurance
Acquisition of ROSNO by Allianz brings qualitatively
new client base for ROSNO: foreign companies and their Russian branches.
However, it is possible that ROSNO might lose its stronghold in mandatory
insurance for federal agencies like Ministry for Taxes and Collections.
It is unclear whether the Ministry will favor the fact the foreigners
will have access to the data about its employees.
– members of the working party on
All-Russian Union of Insurers, Bulletin of the Committee for Foreign
Affairs #3 2001, p.8
 Another insurance sector closed to the foreign insurers is life insurance. Markets for mandatory and life insurance develop differently. Life insurance market is qualitatively different form mandatory insurance in the way that life insurance is related to accumulation of long-term capital and is more pronged to perform savings function. For purposes of this project we will focus of access of foreigners only to the mandatory insurance market. This figure includes premiums collected for mandatory health insurance. At present there is a tendency to separate healthcare insurance from the rest of mandatory insurance. As economic and commercial analysis will show, presently, purely mandatory insurance accounts for roughly 1% of the market, however it is poised to expand with adoption of new legislation.
List of national barriers to trade 2001
Pavel Miledin, Ingosstrakh is up for sale again, Vedomosti #202
Interfax, October 24, 2001
Sergei Ul’yanov, International prize for Russian insurers,
Rossiksaya Gazeta #218 11-06-2001
Pavel Miledin, Ingosstrakh is up for sale again, Vedomosti #202
Dmitri Sivakov Ingosstrakh’s fate, Expert #39 10-22-2001
Pavel Miledin, Rosgosstrakh’s version, Vedomosti #197 10-25-2001
Interfax, October 25, 2001
Dmitri Sivakov, Intervention is continuing Expert #34 09-17-2001
Dmitri Sivakov, Intervention is continuing Expert #34 09-17-2001
 Alexander Bekker Citibank and AIG want to expand business in Russia, Vedomosti #016 02-04-2002
 Interfax, Russian president about WTO, 10-16-2001
 John Helmer, “Putin bets on new policies for insurance”, The Russia Journal June 29-July 05, 2001
Pavel Miledin Presidents administration is choosing insurers,
Vedomosti #169 09-17-2001
Pavel Miledin “Yurgens decided to leave”, “Vedomosti” #160
Alexei Germanovich “medium business behaves like big business”
Vedomosti #191 10-17-2001
Pavel Miledin, Sistema has given up ROSNO, Vedomosti #176 09-26-2001
Western Insurance companies Start entering Russian market http://lenta.ru/english/2001/06/28/insurance
Evgeni Reshetin, Intervention, Expert #25 07-02-2001 p 18-21
Pavel Miledin, Yurgens is leaving, Vedomosti #212 11-19-2001
 Evgeni Reshetin, Intervention, Expert #25 07-02-2001 p 18-21