EXCLUSIVE: “Many Russian insurance companies could just go bust”

EXCLUSIVE

Sanctions imposed on Russia as a result of Vladimir Putin’s invasion of Ukraine could result in many insurance companies in the country going bust according to a Russian insurance lawyer.

Leonid Zubarev, a senior partner specialising in insurance law at CMS Russia and based in Moscow, told Captive Review that there is a real possibility that the lack of reinsurance in Russia could cause big problems.

“In Russia, if something happens, it happens big time. So, in case of a catastrophic risk scenario many Russian insurance companies could just go bust because there is not enough reinsurance capacity inside Russia,” Zubarev said.

On 9 March the Russian Government introduced Federal Law No 46 which forced all Russian insurers to cede 50% of their risk to the Russian National Company.

Only six days later the Russian Government prohibited insurers from accessing any reinsurance from what it deems “unfriendly states” including the United States, the United Kingdom, all EU States, Switzerland and Japan.

This is following sanctions from some of these countries, including the United Kingdom banning any Russian companies in the aviation or space industry from accessing reinsurance in the UK.

This includes captive insurance companies, which in Russia are classified the same as any other non-life insurer.

Zubarev told Captive Review that he doesn’t think the current situation is sustainable for Russian insurers.

“Even with the Russian National Reinsurance Company now accepting up to 50 percent of the risks, with all additional capital that was provided to it by the Central Bank of Russia and the bank guarantee issued by Central Banks to the state reinsurer, still the magnitude of the risks especially engineering and liability makes you wonder how this this model could be sustainable without risk transfers to foreign reinsurers,” the senior partner said.

“As far as internal factors are concerned, of course, this ban on transferring risks outside of Russia was really a blow. Everybody understands why it was done, I mean, to keep money in the country, but are shocked by the way it was done.

“Reinsurance, and particularly reinsurance with international companies based in the UK, US, Europe, this is, in the majority of cases, legitimate business with highly rated reinsurers. This is a genuine risk transfer. It’s like a pot with boiling water if you close the lid – risks accumulate in Russia, pressure builds, bang!”

8 November 2022
9-10 November 2022
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