The Russian government's plan to retain employees' funded defined pension contributions in the notional defined contribution pension pool in 2015 could stall the development of the country's nascent long-term life insurance market, says Fitch Ratings.
The move announced on Wednesday, August 6, marks the second consecutive year when individuals will not see their funded pension contributions transferred by the state to their individual accounts held with private pension funds. Previously, the government referred to the retention of the funded pensions within the state pension system as an exceptional step. The individual funded pension accounts were introduced by the state in 2002.
"The government's announcement sets a long-term negative tone for the development of the life insurance market in Russia. Insurers would argue that private life insurance contracts could provide a higher predictability of pension plans. Nevertheless, Fitch believes that potential life policyholders in an immature market like Russia are highly sensitive to the consistency of regulatory changes and level of long-term public confidence," the statement points out.
The Russian life insurance sector is developing, with only RUB 85 billion premiums (around EUR 1.76 billion) written in 2013, and is 11x smaller than the local non-life segment. The compound average growth rate of 52% for life premiums in 2009-2013 was achieved mainly through payment protection insurance (PPI) sold as a semi-compulsory attachment to consumer loans.