Zurich Insurance Group and OLMA Group (OLMA) have signed an agreement under which OLMA will acquire Zurich’s general insurance retail business in Russia. OLMA has stated ambitions to further develop the retail insurance business in Russia as well as building its own corporate business by leveraging its existing customer base.
Zurich’s retail portfolio comprises around 1.2 million policies representing gross written premium volume of RUB7.1bn(about $220m) in 2013. Its products include casco, motor third party liability, property and personal accident and are sold to individuals and small and mid-sized companies via agencies, partnerships and direct channels. Subject to regulatory approvals, the transaction is expected to close in the third quarter 2014.
The sales price amounts to RUB1bn(about $30m). On disposal, unrealized currency translation adjustment(CTA) losses of approximately $265m, currently reflected in shareholders' equity, will become realized. Mainly as a result of this accounting charge, the transaction is estimated to generate a loss through net income of about $300m, but with only a small impact on the Group's shareholders' equity. The CTA loss recognized on disposal reflects the revaluation of investments made into the Russian retail business since the acquisition of Nasta Insurance Company in 2007 primarily due to the depreciation of the Russian Ruble versus the US dollar. The exact amount of the CTA loss will be calculated at the closing of the transaction, which is expected to be in the third quarter of 2014.
Zurich will retain its corporate business, which is primarily focused on underwriting large Russian and multi-national commercial customers, energy business and financial lines. It has been an active player in the Russian corporate market since 1996.
Mike Kerner, CEO General Insurance, comments “The transaction is a proof-point of our 2014-2016 strategy. While we invest in priority markets, we either turn around or exit those that are under-performing. When announcing our Annual Results 2013, we said that the Russian retail business had not developed according to our expectations and that we would explore options for it. We believe that the sale to OLMA is in the best interest of our customers, employees and shareholders.”
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