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Fitch: Russian Motor Liability Insurance Premium Growth to Slow
October 10, 2016 / 9:56 AM / a year ago

Fitch: Russian Motor Liability Insurance Premium Growth to Slow

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: Russian Motor Third-Party Liability Insurance - Recent Growth Set to Slow here MOSCOW/LONDON, October 10 (Fitch) Recent premium growth in Russian compulsory motor third-party liability (MTPL) insurance was exhausted by mid-2016, Fitch Ratings says in a report published today. Meanwhile, MTPL loss trends will continue to deteriorate. Fitch believes that reserving adequacy remains a key risk for the shrinking number of underwriters in the segment as regulation remains tight for premiums and claims, and the regulator is increasingly clamping down on insurers seeking to avoid exposure to regions with the highest loss ratios. Compulsory MTPL insurance was the fastest growing line in the Russian non-life insurance sector in 2015-1H16. Its weight in the sector's primary premiums increased to 24.5% in 2015 from 17.2% in 2014, and to 22.7% in 1H16 from 20.2% in 1H15. The line prevented the local non-life insurance sector from shrinking in 2015. With MTPL excluded, the sector would have reported a 7% contraction in primary premiums written in 2015. MTPL premiums grew because of two series of MTPL base-tariff increases by the regulator from 4Q14 and from 2Q15. The growth was therefore achieved through an increase in average premium per policy even though the number of policies issued fell. This reflected decreased penetration in the existing market and a major drop in new car sales. Given the standard one-year term of MTPL policies, Fitch expects that the growth of the average premium per policy will have taken full effect by 2H16. The base tariff was raised in line with the limits of liability for damage claims from 4Q14 and bodily injury claims from 2Q15. The rise of the damage-related limit of liability affected both the average claim size, from 2H15, when the policies issued with new limits outweighed the old ones, and, unexpectedly, the frequency of larger claims. The latter development reflected deficiencies in the regulation on the customer side. The average claim size was also fuelled by the FX-driven inflation of motor spare parts in 2014-2015. The new bodily injury limit of liability has had limited impact to date. Based on the regulator's statistics, the number of insurers with a MTPL portfolio, including MTPL portfolios in run-off, fell to 80 at end-1H16 from 85 at end-2015 and 101 at end-2014. The regulator's efforts to squeeze small speculative players out of the market have contributed most to this contraction. There have also been fewer examples of insurers voluntarily withdrawing from the segment. The larger players, particularly those with softer pricing or a prevalence of conduct complaints, are experiencing increased regulatory pressure. As a result of the regulator's actions, some of the leading companies are making major changes to their MTPL strategies. Fitch's report includes a review of key metrics that illustrate the approaches being taken by leading underwriters. The recently increased regulatory attention has not yet removed or made the reserving risk fully visible for the existing portfolios and Fitch continues to see this risk as key for the MTPL segment in Russia. The sector run-off experience in the MTPL line has demonstrated a significant potential for adverse reserve development. Reserve adequacy is complicated by the tight regulation both on the tariff and claim side, as well as lack of transparency in the regulation on the customer side. Exposure to so-called 'toxic' regions will now be evenly distributed between MTPL insurers through an IT platform launched in 3Q16, ending the artificial restriction by certain insurers of MTPL coverage in these regions. From 2017, all insurers will need to launch online MTPL sales to all regions of Russia, with severe penalties for IT malfunctions. The opportunities for policyholders to abuse MTPL insurance and add penalties to the claim will be significantly reduced if a law on the non-cash indemnification of claims is passed soon, as the industry expects. The full report, 'Russian Motor Third-Party Liability Insurance - Recent Growth Set to Slow', is available at or by clicking the link above. Contact: Anastasia Litvinova Director +7 495 956 7082 Fitch Ratings CIS Limited Valovaya Street, 26 Moscow 115054 Anastasia Surudina Analyst +7 495 956 5570 Media Relations: Julia Belskaya von Tell, Moscow, Tel: +7 495 956 9908, Email:; Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. 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