Nicola RAUTMANN: The challenges in the market which Swiss Re and our clients were faced with, were dominated by two topics: The economic pressure causing lower GNPIs, and with that reduced volume of cessions, as well as, the fluctuating exchange rate of the Russian Rubble versus the Euro. Both factors led to intense negotiations at the time of the renewal. In almost all cases we could nevertheless find common ground and satisfying solutions for both parties.
XPRIMM: Which were the main achievements for Swiss Re in Russia that you could underline? (Important reinsurance projects, entering new lines of business etc.)?
N.R.: Actually the above was already an achievement in itself. We renewed almost all our treaties with our clients. Moreover Swiss Re was in a position to step into some new treaties, also in certain cases into the role of a leading reinsurer.
In particular I personally see it as a great sign of team-work and strength of the whole team that the renewal was done without the former team leader Christian Kreutzer, who already took over the role as the manager for the Asia Fac Team for Swiss Re and the new team leader Christian Engeln, who was only joining Swiss Re as of 1 January 2016. A big thank-you to my team mastering these challenges.
XPRIMM: What is the share of the Russian business in Swiss Re's portfolio?
N.R.: The business Swiss Re writes in the Russian market for P&C lines accounts for 16% of the technical result we conclude in the whole region Austria, Central- and Eastern Europe.
XPRIMM: Christian, as Head of Client Markets Russia, how would you evaluate the current stage of development for the primary insurance market in Russia? Also, as a reinsurer - what are your plans in order to support the local market? What are your ideas for new products / distribution channels, considering the stagnation of the local economy?
Christian ENGELN: No question, this is the hardest time for most of the Russian insurers since they exist. The growth model does not work anymore in an environment, where everybody - business, private consumers, state - cut back insurance expenditure. On the other hand, shareholders run out of patience to support low margin insurance assets, and the regulator urges for more transparency and improvement of the capital base.
However, we believe that this is also the time when insurers usually adapt and streamline processes, decrease costs, but at the same time embrace new technologies and develop new products. This is a stressful turbo-modernization, where Swiss Re wants to show to the executive management of Russian insurers: We are there to help, offering a strategic tool, far beyond pure reinsurance capacity. Why not thinking together with us about new products in Life and Non-Life, explore Big Data topics, benefit from our worldwide experience with innovative technologies, develop a Telematics strategy, and work with Swiss Re on capital and solvency solutions?
XPRIMM: Which are the main difficulties you experienced on the Russian market? Do you intend to implement a new approach to the clients there? What is your strategy regarding local Russian specialized reinsurers, do you have any partnerships at the moment?
C. E.: Our approach has been - and will remain to be - focused on our core partners, those whom we believe to have a long term perspective on insurance and reinsurance. We want to prove that reinsurance can do much more than just offering conventional reinsurance capacity. For this, we want to listen carefully to clients' needs and try to tailor solutions individually, which should help in a holistic manner to inspire, foster, and where necessary finance innovation.
This is not to say that sometimes real champions in their niche grow also in the second row of insurance companies; we would like to find these, too, and be a partner in growth for them.
XPRIMM: In Russia, Swiss Re is focused especially on property, engineering, marine and aviation lines of business. Are there any other new lines of business that Swiss Re has identified there for the near future?
N. R.: Swiss Re is also writing liability business, which is however, a line of business not yet largely insured and reinsured in the Russian market. We are also involved in L&H business already with a number of cedants. The question you raise is however very important, as we are convinced that it is essential to work together with our clients to build new opportunities. Christian will talk about that also at today's conference. I would like to mention the development of retail lines as well as telematics as a possible topic for the market in the future.
XPRIMM: According to official statistics, many large objectives in Russia are historically underinsured...which are the causes and how can be this gaps reduced?
C.E.: It is a long term task. People usually insure only when "forced" to, by state, by bank, by principal. It takes time - and also a good sales network, by the way - to overcome that. Often only when it is too late and the large loss happens the owners of large objects understand that insurance is an investment, not just an expense.
Also here, we see our job to inspire the market by discussing new insurance products. Maybe combinations of Property and other lines, new forms of Business interruption even discuss products close to the "boundaries of insurability", with extended covers, e.g. for contingency risks. We are always happy to enter such a dialogue with partners in Russia.
Also, we see chances for the commercial and private sector. Here, we believe that there are also innovative products linked with the internet, wearables ("Internet of Things"), smartphones and others who will boost at least in the retail segment the purchase of insurance with small sums insured. This seems to be a global tendency.
Our job at Swiss Re is it to exchange with our partners on new ideas, make them see what is working in Australia, France, the U.S., start-ups successful in Japan and Germany. Russia is not the only market in this growth trap, where insurance penetration is low, and local insurance industry is fighting with that. We want to bring in ideas from markets which faced this challenge sometimes surprisingly successful.
XPRIMM: How do you assess the reinsurance rates on the Russian market in 2016 for the main lines of business? Are there any significant changes based on loss history? How do you evaluate these rates on the Russian market in comparison to other CIS and CEE countries and what are your forecasts?
N.R.: When it comes to reinsurance, we see a significant competition amongst reinsurers. A number of bigger Western European players are active on the market with a varying service level. This leads to pressure on reinsurance rates. But the clients decide which service they want, and which price they are willing to pay. We still feel well positioned but need a certain margin for the capital we deploy to the market. Recently, there were a few cases, where we could not accommodate the price level any longer.
This is a situation very similar to other markets including Central- and Eastern Europe. Losses are always taken into account as new pieces of information. They have an influence on the price for affected lines and classes of business depending how significant they are.
XPRIMM: The primary draft of the bill regarding the creation of state reinsurer to underwrite sanctions affected risks has suffered some changes. Thus, Russian insurers were obliged to reinsure 10% of all types of risks in the state reinsurance company (except MTPL, Green Card and life insurance with a part of cumulative). In your opinion, which could be the consequences and how could this affect the competition on the insurance / reinsurance market?
C.E.: Reinsurance benefits from free and global flow of capital; hence we always welcome an environment supporting this freedom. Otherwise - it is not our role to give particular recommendations, as it is the Russian Federation taking the decision how to build up the environment for reinsurance. Our job will be to adapt to this and provide solutions which fit into the chosen mechanism.
XPRIMM: How do you assess the Russian insurers in terms of capitalization, solvability and overall financial stability? Do you consider that the number of companies will continue to decrease in the near future? How will this effects your business in Russia?
N. R.: Looking at the insurance market in Russia, there is still a proportionally larger number of insurers active in the market in comparison to other European economies. This number is also likely to reduce following similar patterns elsewhere. Capitalization is one aspect leading to such a development. In our view reinsurance can also be a way to mitigate capital needs amongst other measures. We believe however that more consolidation will take place.
XPRIMM: Which are Swiss Re's plans for life insurance business in Russia? Considering the low level of penetration for this business segment - do you have any proposals for the local insurers in order to boost this market?
C.E.: We are actively supporting our partners in selling extensions to their Group Life and Health products, but also to single Life insurances. We see that there is a demand for this, and we very actively follow up on this. Classical savings products, pension or endowment are still developing indeed. We also want to help to close the existing protection gap by way of innovative product solutions.
XPRIMM: What are your estimations (in %) for SWISS Re's results in Russia by the end of 2016?
N.R.: We still have business renewing throughout the year. Together with insurers we hope for an outcome covering our technical needs, and that is the estimate we will put into our systems when we write the business. The result is however only known after 2016 is finalized. Even then large losses can easily bring the result of past underwriting years to a negative as seen in some of the recent years.
XPRIMM: Today, Swiss Re hosts its annual event dedicated to the Russian insurance industry. What is your message for the market at this point?
N.R. and C.E.: Let us develop our future together! Beyond what we do together, there are opportunities to position us for future growth.