AMB Country Risk Report

September 24, 2013

Our Insight, Your Advantage.

Russia
Country Risk Tier

The Country Risk Tier (CRT) reflects A.M. Bests assessment of

three categories of risk: Economic, Political and Financial System
Risk.

CRT-4

Russia, a CRT-4 country, has economic potential due to its rich

natural resources, strategic geography and geopolitical position,
and large and well educated work force. The country plays a significant political and economic role in the region and the 2009
decline in Russias economy by nearly 8% was felt throughout
Central Asia. Since then, Russias economy has modestly recovered, growing between 3-5%. Going forward Russias economy is
expected to grow 3.4% in 2013 and 3% and 4% beyond.

Economic Risk
Moderate
Low

High

Very Low

The countries pictured below represent a great deal of the

worlds economic potential. Three of the four BRIC countries
(Russia, India, and China) are represented.

Very High

Political Risk
Moderate
Low

High

Iceland

Finland

Greenland

Sweden
Very Low

Very High

Norway
Estonia

Financial System Risk

Isle of Man

Latvia

Denmark

Russia

Lithuania

Moderate
Low

Ireland

High

Belarus

United
Kingdom

Netherlands

Guernsey
Very Low

Very High

Poland

Germany

Belgium
Liechtenstein

Czech
Republic

Luxembourg

Jersey

Austria
Switzerland

France

Romania

Croatia
Bosnia & Serbia
Herzegovina

Andorra

Montenegro

Italy

Portugal

For information on companies followed

Market Outlooks

Georgia
Armenia

Albania

Gibraltar

Tunisia

Malta

Cyprus

Syria
Lebanon

Canary
Islands

Azerbaija

Turkey

Greece

Monaco

Iraq

Israel

Morocco

CRT 1 2 3 4 5
Jordan

Algeria

Copyright 2013 by A.M. Best Company, Inc.

Russia

Bulgaria

Macedonia

Spain

Azores

Republic of
Moldova

Hungary

Slovenia

San Marino

Ukraine

Slovakia

Libya

Egypt

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Sahara
(Occupied by Morocco)

Kuwa
Bahrain

Saudi
1 Arabia

Qat

AMB Country Risk Report

Russia

Regional Summary: Central Asia

Vital Statistics 2012

The Central Asian countries surrounding the Caspian Sea, with the exception of
Iran, are all at various stages of transition
since the collapse of the Union of Soviet
and Socialist Republics (U.S.S.R.).
The presence of hydro carbon resources
used for export largely shielded the region
from the global slowdown, however further economic development has been
hampered by vulnerabilities in the financial sectors and corruption. In recent
years there has been a growing class
divide due in part to the development of
the natural resources.
Historically the region has been subject to ethnic tensions as a result of
mass migrations and geographic location
between large regional powers such as
China, Russia and India.

Nominal GDP
Population
GDP Per Capita
Real GDP Growth
Inflation Rate
Premiums Written (Life)
Premiums Written (Non-Life)
Premiums Growth (11-12)

2021.96
141.9
14,247
3.4
5.1
1,732
24,296
13.0

Regional Comparison
Country Risk Tier
CRT-4
CRT-5
CRT-3
CRT-4
CRT-2
CRT-5

Russia
Belarus
China
Kazakhstan
Poland
Ukraine
Source: IMF, Axco, Swiss Re and A.M. Best

Economic Growth

Economic Risk: Low

In December 2011 Russia was admitted
to the World Trade Organization and it is
hoped that this will drive ongoing business environment, regulatory and legal
improvements over time.
Russia has vast energy reserves and the
industry accounts for about 25% of gross
domestic product (GDP) and almost 72%
of export revenue. Russia is the worlds
largest exporter of natural gas.

USD bn
mil
USD
%
%
USD mil
USD mil
%

20
Real GDP

CPI Inflation

15

10

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

-5

Over-regulation, pervasive corruption,

lack of transparency, slower global growth
and weaker energy prices will weigh on
Russia in the near-term.The country continues to experience high capital outflows
as investors seek safer havens.

-10

Source: IMF World Economic Outlook and A.M. Best

AMB Country Risk Report

Russia

Political Risk: High

Political Risk Summary

Score 1 (best) to 5 (worst)

Russia

World Average

The central government, led by President

Putin, maintains a dominating presence in
Russia. The Russian government is highly
involved in economic activity, particularly
in the energy sector. Public spending has
increased with little transparency or public accountability.

International Transactions
Policy

Legal System

Monetary Policy

3
2
1

Regional Stability

Continued government intervention in

the private sector, opaque regulations, and
an inefficient and corrupt legal system
weigh on the cost and pace of doing business in Russia.

Fiscal Policy

Social Stability

Business Environment

Government Stability

High levels of crime, selective and punitive legal enforcement and the potential
for terrorist attacks remain on-going security concerns.

Labor Flexibility

Protest following the re-election of President Vladimir Putin were aggressively suppressed leading to concerns over a further
crackdown on opposition leaders.

Source: A.M. Best

Financial System Risk: High

GDP Per Capita and Population

for Selected Countries
1600

16,000
GDP Per Capita

Population

12,000

1200

10,000

1000

Millions

1400

USD

14,000

8,000

800

6,000

600

4,000

400

2,000

200

Russia

Belarus

Source: IMF and A.M. Best

China

Kazakhstan

Poland

Ukraine

The Central Bank of Russia, on September 1, 2013 became the ultimate financial
regulator for all financial institutions,
including the insurance industry. Companies will report quarterly with no day-today supervision.
During the financial crisis, the Russian
government injected trillions of rubles
into the banking sector. In the wake of
the crisis, the Russian government is seeking to unwind its 60% control over the
USD 1.3 Trillion economy through a massive privatization of over 5,000 businesses.
Weak global market conditions and tight
credit have made the divestitures difficult.
The financial sector remains fragile, partially due to limited competition among
banks and weak banking supervision.
3

AMB Country Risk Report

Russia

GUIDE TO BESTS COUNTRY RISK TIERS

A.M. Best defines country risk as the risk that country-specific factors could adversely affect the claims paying ability of an insurer. Country risk is
evaluated and factored into all Bests Credit Ratings. Countries are placed into one of five tiers, ranging from CRT-1 (Country Risk Tier 1),
denoting a stable environment with the least amount of risk, to CRT-5 (Country Risk Tier 5) for countries that pose the most risk and, therefore,
the greatest challenge to an insurers financial stability, strength and performance.
A.M. Bests Country Risk Tiers are not credit ratings and are not directly comparable to a sovereign debt rating, which evaluates the ability and
willingness of a government to service its debt obligations.

Country Risk Tiers

Country Risk Tier
CRT-1
CRT-2
CRT-3
CRT-4
CRT-5

Definition
Predictable and transparent legal environment, legal system and business infrastructure; sophisticated financial
system regulation with deep capital markets; mature insurance industry framework.
Predictable and transparent legal environment, legal system and business infrastructure; sufficient financial system
regulation; mature insurance industry framework.
Developing legal environment, legal system and business environment with developing capital markets; developing
insurance regulatory structure.
Relatively unpredictable and nontransparent political, legal and business environment with underdeveloped capital
markets; partially to fully inadequate regulatory structure.
Unpredictable and opaque political, legal and business environment with limited or nonexistent capital markets; low
human development and social instability; nascent insurance industry.

Country Risk Reports

A.M. Best Country Risk Reports are designed to provide a brief, high level, explanation of some of the key factors that determine a countrys
Country Risk Tier assignment. It is not intended to summarize A.M. Bests opinion on any particular insurance market, or the prospects for that
market.

Categories of Risk
Country Risk Reports provide scores for three categories of risk for each country. These scores are: (1) Very Low; (2) Low; (3) Moderate; (4)
High and (5) Very High.
Category of Risk
Definition
The likelihood that fundamental weaknesses in a countrys economy will cause adverse developments for an
Economic Risk
insurer. A.M. Bests assessment of economic risk evaluates the state of the domestic economy, government
finances and international transactions, as well as prospects for growth and stability.
The likelihood that government or bureaucratic inefficiencies, societal tensions, inadequate legal system or
international tensions will cause adverse developments for an insurer. Political risk comprises the stability of the
Political Risk
government and society, the effectiveness of international diplomatic relationships, the reliability and integrity of
the legal system and of the business infrastructure, the efficiency of the government bureaucracy and the
appropriateness and effectiveness of the governments economic policies.
Financial system risk (which includes both insurance and non-insurance financial system risk) is the risk that
financial volatility may erupt due to inadequate reporting standards, weak banking system or asset markets
Financial System Risk
and/or poor regulatory structure. Along with the risk that the insurance industrys level of development and
public awareness, transparent and effective regulation and reporting standards and sophisticated regulatory
body will contribute to a volatile financial system and compromise the ability of an insurer to pay claims.

Political Risk Summary

To provide additional detail on the political risk in a given domicile the Country Risk Reports include the Political Risk Summary. The Political Risk
Summary is a radar chart that displays scores for nine different aspects of political risk scored on a scale of 1-5 with 1 being the least amount of
risk and 5 being the highest amount of risk.
Category
Definition
International Transactions
Measures the effectiveness of the exchange rate regime and currency management.
Policy
Monetary Policy
Measures the ability of a country to effectively implement monetary policy.
Fiscal Policy
Business Environment

Measures the ability of a country to effectively implement fiscal policy.

Measures the overall quality of the business environment, and ease of doing business.

Labor Flexibility
Government Stability

Measures the flexibility of the labor market, including the companys ability to hire and fire employees.
Measures the degree of stability in a government.

Social Stability
Regional Stability

Measures the degree of social stability including human development and political rights.
Measures the degree of stability in the region

Legal System

Measures the transparency and level of corruption in the legal system.

Country Risk Tier Disclosure

A Country Risk Tier (CRT) is not a credit rating, rather it represents a component of A.M. Bests credit rating methodology that is applied to all
insurers. A CRT is not a recommendation to purchase, hold or terminate any security, insurance policy, contract or any other financial obligation
issued by a government, an insurer or other rated issuer, nor do they address the suitability of any particular policy, contract or other financial
obligation for a specific purpose or purchaser.

Financial Strength Ratings are distributed via press release and/or the A.M. Best Web site at www.ambest.com and are published in the Rating
Actions section of BestWeek. Financial Strength Ratings are proprietary and may not be reproduced without permission.
Copyright 2013 by A.M. Best Company, Inc.
Version 070208

Copyright 2013 by A.M. Best Company, Inc.

All rights reserved. No part of this report may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise.