The Central Bank has proposed a new way to improve the health of problem insurers. Their rehabilitation, by analogy with banks, should be carried out by a management company (MC) specially created by the Central Bank, and not just by the Deposit Insurance Agency (DIA). This idea was discussed at a meeting of the insurance expert council at the Bank of Russia.

The mechanism for reorganizing insurance companies will be similar to the new mechanism for financial recovery in the banking market - through direct additional capitalization of the company at the expense of the Central Bank or attracting third-party investors to participate, according to a message published on the Central Bank website.

The presentation of the Central Bank presented to the participants of the meeting (Vedomosti read the document) states that first the regulator sends its representatives together with employees of the management company to assess the financial condition, the discrepancy between assets and liabilities, and the “inadequacy” of the insurer’s assets to invest insurance reserves. Based on the results of the analysis, the company’s authorized capital can be reduced to the “real value” or to 1 ruble if it turns out that the insurer has negative capital. At the same time, the Central Bank is preparing a draft plan for the participation of the regulator in the implementation of measures to prevent the bankruptcy of the company.

The decision on the participation of the Central Bank in the rehabilitation of the insurer is made by the board of directors of the Central Bank, which also approves the rehabilitation plan.

Next, the insurer receives financial assistance from the Central Bank or Management Company using money from the Banking Sector Consolidation Fund, but only if three conditions are simultaneously met. The first is that the insurer’s capital is reduced to its real value or up to 1 ruble, the second is that the Central Bank, Management Company and (or) a third-party investor buy more than 75% of the shares or ¾ of the company’s shares, the third is the termination of all obligations of the insurer to its owners and top management.

“The ultimate goal of managing an insurance organization that has undergone the recapitalization procedure is its sale to a new owner at an open auction held by the Bank of Russia,” stated in the Central Bank materials.

Back in the fall of 2013, the Central Bank began thinking about sanitizing not only banks, but also insurers. “A managed system of reorganization of insurance companies can increase consumer confidence in the insurance market,” explained First Deputy Chairman of the Central Bank Sergei Shvetsov. In 2014, the regulator began thinking about carrying out the first-ever reorganization of an insurance company, the Life Insurance Society (OSI) Rossiya, managers of three organizations operating in the Russian financial sector told Vedomosti.

The mechanism for the rehabilitation of banks through direct additional capitalization by the Central Bank should be launched, according to Deputy Chairman of the Central Bank Vasily Pozdyshev, already in July of this year. To do this, the regulator will register the management company and form a banking system consolidation fund from its contributions; the amount of investment will be determined individually by the board of directors of the Central Bank. President Vladimir Putin signed the corresponding law in early May 2017.

The launch of a new mechanism for the rehabilitation of insurers will also require amendments to bankruptcy legislation and certain legislative acts, the Central Bank clarified.

“The most lively discussion was around the criteria by which insurers will be selected for reorganization,” says one of the meeting participants. “The question arose about sanitizing only socially significant insurers.” At the same time, some participants opposed the new resolution mechanism, arguing that the emergence of this instrument could encourage unscrupulous behavior on the part of market participants and their clients. Another argument is the existence of a mechanism for transferring insurance portfolios; for example, the VTB Insurance company did this at the beginning of this year by transferring its MTPL portfolio to VSK.

This discussion is just the beginning of the journey, one of the possible options for a new reorganization mechanism, says Igor Yurgens, president of the All-Russian Union of Insurers (VSU). Managing Director of the National Rating Agency (NRA) Pavel Samiev believes that it is necessary to have a reserve in the form of another rehabilitation mechanism, because there have already been precedents for related rehabilitation of banks and insurers. But this is not the only possible option, he added.

According to one of the meeting participants, by proposing a new rehabilitation mechanism, the Central Bank probably assumes that, given the situation on the compulsory motor insurance market, recovery may be required by an insurer from the top 10. “But I don’t think that right now there is a specific company on the agenda that urgently needs to be sanitized,” says Vedomosti’s interlocutor.

Ingosstrakh board member Ilya Solomatin told Vedomosti that the idea of the Central Bank was announced as a project. “But I think it seriously fails to comply with current legal standards. This idea can be discussed as a novelty in the current situation. We, as SROs, need to compare the Central Bank’s proposals and, as soon as possible, prepare a community response as to why the proposed route is not feasible,” he noted.

The Central Bank proposed treating insurers