Old News

Last week's Rendez-Vous in Monte-Carlo stirred little fuss in the global market. Apart from Munich Re's announcement of a new approach to covering oil platform risks one of the few more or less exciting stories was Lloyd’s confirming its plans to consider a Russian office. (In the absence of other sensations?) the news even made headlines in some daily Rendez-Vous publications.

Quiet Monte-Carlo or not, such attention to the conglomerate’s plans is rather puzzling, because, in fact Lord Levene announced them as early as this past May during his half-secret visit to Moscow. By half-secret, we mean that Russian insurance media learned about the visit shortly after the conglomerate team had left for London. Apparently, in the West, the secret was kept much better.

To fill the knowledge gap, we have decided to publish our summer column on Lord Levene’s visit.
Lenin and Levene

After the launch of its Polish unit, Lloyd’s has apparently developed a deeper interest in Eastern Europe. In late May, a large Lloyd’s team including the likes of Lord Levene and Jose Ribeiro secretly visited Moscow to explore opportunities for opening a local office. Market sources that attended the Lloyd’s event have told The Insurer about what they saw, heard, and thought.

Lloyd’s is definitely not a newcomer in the Russian industry: local players have been ceding risks to London since the Soviet times. However, until very recently, syndicates didn’t take the market quite seriously. Whenever The Insurer team talked to London players, we heard: “Of course, Russia has an enormous development potential, but the current market volumes are too small for us to actively work on expanding there”. Indeed in 2008, Russia generated USD168 million in premium for Lloyd’s – just a fraction of the total figure of USD9.9 billion.

It’s rather difficult to understand what has made the London wind change. Over the past two years, the Russian market has suffered many troubles, lost quite some players and quite some premium (down 7.5% excluding the compulsory health insurance line). Outlooks for the 2010 result are equally gloomy: motor business, the backbone of the country’s industry, is fastly losing profitability, and other classes, especially in the individual segment, are too weak to take the lead.

And yet, according to our sources, a high-ranking Lloyd’s delegation headed by Lord Levene and Jose Ribeiro, director for international markets, went to great lengths to lear about Russian opportunities. Apart from organising a free seminar for key local players, Lord Levene met with Alexey Kudrin, Minister of Finance and Vladimir Putin’s deputy, and the Moscow mayor.

At the meeting with local insurers Lord Levene revealed their research department is now busy preparing an assessment of opportunities in the Russian market. If the conclusions are positive, the decision about opening the Moscow office may be taken quite soon. As Keith Parker, independent consultant and the person inofficially considered the candidate for the head of the Russian office, told The Insurer, Lloyd’s is likely to make up its mind on the expansion in June. The office would be opened by the end of 2010, then.

The decision will most definitely be positive if the report relies on the Russian section of the Lloyd’s paper “Europe – Small Markets” issued in January 2010. There, the country’s insurance business is portrayed rather positively: high premiums, low claims, and a growing brokers’ market share – a key factor for Lloyd’s. Low profitability of Russian insurance companies the report explains by their need “to invest heavily in improving their IT systems and relatively unskilled workforce”. Such a discrepancy with reality results, perhaps, from the fact that the authors of the report based their conclusions on the 2007 and partly 2008 data. This comes as a surprise considering that the disastrous Russian market statistics for the three quarters of 2009 was readily available when the paper was being prepared.

Hopefully, a visit to Moscow gave the Lloyd’s delegation an opportunity for a reality check. Otherwise, soon after the launch of their Moscow office they may get deeply disappointed, like it has happened with so many foreign insurers that entered Russia.

Some local players are, however, believe Lloyd’s shouldn’t have started the whole campaign in the first place. “Lloyd’s syndicates already work with key players in the country – so the office would hardly add any value”, a Russian market expert opined.