Insurer reaps terror dividend ahead of Russia's World Cup

Insurer reaps terror dividend ahead of Russia's World Cup
US soldiers standing guard.
By Jason Corcoran in Moscow April 20, 2016

Fears about a potential terror attack on Russian soil are paying off for Japanese insurer Sompo Group ahead of the World Cup due to be held in 2018 at soccer stadiums across much of the country.

Sompo, which recently opened a representative office in Moscow, is seeing a pick-up in business in Russia following devastating recent terror attacks in Europe and amid fears that Russia’s involvement in the Syrian conflict could bring deadly reprisals.

“The sense of fear about terror has certainly increased in the last 12 months due to the Paris and the Brussels attacks, and the Russian intervention in Syria,” Simon Low, group head of political risk & crisis management at Sompo global insurance unit Sompo Canopius, tells bne IntelliNews in an interview. ”Everyone is now far more aware of the problems and these kind of high-profile strategic events [like World Cup 2018] will have more attention because there has been no direct fallout yet from Russia’s Syria involvement.”

Separate insurance for terrorism has become increasingly important since the 9/11 attacks in the US, when $40bn of estimated losses crippled both businesses and insurers. In the US, more than 60% of companies now buy terrorism cover, rising to three-quarters in New York. Russia has suffered from its fair share of terrorism over the past decade, including at Moscow’s Domodedovo Airport, the city’s metro system, as well as on trains, buses and at train stations.

Sompo Canopius is the global speciality insurer unit of Japan’s Sompo. The parent is currently trying to get the relevant Russian licenses to do direct deals on the market, according to Low.

In the meantime, the firm has a long-term relationship with Ingosstrakh, the former state-controlled insurer now controlled by Italy’s Generali, according to Tim Davies, head of sabotage & terrorism at Sompo Canopius. ”We reinsure their terrorism insurance programme and they are long-term partners of ours,” says Davies, who cited lender VTB and corporate insurer Sogaz as major clients.

With Russia’s economy showing signs of stagnating, Sompo had seen a fall-off in business due to the slowdown in construction, but is starting to see more enquiries ahead of the 2018 World Cup.  Sanctions have also hampered its expansion in Russia because the firm can’t deal directly with entities sanctioned over the Kremlin’s interference in the Ukraine conflict. “The Sochi Olympics was very big for us due to the number of new builds and we had enquiries four years in advance,” says Low. “It’s strange with the World Cup in 2018 that we are only starting to see people approach us now, but there’s definitely been a lack of urgency and enquiries till now.”

Sompo had “huge” exposure to Sochi where it re-insured everything for terrorism from the hotels to the ski-jumps and the lifts. Their insurance covers not only property damage and business interruption, but also terrorism liability, contingency, contract frustration and personal accident or loss of life.

Soft targets

Davies says the threat of an attack by the so-called Islamic State (IS/Isis) in Russia far outweighs any fears about a homegrown terrorism threat from individuals or groups linked to the North Caucasus.  

“Isis want to get into the newspapers and they will strike against the easier targets,” agrees Low. “Russia has very strong security and they have held very secure borders for a number of years now, but it depends whether Russia can pick up and assess radicalised individuals returning after spending several years in Syria.”

Low and Davies were invited to Moscow in April to address delegates at the 20th annual Reinsurance Conference for the first time on the issue of catastrophe and terrorism risks for reinsurers.

There has been talk about the Kremlin setting up a pool like the UK’s terrorism insurance  backstop, Pool Re, but it is thought to be the unlikely in the short term due to widening of the federal budget’s deficit. 

Sompo, which insured the Westgate shopping mall in Kenya that was attacked by Islamic terrorists in 2013, provides reinsurance for Moscow’s major shopping malls and the largest hotels.

Premiums differ from location to location and there is a higher premium for buildings in Moscow relative to other Western cities due to what’s going in Syria and the Caucasus. ”If you are looking at a similar hotel in the middle of Moscow and Tokyo, there would be a rating 2.5 times more in Moscow,” says Low.

Sompo also provides kidnap and ransom insurance for high net-worth individuals and their families, but they haven’t yet signed up any Russian oligarchs.