CIA HISTORICAL REVIEW PROGRAM RELEASE AS9
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Assistant Legislative Counsel Chief, Economic Research Area
Submission of Attached -report on US and Soviet Risk Sharing Through International Reinsurance
Your request by phone6
In response to your request for information to provide Se.-ator Mundt on Soviet lnvolveaent in US companies' reinsurance operations, the cttached report has been prepared in the format suggested oy you.copy of the Journal of CoBwerce piece that gave rise to tha Senator's inquiryopy of the ai-icle in the International Insurance Monitor that you requested are also attached. Please let us know if addiLional information ia needed.
s stated.
US AND SOVIET RISK SHAKING THROUGH TATERf(ATIOWAL RKIKSURAKCE
foreign insurance operations of the USSRoviet state enterprise known as IngosstrakhState Insurance Administrationunder the USSR'sFinance- The home office of Ingosstrakh is in Moscov. complex includes the following Soviet-controlledthe West: The Black Sea and Baltic General Insurance Company,London; Garant Versicherungs A. G. in Vienna, and SchvarzmeerTransportversicherungs A. G. in Hamburg. These threeare' incorporated under the laws of the countries in whichlocated, but controlling stock is held by Ingosstrakh- agents of these companies have offices in Paris,Beirut, and Teheran, as well as ln other cities inand Nigeria.
The major function of the Ingosstrakh group of firms is the insurance of Soviet foreign trade cargoes. Indeed, all the risks borne by the USSR in connection with foreign trade are Insured directly with these companies. The Ingosstrakh firms,roup, thenart of their liability for such risks by placing reinsurance with Western companies. The reinsurance of Soviet risks is the chief activity of the Soviet-controlled insurance firms in the international insurance market, centered in Western Europe. Although they acceptfrom West European companies some reinsurance of Western risks, thereby earning premium income, their reinsurance operations are undertaken mainly in order to reduce and diversify their total liability.
A US company could share indirectlyoviet risk, as follows: The American International Underwritersor example, mightetrocession arrangement with, say,ersey Marine Insurance Company,iverpool, England. The essence of such an arrangement is that AIU would agree to reinsurea given percentage of any reinsurance business written byersey. The identity of thc insured normally is neither disclosed nor inquired about*' Some of the reinsurance accepted by Thamesersey, and hence by the AIU, might include Soviet risks insured by the Ingosstrakh group- The connectionS company and the Ingosstrakh group would be even more indirect if the Soviet risks covered byersey, had been received by the latter through its retrocession arrangement with another Western insurance company.
InBona way, the IngosfltroJdi Organization could share3fersey parcelled out to Ingosstrakhetrocessionixed share of its total reinsuranceart of which mightS risk originally underwrittenS firm.
There is no feasible way inS insurance company could participate actively in the international reinsurance market and at the same time avoid indirectly placing or accepting business with the Ingosstrakh group. In the highly competitive field of international reinsurance the refusalS company toetrocession involving the reinsurance of some Soviet riskseven in the unlikely event that it is known beforehand that Soviet business is involvedwould exclude thc US company from legitimate and lucrative insurance operations. Moreover, international reinsuranceusiness that involves reciprocity and mutual accommodation. S company consistently refuse to accept reinsurance business involving Soviet risks, it would have difficulty in placing its own reinsurance abroad. However, even where Soviet risks are involved, their shareetrocession arrangement usually would be very small, because Soviet participation in tho world reinsurance business is so negligible in size.
5- At the present time US insurance companies do not deal directly with any of tbe Ingosstrakh firms. American companies fear inat claims against these firms might not always be recoverable. Under the retrocession arrangements betveen US and Western firms, however, the financial security of the US coispany is not endangered, inasmuch as any claim is recoverable from the Western companyof what arrangements the latter has ne.de to secure its own liability. An additional impediment to direct dealings with the Soviet insurance companies is the concern on thc part of US companieseinsurance treaty with Ingosstrakh, for example, might incorporate retroccded reinsurance of such enemy countries as Communist China, North Korea, North Vict Nan, and Cuba. Business with such countrios is, of course, forbidden by the "Trading with the Enemy Act" ofeptember WW.
6. The USSR engages iifdireci. international insuranceprincipally to protect its foreign trade cargoes; it engages in reinsurance to secure the financial soundness of Ingosstrakh's underwriting operations by sharing its liabilities among many insurers. Reinsurance operations also provide the USSR with some foreign exchange
income and usuallymallnnually. Moreover, the USSR's participation in international marine insurance activity enables
.he Soviet-controlled firms to keep abreast of trends in worldwide
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nsirino insurance Othor cotmiarcial information availablo through such opejwjiono, however, is readily attainable in Western trade andournals. On the other bond, US knowledge of Soviet cargoes Plight bo enhanced somewhat if there were direct relations betweenta Soviet insurance companies. In regard to Soviet intelligence act:lves, it may be assumed thct Soviet officials concernedic or commercial business abroad are briefed by Soviet intelligence agencies and may be expected to pass on any information of possible intelligence value. Soviet insurance personnel are not known to have been involved in espionage activities, however, and the reputation of Soviet insurance personnel is generally good in Western business circles.
Original document.
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