S&P Foresees ‘Tough Times’ for Russian Insurers In 2009-2010

February 4, 2009

A report from Standard & Poor’s Ratings Services entitled, “Tough Times Will Challenge Russian Insurers In 2009-2010”, published on its RatingsDirect web site, concludes that “Russia’s insurance market is still developing and will come under unprecedented stress in 2009-2010 in reaction to the likely domestic recession.”

S&P noted that of “more than 800 insurance organizations operating in the Russian Federation, 60 percent of gross premiums are written by the 10 largest companies. The rest of the market is fragmented and is characterized by a large number of small, undercapitalized companies with tiny market shares.”

Credit analyst Victor Nikolskiy pointed out that “profitability is under pressure, expense ratios are deteriorating, the growth in premiums is slowing, and companies’ capital positions are becoming strained.”

S&P also indicated that it expects “continuing pressure on the insurance sector arising from the overall weak quality of insurance investment portfolios (including bank deposits and corporate bonds). The sharp liquidity squeeze and deteriorating asset quality indicators in the Russian banking sector will only add to the problem.”

“The largest and most advanced companies will be less affected by the crisis. The largest players have sophisticated management ready to recognize and avoid the coming difficulties and well-developed risk management procedures.”

Nikolskiy added, however, “the crisis will have some positive consequences for the sector. Unqualified, undercapitalized players will fail, leaving those that remain more transparent and customer friendly; companies will widen their distribution channels; and operating expenses will be optimized as the lack of insurance personnel becomes less critical.”

S&P concludes that the “crisis will definitely result in a reshaping of the whole landscape of Russian insurance, which will have to prove its resilience in these tough times.

The report is available to RatingsDirect subscribers at: www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site at: www.standardandpoors.com.

Source: Standard & Poor’s

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