Mikhail Volkov spoke to the leading western media outlets on the prospects of the Russian insurance market
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 19.11.2010 |
Mikhail Volkov, Basic Element financial services director and vice chairman of the Board of Directors of OJSC Ingosstrakh, spoke to the leading western media outlets, commenting on the prospects of the Russian insurance market and new Ingosstrakh projects.
Russian insurance market outlook
"We agree with the prognosis that the Russian insurance market is recovering and will grow 6-8 percent in 2011, thus surpassing $20 billion. As a general rule, the behavior of the insurance market matches the GDP growth rate. However, the market may also receive an additional growth stimulus with the introduction of new types of compulsory insurance".
"After the Sayano-Shushenskaya power station and Raspadskaya mine accidents the government decided to introduce compulsory insurance for dangerous industrial facilities, and after the fires in central Russia it has been discussing the instatement of compulsory property insurance. Dangerous industrial facility insurance will be of effect in its full capacity in 2012 - and as a result the insurance market will grow around 5 to 10%".
"This year the government provided an unprecedented amount of aid to the victims of forest fires - a very important social signal, yet at the same time there is an understanding that there exists a need for a market mechanism for risk pooling in this area. Therefore, the government is currently working on legislation that will introduce compulsory property insurance".
"According to our estimates, the number of insurance companies in Russia may decrease twofold, from 600 to just 300, in the next two years. At the same time it is unlikely that foreign insurance companies will encounter significant market share growth. As I see it, they are still having problems adapting to out market, where, unfortunately, rate dumping still exists (corporate rates in selected types of insurance have shrunk 5-8 times in the last three years), and some players go for negative earnings simply to advance their aggressive and unbalanced development strategies (meaning that the combined market index exceeds 100%). Large companies are the future of the market, and foreign insurance companies have yet to leave a substantial mark".
"At the present time, Ingosstrakh ranks third - after Rosgosstrakh and SOGAZ - in the amount of premiums collected. We expect that this year the Ingo Group will collect approximately 50 billion rubbles in insurance premiums".
Relationship with minority shareholders
"PPFI, which controls 38% of the insurance company shares, votes against almost every decision of the Ingosstrakh Board of Directors and files countless lawsuits against Ingosstrakh - lawsuits that cost the company millions of rubbles, distract the senior management and harm the company's reputation. Since 2007 around 100 legal and administrative trials initiated by the PPFI have been held, of which Ingosstrakh has won every case concerning the violation of shareholder rights and the shareholder's access to information".
"PPFI's behavior is hardly surprising, considering the fact that the company has ties to the principal shareholders of the Generali PPF insurance company, one of the top twenty largest Russian insurance companies and a direct competitor of Ingosstrakh. In view of this, we are no choice but to perceive PPFI not as a minority shareholder, but as a rival - and regard the company's actions as hostile and aimed at weakening the position of Ingosstrakh".
"We always conduct our affairs with PPFI in strict accordance with the law and company charter. We attempt to find common ground and strive to engage in a constant dialogue with them on every issue".
"We wish for the minority shareholders to become meaningful partners interested in the strategically-minded growth of the business. In view of the inherent conflict of interest, we will not oppose the sale of PPFI's shares if they decide to do so. There is the example of the PZU insurance company in Poland, which had two large shareholders. They could not come to a settlement, so one of them slowly moved out of the company's capital - elegantly, by selling it's shares on the market. To this end we ourselves would be willing to buy out their share, if the conditions can be agreed upon".
Aviation leasing
"Ingosstrakh has always adhered to a conservative investment strategy - and continues to do so today - placing reserves in reliable and highly liquid investment instruments. At the time being about 94% of all assets are placed in BBB index banks and fixed income instruments. However, Ingosstrakh's investments should bring a larger return, a sentiment that even the minority shareholders prescribe to. The company currently has above-level stock - in other words it has a decent "cushion" of liquidity, which can and should work to the benefit of the company's shareholders and clients".
"One of the projects that the company is considering is investing part of the "above-limit" reserves into financing aviation leasing. This is a stable, reliable and more lucrative business. It's no coincidence that of the ten of the world's largest insurance companies, three are involved in this business. The return on equity of the aviation leasing divisions of such companies as AIG and Nomura Holding amount to 16 and 27 percent respectively".
"Ingosstrakh has already taken the first step in this direction - the Board of Directors has decided to invest in the purchase of 5 Boeing 737 liners, with the view of providing them for operational leasing to Russian airline companies, including, but not limited to, Sky Express. The fixed rate of return on the transaction will constitute 15% in dollars. This "practice" project will allow the company to test the market's operational system with minimum risk, since Basic Element owns an airline company of its own and, therefore, has an understanding of the risk this type of projects carry. What sets aviation leasing apart from other areas is the fact that passenger planes - unlike other types of vehicles and machinery - are a highly liquid asset that is in rather high demand".
"We leave open the possibility of western partners participating in the project - and see ourselves taking on the role of cornerstone investor".
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