Actuality December 24, 2007

   Foreigners buy up the Russian insurance market. The seventh transaction already took place in 2007 – the French AXA acquired 36,7% of RESO-Garantia with option to the subsequent repurchase of all insurer. Foreigners bring their technologies to Russia, and for population it means simplification of insurance, absence of problems in losses’ settlement and reduction of insurance cost.

   The second-largest insurance company of Europe French AXA buys 36,7% stocks of one of the largest Russian insurance companies RESO-Garantia for € 810 mln ($1,16 bln), the company reported. "This transaction is an excellent chance for AXA to enter the Russian market with the good perspective for growth and favorable economic climate", marked Henri de Castries, the head of AXA, in the statement.

   AXA plans to complete the transaction during the first half of 2008. In addition, the French insurer will get two options for the acquisition of the rest Russian company in 2010 and 2011. Experts do not doubt that it will take advantage of them – otherwise the transaction does not make sense. AXA will also allot the RESO Group, which includes RESO-Garantia, credit in size of $1 bln for a six years term.

   RESO-Garantia was established in 1991 and serves 3,6 million corporate and retail clients. According to the Russian Insurance Supervision Service (Rosstrakhnadzor) data, by results of nine months RESO-Garantia occupies the 3rd on charges (RUR24,7 bln). RESO-Garantia stockholders are brothers Sergey and Nikolay Sarkisovy (85%) and president of RESO Group Andrey Savelev (3,9%). In May EBRD acquired 10% of RESO-Garantia for $150 mln.

   In the transaction AXA sold to EBRD about 3,7% stocks of the insurer, and reserved to itself 6% stocks, the rest was equally sold by Sergey and Nikolay Sarkisovy.

   AXA Group was established in 1985. Its capitalization totals € 80 bln. The company is presented in 47 countries. The amount of clients is 52 millions.

   RESO-Garantia is not the best asset on the Russian insurance market. It increases its loss and falls far behind on profitability from the market leaders. The urgent restructuring of the company and immediate measures on its financial rehabilitation are required. "Among the leaders it is the most weak company on financial indices: loss, liquidity, reliability of investments’ quality, quality of reinsurance defense, stability of financial flows", said Pavel Samiev in the interview, the head of financial ratings department of "Expert RA" agency. He does not renounce his words even now. However, the choice of Frenchmen does not seem strange to him. "And who to buy? If look at top 10, so the part of companies is already sold, and another part will not be sold. Among the potential acquisitions are Military Insurance Company (VSK Insurance House), Uralsib and RESO Group. Possibly, VSK Insurance House asked the large sum. Plus, RESO Group is the giant agent network – more than 18 000 insurance agents over all Russia and more than 800 points of sales. It is the second company in Russia on scale of agent network", Samiev explains. According to his opinion, AXA set itself the very ambitious task – to occupy the 1st – 2nd place on the market with the stake more than 10% and it will succeed with RESO Group help. Foreigners will settle business problems – as they have strict technological practice for this.

   Apparently, therefore Frenchmen overpaid a bid for the company. In the interview to Vedomosti Sarkisovy estimated all company at $2 bln, but Frenchmen gave much more – at the total company value at $3,1 bln – it is 2,6 to the bonus. The transaction, thus, will become the largest on the Russian insurance market since JSC Sistema sold the control in one of the leading Russian insurance companies ROSNO for $750 mln to the largest German insurance company Allianz. "If the company decided to hold IPO, it would not receive such money (earlier, exactly such variant was considered by stockholders)", Samiev considers. "The portfolio investors would not develop the company, but in its present look it would hardly inspire them".

   Lately is marked the boom of acquisitions by the foreigners of stocks of the Russian insurance companies. There were 6 acquisitions only in 2007.

   On February, 14 the Swiss insurance group Zurich Financial Services acquired 66% of NASTA company.

   On March, 5 the German insurance group Allianz became the owner of 97% of Insurance Comapny ROSNO.

   On March, 12 the Austrian insurance group Wiener Stadtische acquired at the structures of Bank of Moscow in 15% of Standard-Reserve and Sovita insurers.

   On May, 16 the European Bank for Reconstruction and Development bought out RESO Group 10% of RESO-Garantia insurer.

   On May, 21 Allianz branch – Allianz New Europe Holding Gmbh – acquired 100% of Progress-Garant insurer.

   And on May, 22 the Czech financial group PPF Investments bought at businessman Aleksandr Mamut his stake Ingosstrakh out (38,46%).

   And it is not the limit, experts mark. They consider also, that for the Russian insurance market such acquisitions are only for the good. First, what foreigners do, – introduce their technologies on losses settlement – in fact on this convenience depend the number of clients, loyal to the company. "Zurich brought into NASTA very well-composed and clear system of losses settlement", gives the example Anzhela Dolgopolova, the chief expert of Interfax Information Services Group. For clients it means the receipt of money on insurance without problems. Presently, many Russian insurers delay payments, under different pretexts try to get rid of clients.

   Due to financial power the foreign companies also develop here reinsurance business that brings the large percent of return. And it means that the Russian companies can insure more, because the reinsurance is close by.

   Actually, only foreigners could implement life insurance in Russia. "It is the long-term type of insurance, while Russians come into the contact mainly only with the western companies with long-term history, that are considered more reliable", Dolgopolova says.

   And, finally, "foreign companies, buying Russian ones, introduce modern IT-technologies in the most different fields of operating activity. It results in reduction of overhead costs, and consequently, in cost optimization of insurance product, and in more high quality of services", says Sergey Savosin, the deputy director general of Investment Company Zurich. It means that cost of products with coming of foreigners, maybe, will reduce a bit. "But for the decline of cost should intensify a competition on the market", Savosin marks.