Fitch: Russia Pension Move Negative For Life Insurance Market

Wed Aug 6, 2014 11:14am EDT

(The following statement was released by the rating agency) MOSCOW, August 06 (Fitch) The Russian government's plan to retain employees' funded defined pension contributions in the notional defined contribution pension pool in 2015 could stall the development of the country's nascent long-term life insurance market, says Fitch Ratings. The move, which was announced yesterday, marks the second consecutive year when individuals will not see their funded pension contributions transferred by the state to their individual accounts held with private pension funds. Previously, the government referred to the retention of the funded pensions within the state pension system as an exceptional step. The individual funded pension accounts were introduced by the state in 2002. The government's announcement sets a long-term negative tone for the development of the life insurance market in Russia. Insurers would argue that private life insurance contracts could provide a higher predictability of pension plans. Nevertheless, Fitch believes that potential life policyholders in an immature market like Russia are highly sensitive to the consistency of regulatory changes and level of long-term public confidence. The government attacked the quality of management at private pension funds as one of the reasons triggering the move, although a proactive tightening of the supervision could have helped to raise the governance standards in the industry. This attack risks eroding confidence in the life insurance industry. The Russian life insurance sector is developing, with only RUB85bn premiums (around EUR1.76bn) written in 2013, and is 11x smaller than the local non-life segment. The compound average growth rate of 52% for life premiums in 2009-2013 was achieved mainly through payment protection insurance (PPI) sold as a semi-compulsory attachment to consumer loans. According to Fitch's assessment, PPI may account for at least half of life premiums written in 2013. Contact: Anastasia Litvinova Director +7 495 956 7082 Fitch Ratings CIS Limited Valovaya Street, 26 Moscow 115054 David Prowse Senior Director +44 20 3530 1250 Jeremy Carter Managing Director +44 20 3530 1391 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Russian Insurance Sector: Underwriting Discipline in the Spotlight here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.