The federal law "On Organisation of Insurance Business in the Russian Federation" (the "Law") governs insurance companies with foreign or Russian investment while Chapter 48 of the Civil Code deals primarily with a contract of insurance.
The Law sets out the legal framework of insurance business in Russia. In particular it specifies requirements relating to indicators of financial stability, such as insurance tariffs and insurance reserves which insurers must meet.
The Law also regulates access to the insurance market by foreign investors. It establishes the permitted collective share of foreign capital in the charter capital of Russian insurers as 25 per cent of the charter capital of all insurers in Russia. As of 1 January 2005, the collective share of foreign capital in the insurance sector stood at just 3.7 per cent. Such a low percentage has been accounted for by experts by the fact that at present foreign investors are not keen on coming to the Russian market, as insurers with considerable foreign capital are not entitled to offer such principal types of insurance as life and mandatory insurance (eg. medical and social insurance). On the other hand, according to the Russian Ministry of Finance, Russian insurance companies with foreign investment collected 8.8 per cent of the premium in 2004.
The Law provides for a preferential treatment of European investors. Russian insurers which are subsidiaries of European companies acting as their parent companies and Russian insurers with more than 49 per cent of European investors' capital, will be allowed to offer life and mandatory insurance. Few other restrictive measures such as permanent Russian residency requirements for the managers also do not apply to European investors and their Russian subsidiary insurance companies.
The Law establishes the minimum charter capital that each insurance company in Russia must have, which, is set at 30 million Russian Roubles (approximately US$1 million). The above minimum charter capital applies with coefficients from one to four depending on the type of insurance activity a company principally conducts. For example, the coefficient 2 applies to companies offering life insurance, therefore the minimum charter capital of such companies must amount to 60 million Russian Roubles (approximately US$2 million); for insurance companies offering re-insurance the coefficient is 4, thus the charter capital of such companies must amount to 120 million Russian Roubles (approximately US$4 million).
The Law also classifies 23 types of insurance which can be offered in Russia: starting from life insurance and ending with property and entrepreneurial risk insurance. The principle idea of such classification is that insurance companies are no longer able to conduct life as well as other types of insurance. The Law sets out that an insurer may conduct either life insurance or any other type of insurance, but it cannot combine the two. The division between companies who offer life insurance and companies offering other types of insurance is to be finalized by 1 July 2007.
The Law was last time amended in March 2005 to refine the authority of the regulator and to incorporate the procedure for withdrawal of the licence.
At present, the industry is putting together an effort to develop a complete new version of the Law. This move, however, has been negatively received by the regulator. In any event, Russia will have to modify the Law if and when it joins the WTO. According to the most optimistic scenario, this could happen in 2006.