Russian Ministry of internal affairs proposed the Central Bank a joint audit of ROSGOSSTRAKH

Russian Ministry of Internal Affairs proposed the Central Bank a joint audit of OTKRITIE bank's insurance unit ROSGOSSTRAKH, suspecting onerous claim payments on the MTPL line, Vladimir CHISTYUKHIN, Deputy Chairman of the Central Bank said.

According to the official report of the Ministry, more than 90% of Russian insurers' payments under court decisions in 2016 (i.e. RUB 11.5 billion out of RUB 13.4 billion) was made by ROSGOSSTRAKH. Main Directorate for Economic Security and Anti-Corruption Enforcement of MIA of Russia established that the insurer had 10 administrative penalties each month, amounting from RUB 10 million up to RUB 100 million. Judicial payments of other big insurers in 2016 were 20 times less than ROSGOSSTRAKH's. In 2017 ROSGOSSTRAKH kept the same trend. Ministry emphasized that according to the ROSGOSSTRAKH's new Head of Board of Directors, Mikhail ZADORNOV, thievery had been dominating throughout the company.

Throughout the last years, ROSGOSSTRAKH has recorded a constant negative bottom line result. The company has lost RUB 5 billion in 2015, RUB 33 billion in 2016 and only for first half of 2017 - RUB 20.9 billion.

On 12 December 2016 S&P's announced it has placed Russian insurance company ROSGOSSTRAKH on CreditWatch Negative list ratings "B +" and on the national scale "ruA" of, due to significant losses of the company. The company's performance compared to other competitors is steadily low, its competitive position deteriorating said the agency, pointing that the company's "business model can be pressured due to focus on company's activity on the MTPL segment, which generates significant losses."

Throughout 2017 negotiations took place between OTKRITIE Group and ROSGOSSTRAKH Insurance Group to reach an agreement for the M&A operation that has virtually created the largest private financial group with assets of more than RUB 4 trillion and about 50 million customers. The deal was expected to offer support for ROSGOSSTRAKH as it was dealing with a difficult situation, due to significant losses especially on MTPL segment. To improve its financial position, ROSGOSSTRAKH needed an additional capital injection either from the shareholder or a potential investor.

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