Reinsurance in Russia: 2017

MOSCOW | 2018

Data Source and Report Purposes

2

"We are pleased to present our regular overview of the reinsurance market,

which was made by RNRC on the basis of the public statistics of the Central

Bank.

Our aim is to provide the market and all interested parties with a fair view of

the changes on the Russian reinsurance market.

The Report is based on quarterly statistics published by the Bank of Russia.

As the Bank of Russia prepares its statistics using reports that are subject to

adjustment, some indicators for some of the companies have been adjusted.

In particular, the Report contains RNRC's final data from financial statements.

We are always ready to answer any questions concerning these reports which have become our regular practice."

Nikolay Kuznetsov,Chief Actuary, RNRC

Nickolay.Kuznetsov@rnrc.ru

Inward reinsurance

3

o Premium growth dynamicso Market structureo Leaderso Geographyo Market concentration

Outward reinsurance

o Dynamicso Structureo Geographyo Leaderso Loss ratioo Balance with the international market

TABLE OF CONTENTS

Paid claims

Inward reinsurance market dynamics

4

31 929 32 384

18 012 19 072 21 662

12 803 16 063

17 211 16 818 13 290

2013 2014 2015 2016 2017

premiums ceded by international market

premiums ceded by Russian insurers

In 2017, the downward trend of the inward reinsurance market continued. The market declined by 2.6% only. If not for RNRC, the decrease would have reached 24%.

The Russian inward reinsurance market has grown by 13.6%. Ifnot for RNRC, the market would have seen a 26% drop inpremiums. What is worth noting is an unexpected reduction ofinward business placed from Russia with SOGAZ andROSGOSSTRAKH. SCOR has become considerably less active onthe Russian market.

The decrease in international risk premiums of Russian companiescontinued and made 21% of that recorded in 2016. In 2017, theshare of international business was notably less than in 2016:38% vs. 47%.

The decrease in premiums was partly due to the strengthening ofthe Russian ruble being 12% on an annual average basis. Anotable impact was made by the reduction of internationalbusiness by INGOSSTRAKH, CAPITAL INSURANCE, AIG, SCOR,and SELEKTA. The latter has had its license suspended andeventually withdrawn.

Such reduced performance in both segments was significantly dueto winding-up of UNITY RE.

Dynamics of the inward reinsurance market(million RUB)

34 95235 89035 233

48 44744 732

4,2%

10,2%

9,1%

4,5%

1,8%

4,0%

53,8%

3,2%6,6%

Financial risks

Agricultural

Liability, including

hazardous industrial

facilitiesCompulsory insurance

of hazardous industrial

facilitiesCompulsory carrier

liability insurance

Voluntary medical and

accident insurance

Marine

4,8%

10,9%

2,0%

7,5%

4,1%

1,4%

2,8%

55,1%

3,5%7,5%

Inward reinsurance market structure

5

Inward reinsurance market structure 2016 Inward reinsurance market structure 2017

Despite significant changes in individual companies, the overall structure of the market remained stable.What is special about 2017 is that the shares of certain types of business changed in opposite directions in the 1st and 2nd half of the year: growth of the share of compulsory liability insurance (hazardous industrial facilities and carriers liability) and decline of the share of corporate property business in the 1st half of the year were followed by respective opposite trends in the 2nd half. Changes in compulsory business are technical and are due to changes in the accounting regulations.The less significant among these changes in absolute terms is a drop in the share of land transport hull business (mainly due to adecrease in premiums of SCOR from the Russian market). A considerable growth of the share of personal property business due toSOGAZ gave way to negative premiums under this type of contracts for the year as a whole.

Leaders of the inward reinsurance market

6

157 408

240 652

43 275

326 169

375 563

476 677

810 275

1 181 397

559 677

2 082 950

805 252

915 703

1 651 313

1 397 451

1 478 474

2 219 392

5 665 628

8 242 974

148 485

127 635

168 175

231 334

266 254

383 331

444 717

527 771

552 482

596 192

605 238

779 025

985 836

1 079 696

1 411 562

1 416 069

1 507 378

2 694 986

5 351 872

6 689 677

7 703 667

MAKS

CREDENDO-INGOSSTRAKH…

MEGARUSS-D

ENERGOGARANT

TIT

SOGLASIE

VSK

CAPITAL INSURANCE

ALLIANZ

ROSGOSSTRAKH

RESO-GARANTIA

RUSSIAN REINSURANCE…

AIG INSURANCE

ALFASTRAKHOVANIE

VTB INSURANCE

SCOR P.O.

CHUBB

INGOSSTRAKH

SOGAZ

RNRC

2017 2016

22%

RNRC's sharein the total amount of premiums

RNRC has increased its marketshare and for the first timeranked first among the leaders.

The previous leaders, SOGAZand INGOSSTRAKH, showed areduced performance in theirreinsurance business. ForSOGAZ, the fall was mainly dueto a decline on the domesticmarket, while INGOSSTRAKHlost its ground on internationalmarkets.

UNITY RE and SELEKTA havefallen out of the top list.

(thousand RUB)

Leaders of the inward reinsurance market in the Russian Federation

7

116 663

134 857

150 137

142 279

43 270

259 044

316 294

302 853

420 914

695 255

525 780

1 955 182

533 672

764 366

935 239

1 716 223

1 187 030

3 254 539

2 547 514

148 285

98 661

112 704

119 601

182 298

203 377

234 380

239 082

250 586

383 018

453 957

531 105

552 245

680 986

726 125

1 074 439

1 221 325

1 273 682

1 870 104

3 017 885

[VALUE]

PARI

UNITED INSURANCE…

MAKS

AIG INSURANCE

MEGARUSS-D

TIT

CAPITAL INSURANCE

ENERGOGARANT

SOGLASIE

VSK

ALLIANZ

ROSGOSSTRAKH

RUSSIAN REINSURANCE…

RESO-GARANTIA

ALFASTRAKHOVANIE

SCOR P.O.

VTB INSURANCE

SOGAZ

INGOSSTRAKH

RNRC

2017 2016

(thousand RUB)

34,6%

RNRC's share in the total amount of

premiums written in the Russian Federation

RNRC accounts for about 35% of the Russianinward reinsurance market.

If not for written premiums of RNRC, the inwardreinsurance market would have seen a 26%drop instead of growing by 13.6%.

INGOSSTRAKH posted a 18% increase andSOGAZ saw a 43% decrease in inwardreinsurance premiums. The latter was due toalmost a twofold decrease in premiums undercorporate property insurance contracts.

A significant drop in premiums ofROSGOSSTRAKH was caused by a decrease inpremiums in the corporate property business,probably due to no intra-group operations withCAPITAL INSURANCE to place insurance ofLukoil.

SCOR saw a drop in premiums due todecreased premiums under hull and machineryand accident insurance contracts.

Leaders of the market of inward reinsurance from abroad

8

127 768

50 756

55 763

33 897

414 467

36 825

115 020

104 571

291 444

116 519

240 652

200

503 169

382 031

865 103

462 212

1 509 034

3 118 114

2 691 184

4 988 435

52 993

54 291

61 699

65 087

66 090

71 310

73 814

90 588

142 387

148 951

168 175

205 106

286 053

304 850

313 400

337 123

897 398

2 333 987

2 630 762

4 819 573

ROSGOSSTRAKH

ARSENAL

SOGLASIE

ALLIANZ

SELEKTA

LIBERTY INSURANCE

VSK

LEKSGARANT

VTB INSURANCE

TIT

CREDENDO-INGOSSTRAKH…

RNRC

SCOR P.O.

RUSSIAN REINSURANCE…

CAPITAL INSURANCE

ALFASTRAKHOVANIE

AIG INSURANCE

INGOSSTRAKH

CHUBB

SOGAZ

2017 2016

0,5%All notable players of the market of inwardreinsurance placed by foreign insurersexperienced a decrease in their business.One of the reasons was the strengthening ofthe ruble, leading to a decrease in the Rubleequivalent amount of premiums.

The largest “loss” was suffered byINGOSSTRAKH. Its premiums decreasednotably in all types of business, with thelargest drops observed in corporateproperty and aviation hull sectors.

CAPITAL INSURANCE has lost a significantamount of inward reinsurance business fromBulgaria.

SELEKTA essentially left the market in2017.

The international business of RNRC has notreached any significant volume yet, as itsoperations on international markets startedin Q2 2017 after international ratingassignment by Fitch (BBB-).(thousand RUB)

1,5%

RNRC's share in the amount of premiums

written abroad

Countries ceding premiums to Russia

9131 537

210 120

163 312

206 066

220 740

740 112

245 059

245 777

451 910

242 901

75 509

622 499

407 699

757 875

458 398

669 323

1 498 882

494 841

2 355 396

2 862 265

108 548

138 850

140 448

188 370

190 147

199 719

200 599

230 909

286 880

298 894

309 249

408 452

437 682

501 400

683 329

725 888

827 806

996 022

1 106 675

2 657 430

UZBEKISTAN

ARMENIA

TAJIKISTAN

UNITED STATES

SWITZERLAND

BULGARIA

GEORGIA

KOREA

FRANCE

MOLDOVA

SLOVENIA

UKRAINE

BELARUS

KAZAKHSTAN

CHINA

UNITED ARAB EMIRATES

FINLAND

INDIA

GERMANY

UK

2017 2016

Top 20 leading countries in terms of the amount of premiums ceded to Russian insurersThe amount of premiums ceded to Russianreinsurers has decreased for the majority ofcountries. The most notable decrease isrecorded for Germany. This is due to a dramaticreduction of inward business placed from thiscountry with SOGAZ.

At the same time, SOGAZ was able to make upfor the lost business on account of India, Chinaand the UAE, resulting in growth for thesecountries.

A small drop in premiums from the UnitedKingdom was due to a decrease in premiums ofINGOSSTRAKH, as well as a decline inKazakhstan.

For Finland, almost a twofold decrease inpremiums was due to AIG.

For Bulgaria, the decline was due to CAPITALINSURANCE. The growth of premiums fromSlovenia is also associated with this company.

(thousand RUB)

Inward reinsurance market concentration

10

20%23% 23%

37% 39%35%

41%

47% 50% 51%

70%

77%

65%

85%

2012 2013 2014 2015 2016 2017* 2017

Top 2 Топ-10

Market shares of Top 2 and Top 10 leaders of the inward reinsurance market

The trend towards the concentration of the inward reinsurance market continues. Following a decrease in premiums from international markets, the share of Russian companies among the top 10 players is growing. In 2017, the Top 3 companies accounted for more than half of the market.

2017 excluding RNRC

2017including RNRC

Outward reinsurance market dynamics

11

In Q4 2017, the decline of the outward reinsurance market becamesomewhat faster. While at the end of the 1st half of 2017, the marketdecreased by 10% and at the end of 9 months by 13%, theaggregate drop for the year was 17%.This was partly due to the effect of the transfer of some placements,first of all, of Lukoil.The assessment of 2017 performance should take into accountchanges in the accounting policies. The effect of this factor cannotbe assessed without obtaining detailed information from eachcompany; however, it could be assessed as several billion rubles.Premiums ceded to international markets have continued to go downand by the end of the year, decreased by 22% (9 months: 21%; halfyear: 14%).On the contrary, the Russian market grew by 12%, but only due toRNRC which transferred some premiums from the internationalmarket.If not for RNRC, premiums ceded in Russia would have dropped by27%.Consequently, the share of international business in the total cededpremiums decreased from 85% in 2016 to 80% in 2017.Ceded premiums totaled RUB 110 billion.No significant growth of premiums is expected in 2018. Thedynamics will largely depend on the ruble exchange rate. In addition,premiums under property developers liability reinsurances areexpected to decrease, and the general trend towards marketconsolidation and increase in retentions will continue, also resultingin negative effects on the amount of outward reinsurance.

36 985 37 050 22 184 19 568 22 013

83 172

101 398

98 449 112 548

87 588

2013 2014 2015 2016 2017

premiums ceded in Russia

premiums ceded abroad

Dynamics of the outward reinsurance market (million RUB)

120 157

138 448

120 633

132 116

109 601

Dynamics of the outward reinsurance ratio

12

16,4% 17,8%

17,0%

17,2%

13,6%

2013 2014 2015 2016 2017

Ratio of ceded premiums to direct and assumed premiums, excluding life insurance and compulsory motor third party liability insurance

In 2017, ceded premiums not only showed a decline in absolute terms, but also substantial structural changes. The ratio of ceded premiums to total direct and assumed reinsurance premiums dropped notably (excluding life and compulsory motor third party liability business, as such risks either may not be ceded or are insignificant).

As premiums are carried forward between the years, this indicator will be adjusted to some extent, approximately up to 14.3%, which is, however, much below the rather stable figures posted in previous years.

Risks with smaller shares

13

11,2%

16,5%

3,6%

27,9%

10,3%

62,8%

8,0%

28,2%

75,8%

48,5%

23,9%

25,7%

3,6%

0,4%

12,2%

22,8%

0,9%

21,4%

8,3%

51,4%

5,9%

26,7%

64,2%

42,6%

19,7%

28,5%

2,9%

0,3%

Railway

Agriculture

Personal property

Marine

Financial risks

Aviation hull

Hull and machinery

Cargo

Business risk

Corporate property

Total property

Total liability

Total personal

Total life

2017

2016

Ratio of ceded premiums to direct and assumed premiums(voluntary business)

In 2017, the shares of ceded risks in certain segments changedsignificantly.

Corporate property business was strongly impacted by thetransfer of premiums of CAPITAL INSURANCE and a notabledecrease in the share of ceded premiums ofALFASTRAKHOVANIE and INGOSSTRAKH. On the other hand,the market leader, SOGAZ, notably increased the amount ofpremiums ceded in this business.

In liability insurance, there was a significant increase in theshare of ceded premiums in aviation liability business. Both theshare and absolute amount of ceded premiums in contractordefault business also grew, presumably due to growth of writtenpremiums in property developers liability reinsurance.

A decrease in the share of ceded business risks was almosttotally due to the leader of the segment, SOGAZ, which was ableto increase its direct premiums while keeping the reinsurancepremium unchanged.

The share of business risk reinsurance is notably higher thanthat of corporate property business, mainly on account ofbusiness interruption insurance.

8,1%

0,9%

14,1%

0,7%

2,4%

7,0%

0,9%

8,8%

45,1%

0,5%

4,8%5,8%

7,3%

1,2%

11,4%

0,5%2,5%

6,8%

1%

10,5%

46,5%

1,4%

0,7%

4,5%5,3%

Financial and business risks Agriculture

Liability including hazardous industrial facilities Compulsory insurance of hazardous industrial facilities

Compulsory carrier liability insurance Voluntary medical insurance and accident insurance

Marine Hull and machinery

Corporate property Personal property

Life Railway

Outward reinsurance market structure

Outward reinsurance market structure 2016 Outward reinsurance market structure 2017

2017 saw a notable decrease in the share of hull and machinery insurance, although we expected a larger fall in this segment.The share of liability insurance has somewhat increased due to growth of aviation liability and property developers liabilitybusinesses. The share of corporate property insurance decreased to some extent, largely due to the transfer of reinsurance ofLukoil, as was mentioned above. The share of personal reinsurance has dropped dramatically — by more than RUB 1 billion in absolute terms — mainly due to ROSGOSSTRAKH.

14

Share of treaty reinsurance

15

100%

100%

76%

94%

90%

72%

60%

90%

42%

84%

78%

93%

18%

49%

58%

25%

34%

97%

58%

19%

52%

100%

100%

85%

89%

96%

83%

59%

90%

25%

86%

82%

100%

13%

78%

100%

25%

30%

95%

63%

8%

50%

SCOR P.O.

HDI INSURANCE

RENAISSANCE…

ENERGOGARANT

PROMINSTRAKH

RSKHB-INSURANCE

ROSGOSSTRAKH

ZURICH RELIABLE…

CAPITAL INSURANCE

VSK

CHUBB

AIG INSURANCE

RESO-GARANTIA

ALLIANZ

RESPECT

VTB INSURANCE

ALFASTRAKHOVANIE

SOGLASIE

INGOSSTRAKH

SOGAZ

TOTAL

2017 2016

4,3%

The structure of the market in terms ofthe prevailing form of reinsurance looksquite stable, although the share ofpremiums under treaties went downbelow 50 percent in 2017.

This was mainly due to a decrease in therespective share of the market leader,SOGAZ, and a decline in the total weightof subsidiaries of international insurersand reinsurers.

The share of treaties of subsidiaries offoreign insurers (usually for the benefit ofthe parent) is, as a rule, equal to 100percent.

Countries where premiums go to from Russia

16

1 012 245

1 423 898

929 965

822 715

1 314 814

488 194

1 845 373

1 040 818

1 277 064

2 266 267

1 201 386

2 113 989

745 750

1 983 994

3 224 489

7 912 005

6 464 341

9 518 876

20 799 997

30 690 959

757 641

767 370

765 542

780 804

1 048 510

1 373 997

1 395 558

1 419 146

1 541 489

1 682 945

1 732 779

1 785 601

2 126 385

2 245 767

2 336 305

6 043 422

6 337 622

9 201 632

17 367 717

20 059 986

SWEDEN

FINLAND

NETHERLANDS

AUSRIA

KOREA, REPUBLIC

CYPRUS

INDIA

LUXEMBOURG

BARBADOS

BAHRAIN

BELGIUM

IRELAND

CAYMAN ISLANDS

CHINA

BERMUDAS

UNITED STATES

FRANCE

SWITZERLAND

GERMANY

UK

2017 2016

Top 20 leading countries in terms of the amount of premiums ceded by Russian insurers

A wide-scale decrease in cededpremiums was due to changes inexchange rates.

The transfer of premiums of CAPITALINSURANCE has most strongly hit theUK (about RUB 2 billion) and Kuwait(about RUB 880 million). As a result,Kuwait dropped out of the Top 20.

Premiums going to Germany decreasedcompared to the previous year, due to adrop in ceded premiums in hull andmachinery business of SOGLASIE and adecrease in premiums ofROSGOSSTRAKH and INGOSSTRAKH.Among larger companies, premiumsceded to Germany were increased bySOGAZ.

The Cayman Islands appeared in theTop 20 list due to RESPECT's decisionto have its risks reinsured in thiscountry.

(thousand RUB)

Leaders of the outward reinsurance market

17

1 121 634

892 081

767 163

1 372 974

92 320

1 954 797

9 346 427

2 103 222

12 940 327

1 587 864

2 764 425

2 784 137

3 135 161

3 258 218

3 244 697

5 937 859

8 598 040

8 878 746

12 386 271

26 852 853

830 660

831 277

1 003 529

1 015 513

1 308 173

1 719 729

1 750 023

1 854 199

1 901 897

2 513 321

2 548 512

2 652 703

3 169 614

3 216 884

3 260 917

5 466 421

7 369 216

8 277 235

9 625 359

31 817 431

SKOR P.O.

HDI INSURANCE

RENAISSANCE…

ENERGOGARANT

PROMINSTRAKH

RSKHB-INSURANCE

ROSGOSSTRAKH

ZURICH RELIABLE…

CAPITAL INSURANCE

VSK

CHUBB

AIG INSURANCE

RESO-GARANTIA

ALLIANZ

RESPECT

VTB INSURANCE

ALFASTRAKHOVANIE

SOGLASIE

INGOSSTRAKH

SOGAZ

2017 2016

7%

RNRC’s share in total

ceded premiums

4,3%

The majority of companiesreduced the amounts of cededpremiums. The most notabledecrease was reported byCAPITAL INSURANCE (Lukoil'sproperty) and ROSGOSSTRAKH(hull and machinery, corporateand personal propertybusinesses).

The companies with a notableincrease in the amount of cededpremiums in 2017 include SOGAZand VSK.

Also worth mentioning is asignificant amount of reinsurancepremiums written byPROMINSTRAKH, nearly all ofwhich were written undercontractor default liabilitycontracts or, as a matter of fact,in property developers liabilitybusiness.

(thousand RUB)

Dynamics of claims paid by reinsurers

18

8 794 12 104 12 909 7 192 7 637

17 013

26 624

49 432

41 977 47 330

2013 2014 2015 2016 2017

within Russia from abroad

Dynamics of claims paid by reinsurers (million RUB)

The last years were very unsuccessful for reinsurers. An unusually high value of the reinsurers' share in paid claims in the first half of 2016 was due to the loss claimed under Achinsk Refinery reinsurance (the loss of SOGAZ). However, this figure was exceeded in 2017 after the final settlement of loss in respect of Berezovskaya GRES (the loss of CHUBB), which amounted to about RUB 26 billion, of which about RUB 20 billion were paid in 2017.

25 807

38 728

62 341

49 169

54 967

Loss ratio

19

120 158

138 448

120 633

132 116

109 600

21%

28%

52%

37%50%

2013 2014 2015 2016 2017

total premiums paid claims

Dynamics of premiums growth — outward reinsurance (million RUB)Loss ratio (%)

Despite the fact that the last years were very unsuccessful for reinsurers due to a number of large paid claims, the reinsurance market remains generally attractive according to a significant positive balance between premiums and paid claims.

Dynamics of outflow of funds outside Russia

30 000

40 000

50 000

60 000

70 000

80 000

2013 2014 2015 2016 2017

Balance

20

A major portion of the positive balance between premiums and paid claims goes to the international market. A considerable decrease in the positive balance in 2017 was due both to large paid claims and a decrease in ceded premiums, partly due to transfer of some premiums from international markets to Russia in connection with the establishment of RNRC.Certainly, this simple figure should be viewed warily, as it does not take into account any reserved outstanding claims. Nevertheless, it can be indicative and as such is quite useful.

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