Global crisis halts Russian insurance growth

In a sign that the credit crunch may be spreading, the growth of Russia’s insurance market is slowing. That shows that the more Russia integrates with world markets, the more it is affected by the fallout of the global economic crisis.

Although many experts still insist that Russia can withstand the global financial turbulence, it's affecting a growing number of sectors.

After banking and mortgages, nowadays the insurance sector is under examination.

Some smaller banks face the problem of rolling-over short-term external debt, which may affect their clients ability to borrow.

“I would expect in 2008, partially in 2009, a certain slowdown in the growth in insurance market also in Russia. I would also expect that in terms of the investment results of insurance companies we will see a dropdown across the board. I would also expect as a consequence out of this that a lot of insurers will rethink about the asset allocation on the investment side,” shares the Head of Allianz Eurasia Hannes Shariputra Chopra.

But Russia is seen faring better than most because the insurance market is relatively small.

For example, only 5% of Russia's trade turnover is insured.

As with the banking sector, the fact that Russia is not heavily involved in the global financial system plays into its hands.

But there are some risks specific to Russia's insurance sector.

‘I would reflect to the fact that transparency is tough to achieve in Russia. We have to know the risks and they are very reluctant in giving us figures and information," Ulrich Noethel, risk director of Euler Hermes, says.

Some specialists say general economic risks are more important.

“I would mainly see the risk on the inflation side, the big benefit that Russia has is that there is huge inflow of income from the commodity side, the energy prices are enabling Russia to invest heavily,” adds Euler Hermes’ member of the board of management Jochen Duemler.

But if Russia is indeed set to share in the risks facing the global economy – then insurance companies are likely to be in demand.