UNDERWRITING PROBLEMSIN CURRENT MARKET CONDITIONS

Svetlana CHEPELEVA

Deputy Managing director, Chief underwriterUnity Re Ltd.

01 October, 2007Dagomys, Russia

Basic market statements (2006): • Direct insurance GPW (non-life) – $22,29 млрд. ( 23,1%)• Inward R/I GPW – $3,05 млрд. ( 20,2%)• Inward R/I / direct business – 13,7%

Basic market tendencies in Russia:

• strengthening of financial abilities of market players; • decrease in ‘scheme’ share of business;• further M&A development;• higher requirements for capital and portfolio structure.

Price market trend underwriting problem as one of the most negative tendencies!

International market:

• 2006 – loss ratio stabilization, slight market softening;

• positive dynamics of profits and combined ratio;

• price trend (rates) stabilization.

Russian market:

• consumer-oriented market and dumping policy;

• claims, claims and claims;

• soft in-ward R/I business from CIS neighbours;

• M&A + western orientation;

• technical u/w problems.

Consumer oriented market and dumping policy:

• current market = consumer’s market – not seller’s one;

• dumping is already a development strategy – not just a

tactical tool for competition struggle in the market;

• extensive development (blowing up NPW without paying

enough attention to service, quality and financial back);

• ‘non-profiled’ in-ward reinsurance and reciprocity;

• no market barriers for actually bad risks.

Losses:

• large claims-portents – Azovsteel, Protek, Vestel, Admiral;

• a rapid growth of classic fire claims;

• unpredictable results for new & promoted classes, e.g. title insurance and state-contract liability insurance;

• stop writing of some classes of business (marine, aviation).

Soft business from CIS:

• a very formal approach to insurance orientation for a minimum policy premium;

• a dumping squeeze of insurers with no market barriers for bad risks a significant lack of economical element in the tarification;

• a final burden of the above is transferred to reinsurer!

М&A and western orientation:

• much of business is reoriented to foreign markets;

• need for capitalization rise leaving the market or searching investor who is often interested in developing ‘scheme’ business – not the classic (re)insurance;

Technical underwriting problems:

• CAR: placement on annual basis + covering a partly completed construction + rates do not relate to period of construction;

• agriculture risks: a lack of adequate documentary base and practice for handling accounts, controlling claims;

• short periods of coverage with no short-rate calculation applicable;

• Property/CAR: rates are applicable to limit of indemnity – not to a whole insurable value/TSI;

• a lack of specialized u/w approaches to different types of property (rate for metallurgical plant = rate for office building);

• stocks & warehouses: the capacity of tens of million dollar is requested without an adequate MDP applicable.

Estimated R/I capacity - Russia:

Class Net capacity,million $.

Gross capacity (with treaties), million $

Property 25 400

Energy 15 200

CAR 20 250

Marine hull 50 120

Cargo 50 100

Aviation hull 5 35

Factors of further development:

• forthcoming of the next phase of insurance cycle firm market and rise of loss ratio!

• large man-made disasters predicted for nearest future;

• M&A and capitalization need for RoE growth struggle for market share, clients and sales R/I as the alternative tool for earning rising NPW dumping!

• forcing of market position of foreign global insurers.

Thanks for your attention!

Questions and comments:

Mob.: +7 926 254 6500

E-mail: re_chesv@reso.ru