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Ingosstrakh Readies First Insurance IPO

Ingosstrakh has hired three Western banking giants for an initial public offering in London later this year when it makes history by becoming the first publicly traded Russian insurance company, banking sources said Friday.

Ingosstrakh, Russia's second-largest insurance company by assets and annual premiums, has hired Deutsche Bank, Merrill Lynch and Morgan Stanley to manage the London Stock Exchange listing planned for the second half.

A company spokesman declined to comment, but bankers said Ingosstrakh was hoping raise just over $500 million by floating about 15 to 20 percent of its shares.

The listing will offer investors the first play in Russia's fast-growing insurance sector, giving them a chance to diversify away from the oil and gas that dominates the economy.

The nation's growing middle class has increasing amounts of cash on the back of an oil price boom and seven consecutive years of economic growth, but spends a pittance on insurance.

Part of the reason is cultural, as communism provided Russians with cradle-to-grave security.

A recent study by international rating agency Fitch found that the average Russian spends $1 per year on life insurance, lagging behind even Ukrainians, who spend 2.5 times more.

By comparison, the average British household spends £807 ($1,403) per year on life insurance alone, on top of £556 on auto and £347 on home renovations and contents insurance.

A 2002 study by Swiss Re found the average Russian spent $62 on insurance products per year, compared with $1,800 in Germany.

"Insurance in Russia is a growth story because the market is very underdeveloped," said Dmitry Piskulov, an analyst at Fitch.

"The market is expanding on the back of growing personal incomes and spending on cars, mortgages. ... Russia's new middle class is the driver of growth," said Piskulov.

Foreign investors are taking note.

The world's biggest reinsurer, Germany's Munich Re, said Friday that it would set up a subsidiary in Moscow to take advantage of the substantial growth it expects, becoming the first foreign reinsurer to run its own firm here.

Aluminum tycoon Oleg Deripaska, who according to Forbes has an estimated personal fortune of $7.8 billion, controls Ingosstrakh. With assets of 31.3 billion rubles ($1.13 billion) as of June 2005, Ingosstrakh is Russia's second-largest insurance firm, after state giant Rosgosstrakh, which had 53.6 billion rubles of assets. Fitch estimates Russian gross insurance premiums were worth around $10.3 billion in 2004 and growing by 20 percent annually.

Despite the rising premiums, the insurance sector is still full of risks.

Assessing the market is difficult, with figures "often not backed by substance," Piskulov said. One industry study reported by Russian media said that as much as 80 percent of the life-insurance policies written in the country were used in fraudulent schemes.

Russian insurance companies are also under pressure to tap new sources of cash because of their low capitalization.

(The Moscow Times 03.iv.06)

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