What chance would any of us give to the insurance sector of a country which is on the EU and US sanctions lists, has seen its currency slump to record lows against the dollar and whose main export saw its price fall over 50 per cent in Q2 of 2014? Not much, perhaps. However, the Russian insurance and reinsurance sector continues to muddle ahead - and even has some positive results to show.

Top Five

‘Despite a very difficult and inconsistent 2014, the domestic reinsurance sector demonstrated some obvious growth,’ said Dmitry Garmash, head of the Moscow office of Barents Re, as quoted in Xprimm. ‘Inward premiums have grown by eight per cent compared to 2013…All trends of the last two to three years remain roughly the same, including the squeezing number of specialist reinsurers locally and the concentration of reinsurance premiums over a stable range of Top Five reinsurers.’ 

Russian Central Bank

An overhauled regulatory system - the creation of the Russian Insurance Regulator under the Russian Central Bank in late 2013 - continues to function (the Regulator recently suspended the MRSK insurance company, for instance). The Central Bank became ‘de facto a mega-regulator’ through its reincarnation, according to Hogan Lovells - as the Bank also oversees the securities markets and private pensions, as well as insurance and banking. 

Sanctions

The stepping up of economic sanctions from the EU and US in July last year after Russia annexed Crimea had direct implications for foreign insurers operating in the market. Hogan Lovell said: ‘These sanctions impose significant new restrictions on entities wishing to do business in Russia and/or the Ukraine. Therefore, (re)insurers and brokers will need to conduct further checks to assess the extent to which their business activities in the region may be affected and consider what steps they may need to take to ensure their continued compliance with the EU and US sanctions regimes.’ 

Profitability

In its report on the Russian insurance market last year, KPMG concluded: ‘In the current unfavourable conditions, insurance company bosses are concentrating on maintaining profitability, focussing mainly on reducing expenses, including by improving their portfolio and holding back on its expansion, particularly in regions known to be unprofitable.’ Some of the largest international law firms have slimmed down their Moscow offices in the last eight months. Allen & Overy laid off four associates from its capital markets team but still has several lawyers who specialise in banking. 

Clifford Chance

Clifford Chance followed suit in April, laying off five associates and five support staff in the Russian capital. It now has one Moscow partner - tax expert Alexander Anichkin - who mentions insurance as a specialism on his firm biography. But, despite the difficulties, the law firms are hanging on. It is only two years since global insurer Mapfre put out this optimistic conclusion about the potential of Russia in its ‘The Insurance Market in Russia’ report: ‘Among the markets of the emerging countries, the Russian Federation’s insurance market is turning out to be the most important and to have the greatest potential in Central and Eastern Europe. In 2010, Russia, with a population of some 140 million and abundant natural resources, ranked ninth in the world in terms of gross domestic product (GDP), with US$1,803 billion, placing it between Italy and Canada.’

Kennedys - new branch in Moscow

It was only in May this year that the 22-office international law practice Kennedys set up a branch in Moscow with a local lawyer, Constantin Saranchouk. Kennedys is a specialist in insurance worldwide - and its area of focus in Russia is a contentious one which reflects the state of the industry in Russia. The two-person team there will concentrate on ‘high value insurance claims, the resolution of insurance disputes in the Russian commercial courts and international arbitrations seated in Russia’. Mr Saranchouk said: ‘Given the current levels of activity in the Russian energy, construction and aerospace markets, and a rise in disputes, I expect the office to attract contentious instructions from both international insurers as well as major Russian carriers.’