Insurance market analysis: profitability and loss ratios

The Bank of Russia looked into various groups of insurance companies from the viewpoint of their profitability and loss ratios; analysis was also conducted into the quality of risk management systems used by key insurance market players.

Insurers’ performance varies substantially, depending on the size and market segment, the Review of Insurers’ Key Indicators shows.

With a benign market and insurance payments growing fast, the group of specialist life insurance providers leads in terms of profitability (68.8% vs the market average of 19.1%). High profits are also being posted by the group of non-retail insurers, where corporations have a dominant share in total premiums, and by the group of insurers focusing mainly on direct sales.

Loss ratios are at their highest in the retail insurer group (the combined loss ratio is 105.2%). This group comprises insurance providers where individual payments dominate.  This group’s performance is negatively affected by the loss-making operations of individual market players with a high share of OSAGO in their portfolios.

Loss rates are also high in the group of companies whose sales are mainly reliant on intermediaries (the loss ratio is 102.9%). Due to commissions, the costs of contract execution in this group are much higher than those of direct sellers.  This translates into a high expense ratio, which is used to calculate the sector’s loss ratio.

To evaluate risk management at insurance organisations, the Bank of Russia has conducted a survey of twenty major insurers accounting for approximately 80% of total insurance payments. Based on the results of this survey, a formalistic risk management system prevails in the industry. This suggests that corporate risk management / core operating procedures have yet to become embedded across business processes.

Foreign insurers’ subsidiaries tend to be more advanced in risk management as they are subject to their parent companies’ corporate risk management procedures.