Sogaz buys VTB Insurance to create Russia’s largest insurer

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Russia’s largest insurer the Sogaz Group is about to get a lot bigger. VTB Bank sold its insurance subsidiary VTB Insurance to Sogaz on 25 May 2018.

That means Sogaz will control nearly 21% of Russia’s entire insurance market and 45% of the market for medical and property insurance, BNE Intellinews reported.

The Sogaz Group controlled around 15.9% of Russia’s insurance market in 2016, and VTB Group controlled around 5%. The purchase would give Sogaz a 20.9% share of Russia’s insurance market.

VTB Insurance, or the VTB Group, had an authorized capital of 5.5 billion rubbles (£66 million) and premiums worth 62.1 billion rubbles (£750 million) at the end of 2016. VTB Insurance offers liability, third-party general, compulsory third party motor liability, health and accident insurance, travel insurance, vehicle insurance, voluntary health insurance, civil-engineering insurance, freight insurance, and financial risks insurance in Russia.

VTB Bank was the sole shareholder in VTB Insurance, which means Sogaz is now the sole holder in VTB Insurance.

The Sogaz Group insures more than 18.3 million people and 85,000 companies in the Russian Federation. Sogaz reported assets of around 211 billion rubbles (£2.54 billion) and a capital of 70 billion rubbles (£840 million) on 29 May 2018. The Sogaz Group reportedly pays 175 million rubbles (£2.11 million) in claims each day.

VTB Insurance under US sanctions

Sanctions imposed by the United States might be the cause of Sogaz’s growth spurt. VTB Bank had been under sanction since 2014, but the penalties were increased in December 2017.

A number of VTB subsidiaries including VTB Leasing and VTB Insurance were targeted by the increased sanctions, The Trend News Agency pointed out. December 2017 was the first time that insurance companies were specifically mentioned in the US State Department’s sanction list.

The sanctions were imposed because of popular anger about reputed Russian interference in the 2016 US Presidential election. The VTB Group, has the largest international presence among Russian banks but it is now a pariah in many markets because of the sanctions, The Oligarchs Insider reported.

The VTB Bank has switched its focus to Asia and heavy industry, and is now trying to acquire Essar Steel. Essar Steel calls itself India’s largest fully-integrated flat steel manufacturer. VTB got the money to buy Essar Steel by selling VTB Insurance to the Sogaz Group.

Russian Insurance market risky but growing

The Russian Insurance Market is one of the world’s fastest growing it is expected to grow by 10.5% in 2018, ACRA Ratings estimated. That growth rate might accelerate by 11% to 14% in the next few years.

Some areas of the Russian insurance market are in steep decline. Life insurance sales in Russia are expected to fall by 29% in coming years by ACRA. Market growth will be driven by sales of corporate property, voluntary health, accident, and other policies.

Both insurance companies and banks in Russia might require a government bailout because of a weak economy, Reuters speculated. Western sanctions and a fall in oil prices have so weakened some Russian banks and insurers that they might not be able to meet obligations.

One Russian insurer Rosgosstrakh had to be bailed out last year. The situation is now so bad that the Russian Parliament, or Duma, is considering creating a Fund for Consolidation of the Insurance Sector to keep insurers from collapsing.

The total value of Russian insurance premiums is valued at 1.024 trillion rubbles (£15 billion) in 2018 by ACRA Ratings. The value of Russian insurance premiums is projected to grow to 2.288 trillion rubbles (£27 billion) by 2022.

Despite its growth the Russian insurance industry is on shaky ground and is heading for a major shake out. The effects of that shakeout should be confined to Russia because of sanctions, and the Russian government’s willingness to bail out insurers.

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