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Cargo insurers in the Europe and North America are reporting a downturn in shipments to Russia in the wake of that country's economic crisis.

Some cargo insurers are beefing up security at warehouses in the event of an increase in crime.

The main effect of the Russian crisis on Western companies in the past month has been "a drastic reduction of shipments. Apparently, suppliers in the U.S. cannot get paid," said Bill Walker, managing partner of Seattle-based Overseas Insurance Brokers.

Cargo underwriters at Lloyd's of London remain more circumspect, for the moment.

"August is always a quiet month (for business), because everyone goes to their dacha (summer house). So far, we have been fortunate not to suffer any losses," said Richard Burnett, cargo underwriter at H.R. Dumas, a division of Lloyd's managing agency Wellington Underwriting P.L.C.

Mr. Burnett said underwriters are conscious of increased security risks in Russia as the economic and political crisis deepens. The Russian government has expressed fears of increased crime in the wake of the crisis, while hijackings and theft of cargoes in Russia is rife. "We have taken the precautions to beef up security at warehouses. We have recommended that armed guards be posted around them," he said.

Mr. Burnett explained that the additional security is provided by private security companies that are joint ventures between former military personnel from the United Kingdom and Russia. Although there have been no increases in claims yet, the extra measures are generally adopted for warehouses containing computer goods and other high-value electronics, he said.

Cargo insurance is the dominant business sector for Russian state insurer Ingosstrakh, but the company is not registering an increase in claims yet as a result of the ongoing crisis.

"There are no special requirements (for security). We have not seen any reason for doing that up to now," said Nikolai Lychakin, director of cargo insurance at Ingosstrakh.

Mr. Lychakin noted that Ingosstrakh still has the same claims statistics as throughout last year. Most of the problems relate to the bank payments. "We sometimes have to receive payments in rubles even if the sum insured is in U.S. dollars," he said. Ingosstrakh is trying to negotiate special exchange rates with clients to overcome the difficulty of the currency shortage for Russian clients, Mr. Lychakin added.

Mr. Walker is not concerned with any increase in security risk as a result of the Russian crisis; he is not involved in warehouse coverage. The far eastern region of Russia has been in recession ever since the perestroika era of the former Soviet Union in the mid-1980s, he noted.

Overseas Insurance Brokers is a joint venture between Mr. Walker, a Seattle-based freight forwarder that he declined to identify and Russian entrepreneur Sergei Banderev, who is president of the Nakhodka Reinsurance Co., a division of the Pacific Ocean Insurance Co. Both companies are based in Nakhodka, a port located about 112 west of Vladivostok.

Business placed by Overseas Insurance with Pacific Ocean is reinsured to a limit of $1 million in the Russian market. An excess layer up to $2 million is placed in the London market, while anything in excess of $2 million is reinsured with Swiss Reinsurance Co., Mr. Walker said.

Cargo insurers see new business opportunities with the demise of Ingosstrakh's London-based affiliate Black Sea & Baltic General Insurance Co., which became insolvent in August due to losses on older long-tail business.

"That opens up a number of opportunities for us," said Mr. Walker, noting that a major U.S. broker had placed a great deal of Russian cargo business through Black Sea & Baltic.

Insurance executives are trying to play down any of the Russian crisis spreading to the former Soviet states, despite currency volatility in the former Soviet republics. On Sept. 7, the governments of Azerbaijan, Georgia and Kazakhstan warned against panic as local currencies fell against the dollar in street trading. But Ukraine effectively devalued its hrvyna by introducing a new exchange rate corridor on Sept. 7. The rate fell to 2.53 hrvyna to the U.S. dollar from 2.25 hrvyna to the U.S. dollar.

"We don't think this is too much of a problem because there has been a positive reaction from the (International Monetary Fund)," said Danny Fushchych, deputy general manager at Kiev-based Bain Hogg International, a division of Aon Corp. On Sept. 2, the IMF approved a $2.2 billion loan to Ukraine.

Mr. Fushchych acknowledges that Ukraine still is exposed to Russian economic development, as 40% of its trade is with Russia. "But 80% of that 40% is a barter operation. And the remaining 20% is in rubles or hrvynas," he added. The real problem for the development of the insurance market in Ukraine remains the very high premium tax levied by the government. Direct insurance premiums are subject to a 30% tax, while reinsurance premiums are subject to a 15% tax.

Despite a run on U.S. currency in several adjacent republics, insurers remain calm.

Insurers in Kazakhstan are hoping the government will further open up the market to foreign investment. At present, foreign companies may buy only up to 50% of a domestic insurer in Kazakhstan.

"There haven't been any effects from the Russian crisis up to now," says Buniat Sardarov, director at Baku, Azerbaijan-based Sedgwick Azeri Ltd., a division of London-based broker Sedgwick Group P.L.C.