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Report: Russian regulator proposes new recovery scheme for troubled insurers

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Report: Russian regulator proposes new recovery scheme for troubled insurers

The Central Bank of the Russian Federation prepared a package of draft legislative amendments aimed at introducing a financial recovery mechanism for troubled insurance companies with the participation of an insurance sector consolidation fund, to be set up by the regulator, Kommersant reported Oct. 12.

The regulator wants to be able to implement the recovery mechanism in the case of insurers' failure to comply with regulatory standards and requirements regarding insurance reserves, or if the financial situation of an insurer poses a threat to market stability. The central bank wants to be given the right to promptly intervene in such cases by taking various measures, including placing troubled insurers into provisional administration, introducing moratoriums on creditor claims, restricting certain transactions and providing direct financial assistance to insurers, under the condition that 75% of their shares have been transferred under the ownership of the regulator.

The proposed mechanism is similar to the recently introduced scheme to rescue troubled banks, used to bail out Otkritie Bank and B&N Bank, the newspaper noted.

The central bank is pushing for the swift introduction of a separate financial recovery mechanism for insurers because of the difficult financial situation at PAO Rosgosstrakh, one of Russia's top insurance companies, which has a significant market share on the compulsory motor third-party liability insurance market, Kommersant noted, citing local analysts. The central bank's representatives reportedly said earlier that the regulator was hoping for the legislative amendments to be passed during the Russian Duma's autumn session.

The central bank's deputy head Vasily Pozdyshev said in September that some of the funding to be provided under the August bailout of Otkritie would also go to Rosgosstrakh. The takeover of Rosgosstrakh by Otkritie coincided with Otkritie's bailout, but the central bank did not stop the transaction, as it was aware that both companies need financial assistance, Kommersant said, citing the regulator's head, Elvira Nabiullina.