Models of Assessment of the Influnce of Insurance Assets Securitization on Stability of Mutual Insurance Societies

Abstract

1. Introduction. Mutual insurance societies (MIS) occupy more than 25% of the global insurance market, which can be explained by their distinct advantages for insurants over the commercial forms of insurance protection (such as retention of funds as insurants' property, broader risk management capabilities, and some others; Turbina and Dadkov, 2007; Schlossberger, 2016; Vovchenko et al., 2017; Rupeika-Apoga and Nedovis, 2015; Grima et al., 2016; Boldeanu and Tache, 2016). The MIS activities can also appear effective for the state. For example, in Russia, such insurance societies are to a certain extent able to reduce the financial burden on the state budget related to the compensation of the damage caused by man-made and natural disasters, loss of natural monopolies, and also bring positive social return (reducing civil liability risks, strengthening social protection, improving environmental protection quality, etc.). However, the MIS activity at the initial phase is usually described by relatively high levels of risk of stability loss (Thalassinos et al., 2012; 2015; Thalassinos and Liapis 2014; Liapis et al., 2013; Fetai, 2015; Duguleana and Duguleana, 2016). They can be caused by insufficient amounts of accumulated funds to cover damages in cases of adverse events. These risks increase significantly in the period of unstable economic situation, which largely explains the lack of development of the mutual insurance segment in Russia today. Currently, no more than 15 MIS with little financial turnover operate on the Russian insurance market, against 435 commercial insurance companies (Khamitov, 2015; Krupa et al., 2015; Krupa et al., 2015a; Anikina et al., 2016). In our opinion, MIS stability at the initial stage of their activity can be strengthened through the use of mechanisms of their financial support that ensure reliable coverage of risks--at the price parity not higher than that of commercial insurers, and without overloading the parties, if possible. These mechanisms include various forms of public-private partnership, in which the state undertakes to compensate MIS for part of the damage, usually on the conditions of the investment return (Burkov et al., 2001; Valencik and Cervenka, 2016; Cristea and Thalassinos, 2016). Preferential loans, subsidies and state reinsurance are examples of such forms (Khamitov, 2015). They may also include forms using an innovative technique of insurance assets securitization, in which the state may also play a role (Bar Haupt, 1997). Insurance assets securitization by a MIS is understood as this society raising funds to replenish insurance reserves and strengthening its own financial stability by selling future contributions to another entity (Fund reinsurer), which places securities on the financial market with the collateral in the form of these contributions (Grebenshchikov, 2011; Demchenko, 2008). Standalone and economically independent legal entity usually acts as a fund reinsurer (Special Purpose Vehicle, SPV). Insurance assets securitization transactions of MIS suggest the following sequence of actions (Cummins and Barrieu, 2013). As a first step, the Issuer--MIS sells to a newly formed SPV a portion of its contributions, receiving a sum of money equal to the purchase price less the cost of transaction structuring. The SPV finances the purchase price through the issuance of securities--insurance bonds. These securities are placed on the market under the mediation of the bank consortiums located in the world's financial centers. Since the SPV owns no assets and, in addition, has a minimum capital, this legal entity cannot have access to the capital market by itself. Therefore, this transaction suggests additional guarantees from its guarantor. In particular, public institutions may act as its guarantor. Investors purchase bonds issued by the SPV, which certify the right of claim arising from the MIS debenture. …