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. Last Updated: 07/27/2016

U.S. Blasts Russian Insurance Legislation

The U.S. government has slammed a Russian bill aimed at restricting foreign access to the Russian insurance market that passed the Federation Council, calling on President Boris Yeltsin to veto the measure.

The bill's passage by Russia's upper house of parliament provoked an immediate outcry from Western insurers and their respective governments, which accused Russia of resorting to protectionism to shield its domestic insurance industry.

If Yeltsin signs the measure into law, it could jeopardize Russia's chances of joining the World Trade Organization, a U.S. State Department official said.

The insurance law, which has been in and out of both the State Duma and the Federation Council since early this year, officially opens the Russian insurance market to foreign owned companies f something which both the World Trade Organization and the European Union have demanded.

However, insurance industry representatives say that the restrictions included in the bill would amount to a continuation of the ban on foreign insurance companies doing business in Russia.

"The whole point of the bill is to keep foreign companies from entering the Russian market, even though it officially lifts the ban keeping them out," said Dmitry Ignatiyev, deputy director of Zurich-Rus, which is affiliated with Zurich Group of Switzerland.

Washington apparently agrees with such an assessment.

"We have made it clear to Russian officials that the recently passed restrictive law on insurance is contrary to Russia's goal of revitalizing its economy and attracting foreign investment and may complicate Russia's accession to the World Trade Organization," State Department spokesman James Rubin said Monday in Washington, The Associated Press reported.

Even so, the new measures will not act to keep all insurers out and indeed, little will change for the handful of major foreign insurers already doing business in Russia through subsidiaries, said Ignatiyev.

In the past, foreign insurance companies have sidestepped the ban by working through subsidiaries in which they hold a 49 percent stake.

"In principle, this law does not keep serious companies from working in Russia," Ignatiyev said.

However, he added that many of these same companies had been hoping that the Federation Council would pass a more liberal insurance bill that would have allowed them to take over majority ownership of their Moscow subsidiaries and broaden their investment profile in Russia.

"Any of the major insurers could easily invest $10 million to $20 million in the life insurance market here, which is completely empty," said Ignatiev.

However, under the provisions of the insurance bill, they would have to find Russian partners willing to invest an equivalent amount or else be barred from offering life insurance.

AIG, a major American insurer that had already invested in its Russian life insurance business in anticipation of market liberalization, expressed its displeasure at the law through the Washington-based U.S.-Russia Business Council.

"This matter is extremely serious f it threatens a major disruption in commercial relations between the United States and Russia, and could have significant political implications as well," Eugene Lawson, the council's president, said in an official statement.