ssuper_new_engl.aiuper_new_engl.ai 18.06.200818.06.2008 12:07:3312:07:33 ANNUAL REPORT 2007 pproofA3.inddroofA3.indd 1 002.06.20082.06.2008 13:31:0813:31:08 The Year of 2007 was remarkable for OJSIC Ingosstrakh. The Company celebrated its 60th anniversary. To a Man such age would be the time to sum-up. At the same time to one of the country’s largest insurance companies this is the beginning of a new development stage. It is notable and symbolic that the anniversary coincided with the Year of the Child announced in Russia. It was the unity of generations, the link between the past and the future that inspired the decorative design of the Annual Report. Address of the Chairman of the Board and the General Director to the Sharehold- ers and Clients of Open Joint-Stock Insurance Company Ingosstrakh 4 Competitive Ability 7 Implementation of Ingosstrakh’s Main Strategic Projects 17 Performance Results in Core Business 21 Motor Insurance 22 Property and Liability Insurance for Legal Entities 24 Voluntary Medical Insurance 25 Special Risks Insurance 26 Insurance of Aviation and Space Risks 26 Cargo Insurance 27 Hull, Machinery and P&I insurance 29 Transport Operators Insurance 29 Credit Risks Insurance 31 Travel Insurance 31 Personal Insurance (Ingosstrakh–Life) 32 Regional Network 34 Branches 34 Foreign Branches 36 Reinsurance 37 Marketing 40 Investment activities 41 Personnel 45 Risk Management 49 Public Relations 55 Charity and Sponsorship 56 Key Financial and Economic Parameters 59 Performance Results 60 Financial Stability Ratings 60 Auditor’s Opinion on Accounting Statements 61 Balance Sheet Statement 65 Profit and Loss Statement 69 History of the Company 73 Contacts and Banking Details of OJSIC Ingosstrakh 79

3 counterparty credit rating to BBB- with a 2006 it had also won this prize. Ingosstrakh stable outlook. The Company’s rating un- received the National Award of the Finan- der the Russian scale is ruAA+. Russia’s cial Press Club of Russia as the most trans- leading rating agency Expert RA affirmed parent Russian insurance company (Plati- the highest rating A++ of Ingosstrakh for num Diploma) and was also awarded the the sixth consecutive year. prize «Financial Elite of Russia» as the Most Reliable Insurance Company. For the third Today Ingosstrakh is one of the largest consecutive year the company is included federal level universal companies with the in the rating of The Most Valuable Russian highest financial stability and well-balanced Brands. insurance portfolio. Our services are avail- able both in Russia and abroad. Ingosstrakh Summing up, we are optimistic about the stands for high reliability and impeccable future. We are convinced that goal-ori- fulfillment of its obligations to the clients, ented shareholders, ambitious and yet re- to a large extent thanks to its reliable rein- alistic strategic plans, unique insurance ex- surance programs. Among our reinsurance perience and significant financial resources partners, there are leading international allow us to cope with our main task – to companies: AIG, Allianz, AXA, CCR, Gen provide our clients with insurance services Re, Hannover Re, syndicates Lloyd’s, Mu- that meet international quality standards. nich Re, Partner Re, QBE, SCOR, Swiss Re, Address of the Chairman dence of millions of people and thousands Transatlantic Re, XL Re, etc. of the Board and the of companies. General Director to the In 2007 Ingosstrakh was awarded many priz- We are grateful to all our clients for trust- Shareholders and Clients of Ingosstrakh achieved its target goals almost es. In May 2007 the Company received main ing us and to all our partners for mutually in all business lines. Ingosstrakh Group yield insurance award «Golden Salamander» as beneficial multi-year cooperation. Open in 2007 (Ingosstrakh, Ingosstrakh-Life, ChSK, the Best Insurance Company in Russia. In Joint-Stock Insurance Ingosstrakh-M and EMESK) constituted RUB Company Ingosstrakh 51.0 bln., which by 23% exceeds the 2006 figure. The Company’s insurance compensa- tions grew by 31% and constituted RUB 29.7 Ladies and Gentlemen, bln. The assets of the Russian companies of the Group increased by 19% and reached the We hereby present to you the Annual Per- level of RUB 54.9 bln. The Group’s insurance formance Report of Open Joint-Stock Insur- reserves growth amounted to 17% reach- ance Company Ingosstrakh for 2007. ing RUB 40.0 bln. Its equity as at January’ 1, 2008 amounted to RUB 11.7 bln., which by In 2007 the Company celebrated its 60th 29% exceeds the previous year figure. Net anniversary. During the period from 1947 profit earned by the Group’s companies until 2007 Ingosstrakh evolved from an un- based on the 2007 results amounted to RUB Sincerely yours, pretentious department under the Ministry 2.5 bln., and according to the international of Finance of the USSR into the largest in- financial reporting standards the Group’s Chairman of the Board V.I. Scherbakov surance company in Russia with a diversi- profit including foreign companies consti- fied regional network. We have gone this tuted RUB 3 bln., which by 28% exceeds the long way with honor and our achievements 2006 indicators. over sixty years were the result of well-co- General Director A.V. Grigoriev ordinated work, high professionalism and Another Ingosstrakh’s major attainment in huge creative potential of several genera- 2007 was that international rating agency tions of our employees. Our mission has Standard&Poor’s assigned its rating up- always been to provide reliable insurance wards. Experts once again proved the good- protection to the country, population and will of OJSIC Ingosstrakh. Standard&Poor’s companies. Our key attainment is the confi- raised its financial stability and insurer’s

4 5 Competitive Ability Competitive Ability

Competitive Ability  Development of the real liability insur- ance (space risks, civil aviation risks, Diagram 1. Aggregate Authorized Capital of Russian Insurers, D&O, insurance of various type of ve- growth rates hicles); Quantitative and Qualitative Parameters of the Insurance Market  Positive dynamics in life insurance, where growth rates amounted to 42% com- pared to 2006 premiums. According to the Federal Insurance Super- vision Service (FISS), as of January 1 2008 In compulsory medical insurance opera- there were 857 companies in the state tions that in fact imply no insurance risk register of insurers, including reinsurance the companies collected RUB 289.9 bln., BLN25" companies. In 2007 the number of insurers which exceeds the 2006 level by 42.4%. fell by 61 companies. Despite the reduc tion Payments under Compulsory Medical In- in the overall number of insurance compa- surance in 2007 amounted to RUB 278.1 nies, their aggregate authorized capital bln. The premium and payment dynamics grew in 2007 by 5.1% from RUB 150.2 bln. depends on the budget funds volume allo- to RUB 157.8 bln. cated by the Government for the provision of medical services to the population. In 2007 over half (53%) of the insurance pre-      miums in the market accounted for large Overall payments in the insurance mar- federal-level insurers with the authorized ket constituted RUB 203.8 bln., showing a capital of over RUB 1 bln. Their market share 25.8% increase as compared to 2006. The grew by 6.6 percentage points. payments ratio amounted to 42% versus Table 1. Insurance premiums (contributions) and insurance 40% in 2006. The fastest growth was expe- compensations in 2007 (RUB bln.) In 2007 the insurance market made an- rienced in property insurance (the growth Insurance Rate of Insurance Rate of other effort for its development. Despite rate amounted to 41.4%). Payments under premiums growth compensa- growth the reduction in the number of partici- personal insurance and liability insurance vs. 2006 tions vs. 2006 pants of insurance market, the volume of grew by 17% for each type. Payments un- 1. Voluntary insurance: 407.3 20.7% 158.3 27% aggregate insurance premiums in the di- der Compulsory Motor TPL Insurance in- rect insurance market grew by 19.5% as creased by 23.5%. Compulsory Motor TPL Life insurance 22.7* 42% 15.7* -5% compared to the previous year constitut- Insurance maintains the tendency for the Personal insurance 90 17% 49.5 17.7% ing RUB 486.1 bln. (the 2006 growth rate outpacing growth of the volume of pay- (except life) amounted to 16.2%). ments as compared to the rate of contracts Property (except liability number and the premium amount growth. 274.3 20.4% 91.4 41.4% The year 2007 saw the ongoing market con- First of all, it is explained by greater insur- insurance) centration. The leading 20 companies, in- ance awareness of the population of the Liability insurance 20.3 22.6% 1.6 17.5% cluding Rosgosstrakh Group accounted for insurance compensations paid in insurance 2. Compulsory insurance 63% of premiums versus 60% in 2006. events, increase in the car fleet value and (except compulsory 78.8 13.1% 45.5 21.3% a more responsible insurer’s approach to medical insurance): Market growth in 2007 was mainly a result of their obligations as well as elimination of the dynamic development of voluntary insur- unfair and weak insurers from the MTPL of members of armed ance, as compared to 2006 the growth rates insurance market. forces and eligible 5.7 7.4% 4.4 3.3% accelerated from 15.8% to 20.7% in 2007. persons The basic growth factors were: In 2007 there were no major changes in pre- Of passengers 0.6 8.7% 0.0 -3.2% mium breakdown by type of insurance. In Compulsory motor TPL  The ongoing dynamic growth in the the past three years various insurance pre- 72.5 13.5% 41.1 23.5% insurance individual clients’ motor insurance seg- miums shares remained relatively stable. ment, car fleet insurance and mortgage Market total without insurance; Life insurance market in 2007 passed compulsory medical 486.1 19.5% 203.8 25.8% insurance

* Here and further, unless otherwise stated, the market shall mean total premium net of compulsory medical * insurance premiums and compensations are shown with a view to the transfer of insurance portfolios generated by insurance premiums insurance organizations in compliance with the specialization requirements stipulated by the Federal Law «On organizing insurance business in the RF».

8 9 Competitive Ability

through the transformation stage. And the Key Trends in the Russian transformation covered not only the trans- Insurance Market in 2007 Diagram 2. Breakdown of Insurance Income fer of insurance portfolios from universal in- surers to specialized branches, but also the    process of changing the life insurance own- 1) Fewer participants in the insurance mar- ers. Significant impact on the life insurance ket. market was exercised also by re-qualifica-   tion of accident insurance agreements into Reasons of insurers’ exit from the mar-        «life insurance» and vise versa, by insurers ket are: renewing their licenses. All this allowed the given market segment to demonstrate the • Tough position of the insurance regu- maximum dynamics as compared to other lator in confronting various tax opti- 25"BLN types of insurance. mization schemes caused the with- drawal of a large number of insurers. The driver of property insurance develop- ment in 2007 still remained motor insurance. • Further toughening of requirements At the same time in 2007 the level of com- to the authorized capital, its place- pensations paid under property insurance ment and financial stability of market increased as well. The increase in the level participants resulted in the termina- of payments (and at the same time the loss tion of activities of the companies as rate) was caused, above all, by the ongoing separate legal entities that could not      fast development of motor insurance, that for some reasons increase the autho- is today one of the most popular, but at the rized capital to the corresponding ,IFE 0ROPERTY #OMPULSORYMOTOR40,INSURANCE same time one of the most risky types in amount. Thus, in the first half of 2007 0ERSONAL ,IABILITY /THERCOMPULSORY EXCEPTMEDICAL the property insurance market. The sale of insurers were forced to fulfill the re- foreign cars manufactured in Russia in 2007 quirements to increase authorized increased by 61.7% versus the 2006 rate capital and ensure real solvency pur- reaching RUB 1 650 mln. suant to the rules of the RF Ministry of Finance on the placement of premi- Diagram 3. Number of transactions in the insurance market in 2005-2007 The year 2007 also saw the growth in the um reserves and standards imposed individual clients’ insurance premium – in- on the composition and structure of  surance of flats, country and summer hous- assets for equity capital.  es gains greater popularity. Insurance of  buildings, summer houses and flats is prof-  itable and its losses are the smallest ones. The market average level of payments 2) Establishment of insurance groups, amounted to 16%. Moreover, further in- some insurers became affiliates of the  crease in individuals’ property insurance federal-level companies, as well as take- growth rates can be expected, mainly, due over of smaller market participants by to mortgage insurance and part of pledge the larger ones. object insurance. The Russian insurance is taken by the    trend to increase the business volume of companies by involving strategic in-  vestors, as well by means of mergers    and acquisitions. Efforts to establish   insurance groups, holdings, business mergers, etc intensified. 3ETTINGUPOF 4AKEOVER #ONVERSIONINTO &OREIGNEQUITY )NSURANCEGROUPS !FFILIATEDCOMPANY PARTICIPATION

10 11 Competitive Ability

Along with the federal-level companies, 5) Insurer’s ambition to get rating by the Current Positioning of In the previous year Ingosstrakh’s business smaller insurers are acquired by region- top rating agencies including interna- Ingosstrakh in the Market development in the voluntary non-life in- al companies. The companies are united tional ones helped to improve transpar- surance market including compulsory mo- on the interregional level or with com- ency of the insurance market leaders. tor TPL insurance neared the overall market panies involved in areas similar to the In 2007 Ingosstrakh’s premium for direct in- growth rates. areas of their founders (oil, gas, etc.). Insurance companies are undergoing surance and risks assumed for reinsurance Among the groups and holdings there the process of rating assignment by amounted to 16.0% compared to 2006 re- Ingosstrakh is a universal insurance company is a tendency to specialization of certain both national and international rating sults (according to the FISS), reaching RUB providing services both to corporate clients participants. Business is divided both by agencies, which not only makes the 38.9 bln. In voluntary insurance, except life and individuals. According to the Federal type of insurance (property, medicine, owners more confident, but also boosts insurance, premiums collected by Ingoss- Insurance Supervision Service, Ingosstrakh etc.), and service sector – work with their appeal for potential investors and trakh grew by 15.2% and amounted to RUB retained the second position based on the corporate clients or individual clients large Russian and foreign clients. 30.7 bln. The highest rates in the insurance 2007 results after Rosgosstrakh Group in (retail sales). market were reached in the personal in- terms of direct insurance premiums (except The leader among Russian rating agen- surance (except life insurance) – 31.9%. compulsory medical insurance). The Com- cies in the number of ratings assigned Premiums collected for the given type of pany’s second position is based on its very and rated insurers is Expert RA (54 insur- insurance amounted to RUB 4.4 bln., for circumspect insurance policy and a thorough 3) Entry of specialized companies into the ers have ratings assigned by Expert RA). property insurance – RUB 23.7 bln., for approach to the assumed insurance risks. In market, above all, companies specializing voluntary liability insurance – RUB 2.6 bln. particular, in voluntary motor insurance the in life insurance. In 2007 international rating agencies Premiums collected for compulsory motor Company does not participate in the price also took an active part in the rating of TPL insurance amounted to RUB 4.4 bln. competition, aiming at raising by all means In 2007 17 such companies entered the Russian insurers. 11 insurers including 2 (14.5% growth rate). Premiums for inward premiums and, therefore, the market share, market. Where part of the companies reinsurance companies have confirmed reinsurance increased by 25% up to the since such a strategy in future will negatively were established by conversion of affili- ratings assigned by the international rat- level of RUB 3.8 bln. affect the company’s financial stability and ated companies or acquisition of regional ing agencies. Especially active in rating insurers aimed at the transfer of life insur- assignment for Russian insurers are Fitch ance activities to them. Ratings (5 ratings) and Standard&Poors (4 ratings). Diagram 4. Ingosstrakh’s gross written premium, RUB bln. 4) Foreign companies’ eagerness to enter the Russian insurance market, especially 6) Budget-supported organizations inten- the life insurance market. sified their use of insurance services for   property insurance on the competitive #!'2  In 2007 licenses were received by the selection basis pursuant to the federal eligible subsidiaries of such foreign in- laws.   surers as АХА, АСЕ, АVIVA, Sogecap, ING etc. In the early 2007 Allianz raised    its stake in ROSNO up to 97%.

During the year a share of foreign par- ticipation in the authorized capital of  

Russian insurance companies doubled BLN25" growing from 4.3% based on 2006 re- sults to 9.8% in 2007. Foreign capital in the Russian insurance market amounted in cash equivalent to RUB15.4 bln. The authorized capital of Russian insurers is taken by the German, Dutch, French, Ukrainian, Bulgarian and other insurers.    

12 13 Competitive Ability

Diagram 5. Table 2. Ingosstrakh’s performance in direct insurance in 2006-2007 (RUB bln.) #OMPULSORY MOTOR40, 0ERSONAL Current Growth Growth  Type of Insurance 2006 2007 market vs. 2005 vs. 2006 -OTORINSURANCE share  Insurance premium 30.50 22.1% 35.09 15.1% 7.3% (total): 1. voluntary 26.66 22.1% 30.70 15.2% 7.6% -OTOR INSURANCE insurance:  personal (except life 3.34 30.6% 4.41 31.9% 5.0% insurance) property (except 20.87 21.9% 23.74 13.7% 8.8% liability insurance) Liability insurance 2.44 14.1% 2.55 4.5% 12.7% 2ETAILINSURANCE 2. compulsory 3.83 22.2% 4.39 14.5% 1.2% insurance, 3PECIALRISKS #ORPORATEINSURANCE including: #OMPULSORY  MOTOR40, Compulsory motor 3,83 22,2% 4,39 14,5% 6,2%  TPL insurance 0ERSONAL  0ROPERTY 0ROPERTY  

limit insurers’ opportunities to receive high- sitions were and are retained by the Com- quality insurance protection. We stick to the pany in complex risks insurance, where In- The Company became more actively in- Ingosstrakh’s priorities in 2007 included same approach to the development in volun- gosstrakh traditionally remains among the volved in the voluntary medical insurance development of private-owned property tary medical and compulsory TPL insurance, leaders, which include ship owners’ liability of individuals, creating separate box prod- insurance. In 2007 the individual property where the Company implements rather a insurance, vessels insurance, aviation and ucts for the given market segment, whereas insurance provided by the Company out- restrained policy closely watching the insur- space risks insurance. Surely, such results the company’s priority is still the corporate paced the overall market rates with the ance portfolio loss figures. were achieved by the Company due to the segment. At present the insurance company aggregate premiums collected in the insur- long-established reputation in large com- works with three thousand medical institu- ance market increasing by approximately Ingosstrakh retained leading position in mercial risks insurance. tions across the Russian Federation. 20%, whereas premiums colleted by In- terms of voluntary insurance, except life gosstrakh grew by 28%. insurance, premiums due to significant Along with the corporate insurance devel- premium volumes in property insurance opment Ingosstrakh experiences growth and voluntary liability insurance. In 2007 in the individuals’ insurance (retail insur- the Company’s share in these segments ance). In the past year services rendered amounted to 8.8% and 12.7%, respectively. by Ingosstrakh to individuals outpaced the market rates. Based on the 2007 results in- Ingosstrakh’s leadership in the above men- surance of individuals accounted for almost tioned segments is driven by its strong posi- 50% of the aggregate insurance premium tion in corporate insurance (with the growth (vs. 43.1% in 2006). Total premiums collect- in the share of Companies in the small and ed from individual insurants in 2007 consti- medium businesses), motor insurance and tuted RUB 17.4 bln. special risks insurance. Especially strong po-

14 15 Implementation of Ingosstrakh’s Main Strategic Projects Implementation of Ingosstrakh’s Main Strategic Projects

Implementation In 2007 the project of Scientific underwrit- of Ingosstrakh’s ing in regions was launched. The regional Main Strategic Projects offices started using scientific price-setting reserves for the calculation of vehicle insur- ance tariffs. The tariffs were estimated us- Strategic projects serve as the foundation ing the modern actuarial methods. To im- for the Company’s future competitive ad- plement the project the Company acquired vantage and in the past year the Company statistical software package EMBLEM. To- continued focusing on them. day Ingosstrakh is the only insurance com- pany operating in the Russian market with The CRM project, developed with the such kind of software. Scientific approach Company’s own techniques, allowed to allows to perform a more accurate calcula- significantly enrich the Company’s practice tion of tariffs for each client depending on of work with client’s. The project enables the hazard degree. The new tariff system the Company to introduce target busi- introduced in the regions led to the fun- ness-processes in terms of acquisition in damental change in the portfolio structure the retail insurance, introduce a new work implying the attraction of more experi- scheme, improve its reporting and busi- enced and careful drivers. ness transparency and boost clients’ and partners’ satisfaction with the services. In Under the Targeted sales and management 2007 the automation of business process- of motor insurance project over 10 sales es in the first line and the Contact Center optimization initiatives were launched. outgoing calls was completed. Some initiatives are targeted at streamlin- ing the data-exchange and IT processes The company continues working at the in the course of interaction with partners, project of introduction of Oracle e-Busi- process automation, optimization of work ness Suite-based Financial system, aimed with agents and partners. at achieving higher quality of management information, optimizing the data-process- Much was done for the optimization and ing process, streamlining the budgeting development of medical insurance. The and reporting systems. The system allows retail voluntary medical insurance product to boost efficiency of the Company man- was finalized based on partnership with an agement due to the on-line centralized extensive network of clinics, the company control of the company’s activities based started developing its own clinics network on the complete and accurate informa- and completed the first stage of business- tion. In 2007 the system was commissioned processes reengineering. for test operation and currently is at the final experimental stage.

Streamlining the system of loss optimization in retail insurance allowed to improve the qual- ity of internal processes, loyalty and client’s satisfaction, realize the significant cost-re- duction potential by introducing IT-technol- ogies. Additional loss optimization initiatives were adapted in 2007, including streamlining of target loss optimization processes, data collection, loss segmentation and analysis, and resulted in drafting and introduction of the action plan to reduce costs associated with group insurance agreements.

18 19 Performance Results in Core Business Performance Results in Core Business

Performance Results es incurred by Ingosstrakh’s credit portfolio ket as a locomotive of strategic develop- tasks and initiated and promoted fun- in Core Business* and bring its appeal to the classic product. ment and helped to solve the central prof- damental institutional changes in the itability growth task in terms of balanced market. In 2007 Ingosstrakh became the In 2007 Ingosstrakh reassured its market growth. leading founder of «Professional car-theft position as the leading insurer of pre- prevention association» uniting insurance Motor Insurance mium-class foreign cars. The company’s Thus, in 2007 Ingosstrakh concluded over companies, producers and anti-theft sys- share of insurance of foreign-manufac- 270 thousand automobile voluntary insur- tem operators, research and engineer- tured cars worth over USD 40 thousand ance contracts, which by 19% exceeds the ing and public organizations. The Asso- Motor insurance continues to be the lo- is estimated at over 30%. To meet the 2006 figure. Over 1.3 million contracts were ciations aims at implementing innovation comotive of the whole Russian insurance demands of Ingosstrakh’s prime clients, a concluded on compulsory motor TPL in- technologies in the insurance and auto- market. In the structure of Ingosstrakh’s new product, «Platinum» hull insurance’, surance. Total premiums collected by the mobile markets, identification of national premiums this segment is also the leading was launched for Moscow and the Moscow Company in motor insurance constituted criteria of anti-theft protection efficiency one accounting for about 58% of the direct region. Under the given product owners RUB 20.5 bln., showing 21.9% growth ver- assessment and vehicle safety for the Rus- premium collected on all insurance types. of vehicle worth over USD 70 thousand sus 2006. The Company earned RUB 15.9 sian insurance and automobile markets in addition to traditionally high quality of bln. (24.7% growth) for voluntary insurance and promotion of accident-free vehicle The retail motor insurance market de- insurance are provided by the Company of vehicles (hull insurance), RUB 4.4 bln. driving to increase road traffic safety. velopment in 2007 was driven mainly by with an exclusive service package, includ- (12.5% growth) for compulsory motor TPL the growing car fleet due to the sales ing such services as «Roadside Assistance» insurance, RUB 0.2 bln. (24.2% growth) for The anti-theft initiatives resulted in the fall of brand-new foreign cars in showrooms and «Personal Inspector». Clients with voluntary motor TPL insurance. in the number of car thefts and amount of (with about 1.65 mln. vehicles sold) with large incomes are not only provided with compensation down to 13% compared to a parallel increase in their average price. Ingosstrakh services on unique terms and Solution of the core 2007 task was possi- the overall growth of compensations under Although, both these market trends pro- conditions, but are also paid significant ble due to innovative management of the voluntary motor insurance by 39% up to duced a positive impact on Ingosstrakh’s insurance compensations. Thus, over RUB claims settlement system. The full-fledged RUB 8.9 bln. premiums collection rates, the Company 1.1 billion was compensated for insurance CDA-analysis performed by the company, followed a more ambitious plan than the events associated with vehicles worth over and LEO (lost economic opportunity) cal- The streamlining of the 2007 loss optimiza- extensive market rates dynamics. Ingoss- RUB 1.5 million that occurred in 2007. culation allowed to identify the potential tion system improved the quality of internal trakh’s target goal was boosting the port- for improvements in loss optimization be- processes, increased customer loyalty and folio profitability in the first place, while Efforts to improve comfort and quality of tween Ingosstrakh and its clients. Unprec- satisfaction, realized the significant loss re- ensuring balanced growth. insurance services rendered by Ingossrakh edented for the Russian market loss analy- duction potential by introducing advanced in 2007 were made in various aspects. The sis methods consisting of ten settlement IT-technologies, including electronic docu- To solve this task a qualitative and quanti- Company acquired such services as «Insur- stages, from applications acceptance to ment flow, boosted the efficiency and tative portfolio analysis was made already ance event site survey by expert», «Cer- recovery payment, brought the actual re- settlement speed at various stages, as for in 2006, that led to the introduction in 2007 tificates collection» and «Roadside assis- sults in 2007 and laid the foundation for example the concurrence of concealed ve- of principles of justified in-depth segmen- tance» for an additional fee. To improve subsequent major changes. hicle damages. tation by client, sales channel, product in the customer service quality Ingosstrakh practical activities and as a result to more transferred its additional services control Consistent work to prevent car theft that The total of over 210 thousand losses efficient use of possibilities offered by the to the internal contact-center. To cele- started in 2006 was intensified in 2007. were settled under voluntary motor in- market. brate its 60th anniversary the Company ar- A research laboratory established by the surance in 2007 and 96 thousand under ranged the «60 days» campaign to extend Company allowed using the findings of compulsory motor TPL insurance. Overall One of the trends aimed at increasing port- insurance contracts for additional two practical study of standard and non-stan- compensations paid by Ingosstrakh under folio profitability was the revision of the months for free. dard anti-theft alarm systems, to deliver motor insurance reached RUB 11.2 bln., range of products offered by the company. criteria of anti-theft systems’ efficiency and increasing by 39.3% compared to 2006. Major changes occurred for the credit in- The system of continuous monitoring of in- determine design features of an appropri- Compensations paid under compulsory surance product, namely three-year term surance rates adequacy based on the elab- ate anti-theft system. In 2007 Ingosstrakh’s motor TPL insurance amounted to RUB of contracts was replaced by contracts con- orated segmentation included apart from laboratory was ready to determine the ve- 2.3 bln. (40.4% growth) and RUB 46.7 mln. cluded for one year and the Bonus-Malus comparison of Ingosstrakh’s rates with the hicle protection standards for cars bought (44.0% growth) – under voluntary motor System (BMS) was introduced. Such revision market ones also their revaluation with a from automobile plants. TPL insurance. of the credit product became possible due view to profitable growth points. Similar to long-lasting and complex negotiations approach to price-setting strengthened Advancing its measures to prevent car The Company’s motor insurance losses in with banks that allowed to reduce the loss- the Company’s position in the motor mar- thefts Ingosstrakh solved microeconomic 2006-2007 fell to the level ensuring proper

* The market shares assessment provided herein is based on the experts evaluations made by the Company’s specialists.

22 23 Performance Results in Core Business

balance of competitive tariffs, customer sat- however, the share of liability insurance liability insurance product. 329 contracts Voluntary Medical Insurance isfaction in insurance events and adequate in conditions of volume increase, remains were concluded under this type of insur- break-even level of the Company. at the level of 9%, whereas the share of ance with total premiums of over RUB16.5 agricultural insurance grew from 3.5% to mln. Based on 2007 results Ingosstrakh’s The voluntary medical insurance market 6.4% of the total premium income. market share amounted to approximately growth in 2007 was estimated at 14%-15%. Property and Liability Insurance 15%. The key market development trends were for Legal Entities The greatest expansion was experienced the following: in 2007 by the following core areas: A series of large losses settlement took place in 2007, most of which were caused • Individual medical insurance market de- Property and liability insurance of legal • General TPL insurance – 124% (RUB 235 by fire as in the recent years: velopment (introduction of new prod- entities is as ever one of the most attrac- mln.); ucts, raising the insurance awareness of tive areas despite the general loss growth • RUB 920.8 mln. – CJSC PROTEK Imple- the population); tendency in this market segment. This area • Insurance of objects of pledge – 134% mentation Center, fire in the pharma- in Ingosstrakh is one of those displaying (RUB 609 mln.); ceutical products warehouse. Total loss • Competition in the corporate volun- sustainable growth. For a number of years amount – USD 75 mln.; tary medical insurance market due to it has held the second place in the Com- • Insurance of agricultural complexes – the intensification of services compo- pany in terms of premiums earned and in. 162% (RUB 393 mln.); • RUB 387.1 mln. – ОJSC Azovstal, SCM nent and improvement of quality of 2007 it totaled RUB 6.1 bln. Management holding. Explosion in the the services; • Insurance of bank risks – 166% (RUB blast furnace during scheduled repair In 2007 Ingosstrakh and the whole market 305 mln.); operations. (Inwards reinsurance); • Insurers’ loss reduction allowing to ben- tended to reduce the corporate business efit from price competition. share due to the advanced growth rates of • Insurance of leased property – 225% • RUB 106.7 mln. – CJSC Cargill А.О. Fire retail business and dumping policy imple- (RUB 90 mln.). in the sugar and oil warehouse; mented by the competitors. Due to these factors the Company displayed a tenden- • RUB 42.3 mln. – Proddostavka, LLC. Fire At the same time, the key limiting factors cy towards a major slow-down of growth in the tobacco products warehouse; were: rates compared to the previous periods In 2007 Ingosstrakh continued to devel- with reductions in some segments. If in op the policy of quick response to main • RUB 38.4 mln. – CJSC Semena Elitnye. • The ongoing price growth in the medi- 2006 the share of property and liability market and legal changes. The «Agricul- Loss of barley as a result of droughts; cal services market; insurance segment in the Company’s port- tural insurance development strategy in folio exceeded 20%, in 2007 this figure Ingosstrakh for 2008-2012» was adapted • RUB 38.1 mln. – Vestel-CIS, LLC. Fire in • Insufficient number of medical centers constituted only 15.7%. However, in the in the second half of 2007. The effort was the television set plant in Alexandrov; able to ensure high-quality medical corporate division this area is still domi- triggered by the adoption of the Federal services; nant with 41% share of the 2007 premium Law «On agricultural development» and • RUB 36.6 mln. – CJSC Egle collection. collection. approval by the RF Government of the Fire in the footwear warehouse; • Insufficient tax incentives (classified as «State agricultural development and ag- expenses on personnel insurance at no There was a slight change in the port- ricultural market regulation program for • RUB 33.5 mln. – OJSC Kazanorgsintez. more than 3% of the payroll fund). folio structure in the past year, i.e. the 2008-2012». Implementation of measures Explosion and fire in the polyethylene- decrease in the technical risks insurance stipulated by the Strategy started already production reactor (inwards reinsur- share, caused by the completion of a in 2007 raising the volume of premiums ance); number of large-scale construction proj- by 62%, mainly due to regional business Based on 2007 results Ingosstrakh holds the ects (Sakhalin-2 project, primarily), as well growth in all the core areas: crop insur- • RUB 30.1 mln. – IKEA MOS (Trade and 4th place in the voluntary medical insurance as a significant growth in agricultural in- ance, livestock insurance and agricultural Realty) LLC. Flooding of the construc- market with the amount of gross premium surance that allowed to separate it into property insurers. tion site as a result of faulty design for of RUB 3.28 bln. The premium growth rates an independent line. Thus, traditionally storm sewage. almost doubled the average market indi- the greatest share in the portfolio is ac- In view of the changes entered in the Fed- cators versus 2006 and amounted to 27%. counted for by fire risks insurance – RUB eral Law «On tourism business principles», As a result of large-scale losses paid in As result Ingosstrakh’s market share rose 4.6 bln. or 74.4% (58% in 2006), the share implying financial support for perfor- 2007 the loss ratio in the past 6 years ex- from 4.9% to 5.4% during the year. of technical risks fell to RUB 607 mln. and mance of tour operator activities Ingoss- ceeded 20% and reached 33%. constituted 10% in 2007 (29% in 2006), trakh introduced a new tour operator

24 25 Performance Results in Core Business

The Company’s key competitors in the mar- est operators in the aviation and space reliable, preserving the Company’s posi- effective period of 5 years stipulating the ket were such insurers as ROSNO, RESO-Ga- risks insurance market segments acting tion as a large reinsurance market player. reinsurance of 16 to 20 launch vehicles dur- rantia, Rosgosstrakh, Renaissance, Capital, both as a direct insurer and reinsurance ing the given period. MAKS and Uralsib. company. In 2007 Ingosstrakh continued working with major airlines, including S7, Trans- From the point of view of the declared As earlier the main sales were in the corpo- In 2007 Ingosstrakh still retained leader- aero, Vim-Avia, KD-Avia, and resumed its and settled losses 2007 was more favor- rate segment, however, the growth rates ship positions in the Russian aviation and cooperation with the CIS insurance com- able for the Company’s aviation and space for sales to individual customers lately have space risks insurance market segments panies of Ukraine, Kazakhstan, Belarus, risks insurance activities as opposed to been outpacing the market. The share of ramping up its reputation as a player in Uzbekistan and Moldavia. The greatest 2006, characterized by a large number of Ingosstrakh’s sales to individual customers the international insurance market. Thus, achievements were made in Ukraine and major losses associated with aircraft loss- based on 2007 results amounted to 1.7% in the aviation risks insurance the Com- Kazakhstan that increased the reinsurance es. There were no losses in space risks in- with it rising up to 3% in the second half. pany accounts for over 40% of the total portfolio in these countries. surance in 2007, whereas the same figure insurance premiums being the locomotive fell in the aviation risks insurance. Major Last year Ingosstrakh stuck to the selected of the national market. In 2007 the aviation risks portfolio was re- aviation risks insurance losses included: strategic policy of moderate development, structured in Asia, Africa and Latin Ameri- which allowed to reduce losses down to The situation in the aviation and space risks ca, aimed at the exclusion of risks from the • RUB 88.2 mln. – Fire in and total loss of 80% and form a balanced portfolio. insurance market remained difficult in the most dangerous regions. Tu-154M; past year as a result of: In order to improve the quality and con- Ingosstrakh retained the leading positions • RUB 56.4 mln. – Loss of Boeing 737-200 trol of services rendered, Ingosstrakh • Intensification of air transportation; in the space risks insurance as well. In 2007 5N-BFK; acquired a chain of clinics under the the Company took part in the insurance «Be Healthy» brand. As of the close of • Lower number of airlines operating in and reinsurance of over 60 space projects, • RUB 57.6 mln. – Loss of Tu-154M in the 2007 these clinics provided services to the market caused by the overall air including European space Industry compa- Donetsk region; over 45 thousand patients. carriers’ striving for globalization; nies’ reinsurance. The 2007 insurance gross written premium in this area amounted to • RUB 57.6 mln. – Damage during take- In spring 2007 a project on strategic part- • Aircraft ageing caused by the lack of over 440 million rubles. off of Boeing 737-300 at Domodedo- nership with «Value for Money» chain of Russian aviation plant capacities re- vo airport. clinics was launched. quired to meet the demand of Russian Ingosstrakh’s largest client is still Federal air carriers; State Unitary Enterprise «Space Communi- cations». Cargo Insurance Special Risks Insurance • 10-15% tariff rates reduction due to positive financial results of the past Ingosstrakh’s primary achievement in the periods; space risks insurance segment in 2007 In 2007 Ingosstrakh’s cargo insurance line Special risks insurance is one of the prior- was winning together with OJSC SOGAZ demonstrated sustainable growth out- ity lines of the company activities. Special • tough competition among key market (on the co-insurance terms) of two open pacing the market. During the reporting risks include cargo, aviation and space participants: Avikos, Sogaz, Capital tenders organized by Federal State Uni- period over 27 thousand contracts were risks insurance, insurance of vessels and Insurance, RSC, Allianz, VSK, Rosno, tary Enterprise «Space Communications»: concluded, a 10% increase over the pre- ship owners’ liability, transport operators’ Lexgarant; the open tender for the insurance of or- vious reporting year indicator. The gross and credit insurance. bital operation of satellite constellation written premium amounted to RUB 962 • rate reduction, capacity growth and of FSUE «Space Communications», and mln. rising by 35.9% versus the same pe- tougher competition in the space insur- the open tender for the insurance of the riod of the previous year. Business growth Insurance of Aviation ance market. launch of three spacecraft of FSUE «Space was witnessed in all the major business and Space Risks Communications». The total insurance lines of cargo insurance segment: over- Despite the tendency towards market amount of these two projects constituted seas cargo insurance, inland transporta- conditions worsening, premiums written about RUB 11 bln. with the total insurance tion insurance, fine arts and exhibition Aviation and Space risks insurance op- in 2007 under the aviation and space risks premium – about RUB1 billion. cargo insurance. erations constitute a significant part of insurance amounted to RUB 2.1 bln. show- Ingosstrakh’s property and third parties’ ing 11.4% increase versus the previous Noteworthy is also Ingosstrakh’s partici- In 2007 the Company laid special stress on liability insurance portfolio. The company year. Ingosstrakh’s reinsurance protection pation in the program of reinsurance of the RF foreign trade volume analysis, both is traditionally considered one of the larg- remains more profitable, complete and launch vehicles Arian-5 with the contract in the field of goods structure (oil, vehi-

26 27 Performance Results in Core Business

cles, furniture, electronic and household um growth in 2007 reached about 20%. • RUB 10.7 mln. – theft of the whole cargo ity insurance this figure reached RUB 683.3 goods), and bilateral relationship with a (valving) from the parking area during mln., demonstrating a 3.2% fall versus the number of far-away countries and the CIS Most exhibitions arranged by Russian mu- the road transportation; 2006 level. The underrun was caused by the (direct participation in the activity of Inter- seums abroad were insured with Ingoss- dominance of foreign insurers in large-scale governmental commissions with China and trakh’s insurance. It is to be noted the • RUB 7.1 mln. – theft of medical equip- shipping line insurance services. India). This analysis served as the basis for following major projects implemented in ment as a result of third parties’ fraud; outlining priority tasks and lines of work the reporting period: «Greatest Treasures To boost the overall business profitability with Russian foreign trade associations. of Russian Tsars. Kremlin’s Wonders» (Ja- • RUB 6.0 mln. – theft of alcohol products the company bent its efforts to selective pan), «Russia’s Soul is in its Icon» (Chile), as a result of robbery during the road approach to taking new risks and restruc- High level of services rendered and reli- «Bon jour, Russia!» (Masterpieces of Her- transportation; turing of the existing portfolio expressed in ability of insurance coverage provided the mitage and State Russian Museum in Dus- attracting young and high-quality fleet and prolongation of the contracts with the seldorf), «Tsars Arsenal. Moscow Kremlin • RUB 4.5 mln. – total loss of cargo (ve- tougher tariff policies for particular clients. largest Russian importers and exporters of Museums Treasures». The Company works hicles) as a result of fire in the carrying The growth rate is limited by the aggressive such goods as: raw sugar, grain, crude oil, with such clients as the State Hermitage, conveyance after the traffic accident; behaviour of other players and insured’s tropical oil, coal, non-ferrous metals. The State Museum & Exhibition Center, open- greater inclination to holding tenders upon same factor allowed Ingosstrakh to win a air museum «Moscow Kremlin», State Tre- • RUB 4.4 mln. – theft of the whole car- renewals of contracts. Besides, the under- large number of new companies involved tyakov Gallery, State Russian Museum. go (electronic equipment) during road writing principles for the vessels’ age and in the foreign trade relations with West transportation as a result of third par- class, the scope of insurance coverage and Europe, South-East Asia and Middle East Summing up, in 2007 the Company worked ties’ fraud. rate adjustment in the event of contract re- as its clients. Among them there are such actively to attract large corporate clients. newal were developed and launched. companies as OJSC Bonanza, JVC CIS LLC, Large-scale customers accounted for over OJSC Lonmadi, Lauderdale Ltd, Corona 65% of the total premium in this type of in- Hull, Machinery and P&I In 2007 a large number of major losses were Partners Ltd and OJSC Stroytransgaz. Be- surance, which by 10 % exceeds the previous insurance declared and compensated by Ingosstrakh, sides, the insurance of international trans- year indicator. One of the largest clients in which, however, did not result in losses portation has been developing together the Company’s 2007 Portfolio was Autolo- over the average level typical of this line of with the growth of Russian domestic car- gistics accounting for over RUB 73 mln. This In 2007 Ingosstrakh retained its leadership business. Major losses included: riages, intensified overall development of was accompanied by activities to promote position in most lines, namely, hull insur- both Russian economy on the whole and relations with the current elite and major cli- ance, ship-owners’ liability insurance and • RUB 210.4 mln. – loss of «Diamant»; its separate sectors, such as trade, con- ents and to attract small and medium-size yacht insurance. The Company maintains struction and transport. perspective clients, which allowed to form a significant positions in insurance of vessels • RUB 189.0 mln. – stranding of «Jane»; well-diversified insurance portfolio. under construction, where captive compa- A series of large traders (М.Video, Mercu- nies play an important role (Sogaz). • RUB 77.8 mln. – loss of «Gracia»; ry, Megapolis) expanding into the regions Ingosstrakh with its branches, subsidiaries placed insurance of their cargo transporta- and foreign representative offices imple- In 2007 Russian insurance market displayed • RUB 49.7 mln. – loss of «Turgut Koca- tion within Russia with Ingosstrakh. An in- mented an active and targeted policy to an increased interest to marine insurance. bas»; creasing number of forwarding companies attract new clients and expand its relations Almost all the leading insurance compa- and Russian carriers offer their clients to in- with companies based in various regions nies and second-echelon companies were • RUB 24.5 mln. – loss of «Pacific Rain- sure their cargoes with Ingosstrakh. A clear of Russia, the CIS and far-away countries. actively involved in the completion and bow». tendency towards road transportation insur- Premiums collected by Ingosstrakh in 2007 development of the respective branches ance growth in 2006 remained and in 2007 via its branches grew by 27% and amount- and voiced their ambitions to increase their also demonstrated sustainable growth. ed to over RUB 110 mln. Ingosstrakh’s po- shares in the given segment. In view of the Transport Operators Insurance sitions in the field of cargo insurance in continuing excessive supply of such servic- During the reporting period Ingosstrakh many regional markets were significantly es in the world’s leading marine insurance strengthened its leading positions in fine strengthened. markets, this trend will still negatively affect Among numerous insurance market play- arts and exhibition cargo insurance in the the overall level of rates in the Russian mar- ers providing services to transport opera- Russian market. Premiums income amount- As for the settlement of major losses, 2007, ket. Following the major market tenden- tors Ingosstrakh is one of the major play- ed to over RUB 75 mln., with practically as well as the previous year, was compar- cies, the volume of premiums written for ers with a portfolio comprised primarily of zero losses (0.7%). Leaving the premiums atively favorable. Losses reached about hull insurance (including yacht insurance) transport companies involved in interna- written for insurance of Days of Russia in 24.3%. The most outstanding indemnity business in 2007 exceeded the 2006 level by tional cargo transportations. In 2007 the China exhibition held last year, the premi- payments were as follows: 7% and amounted to RUB 936 mln. In liabil- gross written premium in this line amount-

28 29 Performance Results in Core Business

ed to RUB 622 mln., exceeding the 2006 cially for companies receiving the Federal • RUB 1.6 mln. – derailment of hopper states with respect to insurance of port- level by 13%. Customs Service license to act as tempo- wagons; folios of Russian debtors. rary storage warehouse or customs stor- The Russian transport services market dis- age warehouse owners. This program • RUB 1.2 mln. – derailment of wagons Given the conditions of intensified interna- plays a sustainable growth tendency. To- served as the basis for first liability insur- during shunting operations; tional competition for insurance of Russian day the capacity of the domestic market ance contracts signed with transport ter- credit risks, Ingosstrakh focused on working of international road transportations is es- minal (warehouse) operators. • RUB 1.1 mln. – damage to transported with the leading multinational corporations, timated at over USD 5 bln. annually with car LEXUS RX-350 as a result of fire in having strong ambitions, big growth poten- the road transport accounting currently Ingosstrakh’s clients include: NLK-Trans, the truck; tial in the Russian market and being inter- for over 26% of the RF foreign trade. Over International Container Transport, SТS Lo- ested in constant upgrade of insured credit 27 thousand vehicles are involved in trans- gistics. • RUB 1.0 mln. – damage to cargo (elec- limits. The Company contributed in-depth portations in this segment. trodes) as a result of traffic accident knowledge of a number of dynamically de- Last year the Company managed to retain veloping Russian economic sectors to in- The increase in the number of transport its leadership positions in rolling stock in- ternational reliability of Ingosstrakh’s local companies and number of vehicles em- surance. Ingosstrakh’s clients are Russian Credit Risks Insurance credit policies and reduced level of premium ployed, as well as improvement of their largest railway operators – Russian railways rates under mono-country policies down to quality ensure greater demand for the re- (RZD), RailTransAvto and Russkaya Troika. the level of the best premium rates’ propos- spective insurance services. Awareness of li- The Company actively cooperates with During the reporting year Ingosstrakh re- als under global policies. Such an approach ability insurance as one of important factors leasing companies operating in the sphere mained an active insurer of trade credits allowed to win a number of the leading mul- of financial stability of trucking companies of railway transportations – Magistral Fi- and retained the leading positions in this tinational groups as new clients. allowed to increase the share of medium nance, Leasing Company of the Interna- segment. The insured turnover totaled and large-size companies in Ingosstrakh’s tional Moscow Bank. RUB 112 bln. The largest premium income Ingosstrakh new customers are companies portfolio. Today among our clients there in the amount of RUB 153 mln. was at- from India, France, the USA, Japan, Den- are such companies as GEMA-Trans, Sun- Such lines of business as containers in- tained in food and pharmaceutical sec- mark, Germany and Finland. To our great flower Corporation, Sovinteravtoservice, surance and port operators/stevedoring tors. satisfaction we observe that our existing Transport Technologies, Elex Polus L. companies operators’ liability insurance customers hold the leading positions in were further developed. Ingosstrakh’s As before, principal demand for credit in- three Russian business sectors as well as The year 2007 saw a rather dynamic devel- largest clients in this segment are the Mur- surance was generated by large multina- new insured also become leaders in two opment of carriers and transport terminal mansk Sea Trade Port, Tuapse Sea Trade tional corporations with almost no demand more sectors. (warehouse) operators’ liability insurance Port, stevedoring companies of the Port from national companies. Large Russian triggered by the following factors: of Saint-Petersburg. companies, having no representative loss To improve global level of credit insurance record, underestimated probability of their services, Ingosstrakh constantly upholds • The RF foreign trade turnover growth; In 2007 Ingosstrakh continued its coop- partners’ bankruptcy, whereas many small its relations with other credit insurers and eration with the 10 Associations of inter- and medium-sized Russian companies were reinsurers. In 2007 mostly successful was • Entry of foreign logistics companies to national road carriers from Russia, Latvia, constantly searching for financing (solving cooperation with Belgian insurance com- the Russian market by opening subsid- Lithuania, Armenia, Azerbaijan, Georgia, liquidity issues) and thus confining them- pany Ducroire SA, Italian insurance group iaries and branches in Russia, as well as Kazakhstan, Kyrgyzstan, Moldova and Uz- selves to expensive factoring at best. SACE and also with Swiss, German, Ameri- via investments in the Russian logistics bekistan in TIR insurance and provision can and French credit reinsurers. companies; of various insurance services to transport High global level of oil prices, significant companies – members of the Associations. foreign investments in Russian mechanical • Greater interest of Russian transport engineering sector and political stability in Travel Insurance and logistics companies in insurance Despite tough competition all types of Russia minimized currency exchange risks for improvement of competitiveness in insurance are maintained at the level al- and forced world-leading credit insur- the market; lowing to ensure high-quality services in ers to start tough competition for credit The 2007 tourist year ended with good combination with business profitability. insurance related to Russian companies. results. The number of Russians travelling • Requirements set by large logistics com- Globality of credit insurance coverage abroad grew by 20%. Among the major panies to subcontractors’ insurance. Losses associated with transport opera- and «A»-level credit ratings turned out destinations only two demonstrated lower tors’ insurance constitute 41%. The great- to be competitive advantages of credit results – Germany and Estonia. All other Besides, the company started offering a est compensations were paid for: insurers from the Netherlands, Germany, destinations displayed positive growth new insurance product developed espe- France, the USA and a number of island dynamics. In 2007 the most popular desti-

30 31 Performance Results in Core Business

nations were Turkey, Egypt, Spain, Croatia lems of the insured persons. insurance segment. Among its largest cli- The Company’s total income across its all and Montenegro. ents under risk insurance are FSUE Post lines of business amounted to RUB 609.5 In 2007 losses incurred by the travel port- of Russia, KPMG, SHLUMBERGER, Philippe mln., which by 28.7% exceeds the 2006 The tourist insurance market continued folio were reduced down up to 42% not at Morris Russia, Deloitte & Touche CIS and results. The life insurance growth consti- developing as in the previous year. How- least thanks to more efficient activities of in pension insurance – Sovkomflot OJSC, tuted 28.6% with the accident insurance ever, the increase in the number of insured assistance companies and medical provid- Kimberly-Clark and Rexam. increasing by 28.7%. The number of the clients was set off by the dumping ten- ers abroad. Company’s insured clients under all types dency and tough competition in insurers’ 2007 for Ingosstrakh-Life was a year of of insurance reached 700 thousand peo- contest for major tour operators acting The largest losses were occurred under considerable business growth, a year ple. Insurance claims were settled in the as intermediaries in over 70% insurance coverage of medical expenses for travel- which provided the basis for the subse- amount of RUB 137.9 mln. policy sales. In 2007 Austrian company ers abroad. 52 of them exceeded RUB 250 quent progressive development. The key «European Travel Insurance» entered the 000 each. projects implemented in 2007 and their At the same time the Company’s organi- travel insurance market, which led to even results were: zational structure was reformed and opti- tougher competition in the tourist mar- mized to further develop the distribution ket, namely, to 10% lower premium from Personal Insurance • Expansion of own agency: in 2007 its and make the operational divisions more some tour operators. The average market (Ingosstrakh-Life) headcount grew from 50 to 400 em- efficient. Ingossrakh formed a strong team growth dynamics indicator for 2007 con- ployees. The agency is the company’s of experienced sellers and managers in life stituted no more than 15%. image; the best managed sales channel insurance to achieve common goals. The life insurance market is the most dy- with estimated results and its growth Based on the previous year results the namically developing market segment of are the priority tasks for the develop- The following new products supplemented Company managed to collect RUB 459 personal insurance market in Russia. The ment of individual life insurance; the Company’s product line in 2007: mln., which by 32% exceeded the same in- growth rates of the real life insurance are dicator for the previous year. In 2007 the estimated by various experts for the near- • Agency’s entry to the regional market: • Child’s cumulative insurance, the «Gold- Company retained its leading position ac- est future at 25-50% annual growth. The new offices have been opened in 14 en key» program; counting for about 40% of the market. accelerated market growth expectations towns and cities of Russia (Saint-Peters- are associated, first of all, with the growth burg, Saratov, Samara, Volgograd, Nizhny • Child’s accident and health insurance, 2007 for the Company was marked by vig- of income and awareness of population Novgorod, Ufa, Kursk, Oryol, Ekaterin- the «Semitsvetik» program; orous activities aimed at preserving big accompanied by the overall development burg, Rostov-on-Don, Krasnodar, Sterli- tour operators determining the situation of financial services market, and particu- tamak, Chelyabinsk and Novosibirsk); • Accident and health insurance product in the travel market in exit destinations, in- larly, credit market with the change in the for small and medium-size businesses – cluding Natalie-Tours, Lanta-tour Voyage, tax legislation as well as entering the mar- • «Professional Financial Consultants» «NS standard»; Mostravel, Biblio-Globus, Roza Vetrov, ket of large foreign life insurers and the project aimed at forming a stable on- Capital-Tour, Solvex, etc. At the same time development of Russian companies spe- line sales channel attached to the agen- • «Solution» product for individual and over 160 travel agencies supplemented cializing in life insurance. cy in terms of organization; family accident insurance sales via In- the list of Ingosstrakh’s new clients, mainly gosstrakh branches; corporate clients having their employees The strategic goal of LLIC Ingosstkrakh- • Methodical basis formation for the bank insured during business trips outside Rus- Life insurance company is becoming one of insurance development and conclusion • A series of products specially devel- sia. The increase in the number of insured the three leaders in life insurance in Russia. of a series of contracts with different oped for sales via non-insurance part- clients compared to the previous year con- To achieve this goal in 2007 the Company non-insurance partner organizations ners; stituted 25%. introduced a development plan for LLIC In- (banks, car dealers); gosstrakh-Life until 2012 outlining the key • Completion of individual accident insur- 2007 saw 110% growth versus 2006 of re- distribution development and operational • Launch of the projects on life and ac- ance product for sales via internal retail tail sales via long-distance office network. divisions measures, as well as planned eco- cident insurance sales via Ingosstrakh’s channels. nomic and financial results. regional offices; An important event that occurred in 2007 was the launch of retail sales of new insur- The major instrument for the achieve- • Launch of the projects on cross-sale of ance products, including «Annual policy» ment of the above mentioned goal is the Ingosstrakh-Investments and Ingoss- Today, Ingosstrakh-Life has one of the and «Family policy». Trip Cancellation In- development of a diversified distribution trakh-Life voluntary medical insurance most advanced and extensive lines of surance program optimization for tour op- system. Today Ingosstrakh-Life occupies investment products via retail channels products in life and accident insurance in erators allowed quickly solving visa prob- the leading positions in the corporate the Russian market that completely meets

32 33 Performance Results in Core Business

the modern individual and corporate cli- To develop the retail infrastructure the amounted to RUR 530 mln). tail insurance products. In absolute terms, ents’ requirements. Company undertook to launch offices and the increment in the size of insurance pre- points of sale in its regional divisions. In As at the end of 2007, the regional agents miums accrued in retail insurance in 2007 • Life insurance. Addresses the issue of 2007, 110 such offices and points of sale of OJSIC Ingosstrakh totaled 5259 agents. amounted to RUR 1415 mln. financial well-being of clients and their were put into operation. The major expansion of the agency net- families, helps to form reliable and as- work in 2007 was mainly due to the in- The biggest share in the regional insurance sured fund accruals for the future. The In parallel with the launch of the new of- crease in the number of agents working portfolio falls at only voluntary motor ve- Company’s core business ensuring its fices, the Company commenced the re- with car showrooms, car dealers and part- hicle insurance (hull insurance). Its share in long-term progressive development. branding and refurbishing of its offices ner banks. Their aggregate number as at 2007 was 62.3%. The size of accrued hull The most perspective personal insurance and points of sale that were already in op- the end of 2007 was 1888 agents, or 35.9% insurance premiums was RUR 3949 mln. The segment in Russia, requiring investments eration in accordance with the newly ap- of the total agency network headcount. increase in the size of premiums accrued un- in the first years of its development and proved guidelines on the corporate style. der hull insurance policies in absolute terms creation of efficient sales channels; In 2007, the total of 78 projects was started, In order to improve efficiency of operat- amounted to RUR 1217 mln., or 44.6% in out of which 63 projects were completed, ing with non-insurance intermediaries, the relative terms. The increase in the number • Accident and health insurance. Finan- and the balance is still underway. Company worked at the optimization of of hull insurance policies executed in 2007 cial protection of clients and their fami- the terms of such interoperation. vs. 2006 was 6.8%. lies in emergency situations. A busi- In 2007 the Company recruited to fill in the ness line that serves as well-balanced vacant management positions with the re- As part of its cooperation program with The next largest position in the retail in- supplement of life insurance. It partially gional network and also replace some of the Agency for Housing Mortgage Loans surance portfolio of the regional network compensates for investments in the de- the directors of regional divisions who had (AIZHK) the Company developed and ad- is taken by compulsory civil liability motor velopment of life insurance due to its failed to achieve their objectives and goals. opted on August 16, 2007 the General vehicle insurance. There was no significant profitability; All in all, there were hired 16 directors of Terms and Conditions of Housing Mort- change in the share of this product in the regional divisions, including 2 directors of gage Loans for the Agency. portfolio, it amounted to 31.6%. The size • Pension insurance. Allows the clients regional centers. of accrued insurance premiums in compul- to form personal pension savings and On the whole, in 2007 the regional divi- sory civil liability motor vehicle insurance provides them with a lifelong guaran- To activate the sales of retail insurance sions of the Company collected insurance was RUR 2006 mln. teed pension. Pension services are ren- projects in the regions, the Company in- premiums in the amount of RUR 9790 mln., dered by the Company’s divisions In- troduced, as a promotional effort, a new which is 25.6% higher than in 2006 (the The leader in terms of the size of accrued gosstrakh-Life and non-state pension hull insurance product which was available scope of accruals accounted for by the re- insurance premiums was Siberian Regional fund «PF Ingosstrakh»; from September 15 till December 31 and gional network in 2006 totaled RUR 7797 Center of OJSIC Ingosstrakh. Its branches was called upon both to boost and pro- mln.). In absolute terms, the increment in accrued the total of RUR 2330 mln. in pre- • Credit insurance. Allows the bank cli- mote the sales and to commemorate the the accrued insurance premiums in 2007 miums in 2007. It is followed by Privolzhie ents to protect their loan financial lia- Company’s 60th anniversary. The promo- amounted to RUR 1994 mln. Regional Center (RUR 1353 mln.) and Urals bilities. The product enjoys an increas- tion campaigns in the regions resulted in Regional Center (RUR 977 mln.). ing market demand. the signature of 6954 hull insurance poli- The share of insurance premiums collect- cies, which accounts for 65% of all such ed by the regional divisions in the total Among Ingosstrakh’s branches, the top policies taken out in Russia during the pro- amount of the Company’s insurance pre- three leaders are represented by the Regional Network motion campaign. The regional network miums accrued in 2007 was 25.1%, which is branch in St. Petersburg (RUR 2119 mln.), demonstrated the highest growth rate of 2.3 pp higher than in 2006. Thus, there is Novosibirsk Branch (RUR 598 mln.) and the number of contracts signed in Ingoss- a tendency towards continuous increase in Krasnoyarsk Branch (RUR 506 mln.). Branches trakh’s target segment of the insurance the share of regional divisions in the total market, that is, motor vehicle insurance. amount of insurance premiums accrued in The leader in terms of increase in the size In 2007 the regional network of OJSIC In- the Company. of accrued insurance premiums in absolute gosstrakh included 9 regional centers, 87 The scope of the campaign covered all terms was the Siberian Regional Center branches and 152 additional offices. The sales channels in the Company. The bulk of the insurance portfolio in the of OJSIC Ingosstrakh, which reported an stand-alone divisions of OJSIC Ingosstra- regions is accounted for by retail insurance increase of RUR 532 mln., or 29.6%, over kh are opened in all constituents of the The campaign provided for the total of products. The share of retail insurance in 2006. Russian Federation, the insurer operates 84.7% increase in the size of accrued hull the regional portfolio in 2007 was 64.8%. in 239 cities and residential settlements insurance premium in Qt. 4 2007 vs. Qt. 4 Altogether, in 2007 the regional divisions The leader in terms of increase in the size across the country. 2006 (the total increase over the period accrued RUR 6342 mln. in premiums on re- of accrued insurance premiums in rela-

34 35 Performance Results in Core Business

tive terms was Privolzhie Regional Center The largest portion of income among for- The current policy of Ingosstrakh Group to almost double its premiums in 2007 (+39.7%). eign subsidiaries of Ingosstrakh in 2007 was is aiming at stepwise expansion of its real (RUR 24.9 mln.). The volume of premiums accounted by SOVAG, Germany. The net in- presence in the CIS markets which, in terms on reinsurance risks in Ingosstrakh attract- According to 2007 results, the head- come reported for 2007 was 9 times more of strategy, means becoming leaders in the ed with the help of representative office count in Ingosstrakh’s regional network than in 2006 and amounted to RUR 199 mln. national markets in all segments where the in India amounted to RUR 61.9 mln., which increased by 512 employees. The head- This result was driven by the insurance port- companies operate. is RUR 5.3 mln. less than in 2006 due to count increase ratio in 2007 is reported as folio rehabilitation exercise in line with the the rehabilitation of the insurance portfo- 23.7%. At the beginning of year 2007 the strategy aimed to improve operational ef- Important corporate events in the lives of lio and implementation of loss-reduction headcount was 2 158 people and reached ficiency of this insurer provided that the size Ingosstrakh’s subsidiaries outside Russia in measures. 2670 at the year end. of annual gross premium is retained at the 2007 include the increase of share capital in level of RUR 3.3-3.4 bln. CJSIC INGO Armenia, CJSIC INGO Ukraine Aside from the attraction of premiums in and JSIC Kirghizinstrakh. reinsurance, the representative offices in Ingosstrakh’s subsidiaries in Ukraine and Azerbaijan, Kazakhstan and Uzbekistan Foreign Branches Byelorussia demonstrated a significant in- engaged in the preparation for accessing crease in premiums. CJSIC INGO Ukraine relevant local markets through the acqui- The past year was successful in terms of ex- increased the size of gross premiums by Foreign representative offices sition of new companies. panding the scope of business of Ingosstra- 50.4% and collected RUR 1569 mln. This kh’s branches operating abroad. achievement was to a great extent shaped Ingosstrakh’s foreign representative of- by a more efficient contribution on the part fices operate in Kazakhstan, Azerbaijan, Reinsurance The collections of gross written premium of the regional network, serious activation Ukraine, Uzbekistan, India and China. was RUR 6.4 bln. (+16.9% vs. 2006), while of insurance activities in motor and fire The aggregate volume of gross premiums the net income generated by the insurer’s and allied perils insurance. The net income raised in these markets amounted to RUR The priority area for OJSIC Ingosstrakh overseas subsidiaries rose to RUR 269 mln. of INGO Ukraine in 2007 was reported to 499 mln., or 27% more than in 2006. is to protect its portfolio. Such protec- (vs. RUR 56 mln. in 2006). achieve RUR 63.1 mln. in 2007 (+15.5% vs. tion efforts basically consist of two major 2006). The largest contributions were made by components, namely marine and aviation The leaders in terms of increase in gross Kazakhstan (RUR 209.2 mln., +19.9% over reinsurance and non-marine reinsurance premiums collected vs. 2006 among the The net income generated by JSIC BelIn- 2006), China (RUR 104.2 mln., +47.1%) and programs. The key terms of Ingosstrakh’s companies of the group were CJSIC INGO gosstrakh amounted to RUR 1.4 mln., Ukraine (RUR 68.5 mln., +71.2%). The rep- reinsurance contracts in place in 2007 are Armenia, which reported an increase of whereas in 2006 the profit demonstrated resentative office in Uzbekistan managed summarized in the table below: 145.6%, and VAG Garant (Austria) with by the company was negative. +74.6% increase. The leader in the Kirghiz insurance market Table 3. Parameters of major outward reinsurance contracts The increase in premiums collected by CJSIC is JSIC Kirghizinstrakh. In 2007 its premiums INGO Armenia is driven by cargo insurance, collected increased by 14.4% to RUR 40.4 in Ingosstrakh for years 2007-2008 where premiums increased from RUR 1.1 mln. The company’s profit reduced in com- Program Description Highlights mln. in 2006 to RUR 14.2 mln. in 2007, and parison with year 2006 to RUR 0.4 mln. due Marine and aviation Reinsurance of marine hull risks Excess of loss, fire insurance (from RUR 11.8 mln. in 2006 to the legislative changes to the creation of risks priority: The contract covers all types of to RUR 27.9 mln. in 2007). The net income the unearned profit reserve. US$ 1.5 mln., vessels, including drilling platforms generated by this company was RUR 13.4 limit US$ 30 mln. mln., which is RUR 10 mln. above the same The majority of Ingosstrakh Group compa- during transportation, vessels in parameter in 2006. nies based outside Russia in CIS countries construction, yachts etc, during land are leaders in the national markets. CJSIC transportation. The material increase in premiums col- INGO Armenia and Kirghizinstrakh lead leted by Garant (Austria), was achieved national ratings with 31.5% and 30% share Cargo reinsurance Excess of loss, priority due to the partnership of OJSIC Ingoss- of the market respectively. INGO Ukraine US$ 2.5 mln., Such contracts provide wide coverage, trakh and Belgian State Credit Insurance ranks third in the national rating. The rest limit: US$ 100 mln. including transportation of valuables Agency (ONDD) as equal shareholders in of the companies demonstrate sustainable and exhibits. the company. The loss of the company has development dynamics and are recognized decreased more than twice and amounts to in the professional community of private RUR 10 mln. and public organizations as a reliable in- surance partner.

36 37 Performance Results in Core Business

Table 3. Parameters of major outward reinsurance contracts Table 3. Parameters of major outward reinsurance contracts in Ingosstrakh for years 2007-2008 in Ingosstrakh for years 2007-2008 Program Description Highlights Program Description Highlights Marine and aviation P&I reinsurance Excess of loss, Non-marine risks Reinsurance of property risks Excess of loss, risks priority US$ 3 mln., priority: US$ 3 mln. The reinsurance contract covers all The contract provides wide coverage of, limit: US$ 500 mln. limit: US$ 225 mln. liability-related risks of ship-owners, inter alia, fire and related risks, business including liability for collision, cargo, interruptions, energy risks, loss of control liability to the crew, liability for of well, insurance against all risks. pollution etc. Reinsurance of technical risks Excess of loss, Aviation liability risks reinsurance Excess of loss, priority: Euro 2 mln., priority US$ 3 mln., The scope of coverage includes The reinsurance contract covers limit: Euro 75 mln. limit: US$ 75 mln. construction and assembling risks, losses related to the liability of the construction vehicles and equipment, carrier to third parties, passengers breakdown of machinery and (including liability for damage to life equipment, breakdown of electronic and health of passengers and liability equipment, loss of profit resulting for luggage and personal belongings from the breakdown of machinery and of the passengers), liability for freight equipment etc. Besides, the sub-limit of and post, liability of airports, liability Eur 20,000,000 covers ALOP and CECR of commodity producers regardless of risks. the place of risk actualization, except passenger flights to the USA, Canada and their subject territories. Reinsurance of civil liability risks Excess of loss, priority: US$ 1 mln., The scope of coverage includes risks of limit: US$ 20 mln. Aviation liability to third parties in excess Excess of loss, civil liability to third parties (including of US$ 75 mln. priority US$ 75 mln., general civil liability and liability of limit: US$ 600 mln commodity producers, liability of employers and compensations to Aviation liability to third parties in Excess of loss, employees) and professional liability, excess of US$ 50 mln., «military risks». priority US$ 50 mln, accepted by the Reinsurer directly limit: US$ 600 mln The contract covers losses connected or under co-insurance arrangements with the liability of the carrier to subject to compliance with the list of third parties, passengers (including exceptions. liability for damage to life and health of passengers and liability for luggage and personal belongings of the passengers) liability for freight and post, liability of airports, liability of commodity producers in line with the Coverage Extension Endorsement (aviation liability), AVN52E, regardless of the place of risk actualization, except passenger flights to the USA, Canada and their subject territories.

38 39 Performance Results in Core Business

Marketing mented the Company’s positions in this tar- place alongside special promotional events Alongside its branches, the Company devel- get segment. for potential corporate clients. oped and proposed a new standard special kit for agents working in Moscow and the In 2007 the key marketing target of OJSIC When developing new retail proposals, the Aside from the promotion of insurance region. The kits contain all that is necessary Ingosstrakh was enhancement and promo- Company based its preferences on earlier products, in 2007 the Company dedicated to ensure efficient interoperation of agents tion of various retail insurance products in-depth research of Ingosstrakh’s target itself to the implementation of the com- with Ingosstrakh. and services. We have tried to make our audience which enabled us to develop pany’s anniversary program. Ingosstrakh is products as flexible and attractive to our a good understanding of the needs and known to rest on the world’s best insurance We care about what our clients think about clients as possible. To communicate the ad- preferences of our potential clients. For ex- traditions while closely following the emer- the Company in general, and about the vantages of insuring with Ingosstrakh to our ample, for promoting real property insur- gence of new methods and technologies to attitude of our personnel, efficiency of potential clients we have developed and ance products in Ingosstrakh, the company select the best for own use. That is why the claim-handling processes because in the implemented an efficient communication offered a number new services that are key message of the advertising campaign is end of the day all that affects the image of program based on messaging our clients unique for the Russian environment, such as follows: Ingosstrakh is a place where the the company and, consequently, the trust on specific advantages and uniqueness of as: «Complex Cleaning», «Urgent Repair of past teams up with the present to look into in our products on the part of our clients. certain insurance products. The aggregate Windows and Doors», and «Coverage of the future. A commercial shot on the basis Therefore, in 2007 as part of its assessment of product advantages is concentrated in Temporary Lodging Costs». These services of this concept was released on central TV of the quality of client service the Compa- one creative concept, namely «Get used to meet the needs of such of our clients who channels. ny implemented a system to monitor client have the best». This approach enables us are reluctant to give up the habitual com- satisfaction in the company’s offices. The to efficiently inform the audience of advan- fort even in an emergency situation. We know that our clients are, in their ma- results of such monitoring are regularly tages inherent to insuring with Ingosstrakh jority, active modern people who are al- presented to the management and rele- and boost there interest in Ingosstrakh’s In 2007 to meet the needs of its target ways online in the Internet. In 2007 the vant divisions in the Company. Such ‘feed- services, therefore, helping us to attract segment, OJSIC Ingosstrakh developed re- Company designed and launched a new back’ tool allows for an immediate reaction more new clients. tail products in voluntary health insurance corporate website of the company in Rus- at client’s complaints and quick adjustment (VHI). Today, we can offer our clients eight sian and English. The design is based on of the quality of service. The Company offers new services to car retail products. The products are available the corporate style guidelines adopted at drivers included into hull insurance prod- to everyone in Moscow, and we are work- the end of 2006. The website can boast of In 2007 the Company undertook a strategic ucts, i.e. «Roadside Assistance», «Average ing at expanding the products into regional intuitive navigation and provides access to marketing research which included brand Surveyor» and its elder brother, «Personal markets. information on the company’s insurance analysis of Ingosstrakh, implementation of Road Inspector». These services are avail- products both in the corporate and retail a marketing campaign efficiency monitor- able in Moscow and the Moscow Region Last year the Company initiated a campaign segments, and to information on the Com- ing system (through regular monitoring of since July 1, 2007 and are going to proceed to promote VHI in Moscow on the basis of pany’s financial and social performance. calls to the corporate call center) and a sys- to regions in the near future. Price & Quality (Value for Money) outpa- The web-site is user-convenient and has a tem of regular reports on completed mar- tient clinics where Ingosstrakh offered to friendly interface. It offers a calculator for keting campaigns. 2007 was the year of Ingosstrakh’s anniver- its retail clients a VHI program favorable quick calculation of the size of the insur- sary. To mark the milestone, Ingosstrakh both in terms of quality and price. ance premium and in the private «client» The marketing efficiency of the insurer is offered to car and real property owners 60 sections of the website users can quickly confirmed by the level of recognition of days of additional servicing. From Septem- To make our clients feel better both at access information on the status of their Ingosstrakh’s brand (prompted recogni- ber 15 till December 31 2007 the Anniversa- home and during travels, including busi- orders and relevant calculations. tion). According to COMCON, this param- ry Tariff was available to clients in Moscow ness trips, we developed a new product eter has led OJSIC Ingosstrakh to a posi- and other regions in Russia. The period ac- range which also accounts for the needs We are focused on making our clients feel tion among top-three absolute leaders in counts for more than 10.6 thousand newly of each of Ingosstrakh’s target segments. comfortable with our insurance products. the market. signed car hull insurance contracts, the size Today the Company sells to its travelers However, it is also important to make them of accrued insurance premium amounted outside Russia the «Annual» and «Family» feel comfortable when they visit any of our to RUR 861.6 mln. According to our estima- products. The promotion of travel insur- up-to-date cozy offices. It should not mat- Investment activities tions the promotion campaign enhanced ance products makes part of the «Get used ter where the office is, whether in Moscow the loyalty of our current clients and at- to have the best» concept. or in any other region of Russia. Therefore, tracted the new retail ones from Ingosstra- last year Ingosstrakh launched a large-scale When investing, OJSIC Ingosstrakh tradi- kh’s traditional target audience. Thus, we In parallel with the above, the marketing project aimed to design retail offices across tionally exercises a conservative approach have demonstrated that we care about our effort in 2007 was targeted also at promot- the country in compliance with the adopt- to channeling its equity funds and insur- clients and strive for offering them the best ing priority types of corporate insurance: ed guidelines on the corporate style. ance reserves which is aimed at minimizing insurance terms. The campaign has also ce- there were relevant marketing plans in the risks and ensuring reliability and return

40 41 Performance Results in Core Business

on investments at a planned rate of return. the acquisition value the Company con- The key objective in short-term investments siders further feasibility of keeping the is to form a pool of highly-liquid assets suf- instrument in the portfolio; if the price ficient to cover the current commitment goes down by 15%, the Company sells and capable of producing the necessary the instrument; rate of return. – take profit – if the value of any instru- The structure of the short-term investments ment increases by more than 25% of pool according to the above mentioned the acquisition value, such instrument is approach is basically a portfolio of bank sold in the market. financial instruments (85%) and non-bank financial instruments (15%). Consequently, the Company’s approach to forming its portfolio of short-term financial invest- Since the overall results of the Russian eq- ments reduces the risk of negative devel- uity market in 2007 were significantly lower opments in the equity market and provides than in 2006 (RTS increased by 19% and the Company with a stable return on its in- 70% respectively), the return on cash in- vestments. vestments into equity market instruments amounted to RUR 450 mln. (vs. RUR 1230 When investing in bank instruments the mln. in 2006). The lower income in 2007 Company engages a two-level system of was also triggered by a significant reduc- limits in order to enhance the degree of in- tion in the scope of the portfolio of non- vestments reliability of and minimize inher- bank financial instruments because of the ent credit risks. When setting up the limits high volatility of the stock market. for each bank the Company bases its opin- ion on the financial sustainability and repu- Based on 2007 results, tation of the contractor bank. As a conse- quence, OJSIC Ingosstrakh’s investments in • The size of the portfolio of bank finan- credit instruments are represented by top cial instruments increased by 19% from Russian banks whose financial reliability RUR 19.4 bln. to RUR 23.1 bln.; is confirmed by leading international and Russian rating agencies. • The earning power of the portfolio was reported as 8.74%, or RUR 1633 mln. in As to its investment into non-bank financial absolute terms. instruments (bonds, shares etc) the Compa- ny exercises the same approach of setting up limits both for groups of instruments and for individual issuers. When forming the se- The total proceeds from the Company’s curities portfolio the Company is focused on short-term investment portfolio in 2007 the quality of investments, where the aver- amounted to RUR 2056.3 mln. age quality should meet the current rating of the Company (BBB- according to S&P).

To mitigate the investments risks inherent to investments in securities the Company has set up a limit for maximum admissible loss and maximum profit:

– stop loss – in the event of reduction in the value of any instrument by 10% of

42 43 ПЕРСОНАЛ Personnel Personnel

Personnel develop professionally.

Professional training is realized through tar- As at 31.12.2007 the headcount in the Mos- geted programs offered through the Cor- cow headquarters was 2086 people, while porate University. The goal of professional the regional network totaled 2670. 67% training for employees of the company is to of employees are in the age range of up improve their level of competence in order to 35 years old. About 80% have tertiary to meet the Company’s strategic targets. education. In 2007, the educational events dedicated The key directions of the Company’s HR to various subjects were all in all attend- policy are the following elements of the HR ed by 4601 employees (including regional Management System: offices), including seminars and trainings: 1413 people, School of Agents – 334 peo- • HR planning and recruitment; ple, and 2854 employees completed cor- porate distance learning programs. • Professional training; In November 2007 the Company completed • Enhancement of the motivation system; annual performance assessment of person- nel which covered 80% of the total number • HR monitoring; of employees.

• Development and enhancement of the In view of the new strategic targets, in 2007 corporate culture. the Company updated the procedure of in- surance agent training. The new procedure The Company has adopted a corporate outlines selection of candidates to join Ethics Code. One of its key missions is to training groups under special methodol- form loyalty to the Company as the high- ogy, the training itself and training on pro- est standard of ethic behavior. The key bation. The training program for agents in principles of the Code are the principles of 2007 was extended through the introduc- relationships between the employees, with tion of lectures on voluntary health insur- business partners, the principles of honest ance and property insurance products for and fair business. retail clients. The training is provided by the Company’s experts in the fields of car The principles of corporate culture and insurance, medical insurance, property & li- traditions that have formed over the years ability insurance. of the Company’s life have to be strictly adhered to by all employees. In 2007 the In December 2007 the Company held its Management of the Company initiated ter- traditional tenth anniversary competition mination of contracts with 17 employees among students to select the best work (including regional offices) on the grounds on insurance. The competition admitted of non-compliance with the above prin- works completed by students of Moscow ciples. and regional universities, namely the RF Government Financial Academy, the State In 2007 the company recruited specialists to University of Management, Orenburg State engage in a number of areas. The recruit- Agricultural University, Khabarovsk State ment process was based on the criteria of Academy of Economics and Law etc. The basic professional knowledge, availability Expert Council resolved to award 3 par- of relevant experience, knowledge of for- ticipants out of 23. To commemorate its eign languages, active life position, result- 60th anniversary, Ingosstrakh increased the orientation and the willingness to learn and prize fund to RUR 210k.

46 47 Risk Management Risk Management

Risk Management its applicable to insurance contracts relevant decisions made by the Company  Ensure lower number and scope of un- and indemnifications and is in charge management. There are four major cat- foreseen events and losses in the Com- of settling the claims in excess of such egories of risks: pany’s economics; In order to ensure financial sustainability limits; and operational efficiency Ingosstrakh ad-  Insurance Risks  Provide for a more efficient channeling opted a risk management system based on • The Financial and Investment Commit- and placement of the Company’s capi- a comprehensive approach to risk identifi- tee, a collegial body, which is in charge – Underwriting tal and resources; cation, understanding, measurements and of setting up limits for all investments – Pricing management. by the Company both as applicable to – Insufficient Reserves  Protect the Company’s proprietary in- issuers and to individual instruments; – Major, Catastrophic and Cumulation terests and improve its image; The risk management system is based on Risks; the following principles: • The Administration for Assessment and  Optimize business processes across the Control of Insurance Activities, which is  Financial Risks Company; • Controlled decision-making process; called upon to analysis the risks accept- ed for insurance, control operational and – Forex changes  Improve decision making processes as • Accurate, reliable and timely reporting; regional division in terms of accepting – Liquidity regards planning of and responding to risks for insurance and to control validity – Market risks (market value changes); adverse events that may appear; • Independence of control. To avoid of compensations. The Administration conflict of interest the control over develops recommendations to the Insur-  Credit Risks  Provide for effective use of potential decision-making divisions is vested in ance Committee as regards powers and opportunities; independent bodies; authority to sign insurance contracts, – Investments payout of indemnities and set up limits – Reinsurance  Improve employee qualification and cre- • Information transparency. This princi- for decisions made by officers during – Third parties; ate understanding among employees of ple is fully integrated with the manage- insurance activities. It also develops and potential outcome of decisions made. ment and risk control process. implements initiatives in managing insur-  Operational Processes ance risks and controls of limits and tariff Its conceptual basis will be a comprehen- The risk management system in the Com- compliance across divisions and among – Processes sive robust approach to managing the risks pany is regulated on internal norms and officers of the Company; – IT Risks consisting in planting elements of the sys- standards. The risks are managed by the – Personnel; tem at all management levels in the com- Company management and the following • Internal Audit Division, which monitors pany from business units to the Board of divisions and committees: operational risks; Directors. One of the key phases in imple- The general risk management system in menting the new approach will be the • The Audit Committee under the Board • Center of Technical Expertise, which the Company is based on the conventional creation of a uniform body to coordinate of Directors, a consultative body in is in charge of pre-insurance due dili- multi-level system of limits and monitoring activities in identification, assessment and charge of considering internal control gence of technically challenging ob- of compliance with limits at all levels of risk management of all types of risks through- issues, including financial and opera- jects with the right to adjust tariffs and management. The limits are based on a out the Company. tional control and risk management. include special provisions in insurance posteriori mathematic modeling and long The Committee is in charge of general contracts. The center is also involved in practical experience of the best insurers in In 2007 the Company continued improving supervision of internal control func- the process of settling relevant claims; each group of risks. The limits are set by in- its risk management system with a focus on tions and also develops recommenda- dependent bodies (committees) account- certain risks and groups of risks. The major tions to enhance them; • Information Analysis and Protection De- able to and controlled by the management innovations in 2007 included the following partment. The Department protects the of the Company. items: • The Insurance Committee, a collegial interests of OJSIC through identification body which is responsible for decisions and interception of abuse of powers In 2007 the Company commenced the re- regarding feasibility of large-scale in- through reliability clearance of employees, design of its risk management system. The Credit risks surance contracts. The Committee sets clients, partners and financial institutions. redesign is aimed to create a vertically in- up limits of net retention on insurance tegrated mobile system to allow the Com- One of the most critical risks in this group transactions and approves the struc- The deliverables of risk analysis exercises pany identify risks, exchange relevant in- is default on repayment on the part of ture and key parameters of reinsurance are especially important in the context formation with stakeholders and develop third-party contractors. To manage third- protection of Ingosstrakh’s insurance of shaping the general risk management ways to respond to such risks in order to: party credit risks, the Company professes portfolio. It also determines the lim- strategy. They are fully accounted in all a traditional limitation method. In 2006 the

50 51 Risk Management

Company introduced and in 2007 enhanced sity and in some fields like car insurance, create a Quality Control Section within the tion by the Company employee constitutes the system of internal corporate rules set- life insurance, property insurance in the Internal Audit Administration. The new an event of criminal liability. ting out the terms and condition as apply to corporate sector the pressure gained mo- section is called on to assess the system of commercial loans under insurance, co-insur- mentum. control and for organization of coordina- Lower risk of data loss in the system in the ance and reinsurance contracts. According tion between the divisions and employees event of failure of the unified automat- to this system, the Company extends loans In view of the above an important step of the Company during any phase of busi- ed information system (AIS) is provided to contractors under insurance, co-insur- made by the Company was the strengthen- ness processes that may affect the quality through reliable system back-ups. In 2007 ance and reinsurance contracts only within ing of its fraud-resistance system through of retail client service. the Company completed the creation of the limits set out for such contractors with adoption of a risk management policy in a Data Repository which functions inde- a view to the amount and term of borrow- vehicle insurance and introduction of a pendently of the AIS as such. Currently, ing. Liability for limit compliance control is number of other regulatory documents IT Risks the project is going through the phase of vested in directors of structural units. streamlining the process of handling alleg- final fine-tuning, including enhancement edly fraudulent claims. OJSIC Ingosstrakh has a high-tech reliable of inherent business processes and report In addition to the Crediting Policy, the Com- information system which provides the In- generation procedures. The creation of pany prepared and adopted Regulations The main innovation in the management surer with one of its key competitive ad- the Repository allows for reduction in the which set out the list and provide descrip- of the risk of fraud in the Company was vantages as the market player. The auto- time required to process the information tions of initiatives to prevent formation of the activity dedicated to the identifica- mated information system in Ingosstrakh retrieved from the system. Ingosstrakh’s debt and to reduce the size of overdue re- tion and banning of the Company’s most covers the whole record and accounting IT system is noted for its failure-resistant ceivables under insurance, reinsurance con- loss-making clients. Such regular sifting of lifecycle for insurance, reinsurance and architecture. All data are backed up while tracts and agency agreements in accounting the client base enabled the Company to general purpose contracts and related the servers are securely protected and registers of OJSIC. The Company also revisit- downsize almost twice the number of un- losses. The insurance subsystem is inte- spread over several locations. The opera- ed the Order of Presentation by Operational faithful clients by early 2008. grated with the accounting one to allow tion of the system is supported by leaders Division of weekly reports to the General Di- automatic generation and retrieval of the among hardware and software suppliers. rector on 5 largest outstanding debts under Altogether, in 2007 the Company’s innova- reports compliant with the provisions of director and incoming insurance contracts. tions in this area helped to generate the applicable legislation and norms, includ- The risk of failure in the Company’s pro- Such new initiatives of the Company will sig- cash savings of more than RUR 680 mln. ing creation of reserves. cesses as the result of ineffective IT mainte- nificantly enhance the control of outstand- Two thirds of the amount are accounted nance is minimal. The Company has its own ing debt obligations of its clients and will by refusals in insurance indemnity (RUR To support the IT system at the highest lev- in-house team of expert system administra- provide for an adequate reduction of losses 459 mln.). More than RUR 157.5 mln. in in- el of operation the Company continuously tors who track the system operation pa- caused by delayed repayments of debt. demnity payments were prevented in 310 works on the development and enhance- rameters on a daily basis and ensure con- fraudulent claims. There were 220 claims ment of risk protection and management tinuous feedback from the system users. The new initiatives in managing credit risks lodged by the Company with law-enforce- methods to attend to the risks that may also include preparation of draft regula- ment authorities which resulted in initia- arise along the course of business. Supporting and extension of communi- tions on issue of guarantees (securities) tion of 74 criminal cases. cation channels is in the first lines of the to Ingosstrakh’s contractors in relation to The management of the risk of theft of Company’s agenda. All Moscow-based of- credit risks. The regulations set out over- confidential information is the Company’s fices of the Company are interconnected all process of interaction, document ex- Processes top priority; therefore it is focused on the with fiber optic channels and are part of change processes and responsibility of the security of the information that is fed into the unified corporate-wide network to al- Company’s structural units as regards issue OJSIC is faithful to continuous assessment the information system. Access to critical low users access the centralized data base of guarantees and/or security to the Com- and analysis of its business processes with a information in the Company is delineated and shared information resources. Region- pany’s contractors against credit risks. view to their optimization within the frame- strictly in line with the needs and functions al divisions are connected to the informa- work of its strategic project ‘Reengineering of employees using the system. The data tion system through dedicated protected of Business Processes’. In 2007, the Compa- can be retrieved only by authorized users data channels. The high quality and rate ny, after completing the description of the in aggregate format. Requests for access of data transmission are achieved through Operational risks business processes in place in the health and to analytical data can be filled by manag- duplication of data channels. Moreover, medical insurance division, it reengineered ers above a certain level in the corporate the company has relevant SLAs (service some of them as well as some of the pro- hierarchy and only in relation to the in- level agreements) with service providers. Fraud cesses attributable to claims settlement. formation that falls within their scope of competence. There are controls in place In 2007 the tension of criminal pressure on In 2007 in order to improve the quality of for outgoing mail and Internet traffic. Any the insurance business maintained inten- client service the Company resolved to act of disclosure of confidential informa-

52 53 Public Relations Public Relations

Public Relations attended by more than 400 journalists; The Company made donations to the Sci- Ingosstrakh’s partnership with the Amateur there were relevant publications in all key entific and Research Institute of Children Hockey Support and Development Founda- federal-level prints. Oncology and Hematology of the Russian tion now counts three successful years. The Ingosstrakh’s major effort in public rela- Academy of Sciences, as it had in the past Foundation has initiated the Olympic Hope tions is targeted at cementing the Com- Altogether, in 2007 the news websites of ten years, to save lives to children with on- project. In 2007, the Insurer provided finan- pany’s positive image and improvement information agencies, prints, radio stations tological diseases. cial support to sports and training sessions of the insurance culture. These objectives and TV channels released more than 8400 for young hockey players in Moscow which are successfully met due to the Company’s materials covering OJSIC Ingosstrakh, in- From 1998 Ingosstrakh has been a support- were held in the summer and the winter. efficient coordination with mass media. In- cluding 5000 releases in the central press. er of the Free School Charitable Founda- Ingosstrakh also assisted the organization gosstrakh builds its relations with journal- According to Medialogia, an informational tion. In 2007 the company made a contri- of competitions for children and veterans ists and partners on the principle of infor- analytical system, in 2007 OJSIC Ingosstra- bution to cover the cost of medication and of Russian hockey. mation transparency and respect. kh rated first among Russian insurers by the schoolbooks for children from underprivi- information favorability index of. leged and low-income families. Besides, the In 2007 Ingosstrakh continued its tradi- The Company’s informational activity in Foundation is the custodian of the Moscow tion as the official partner of the Russian 2007 was dedicated to expanding the pop- In May 2007 IJST Ingosstrakh was for the hospice and Ingosstrakh’s money was used hockey Association, General Partner of ularity of insurance services and thorough second consecutive year nominated win- to buy medication. the Kremlin Cup, official partner of the coverage of Ingosstrakh in mass media. ner of the Golden Salamander as the Best semi-final DavisCup match between na- Year 2007 was the third consecutive year Insurance Company. OJSIC Ingosstrakh is In 2007 UNESCO project «Books for Blind tional male teams of Russia and Germany, when the Echo of Moscow Radio Station also winner of the contest organized by the Children» celebrated its 10th anniversary. and partner and general sponsor of the continued to release ‘The Risk Factor’, a Financial Press Club as the Most Transpar- Since 1997 Ingosstrakh made regular do- All-Russia Volleyball Federation. program on insurance, its namesake pub- ent Russian Insurer (Platinum Award). OJSIC nations to finance the publishing of illus- lished with Arguments & Facts, one of the Ingosstrakh is the winner in the Most Reli- trated books in Braille for children with In 2007 OJSIC Ingosstrakh sponsored the most popular prints, and in Autopanorama able Insurer category of the Financial Elite impaired eyesight. The Insurer financed Nasibov Cup horse race and Zavidovo Cup, magazine. Ingosstrakh’s experts act as key of Russia Award. For a third year running subscription of 207 children to the Atlas of as well as the races hosted by the Moscow speakers in all insurance-related surveys in the Company was included in the rating Illustration Perception. Racecourse by instituting a special prize for the federal level prints and TV programs. of most valuable Russian brands. Besides, the horses of Voskhod horse ranch. OJSIC Ingosstrakh is one of the major news- Ingosstrakh’s PR Department received the OJSIC Ingosstrakh sponsored the Sixth makers in the media field. Silver Pitchfork Award as the most efficient Youth Delphic Games in Russia held in Yaro- communication division in Russia and came slavl in May last year. The games were timed On the year of its 60th anniversary the first in the All-Russia competition for the to the start of the celebration of Yaroslavl’s Company produced a documentary with title of the best PR promoter of financial 1000th anniversary and dedicated to the the participation of Leonid Parfenov on the services. milestones in the history of human con- history of insurance business in Russia and quest of space. creation of Ingosstrakh. Charity and Sponsorship OJSIC Ingosstrakh participated in all-Rus- Ingosstrakh’s informational efforts also sia charitable initiative «Under the Banner covered various cities in Russia which re- As part of its partnership with the Russian of Kindness» which is held annually and sulted in a larger number of materials on Foundation «Help» of Commersant Pub- is designated to provide targeted medi- insurance in regional prints. As part of lishing House OJSIC Ingosstrakh supported cal assistance to seriously ill children. The preparing for the celebration of its anni- seriously ill children through allocation of Company covered the cost of surgeries for versary, Ingosstrakh arranged press-con- almost RUR 4 mln for medical treatment. children with impaired hearing in excess of ferences in 15 cities of Russia dedicated RUR 2 mln. to Ingosstrakh’s performance results. The For more than 10 years OJSIC Ingosstrakh conferences were led by heads of regional has been of great help to boarding school Besides, OJSIC Ingosstrakh made charitable centers and branches, senior management No 25 for children with musculoskeletal contributions to the Hermitage Museum, of the Company and regional representa- diseases. Ingosstrakh’s support allowed State Tretyakov Gallery, State Academic tives of the Federal Insurance Control Au- more than 2000 children to complete their Svetlanov Symphony Orchestra. thority. The conferences were altogether therapy.

56 57 Key Financial and Economic Parameters Key Financial and Economic Parameters

Key Financial ment portfolio diversification by objects Auditor’s Opinion on Accounting Statements and Economic Parameters of investment, quality of risk and by (please find translation below) currency, whether national or foreign. Over the past three years the quality of Performance Results Ingosstrakh’s investment portfolio has significantly improved.

The volume of insurance premium collected • Outstanding quality of the management in 2007 amounted to RUR 38.9 bln., which is team capable of meeting the goals of 14.2% higher than in 2006. The net income the Company’s ambitious development generated by the Company reached RUR strategy from year to year to make 2.1 bln. Such outstanding performance was OJSIC Ingosstrakh the leading universal mainly due to excellent insurance activity. insurer in Russia. Higher profit triggered a 22.8% increase in the Company’s equity to RUR 10.5 bln. • Over the past three years Ingosstrakh Group of companies has demonstrated sustainable high operational results de- Financial Stability Ratings spite intensification of market competi- tiveness.

Ingosstrakh’s outstanding financial and • The obvious competitive advantages of economic performance and its information Ingosstrakh Group of companies in the transparency are recognized by interna- Russian market are underpinned by the tional and Russian rating agencies. stable reputation and experience in in- ternational markets. The Company takes In 2007, the Company’s credit rating was lead in the segment of insurance and re- shifted upwards by Standard & Poor’s Inter- insurance of large commercial risks and national Rating Agency to BBB-, stable out- has strong positions in the segment of look. According to the agency, this trend private insurance. reflects positive development in the quality of the Company’s investment portfolio and • OJSIC Ingosstrakh has an outstanding positive record of the management team. reputation in the Russian market, there- Besides, the rating takes into account the fore a public offering or an offer of stepwise accumulation of Ingosstrakh’s debt securities by the Company is likely competitive advantages in the Russian Fed- to be the most favorable. eration due to the intensive popularization of private insurance services and sustainable good operating results of the Company. The Company’s financial stability rating The key factors shaping the favorable rat- was also confirmed by Expert RA+, a Rus- ings are as follows: sian rating authority, at the level of A++.

 Strong investment policy of OJSIC In- gosstrakh (the Company is ahead of its Below is the summary of the current ratings Russian peers) which provides for invest- of the Company.

Date of Rating Agency Ingosstrakh’s Rating Rating Scale Actualization BBВ-, stable outlook International Standard&Poor’s 06.06.2007 ruAA+, stable outlook Russian Expert RA+ А++ Russian 07.04.2008

60 61 Key Financial and Economic Parameters

INDEPENDENT AUDITOR’S REPORT ON FINANCIAL STATEMENTS OF INGOSSTRAKH

(Translation from Statutory Auditor’s Report expressed in the Russian Language)

To the Board of Directors of Ingosstrakh

DETAILS OF THE AUDITING FIRM

Name: ERNST & YOUNG LLC

Address: Russia 115035, Moscow, Sadovnicheskaya naberezhnaya, 77, building 1

Certificate of an entry made to the Uniform State Register of Legal Entities Concerning a Legal Entity Registered Before July 1, 2002; date of the entry – December 5, 2002, series 77 No. 007367150, registered by the Moscow Registration Chamber State Institution at No. 108.877 on June 20, 2002, Main State Registration Number 1027739707203.

Audit License No. Е002138, approved by Order No. 223 of the Russian Ministry of Finance dated September 30, 2002, for a term of five years, prolonged by the Order of the Russian Ministry of Finance No. 573 as of 17 September 2007 till 30 September 2012.

Membership of an accredited professional auditors’ association – ERNST & YOUNG LLC is a member of Non-profit Partnership «The Institute of Professional Accountants of Russia» («IPAR»).

DETAILS OF THE AUDITED ENTITY

Name: OJSIC Ingosstrakh

Address: 115998, Moscow, Pyatnitskaya St., 12 bldg 2.

State Registration № 1027739362474 dd. October 11, 2002.

We have audited the accompanying financial statements of Ingosstrakh for the period from 1 January through 31 December, 2007, which are comprised of the balance sheet and the statements of income, changes in the shareholders’ equity, cash flows, and the related appendix to the balance sheet and the explanatory notes to the financial state- ments, inclusive of sections 5-28. The management of Ingosstrakh is responsible for the compliance of accounting procedures, preparation and presentation of these financial statements. Our responsibility is to express an opinion on the fairness, in all material re- spects, of these statements and on compliance of accounting procedures insofar as they relate to the preparation of financial statements in accordance with the legislation of the Russian Federation based on our audit.

62 63 Основные финансово-экономическиеKey Financial Конкурентноспособностьпоказателиand Economic деятельности Parameters

BALANCE SHEET We conducted our audit in accordance with the Federal Law on Auditing Activity, the Federal Rules (Standards) on Auditing, the Rules (Standards) for Auditing Activities, as Line approved by the Committee on Auditing Activity under the President of the Russian Fed- ASSETS Opening Closing Balance eration, and International Standards on Auditing. Code Balance 1234 The audit was planned and performed to obtain reasonable assurance about whether the I. Assets financial statements are free of material misstatements. The audit was performed on a Intangible assets 110 8 577 10 408 selective basis and included an examination, on a test basis, of evidence supporting the Investments 120 23 975 234 28 929 878 amounts and disclosures in the financial statements concerning the financial and business including: operations of the audited entity; assessing the compliance with accounting principles and rules used in the preparation of financial statements, and significant estimates made by land 121 - - management of the audited entity; as well as the evaluation of the overall financial state- buildings 122 237 255 251 089 ment presentation. We believe that our audit provides a reasonable basis for our opinion Financial investments in subsidiaries, on the fairness, in all material respects, of these financial statements and on compliance associates and other entities 130 6 027 959 5 656 311 of accounting procedures insofar as they relate to the preparation of financial statements including: in accordance with the legislation of the Russian Federation. shares of subsidiaries and associates 131 597 331 356 433 In our opinion, the accounting procedures at Ingosstrakh, insofar as they relate to the debt securities of, and loans granted preparation of financial statements in 2007, complied with the requirements of Federal to, subsidiaries and associates 132 12 276 348 737 Law on Accounting No. 129-FZ of 21 November, 1996, in all material respects, and the equity contributions to affiliates and aforementioned financial statements referred to above have been prepared in accor- associates 133 1 404 840 1 435 110 dance with the aforementioned Law and present fairly, in all material respects, the finan- shares of other entities 134 1 440 763 3 369 954 cial position of Ingosstrakh as of 31 December, 2007 and the results of its operations for debt securities of, and loans granted the period from 1 January through 31 December, 2007 in accordance with regulations of to, other entities 135 2 568 819 142 397 the Russian Federation insofar as they relate to the preparation of financial statements. contributions to charter (pooled) capital of other entities 136 3 930 3 680 The accompanying financial statements are not intended to present the financial position other investments: 140 17 710 020 23 022 478 and results of operations in accordance with accounting principles and practices general- including: ly accepted in countries and jurisdictions other than the Russian Federation. Accordingly, the accompanying financial statements are not designed for those who are not informed state and municipal securities 141 984 482 145 261 about accounting principles, procedures and practices in the Russian Federation. deposits 142 15 542 476 21 274 867 other investments 145 1 183 062 1 602 350 March 18, 2008 Deposits of assumed reinsurance premiums 150 207 564 222 902 Anastasia Vinogradova Reinsurers’ share in insurance reserves 160 9 041 564 8 045 254 Partner including:

Engagement manager life insurance reserves 161 - - Svetlana Valetskaia unearned premium reserves 162 3 770 789 3 140 606 loss reserves 163 5 270 775 4 904 648 Auditor’s qualification certificate No. K 026735 (audit of insurance companies) issued in Insurance and co-insurance receivables 170 4 290 061 4 667 378 perpetuity on November 9, 2006. including: insured 171 4 019 654 4 287 758 inruance agents 172 270 333 379 618 other debtors 175 74 2

64 65 Key Financial and Economic Parameters

BALANCE SHEET (continued) BALANCE SHEET (continued)

Line Opening Line LIABILITIES Closing balance ASSETS Opening Closing Balance code balance Code Balance 1234 1234 II. CAPITAL and RESERVES Reinsurance receivables 180 1 100 581 1 193 621 Share capital 410 2 500 000 2 500 000 Other accounts receivable (maturing Treasury shares 415 - - in over 12 months after the reporting Additional paid-in capital 420 719 368 644 198 date) 190 49 663 87 251 Reserve fund 430 1 000 000 1 000 000 Other accounts receivable (matur- including: ing within 12 months of the reporting date) 200 913 837 2 179 721 reserves established in accordance Fixed assets 210 2 630 455 2 490 866 with legislation 431 1 000 000 1 000 000 Construction in progress 220 14 107 1 329 030 reserves established in accordance Deferred tax assets 230 71 509 416 138 with charter documents 432 - - Retained earnings (uncovered loss) 470 4 320 753 6 341 371 Inventories 240 163 110 231 142 Total for Section II 490 8 540 121 10 485 569 including: III. Insurance reserves materials, consumables and similar Life insurance reserves 510 2 355 - assets 241 72 431 70 795 Unearned premiums reserve 520 14 919 810 17 470 150 prepaid expenses 242 90 679 160 347 Loss reserves 530 14 381 987 15 871 905 other inventory and costs 245 - - Other insurance reserves 540 4 086 887 5 730 771 Input VAT 250 - - Reserves for obligatory medical Cash 260 1 887 993 1 854 416 insurance 550 - - Other assets 270 - - Total for Section III 590 33 391 039 39 072 826 IV. Liabilities Total for Section I 290 44 354 255 51 658 005 Payables for deposits of ceded BALANCE 300 44 354 255 51 658 005 reinsurance premiums 610 17 413 16 232 Long–term loans and borrowings 615 - - Deferred tax liability 620 145 867 361 343 Short term loans and borrowings 625 - - Insurance and co-insurance payables 630 233 673 192 476 including:

insured 631 - - insurance agents 632 210 122 141 127 other debtors 635 23 551 51 349 Reinsurance payables 640 1 857 725 848 173 Other payables 650 121 553 141 660 including:

wages payable 651 4 306 4 182 payable to state non-budgetary funds 652 2 798 2 696 taxes and levies payable 653 22 458 36 417

66 67 Key Financial and Economic Parameters

BALANCE SHEET (continued) STATEMENT OF INCOME

Line Opening Line For reporting For similar period of LIABILITIES Closing balance Item code balance code period prior year

1234 1234 other creditors 655 91 991 98 365 I. Life insurance Dividend payable 660 718 1 015 Insurance premuims, net of reinsurance 10 -113 1 606 Deferred income 665 8 938 32 405 insurance premiums – gross 11 131 1 606 Provisions for future expenses 670 - 469 098 reinsurers’ share 12 -244 – Preventive measurement reserve 675 37 208 37 208 Investment gains 20 – – Other liabilities 680 - - including: Total for Section IV 690 2 423 095 2 099 610 interest income 21 – – BALANCE 700 44 354 255 51 658 005 income from equity participation 22 – – change in financial investment value arising from revaluation 23 – – Insurance claims paid, net of reinsurance 30 -3 055 -18 832 Payments on insruance contracts insurance claims paid – gross 31 -3 055 -18 832 reinsurers’ share 32 – – Net change in life insurance reserves 40 2 355 15 695 change in life insurance reserves – gross 41 2 355 15 695 change in reinsurers’ share 42 – – Insurance operating costs, net of reinsurance 50 – -15 STATEMENT OF OFF-BALANCE-SHEET ITEMS acquisition costs 51 – -15 other insurance operating expenses 52 – – Line Opening fees and bonuses – reinsurance 55 – – LIABILITIES Closing balance code balance Investment losses 60 – – including: 1234 Leased fixed assets 910 61 141 840 059 change in financial investment value aris- ing from revaluation 61 – – including capital leases 911 8 064 10 938 Life insurance operating results 70 -813 -1 546 Inventory items accepted into custody 920 – – II. Other than life insurance Bad debts written-off to losses 940 – – Assets received as collateral for liabilities Insurance premiums, net of reinsurance 80 33 735 309 27 402 451 and payments 950 263 311 435 462 insurance premiums – gross 81 38 940 968 34 107 116 Assets pledged as collateral for liabilities reinsurers’ share 82 -5 205 659 -6 704 665 and payments 960 1 032 658 1 093 037 Change in unearned premium reserve, net of reinsurance 90 -3 180 523 -2 238 791 Depreciation of housing assets 970 – – change in unearned premiums Depreciation of land improvements and reserve – gross 91 -2 550 340 -2 618 313 other similar assets 980 – – change in reinsurers’ share in reserve 92 -630 183 379 522 Intangible assets received for use 990 – – Insurance claims incurred, net of –991––reinsurance 100 -18 641 984 -15 233 427 Insurance claims paid, net of reinsurance 110 -16 785 939 -14 001 352

68 69 Key Financial and Economic Parameters

STATEMENT OF INCOME (continued) STATEMENT OF INCOME (end)

Item Line For reporting For similar period of Line For reporting For similar period of code period prior year Item code period prior year

1234 1234 insurance benefits and claims paid - Current profit tax 280 -869 349 -708 182 gross 111 -19 266 859 -16 088 571 Profit tax abroad, tax on securities, reinsurers’ share 112 2 480 920 2 087 219 penalties, other 290 -69 769 -34 895 Change in loss reserve, net of reinsurance 120 -1 856 045 -1 232 075 Net profit (loss) after tax 300 2 075 449 1 910 329 change in claims reserve - gross 121 -1 489 918 -5 091 620 BY REFERENCE change in reinsurers’ share in reserve 122 -366 127 3 859 545 Change in other insurance reserves 130 -1 643 884 -1 412 568 Permanent tax liabilities (assets) 301 60 268 120 513 Deductions from insurance premiums 150 -131 724 -117 397 Basic earnings (loss) per share 305 0,83 0,76 Diluted earnings (loss) per share 306 – – deductions to guarantee reserve 151 -43 908 -39 132 deductions to current compensation payments reserve 152 -87 816 -78 265 Insurance operating costs, net of reinsurance 160 -5 496 215 -4 581 161 acquisition costs 161 -4 938 360 -4 075 021 other insurance operating expenses 162 -790 683 -713 266 fees and bonuses - reinsurance 165 232 828 207 126 III. Other income and expenses not classified in sections I and II 170 4 640 979 3 819 107 Investment gains 180 11 834 309 9 639 857 including: interest income 181 1 606 641 1 167 817 income from equity participation 182 66 562 82 894

change in financial investment value arising from revaluation 183 1 217 849 684 368 ANALYSIS OF SPECIFIC GAINS AND LOSSES Investment losses 190 -9 482 533 -6 910 038 including: For reporting Line For similar period of Item period prior year change in financial investment value code arising from revaluation 191 -980 477 -635 454 profit loss profit loss Administrative expenses 200 -3 543 371 -2 393 120 123456 Other income except investment-related Fines, penalties, punitive damages recog- gains 210 1 319 495 510 180 nized or imposed by a court (arbitration court) ruling 310 – 46 166 – 3 315 including: Profit (loss) of prior years 320 – 537 880 – 453 138 interest income 211 59 225 24 593 Reimbursement of damages caused by non- fulfillment or improper fulfillment of obliga- Other expenses except investment- tions 330––– – related losses 220 -1 900 245 -1 997 605 Exchange gains/losses from foreign currency including: transactions 340 – 269 090 – 411 766 Estimated provision charges 350  –  – interest expenses 221 -93 – Accounts receivable and accounts payable Profit (loss) before tax 250 2 867 821 2 666 835 written off upon expiration of the recovery Deferred tax assets 260 362 222 38 741 period 360 – – – – Deferred tax liabilities 270 -215 476 -52 170

70 71 History of the Company History of the Company

History of the Company 1958 1994 ity rating А++ by the independent Russian rating agency Expert. Its authorized capital Insurance Company Garant was established The Company obtained a new license for increased to RUB 500 mln. November 16, 1947 in Austria. insurance and reinsurance business.

Ingosstrakh’s birthday. On this day, the 2002 Council of Ministers of the USSR signed 1967 1997 Regulation #3819-1281с «On the Founda- By this time, Ingosstrakh held licenses for tion of the Foreign Insurance Office of the The Joint Soviet-Indian Bureau of Insurance Signing of the Agreement establishing 77 types of insurance, and its regional net- USSR (Ingosstrakh) on the basis of the For- was launched in Bombay (Mumbai). Some Transnational Group Ingosstrakh. work of companies comprised 140 units. eign Operations Office (UINO) of Gosstrakh of such representative offices continue to (State Insurance Authority) of the USSR». operate nowadays. A new agreement establishing the Transna- 1998 tional Group (TNG) Ingosstrakh was signed

June 2, 1948 July, 20 1972 In the times of the crisis, Ingosstrakh did not only survive but demonstrated positive de- 2003 The Council of Ministers of the USSR ap- The Council of Ministers of the USSR issued velopment trends. It managed to preserve proved the Regulation on Foreign Insur- a regulation that granted Ingosstrakh the the most important thing, that is the trust For the first time in history, Ingosstrakh’s gross ance in the USSR (Ingosstrakh) status of the general foreign insurance of- of its customers and retained one of the written premium exceeded USD 500 mln. fice of the USSR. At the same time, Ingoss- most professional insurance teams in Rus- trakh acquired a new legal status – it was sia. Its paid-in authorized capital increased Ingosstrakh’s representative offices opened 1948 allowed to operate outside the USSR and, from RUB 30 mln. to RUB 80 mln. in Ukraine, Azerbaijan and Uzbekistan. if necessary, in the USSR, as a joint-stock Ingosstrakh started to provide five types of insurance company. Ingosstrakh became one of the first Rus- Ostra-Kiev (Ukraine) and EFES (Armenia) insurance services, including cargo insur- sian companies to offer to its clients com- joined TNG Ingosstrakh. The number of li- ance, hull insurance, fire insurance, liability plex bank insurance protection (ВВВ), censed types of insurance grew to 87. insurance and reinsurance. 1972 commercial insurance of export credits and guarantees, a range of professional li- Ingosstrakh launched P&I insurance, as well ability insurance programs. The represen- May 12, 2004 1952 as construction & assembly and aviation tative office opened in China. insurance. During the same year, the list of Standard & Poor’s International Rating Ingosstrakh’s general representative office insurance services extended to twenty. Agency made an official announcement of opened in Finland. Late 1998 Ingosstrakh’s long-term ratings: financial strength rating and counterparty credit rat- Late 1980s Ingosstrakh’s network expanded to 42 ing ВВ, with a stable outlook. At the same 1953 – 1971 units in the territory of Russia and 10 af- time, Ingosstrakh was granted ruAA rating The Company started to insure space risks, filiates and representations in Europe, Asia under the national scale. Ingosstrakh opened its representative credit risks, joint ventures, and different and America. offices in Pakistan (1953), Egypt (1954), types of civil and professional liability. Afghanistan (1955), Algeria (1963), Mali May 25, 2004 (1963), and Cuba (1971). 1999 1991 The Company decided to issue additional Ingosstrakh surpassed the pre-crisis level of stock and increase Ingosstrakh’s authorized 1956 – 1964 Ingosstrakh became an open joint-stock operations. The number of offered types capital to RUB 2 bln. insurance company. Its authorized capital of insurance totaled 66. Ingosstrakh’s subsidiary «Black Sea and grew by over 7.5 times. Baltic General Insurance Company Limit- August 27, 2004 ed» (UK) started its representative offices 2000 in France, Egypt (1956), Syria (1958), Leba- In Helsinki, the agreement was signed to non (1961) and Sudan (1964). Ingosstrakh was granted the best reliabil- establish the International Insurance Group

74 75 History of the Company

INGO (the IIG INGO). Companies that offer In Rome, Ingosstrakh signed Memoranda of al award supported by the Federal Insur- support services to insurance and reinsur- Cooperation with the member-companies ance Surveillance Authority, the Committee ance joined the Group. Ingosstrakh mana- of SACE Group, SACE Spa and SACE BT. The on Credit Organizations and Financial Mar- ges their controlling stakes. Memoranda provide for close cooperation kets of the RF Duma, and by the Ministry between the parties in order to support and of Economic Development of the Russian develop trade relations between Italy and Federation. February, 2005 Russia by insuring credit risks of national ex- porters Ingosstrakh was again included in the rat- Public statement of the Development Strat- ing of the Most Valuable Russian Brands for egy of the Company for 2005-2007. Its main the third consecutive year. objective was to increase its gross written April, 2006 premium to USD 1.45 bln. in 2007 and the Standard & Poor`s Rating Agency increased Company capitalization to USD 1 bln. Ingosstrakh became the shareholder of its long term credit rating and financial sta- OJSC Chrezvychainaya Strakhovaya Kompa- bility forecast for Ingosstrakh from BB+ to nia and purchased 71.25% of its shares from BBB-, outlook stable, and confirm its ruAA+ July, 2005 Guta Group. The transaction was closed in rating as to the national scale. the conditions of higher capital concentra- Registration of changes in the Charter of tion in the national insurance market and on Ingosstrakh to reflect the increase in the the eve of Russia’s accession to the WTO. authorized capital up to RUB 2.5 bln. Inter- national Rating Agency Standard&Poor’s stepped up Ingosstrakh’s rating from sta- June, 2006 ble to positive due to reassessment of risks related to the structure of the Company’s Closing of transaction for equity participa- investment portfolio. tion of Belgian Export Credit Agency ONDD in Ingosstrakh’s subsidiary VAG Garant. For the first time, Russian-European equal part- December, 2005 nership entered the international credit in- surance market. New forms of licenses С №0928 77 and P №0928 77 were issued to Ingosstrakh that authorized the Company to provide all types 2007 of insurance (with regards to specialization of insurance carriers) as set forth in Article Ingosstrakh celebrated its 60th anniversary 32.9 of the Law of the Russian Federation from its foundation. on Organization of Insurance Business in Russia, as well as reinsurance. In 2005, gross Ingosstrakh received Financial Elite of Rus- written premium of Ingosstrakh surpassed sia Award as the Best Insurance Company US$ 1 bln. – for the first time in almost 60 of the Year. Moreover, the award is given to years of Ingosstrakh’s operation. the Man of the Year in insurance. In 2006, the award was given to Alexander Grig- oriev, General Director of Ingosstrakh, to 2006 pass into the hands of Vyacheslav Sherba- kov, President of the Company in 2007 Standard & Poor’s International Rating Agency increased the financial strength For the second consecutive year Ingoss- rating and counterparty credit rating of trakh is nominated the Best Insurance Ingosstrakh to ВВ+ with a stable outlook. Company of Russia. Once again the Insurer The Company rating on the Russian scale received the principal professional Russian is ruAA+. Golden Salamander award. The award was founded in 2004 and is a public profession-

76 77 Contacts and Banking Details of OJSIC Ingosstrakh Contacts and Banking Details of OJSIC Ingosstrakh

Contacts and Banking Details of OJSIC Ingosstrakh Representations of OJSIC Ingosstrakh Abroad

Representation in 31-33, A.Zeinaly St., Baku, AZ100, the Republic of Azerbaijan Republic of Azerbaijan Telephone: +994 (12) 497-03-31, 497-18-48 Full corporate name: Open Joint Stock Insurance Company Ingosstrakh e-mail: [email protected]

Abridged corporate name: OJSC Ingosstrakh Representation in Suite 501, Dostyk Business Center, Pr. Dostyk, the Republic of Kazakhstan Almaty, 480021, Republic of Kazakhstan 115998, Moscow, Pyatnitskaya, 12 bldg 2 Telephone: + 7 (7272) 58-82-88 Fax: + 7 (7272) 58-45-54 Uniform State Register of Legal Entities 1027739362474 e-mail: [email protected]

VAT 7705042179 Representation in 12B, Afrosiab St., Tashkent, 700015, KPP 774401001 the Republic of Uzbekistan Republic of Uzbekistan Telephone: + 998 (71) 252-28-98 Operating account 40701810200010000001 Fax: + 998 (71) 140-04-74 e-mail: [email protected] With ACB Soyuz (OAO) Representation in Ukraine Suite 6A/16, 13, Pimonenko St., Correspondent account 30101810400000000122 Kiev, 04050, Ukraine Fax/Telephone: +380 (44) 247-69-66 BIC 044585122 Fax: +380 (44) 247-69-67 e-mail: [email protected] Representation in India Ingosstrakh Mumbai Representative Office, Stock Exchange Building, 20th floor HEAD OFFICE POSTAL ADDRESS East Wing Dalai St., Mumbai, 400023, India 127994, MOSCOW, GSP-4, Lesnaya St., 41 Telephone: +91 (22) 22-72-19-56 Fax: +91 (22) 22-72-19-06 Address of 55th Postal Telegraph Office: 127055 Novoslobodskaya St., 49/2 e-mail: [email protected]

Telephones: contact center 956-5555, general information office 232-3211 Representation in China Ingosstrakh Beijing Representative Office, Suite 0405, Guangming Building, Fax: Lesnaya St., 41 (495) 959-4518, 234-3600, 234-3601; Liangmagiao Road, Chaoyang District, Pyatnitskaya St., 12 (495)959-4405 Beijing, 100016, China Telephone: +86 (10) 64-68-58-52 Telex: 411144 INGS RU Fax: +86 (10) 64-68-58-53 e-mail: [email protected] e-mail: [email protected]

Corporate website: www.ingos.ru

80 81 Contacts and Banking Details of OJSIC Ingosstrakh

Affiliated Companies Abroad Affiliates in Russia VAG SOVAG 37, Schwanenwik, Hamburg, 22087, Germany LLIC Ingosstrakh Life 10 bldg 1, B.Tulskaya St., Moscow, 115191, Russia Telephone: +49 (40) 22-71-28-14 Telephone: +7 (495) 921-32-23 Fax: +49 (40) 229-16-15 Fax: +7 (495) 725-73-40 e-mail: [email protected] e-mail: [email protected] www.sovag.de TIM Assistance 10 bldg 9, B.Tulskaya St., Moscow, 115191, Russia VAG GARANT Wohllebengasse 4, Postfach 200, Telephone: +7 (495) 232-34-89 Viena, A-1040, Austria Fax: +7 (495) 232-34-89 Telephone: +43 (1) 505-28-96 e-mail: [email protected] Fax: +43 (1) 505-28-96-30 e-mail: [email protected] Insurance Company Ingosstrakh M 10 bldg 1, B.Tulskaya St., Moscow, 115191, Russia www.garantinsurance.com Telephone/Fax: +7 (495) 232-34-91 e-mail: [email protected] IngoNord Salomonkatu 5C PL 218, Helsinki, 00101, Finland Telephone: +358 (9) 25-10-30-0, 25-10-30-15 Chrezvychainaya Strakhovaya 7, 2 nd Samotechny Pereulok, Moscow, 127473, Fax: +358 (9) 25-10-30-99 Compania (Emergency Insurance Russia e-mail: [email protected] Company) Telephone: +7 (495) 780-50-05 www.ingonord.com e-mail: [email protected] www.chsk.ru/index.php Closed Joint Stock Insurance 33, Vorovskogo St., Kiev, 01054, Ukraine Company Telephone: +380 (44) 490-27-44 Management Company Ingosstrakh 12, bldg 2, Pyatnitskaya St., Moscow,115998, «ASK INGO Ukraine» Fax: +380 (44) 490-27-48 Investments Russia e-mail: [email protected] Telephone: +7 (495) 720-48-98 Fax: +7 (495) 720-48-98 e-mail: [email protected] Closed Joint Stock Insurance 3,Tsitadelnaya St., Kiev, 01015, Ukraine www.ingosinvest.ru Company Telephone: +380 (44) 390-57-47 «ASK INGO Ukraina Zhizn» Fax: +380 (44) 390-57-44 LMS Clinic 28, Komsomolsky Prospekt, Moscow, 119146, e-mail: [email protected] Russia Telephone: +7 (495) 782-88-82 Closed Joint Stock Insurance 8, Tpagrichneri St., Erevan, 0010, e-mail: [email protected] Company «INGO ARMENIA» Republic of Armenia www.7828882.ru Telephone: +374 (10) 543-134, 546-861 Fax: +374 (10) 547-506 Promtechzashita 54, Lidia Ryabtseva St., Voronezh, 394039, Russia e-mail: [email protected] Telephone: +7 (4732) 39-72-13

Closed Joint-Stock Insurance 40, Myasnikova St., Minsk, 220050, Belorussia MSK EMESK 3, Pervaya Promyshlennaya St., Stavropol, Company BelIngostrakh Telephone: +375 (17) 203-58-78 355035, Russia Fax: +375 (17) 217-84-19 Telephone: +7 (8652) 56-06-72 e-mail: [email protected] Fax: +7 (8652) 56-06-71 e-mail: [email protected] Joint-Stock Insurance Company 219, Pr. Chyi, Bishkek, 720000, Kyrgyz Republic Kyrgyzinstrakh Telephone: +996 (312) 61-45-88 Non-State Pension Fund 10 bldg 1, B.Tulskaya St., Moscow, 115191, Russia Fax: +996 (312) 61-46-45 «Ingosstrakh Pension Fund» Telephone: +7 (495) 921-32-23 e-mail: [email protected] Fax: +7 (495) 725-73-40 e-mail: [email protected]

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