Zahar Leonidovich now discuss the influence of all the legislative increase in the minimum amount of capital of insurers on the fate of insurers. How would you rate the scale of the impact of this innovation to the market of insurance M & A?
In my opinion, it is certainly intensifying, but I do not think it will play a crucial role. Those requirements that capital, reserves and assets are presented now - have been quite strict in terms of quality, but this quality is not maintained virtually none of the players outside the top ten.
A crucial role is played by very different things. The major problem - it is the insurers' asset quality, lack of real commitment liquid assets. In the pre-crisis growth in real assets were replaced by artificial ones, and the money invested in tools such as real estate, stocks and bonds of companies that do not have a sufficient rating, etc. Now, when the continuing market decline in real terms, the reserves that exist on paper, insurers would be nice to be in the form of assets to repay its obligations. But they do not exist, so companies continue to live with "wheels". In reality, the market, if the lead indicators for 2006-2007, the price is reduced. And in a falling market, when the influx of customers is reduced, so long run is impossible. So this will be the deciding factor. Insurers have to seriously work on its expenditure side, as to influence the rates they are now no longer can, tariffs have developed as they are. If we look at the largest segment of the market - insurance hull - there is an average tariff of 2006 declined by almost half. But then combined ratio, given all the rules of IFRS, approaching 100, which is already the company due to the insurance activity in the market did not earn. To date, the combined ratio for the "market" companies rose to 120-125%, while they continued to eat those little assets that they had (if any). Now we come to the point where they remained almost completely. The second factor is associated with a certain level of fixed costs incurred by the insurance company. In our opinion, the minimum level of fixed costs, which have all modern insurance company, now stands at 75-90 million rubles a year. Here we refer, first of all, the cost of salaries of the support units that are not directly related to making money, and are engaged in providing customer service and risk management. Every company must have a certain set of units - loss adjustment, maintenance, accounting and bookkeeping, actuarial service for all types of underwriters, etc. The share of fixed costs to earned premiums for the company to remain effective for the current level of commission and the loss should not be exceed 6-7% of earned premiums. So consider how much earned premiums must be a company, what the scope of the company should be to make it break even - 1.2-1.8 billion of gross written premiums in the year (assuming that this is a real business, not a refund schemes) . This situation will affect the market consolidation and M & A is much stronger than the legal requirements for capital. And in general, tighter regulation - not the biggest threat, because in our country rigidity of the law business is that very often oppose: the tougher the law, the "smarter" business.
In my opinion, it is certainly intensifying, but I do not think it will play a crucial role. Those requirements that capital, reserves and assets are presented now - have been quite strict in terms of quality, but this quality is not maintained virtually none of the players outside the top ten.
A crucial role is played by very different things. The major problem - it is the insurers' asset quality, lack of real commitment liquid assets. In the pre-crisis growth in real assets were replaced by artificial ones, and the money invested in tools such as real estate, stocks and bonds of companies that do not have a sufficient rating, etc. Now, when the continuing market decline in real terms, the reserves that exist on paper, insurers would be nice to be in the form of assets to repay its obligations. But they do not exist, so companies continue to live with "wheels". In reality, the market, if the lead indicators for 2006-2007, the price is reduced. And in a falling market, when the influx of customers is reduced, so long run is impossible. So this will be the deciding factor. Insurers have to seriously work on its expenditure side, as to influence the rates they are now no longer can, tariffs have developed as they are. If we look at the largest segment of the market - insurance hull - there is an average tariff of 2006 declined by almost half. But then combined ratio, given all the rules of IFRS, approaching 100, which is already the company due to the insurance activity in the market did not earn. To date, the combined ratio for the "market" companies rose to 120-125%, while they continued to eat those little assets that they had (if any). Now we come to the point where they remained almost completely. The second factor is associated with a certain level of fixed costs incurred by the insurance company. In our opinion, the minimum level of fixed costs, which have all modern insurance company, now stands at 75-90 million rubles a year. Here we refer, first of all, the cost of salaries of the support units that are not directly related to making money, and are engaged in providing customer service and risk management. Every company must have a certain set of units - loss adjustment, maintenance, accounting and bookkeeping, actuarial service for all types of underwriters, etc. The share of fixed costs to earned premiums for the company to remain effective for the current level of commission and the loss should not be exceed 6-7% of earned premiums. So consider how much earned premiums must be a company, what the scope of the company should be to make it break even - 1.2-1.8 billion of gross written premiums in the year (assuming that this is a real business, not a refund schemes) . This situation will affect the market consolidation and M & A is much stronger than the legal requirements for capital. And in general, tighter regulation - not the biggest threat, because in our country rigidity of the law business is that very often oppose: the tougher the law, the "smarter" business.
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