Russian State Reinsurance Company is accused by #Russian parliamentarians of corruption in reinsuring their risks through brokers

The Russian State Reinsurance Company (JSC “RNPK”) was established in 2016, during a period of increasing anti-Russian sanctions, in order to insure companies against the risk of sanctions: the purpose of the company was made very clear at the time.

However, providing such insurance to Russian companies has become increasingly difficult, primarily because of poor management. Out of 70 full-time staff members of the RNPK, there are, allegedly, only a total of about 5 professional reinsurers who are able to assess the risks competently, and to pick out the appropriate reinsurance company for the client.

This is due to the fact that the company's staff was recruited mainly from employees of those insurance and reinsurance companies that work with Western partners. They are accustomed to relying on the decisions of Western insurers and do not even comprehend their principles for making such decisions. This comes as a confirmation of several Russian companies’ suspicions that foreigners are simply not willing to share their experience with their Russian counterparts: why should they take an interest in nurturing the competition?

This lack of good quality management has led to another problem – poor risk selection and non-transparency of making underwriting decisions. That, in turn, led RNPK towards increasing losses. At the end of 2017, profits according to IFRS amounted to 88 million rubles, declining from 435 million rubles in 2016. At the same time, yearly losses in 2017 amounted to more than 5 billion rubles (82 million rubles in 2016). In Q1 of 2018, the trend continued.

An attempt to find retrocession - the reinsurance of risks -  on international markets in December 2017 ended in failure.

RNPK could not properly develop a risk profile and prepared tender documentation where only the companies Willis, AON, UIB or Marsh could win. Willis was announced to have won the tender, but parliamentarians of the lower house, the Duma, appealed to the Interior Ministry, the Federal Security Service (FSB), the Prosecutor's Office of Russia and the Central Bank, and as a result RNPK refused to enter into a retrocession with Willis announcing that they were not satisfied with the price and terms.

Now RNPK is going to seek reinsurance in China, Asia, Africa and South America.

Composition of the reinsurance council of the state reinsurer still causes questions – its members include those involved in criminal cases, or with a previous working experience in companies that could launder money from Russia through reinsurance – allegedly among them: Valentina Rakitina, director of insurance broker RT-Insurance, who is involved in a criminal case on insurance in Roskosmos, (her husband was killed in a Russian prison):

Ella Platonova - ex-head of the company Nakhodka PE, who is also suspected of money laundering from Russia through reinsurance:

Kapitolina Turbina - the wife of Boris Pastukhov, the former owner and director of the Industrial Insurance Company, which provides tax optimisation services in Russia, and who was recently working in medical projects closely linked to Danila Khachaturov, who is accused of general theft and whose brother was arrested for embezzling Rosgosstrakh's funds in the Russian Federation;:

Igor Zhuk, former director of the Central Bank's insurance market department, who quit the Central Bank of Russia in 1 day in March,  a past employee of Mr. Khachaturov, and earlier the Director General of the insurance company Soglasie, which, under the guise of reinsurance, laundered hundreds of millions of dollars through the Isle of Man Western Isles Insurance company.

JSC "RNPK" losses for the first three months of this year amounted to 325 million rubles after the taxation against the profits of 435 million rubles for the same period last year. What is more, losses from the main company operations - reinsurance activities - amounted to more than 2.7 billion rubles for the 1st quarter of 2018. The company has lost its earned insurance premiums; meanwhile the reserves of losses and payments for insurance operations have grown substantially. Such results seem strange, because all Russian insurance organisations are obliged to transfer 10% of the premiums from each obligatory and optional reinsurance contract to RNPK without any kind of antiselection.

Regarding the current dynamics, it is safe to assume that in 2018 the company will end up with huge losses, some of which have already occurred, but have not yet found their way into the official reports. First of all, it is due to a series of unsuccessful space launches, the loss of space cargo and satellites in orbit.

Huge losses are also to be expected from cargo reinsurance, which RNPK is, as it seems, hiding from reinsurers in their risk profiles (about 150,000,000 US dollars on net retention).

In 2019 additional losses to reinsurers of RNPK risks in catastrophic reinsurance program against natural disasters are virtually guaranteed, as RNPK has not carried out duly calculations for the Russian government and has not substantiated fair tariffs and limits on compulsory insurance against natural disasters, which will be introduced in Russia from 2019 year, which guarantees that the next natural disaster in Russia will lead to a loss for reinsurers. The fact that the Bank of Russia, which is the only founder of the company, does not lend money for replenishment of the authorised capital, only complicates the RNPK issues in this situation.

The growing losses and poor quality of the state company's management became noticeable not only to the market. State Duma MPs appealed to law enforcement agencies and to the Prosecutor General's Office demanding the investigation of the company's activities on corruption. In their requests to the Bank of Russia, the MPs draw the regulator's attention to the unprofessional work of the RNPK management. It is stated that the company's assets are sufficient to cover both short-term and long-term risks of Russian companies. However, without a clear idea of how to manage them, RNPK wants to pass their losses on to the reinsurers, attempting to conclude a relevant contract on the foreign market.

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