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Annual Report 2006 OVERALL TRANSPARENCY Helsinki
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Annual Report 2006
Content
Address of the Chairman of the Board and the General Director Human Resources. 39 to the Shareholders and Clients of Open Joint-Stock Insurance Risk Management . 43 Company Ingosstrakh . 4 Insurance Risks. 45 Competitive Ability . 7 Financial Risks. 45 Quantitative and Qualitative Parameters of the Insurance Market. 8 Credit Risks . 46 Key Trends in the Russian Insurance Market in 2006. 11 Current Positioning of Ingosstrakh in the Market . 15 Operational Risks . 46 Strategic Goals of Ingosstrakh. 21 Communications and GR . 49 Implementation of Ingosstrakh’s Main Strategic Projects . 22 Relations with Governmental Organizations and NGOs. 50 Performance Results in Core Business. 25 PR Activities. 50 Property and Liability Insurance for Legal Entities ...... 26 Sponsorship and Charity. 51 Special Risks Insurance. 27 Key Financial and Economic Indicators . 53 Cargo Insurance. 27 Audit opinion on the accounting reports. 54 Insurance of Aviation and Space Risks. 28 Performance Results. 55 Insurance of Vessels and Ship-Owners’ Liability . 29 Financial Strength Ratings . 55 Transport Operators’ Insurance . 29 Statement of income reporting for the period ended 31.12.2006. 56 Credit Risks Insurance . 30 Balance Sheet. 57 Voluntary Medical Insurance. 30 Largest Insurance Events of Ingosstrakh in the Last Years ...... 59 Motor Insurance . 31 Bank Details of Ingosstrakh. 59 Tourist Insurance. 31 Affiliated Companies . 61 Personal Insurance (Ingosstrakh-Life). 32 Foreign Network . 62 Regional Network . 33 Representative Offices of Ingosstrakh Abroad . 62 Reinsurance. 34 Affiliated Companies Abroad. 63 Marketing. 34 Affiliated Companies in Russia. 63 Investment Activities. 36 History. 65 3 Address of the Chairman of the Board and the General Director to the Shareholders and Clients of Open Joint-Stock Insurance Company Ingosstrakh
Ladies and Gentlemen, In 2006, the Company improved its business and partner relations with corporate and private clients based on professionalism and in-depth We hereby present to you the Annual Performance Report of Open Joint- understanding of goals and objectives of the insurance business. In the Stock Insurance Company Ingosstrakh for 2006. reported period, Ingosstrakh strengthened its leadership position in the The previous fiscal year was a success for the Company. The premium Russian insurance market and, despite tougher competition, preserved its income grew by over 20%, total assets of Ingosstrakh increased by 35% leadership in voluntary insurance — motor insurance, property insurance, and amounted to RUB 45.4 bln, and year-end actuarial reserves increased liability insurance, special risks and travel. by 38% and totaled RUB 34.3 bln. Regardless of the current market trends, Ingosstrakh managed to stabilize the loss ratio both for the Company as Another Ingosstrakh’s attainment in 2006 was that international rating a whole and for some of its business divisions. Combined ratio for 2006 agencies Standard&Poor’s and Moody’s Investors Service revised its rating was about 97, 3%, which is a perfect result for the composite insurance upwards. Once again, experts confirmed high business reputation of In- company. Last year, Ingosstrakh earned a record profit for the Russian in- gosstrakh. Standard&Poor’s raised its financial strength rating and insurer’s surance market of about RUB 2 bln. At this, 2006 was a year of large com- counterparty credit rating to ВВ+ with a stable outlook. The Company’s pensations, but high-quality professional reinsurance protection enabled rating under the Russian scale is ruAA+. Moody’s Investors Service up- Ingosstrakh to meet all its obligations to the clients. graded Ingosstrakh’s insurance financial strength rating under the inter- 4 national scale to Ba1, with a stable outlook. At the same time, Moody’s by the experts of Interbrand Group, the international consulting company. Interfax Rating Agency announced upgrade of the long-term credit rating In 2006, the Company received main insurance award “Golden Salaman- of the Company at Aа1.ru according to the national scale. Russian Rating der” for the Best Insurance Company in Russia. Besides, last year, Ingoss- Agency Expert RA affirmed the highest rating A++ of Ingosstrakh for the trakh won the all-Russian contest Russian Business Elite. The Company was fifth time. awarded for the “Valuable contribution in development of the national insurance system”. In May 2006, Ingosstrakh received the National Award Today, Ingosstrakh is one of the largest universal companies of the federal of the Financial Press Club of Russia “Golden Diploma 2006 for Information level with the highest financial stability and well-balanced insurance port- Transparency and Impeccable Business Reputation”. folio. Our services are available not only in Russia, but also abroad. Ingoss- trakh stands for high reliability and impeccable fulfillment of its obligations Summing up, we are optimistic about the future. In 2007, Ingosstrakh will to the clients, to a large extent thanks to its reliable reinsurance programs. celebrate its 60th anniversary. We are entering this year as a committed Among our reinsurance partners, there are leading international compa- team with ambitious and yet realistic strategic plans, unique insurance ex- nies AIG, Allianz, AXA, CCR, Gen Re, Hannover Re, syndicates Lloyd’s, Mu- perience and significant financial resources. We are convinced that we will nich Re, Partner Re, QBE, SCOR, Swiss Re, Transatlantic Re, XL Re, etc. cope with our main task — to provide our clients with insurance services that meet international quality standards. In 2006, Ingosstrakh was awarded of many prizes. For the second year in a row, Ingosstrakh became the only insurance company in the domestic mar- We are grateful to all our clients for trusting us and to all our partners for ket among 40 most valuable Russian brands according to the list compiled mutually beneficial multi-year cooperation.
Sincerely yours,
Chair of the Board General Director S.А. Goglenkov А.V. Grigoriev
5
Competitive Ability Quantitative and Qualitative Parameters of the Insurance Market. Key Trends in the Russian Insurance Market in 2006 Higher market growth can be attributed mainly to two factors: Quantitative and Qualitative increase in compulsory insurance (primarily, compulsory motor TPL insurance and compulsory medical insurance1); Parameters of the Insurance Market sustainable progressive advance of classic voluntary insurance, includ- ing real life insurance. According to the Federal Insurance Supervision Service, as of January 1, 2007, there were 918 companies in the state register of insurers, includ- Development of classical voluntary insurance (except life insurance) was im- ing reinsurance companies. 886 insurers reported in 2006, among them — pacted by insurers’ pursuit of universality. The breakdown of the market by 780 composite insurance companies and 106 special insurers, including 56 companies shows that in 2006, 145 companies offered life insurance (29 companies that offered only compulsory medical insurance and 50 compa- less than in 2005), 691 — personal insurance (49 companies more than in nies — personal insurance, including life insurance. 2005), 633 — property insurance (9 companies more). As the total number of players in the insurance market decreased, the number of companies that In 2006, the development trends in the insurance market were positive. deal with all types of insurance except life insurance went up. This proves Aggregate insurance premiums increased by 22.7% versus previous year that companies choose to be composite insurers with special emphasis on and totaled RUB 602.1 bln, whereas in 2005 insurance premiums grew portfolio structuring. Primarily, this is due to the growth of the retail sector. only by 4%. In 2006, insurance compensations amounted to RUB 345.2 bln, which is an increase of 25.8%, while in 2005 insurance compensations flow 1 Hereinafter, the insurance market is analyzed without taking into account compulsory was negative (–10.8%). medical insurance.
Insurance premiums (contributions) and insurance compensations in 2006 (RUB bln)
Insurance Rate of growth Insurance Rate of growth premiums vs. 2005 compensations vs. 2005 1. Voluntary insurance: Life insurance 16.0 –36.9% 16.6 –33.6% Personal insurance (except life) 76.8 20.1% 41.9 9.4% Property (except liability insurance) 227.9 22.8% 64.6 40.8% Liability insurance 16.3 1.0% 1.4 19.9% 2. Compulsory insurance: of members of armed forces and eligible persons 5.3 15.8% 4.2 2.2% of passengers 0.5 –0.6% 0.0 14.8% Compulsory motor TPL insurance 63.9 18.9% 27.5 20.8% Market total without compulsory medical insurance 406.8 16.2% 156.2 14.1%
8 If we assume that companies who have been in the market for over three Although the comparative premium trend in the life insurance market is years are permanent players, then there are 670 permanent companies. still negative, real insurance has started to develop. In 2006, the volume of Their aggregate premium (without compulsory medical insurance) was real life insurance was slightly less than RUB 13 bln, and premiums in this 75.4% of total premium in 2004, 92.2% in 2005, 97.2% in 2006. As can be segment of life insurance market almost doubled versus the same period seen from above, this group of companies plays a key role in the whole in the previous year. Not all real life insurance is long-term or endowment Russian insurance market, and any change in the number of participants individual life insurance — the leading position belongs to the corporate either upwards or downwards will influence the aggregate amount of the employees’ insurance, but in any case there are few tax optimization pat- insurance premium in the market by up to 10% per year. terns. First 50 companies of the group of permanent insurers received 72.4% of In the personal insurance segment, the largest share is still taken by vol- premium in 2006, in 2005 — 64%, in 2004 — 52%. untary medical insurance. Higher premiums in the segment build on ap- preciation of the policy of voluntary medical insurance and deficit of skilled In 2006, 168 companies offered compulsory motor TPL insurance (12 more personnel, which causes more and more employers to offer compensation than in 2005). The concentration in this type of insurance is higher than in packages with medical insurance to their employees. other types of insurance — 88.5% premiums go to 50 companies. Accident insurance is another segment of personal insurance market. Here, "REAKDOWN OF )NSURANCE )NCOME higher premium was driven by explosive growth of mortgage lending in
,IFE 2006. In case of mortgage, many insurers classify life insurance as personal 0ERSONAL 0ROPERTY insurance. ,IABILITY #OMPULSORY MOTOR 40, INSURANCE /THER COMPULSORY EXCEPT MEDICAL Continued economic growth in Russia, in particular, higher capital invest- ments from all sources of finance, as well as unprecedented increase in 25" BLN sales of brand-new foreign-manufactured cars directly influenced insur- ance premium in the property insurance market and caused its share of the total insurance market to increase. Past year was a milestone for the
automobile market — sales of brand-new foreign cars reached a million and exceeded the volume of sales of domestic cars. After seasonal premium growth in the 1st quarter of 2006, voluntary liabil- ity insurance market returned to the state characterized by a slow growth rate because of the following factors:
lack of tax incentives for voluntary liability insurance; uncertainty about such future imputed types as liability insurance of hazardous production facilities, professional liability, etc. Higher premiums for compulsory motor TPL insurance built on objective growth of car fleet in Russia and were significantly influenced by the peak As the growth of different types of insurance was unequal, the total market of tenders for insurance of car fleets of budget-supported organizations share of personal insurance premium increased from 14.1% in 2004 to and state agencies that happened in 2006 and practically in all the regions 18.9% in 2006, for property insurance — from 40.9% to 56%, for voluntary of Russia. liability insurance — from 3.3% to 4%, for compulsory motor TPL insur- ance — from 13.1% to 15.7%. The total market share of life insurance Total volume of authorized capital of all Russian insurers was RUB 150.2 bln. premium reduced from 27.3% to 3.9% for the same period. It grew by 5.3% versus 2005. 9 Growth rate of total capital slowed down as compared to the previous slow change in the number of large insurers with authorized capital years, which resulted from two processes in the insurance market: of over RUB 500 ml who increase their capital at a maximum speed for all groups at the level of 20%. Authorized capital of such insurers accounts for nearly 70% of the total authorized capital in the insur- 4OTAL AUTHORIZED CAPITAL OF 2USSIAN INSURERS GROWTH RATES ance market; quick decrease in the number of companies with authorized capital of up to RUB 120 ml, which was caused by the Federal Insurance Supervision Service’s policy of crowding out of insurers with insuf-
ficient rate of capitalization and/or pre-arranged transactions. At the same time, several insurers moved to the group with higher volume of authorized capital. For this reason, the number of insurers with au- thorized capital from RUB 30 ml to RUB 120 ml increased just slightly. Almost one half of all insurance fees in the market (except compulsory medical insurance) go to large federal-level insurers with authorized capital of over RUB 1 bln. At this, the largest number of insurers has authorized capital of up to RUB120 ml, which puts them in the “hazard area”. Such insurers most often bear a risk of lack of funds to pay for
authorized capital, and they are the first to be acquired or taken over by financially more powerful insurers. In 2006, the share of insurance premium of insurers with authorized capital of over RUB 1 bln under- 25" BLN went the largest growth of 4 points. Business volume of smaller insurers who exit the market and have authorized capital of up to RUB 30 ml reduced from 2% to 1% in the total volume of insurance charges.
Breakdown of insurance companies by authorized capital
Authorized Capital 31.12.2002 31.12.2003 31.12.2004 31.12.2005 31.12.2006 Up to RUB 30 ml 1 142 1 006 563 312 129 RUB 30–120 ml 178 257 452 468 470 RUB 120–500 ml 60 93 200 227 246 RUB 500 ml – RUB 1 bln 21 26 39 38 42 Over RUB 1 bln 7 15 26 30 31
10 "REAKDOWN OF INSURANCE CHARGES BY VOLUME OF AUTHORIZED CAPITAL
.UMBER OF COMPANIES
25" BLN
!# 2UB ML !# FROM 25" TO ML !# FROM 25" TO ML !# FROM 25" ML TO BLN !# 25" BLN
)NSURERS IN THE 2EGISTER /PERATING )NSURERS Key Trends in the Russian Insurance In 2006, such financial factors, as well as federal insurers’ ambition to in- crease their business volume and properly balance their insurance portfo- Market in 2006 .UMBER OF TRANSACTIONS IN THE INSURANCE MARKET IN ¯ Fewer participants in the insurance market caused by the exit of
insurers. Main reasons of insurers’ exit from the market are: termination of activities of the companies that couldn’t for some rea- sons increase the authorized capital to the corresponding amount; voluntary termination of activities because of low efficiency of trans- actions under some type of insurance; financial insolvency because permissible level of insurance compensa-
tions and business costs was exceeded. Some insurers, especially regional subsidiaries, became affiliates of the federal-level companies, and smaller market participants were taken over by the larger ones. Efforts to establish insurance groups, holdings, business mergers, etc. intensified. During 2006, insurers fulfilled the requirements to increase authorized cap- ital and ensure real solvency pursuant to the rules of the Ministry of Finance of the Russian Federation on placement of premium reserve and standards 3ETTING UP OF %QUITY POSITION #ONVERSION INTO &OREIGN