Under Russian law, there is currently a statutory 25% cap on total foreign ownership in the aggregate charter capital of Russian insurance companies (the Quota).
If the Quota reaches its limit, the activity of Russian insurance companies that are either subsidiaries of foreign investors or controlled by foreign investors through ownership of more than 49% of their charter capital may be significantly affected. For example, such companies will not be able to receive new insurance licenses, increase their charter capital by means of foreign investors or subsidiaries or sell their shares to foreign investors.
The Quota is calculated by the RF Federal Service for Financial Markets (the FSFM) as of January 1 of each year as the ratio of the total capital owned by foreign investors in the charter capital of Russian insurance companies to the aggregate charter capital of such insurance companies taken as a whole (including Russian insurance companies).
The results of the Quota calculation for 2012 became available on March 6, 2012, when the FSFM issued Informational Letter No. 12-DP-11/8908 (the Informational Letter). According to the Informational Letter, as of the beginning of 2012, the Quota was not exhausted and was 18.1%. According to FSFM calculations, in 2012, foreign investors are free to invest RUB 11,607,500,000 in the charter capital of Russian insurance companies.
However, the amount available for investment calculated by the FSFM is not final and may change throughout the year. For example, in early June 2011, the Head of the FSFM, Mr. Dmitry Pankin, announced that the Quota for 2011 was met. Nevertheless, in 2011 some insurance companies still managed to receive approvals from the FSFM to increase their charter capital by the means of foreign investors because of the flow of foreign capital in the Russian insurance market and a subsequent increase of the amount available for foreign investment.
The Quota has restricted investment in the Russian insurance market and the barrier to entry was discussed during negotiations related to Russia’s joining the World Trade Organization. To address the issue, a new draft law was submitted to the RF State Duma (the lower chamber of the RF Parliament). According to the draft law, the Quota would be increased from 25% to 50% for foreign ownership. The draft law is being considered in the first reading and, if passed in it first reading, would still need to undergo further approvals.
In general, the participants of the Russian insurance market welcome the potential increase in the Quota and consider it a very positive development. Increasing the Quota to 50% should increase investment in the sector and allow new foreign capital in existing entities.
*Elvira Danilova is a paralegal in Dechert’s Moscow office.