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NAAI: 21% growth of government-sponsored agricultural insurance in Russia in 2014

According to the statistics of the Central Bank of the Russian Federation and the National Association of Agricultural Insurers, the market of agricultural insurance in Russia showed growth rates, almost twice exceeding development rates of the whole insurance market in 2014.

The contractual premium in agricultural insurance made 16.7 billion rubles in 2014. Compared to the same period of last year the market increased by 17% (it made 14.3 billion rubles a year earlier). The growth of the market was caused by the 21.1% increase of state-funded insurance premium: which amounted to12.1 billion rubles in 2013 and 14.6 billion rubles in 2014. A slight increase of non-subsidized insurance of agricultural risks shown in the third quarter didn't change market dynamics during the year: at the end of 2014 this market dropped 6.0% from 2.2 billion rubles to 2.1 billion rubles.

In 2014 agricultural insurance developed almost twice faster than the total insurance market (+9. 2%), or the property risks insurance market in the Russian Federation (+7.1%). As a comparison, the Compulsory Motor TPL insurance market grew by 12.4%, the market of compulsory insurance of the owners of hazardous facilities reduced by 27.6%.

"Agricultural insurance appeared to be one the most fast growing segments in 2014 – its growth dynamics can be compared to term life insurance ,in which the premium income increased by 16.1%, – the president of the National Association of Agricultural Insurers, Korney Bizhdov, comments. – The dynamics of agricultural risks insurance is determined not only by economic factors. The actual availability of subsidy funds for insured agricultural producers, the amount of funding is a key factor as well as the market demand. In 2013 a number of regions of Russian Federation preferred to redirect funds of state support insurance to other purposes and to back up farm crediting from this source. In 2014 almost all subsidy funds were spended for insurance payments only, and for the first time the whole amount of subsidies was used fully. Meanwhile an essential increase in subsidizing is not expected in 2015, therefore the increase in demand won't be supported and the agricultural insurance market volume is predicted to keep at current level".

The agricultural insurance share in the market

The agricultural insurance makes 1.7% of premiums of the Russian Federation insurance market in 2014 (compared to 1.6% year earlier). The share of the state-funding agricultural insurance is 1.5%. The agricultural insurance segment is very close to a segment of cargo insurance (2.2%), third party civil liabilty insurance (1.6%) or financial risks insurance (1.6%). Agricultural insurance exceeds the market of compulsory insurance of the owners of hazardous facilities almost 3 times (0.6%).

Losses

The amount of all types of agricultural insurance indemnities made 5.4 billion rubles, from which 2.6 billion were for state funding insurance and 2.8 billion rubles for insurance without state support. Compared to 2013 when claims paid made 5.8 billion rubles from which 3.5 billion rubles were for state-funding insurance and 2.3 billion for crop insurance without state support, there occurred 5.9% decrease in total amount of indemnities. Still non-subsidized insurance indemnities grew by 24.7% while in the state-funding insurance segment losses decreased by 25.6%.

"Opposite trends in the sphere of losses insured with and without state support can be explained, first of all, by different structure of these markets, – the president of NAAI, K. Bizhdov clarifies. – According to NAAI estimates, livestock insurance prevails in the segment of non-subsided insurance while crop insurance is mostly subsidized. Both years 2013 and 2014 were exclusively favorable for plant growing – agricultural producers received a record harvest, the number of officially declared emergencies also reduced more than twice compared to 2012. So, there is an accumulation of financial resources in crop insurance which will be used in a less favorable season. The situation is less satisfactory in livestock insurance, for example, the members of NAAI reported claimed livestock losses at a level which practically equals the state-funded insurers’ premium from this line of insurance. The tendency is the same in agricultural insurance without state support where in 2014 payments made 136% of the insurance premiums (in 2013, 102%)."

Subsidizig Process

The amount of the subsidies paid by December 31, 2014 under government-funding insurance contracts was more than 5.0 billion rubles that exceeds by 21.0% the last year’s figure (about 4.2 billion rubles). Thus, by the end of the year the amount of the paid subsidizing grew proportionally to the amount of the subsidized insurance premium. The level of the subsidized insurance premium effectively paid at the end of the year remained steady – 34.5% of the total premiums (according to the the existing legislation, government supports 50% of crop or livestock insurance costs).

"What is meant here is a persistent detention of subsidies, as well as a mismatch problem of subsidizing rates corresponding to the insurance rates, –Korney Bizhdov remarks. – It is essentially important that the problem of transference of subsidy payments for partial coverage of premium must be solved as soon as possible after signing the insurance agreement, as it can eventually influence future insurance indemnities and financial planning process for agricultural enterprise depends heavely on it".

Сustomer base characteristics

Totally 138.3 thousand of agricultural insurance policies were in effect in Russia in 2014, from which 8.2 thousand were state-subsidized agricultural insurance and 130.1 thousand referring to the insurance without state support.

In 2014 insurance of agricultural risks with state support were represented mostly by corporate insurance: only 274 contracts were made with individual farmers, while 7.9 thousand – with legal entities. At the same time, a great bulk (nearly 118.8 thousand) of non-subsidized insurance policies were purchased by individuals, while legal entities signed about 11.4 thousand contracts.

"NAAI is surely leading in number of contracts in the field of agricultural insurance: NAAI companies totally issued 116.2 thousand policies of agricultural insurance, or 84% of total number of contracts in a segment, – K. Bizhdov comments. – NAAI also signed nearly 90% of contracts of insurance of agricultural risks on conditions without state support that confirms reputation of the association as consolidating market practice of agricultural insurance."

Regional differencies

In 2014 more than a half of the agricultural insurance market of the Russian Federation (55%) is accounted for by 10 territorial entities of the RF (refer to table 1). As for volume of agricultural insurance premium, the largest regions were Krasnodar and Stavropol and the Republic of Tatarstan in 2014. The top-10 of the largest regional markets of agricultural insurance completely coincides with the ranking of the largest markets of agricultural insurance with state support.

In 2014 seven territorial entities of the Russian Federation showed higher agricultural insurance payments (payments exceeded premium),they are: the Republic of Buryatia, the Amur Region, the Komi Republic, Primorsky Krai, the Republic of Karelia, the Tula and Kemerovo regions. Besides, in 4 regions payment exceeded by 70% agricultural insurance premium – in the Republics of Mordovia and Sakha (Yakutia), and as well as in the Irkutsk and Leningrad Region.

"Generally the list of regions with the highest losses in 2014 reflects the consequences of two macroregional emergencies – floods in the Far East and in Southeast Siberia in 2013-2014, – the president of NSA Korney Bizhdov emphasizes."

Table. Top 10 largest agricultural insurance regions of the RF in 2014.

Business Development of NAAI companies

In 2014 the NAAI companies wrote nearly 10.1 billion rubles agricultural insurance premiums, more than 8.1 billion of which were state funded agricultural insurance and more than 1.9 billion –insurance without state support.

The premium gains in insurance with state support made 7.6%, while in insurance without state support the volume of their premiums was reduced by 4.7%. Ultimately the total volume of premiums in agricultural insurance of NAAI companies increased by 6.3% compared with the same period of the previous year.

Following the results of the period the NAAI share makes 60% in the total market of agricultural insurance , 56% - in the market of agricultural insurance with state support and 95% - in the market of agricultural insurance without state support.

Agricultural insurance payments of the NAAI companies excluding claimed, but unpaid losses during this period exceeded 3.8 billion rubles, 1.7 billion rubles from which were paid for insurance with state support and 2.1 billion rubles for agricultural insurance without state support.

"In 2014 a number of the NAAI companies reconsidered their strategies in agricultural insurance towards more conservative policy. However, insurance of agricultural risks is still of keen interest for the participants of the insurance market due to its prospects, first of all, and due to its significance for the development of agribusiness and financial stability of the farming sector", – the president of NAAI K. Bizhdov remarks.