Key financial indicators and risk management
Insert “According to the world practice, the obligations of export credit agencies are secured by state guarantees that meet the country's sovereign rating.”
- Vnesheconombank's guarantee of $10 billion until 31 December 2032;
- New direct state guarantee of the Russian Federation of $20 billion until 31 December 2042.
The Agency’s status requires it to meet high requirements for its solvency and long-term financial stability for the timely and full fulfillment of its obligations.
The Agency’s activity is not governed by the legal acts regulating the activities of insurers in Russia. The requirements for its solvency, composition and principles of formation of insurance reserves, as well as investment activities, are established by the Board of Directors in accordance with the provisions of the rules of insurance and securing of export credits and investment against business and political risks.
According to international practice, the obligations of ECAs are secured by state guarantees, which rating corresponds to the country's sovereign rating. In 2018, EXIAR obligations under insurance and reinsurance contracts were secured by Vnesheconombank's guarantee of $10 billion until 31 December 2032, which is secured by the same-amount state guarantee of the Russian Federation. From the end of 2018, EXIAR obligations under insurance and reinsurance contracts, surety contracts and independent guarantees are secured by the new direct state guarantee of the Russian Federation of $20 billion until 31 December 2042. This allows to further increase the volume of support for national exporters.
The rules of insurance and securing of export credits and investment against business and political risks establish the maximum amount of the Agency’s obligations under concluded insurance contracts, reinsurance contracts, surety agreements and independent guarantees equal to the amount that can be covered by the State Guarantee.
The composition and methods for calculating the Agency's insurance reserves are based on the best insurance practices and consider EXIAR’s insurance solutions. The insurance reserves are invested using a conservative approach with due regard to currency and term of reserves.
The Agency’s financial stability is characterized as high. Equity financial resources and insurance premium reserves amounted to 68.3 billion rubles as of 1 January 2019, and exceeded economic capital (10-year horizon, 95% reliability). The estimated probability that the Agency will be able to fulfil independently all its insurance obligations with a 10-year horizon is comparable with the credit ratings of BBB/Baa from the credit rating agencies.
In 2018, the Agency generated a profit of 2,342 million rubles, which is 51% higher than the target indicator. At the same time, the financial result from insurance activities meets the target one.
The excess was caused by a reduction in administrative expenses and higher income from investment activities.
In 2018, the Agency received more notifications on insurance risk realization. Despite some potential losses were settled during the year, the total amount of active notifications increased. As of 1 January 2019, 5 applications on loss occurrence for a total of 33 million rubles and 40 notifications on insurance risk realizations for a total of 3,365 million remained unsettled. In 2018, 14 insurance payments were made for a total of 780 million rubles, uncollected subrogation claims amounted to 1,621 million rubles.
To date, the Agency has accumulated successful experience in implementing debt collection procedures. For example, in May 2017, the Agency paid insurance indemnity as a result of non-payment for the fertilizers by the Ecuadorian company. Approximately $4 million of total indemnification was paid. In April 2018, as a result of negotiations held with the debtor, the restructuring agreement was concluded, under which the debtor was going to repay the principal debt in instalments and interest charged being governed by Russian law. At the moment, the debtor has paid off about 20% of the principal.
In 2017, the Agency paid insurance indemnity for a Turkmenia debtor, which had failed to pay for the delivered equipment. In the middle of 2018, following the several rounds of negotiations held with the debtor and the Russian exporter, about 97% of debt payment was collected by exporter’s bank.
Compliance risk is a risk of incurring losses by the Agency due to the internal (non-compliance with the legislation of the Russian Federation when carrying out insurance activities by the Agency, as well as the laws of other states in the process of loss settlement, non-compliance of the Agency’s internal documents regulating the insurance activities with the legislation of the Russian Federation, inefficient legal work, violation of the terms of insurance contracts by the Agency, etc.) and external factors (imperfect legal system, impossibility of resolving certain issues through negotiations, violation of the terms of contracts by the Agency’s customers and counterparties, sanctions imposed by the authorized bodies of the counterparties’ countries of incorporation, etc.).
A distinctive feature of compliance risk is that the Agency can significantly reduce, and sometimes avoid, the occurrence of risk by fully complying with applicable legislation, by-laws and other regulatory legal acts, internal regulatory documents and procedures.
The objective of compliance risk management is to maintain the risk assumed by the Agency at a level that complies with the Agency’s strategic objectives.
To minimize compliance risk, the Agency uses the following basic tools:
- complies with the procedure established by the Agency for the distribution of powers in decision-making and operations;
- ensures the availability and implementation of appropriate management procedures to ensure the correct performance of operations;
- develops internal procedures and ensures that the Agency has internal documents regulating the procedure for concluding/amending insurance contracts and other agreements, as well as the interaction of the Agency’s structural units;
- ensures the legitimacy of insurance contracts concluded by the Agency (insurance contracts prior negotiation procedure before their conclusion), the implementation of all necessary procedures for confirming the legitimacy of transactions concluded by the Agency, monitoring the availability of the necessary powers for the signatories of insurance contracts and other agreements, conducting AML/CFT checks to establish the legal capacity of the Agency’s customers (including insurers/beneficiaries) when concluding insurance contracts and other agreements;
- ensures the validity of instructions sent to policyholders/beneficiaries in the process of fulfilling the insurance contracts;
- engages external foreign law consultants, including in the process of claim handling, if necessary;
- develops standard forms of insurance contracts, as well as insurance rules approved by the management bodies of the Agency;
- negotiates the drafts of all internal regulatory and administrative documents, as well as the drafts of resolutions to be passed by the Agency’s management bodies;
- conducts regular training of employees, etc.
Credit risk is a risk of losses incurred by the Agency as a result of non-fulfillment, untimely or incomplete fulfillment by the counterparty of financial obligations under the insured contracts.
In December 2018, the Methodology for the classification of countries and the calculation of EXIAR internal country limits was approved
To make an informed decision on the appropriateness of conducting operations that imply credit risk, unified approaches are used to evaluate the financial and non-financial information about a counterparty.
Monitoring the insurance portfolio, identifying early risk factors that can entail incomplete performance by the counterparty of its obligations is an important area of credit risk management, which allows to take timely measures to minimize losses.
In 2018, the Agency continued to develop the credit risk analysis and evaluation systems. The Agency improved the approaches to the analysis of macroeconomic and country risks. In December 2018, the Agency approved the Methodology for the classification of countries and the calculation of EXIAR internal country limits was approved.
In 2018, as part of the process of minimizing/preventing the growth of external and internal factors of credit risk, the Agency took a number of measures to improve the methodology and processes for assessing and controlling credit risk:
- has improved methods for assessing the credit risk of legal entities (non-financial organizations) and financial institutions, which take into account the counterparty’s country risk, as well as the specifics of the current EXIAR product range;
- has updated internal counterparty rating systems, as well as procedures and methods for setting and controlling risk-bearing operation limits.
The government priorities for export support in the implementation of the state foreign economic policy and the tasks of increasing competitiveness and improving the volume of Russian non-resource exports through the formation of comprehensive export support tools by providing guarantees, credit and insurance export support, required the approaches to credit risk evaluation to be revised. Such approaches, revised in 2018, allowed to provide a sufficient degree of protection against a set of risks.
В дальнейшем единые процессы и подходы по управлению кредитнIn the future, EXIAR will improve the unified processes and approaches for managing credit risk to increase the overall effectiveness of the risk management system while fulfilling the goals and objectives of the Agency as a state export support institution.