OREANDA-NEWS. May 08, 2009. Due to numerous complaints of insurance companies operating on the market of agricultural insurance, the Federal Antimonopoly Service (FAS Russia) developed and forwarded to the Government of the Russian Federation the proposals on amending the Rules for providing subsidies in 2009-2011 to partly compensate the expenses for insuring harvest of agricultural crops, harvest of perennial plantings and perennial plantings, reported the press-centre of FAS Russia.

In particular, the antimonopoly authority proposes to exclude Sub-Clauses "a" - "c", that set additional requirements to insurance companies, from Clause 5 of the Rules and amend Clause 6 of the Rules in terms of introducing from 2010 the mandatory risk re-insurance under the agreements for insuring harvest of agricultural crops, harvest of perennial plantings and perennial plantings with state support by all insurers, that provide this type of insurance, through any insurer that has a licence for re-insurance.

The FAS Russia's proposals were discussed at the meeting organised by the Russian Minister of Agriculture, Mr Slepnyov, in March 2009. Following the ministerial meeting, the Working Group for Developing the System of Agriculture, at the Commission on the agroindustrial complex, at the Government of the Russian Federation, was instructed to devise by 25th June 2009 the proposals on the issues raised by FAS Russia.

Reference:
On 31st December 2008 the Government of the Russian Federation adopted No. 1091 Decree "On approving the Rules for providing in 2009-2011 t subsidies from the federal budget to partly compensate the expenses for insuring harvest of agricultural crops, harvest of perennial plantings and perennial plantings".

Sub-Clauses "a" - "c" Clause 5 of the Decree of the Government of the Russian Federation set requirements to insurance organisation that provide agricultural insurance with state support. In particular, an insurance company must have:

- the reliability rating assigned by one of international rating agencies or Russian rating agencies at a level no less than satisfactory reliability;

- Net assets no less than 850 million Rubles; and

- The share of receipts of insurance premiums for agricultural insurance within insurance portfolio must be no more than 20% of the total receipts.

Clause 6 of the Rules specifies that if an insurance agreement is signed with an insurance company that does not observe the conditions specified in Clause 5 of the Rules, the funds, the financial source of which are subsidies, are provided to an agricultural producer if an insurance company re-insurers no less than 30% of the risks under such an insurance agreement through an insurance organisation that complies with the above conditions.

According to FAS Russia, the requirements specified by the Rules do not demonstrate financial stability of an insurer and do not confirm its ability to fulfill its obligations under an insurance agreement due to the following reasons:

Insurance companies participate in ratings on a free and voluntary basis, and absence of the rating is not a sign of inability of an insurance company to fulfill its obligations under the insurance agreements.

Setting the net asset requirement at no less than 850 million Rubles creates an advantage to a limited range of insurers and excludes competition from small and medium-size insurers. This requirement is of a blocking-off and does not guarantee financial stability of an insurer.

The share of receipts of insurance premiums for agricultural insurance within insurance portfolio of no more than 20% of the total receipts does not confirm the insurer's ability to fulfill its obligations under an insurance agreement.

Setting such excessive requirements to insurance companies also creates an advantage for certain insurance organisations and lead to restricting competition on the market of agricultural insurance with state support.