Moscow Court of Arbitration.Statement of defense for claim filed by PLC «Rosgosstrakh»

28 october 2005 16:13
 
Moscow Court of Arbitration.Statement of defense for claim filed by PLC "Rosgosstrakh"

Moscow Court of Arbitration



Claimant:
Public Limited Company «Russian State Insurance Company»



Agency, issuer of document in dispute: Ministry for the Antimonopoly Policy and Support of Entrepreneurship of the Russian Federation (MAP of the Russian Federation), as successor - Federal Antimonopoly Service of the Russian Federation (FAS of the Russian Federation)



Third parties:

1. LLC «Rosgosstrakh-Accord»

2. LLC «K.F. Stelt»

3. LLC «Mega-Intellect»

4. LLC «Nordtradegroup»

5. PLC «Insurance Company «Accord»

6. PLC Insurance Company «Accord-Garant»

7. LLC «Shareholding Insurance Company «Socinvest»

8. PLC «Insurance Company «Vostok»



Case # 40-20887/04-94-211





STATEMENT OF DEFENSE

for claim filed by PLC «Rosgosstrakh» to invalidate decision and prescription

of MAP of the Russian Federation of 10/03/2004 on case # 2-06/27-04

initiated for violation of antimonopoly lrgislation




FAS of the Russian Federation has examined the claim of PLC «Rosgosstrakh» of 22/04/2004 # 6569/26XK (hereinafter the Claim) seeking to render invalid decisions and prescriptions of MAP of the Russian Federation of 10/03/2004 on the case # 2 06/27-04 on the violation of antimonopoly legislation (hereinafter Decision and Prescription) (Appendices 1 and 2 to the motion of MAP of the Russian Federation on the deposition of evidence (hereinafter Appendix...) and considers that the arguments of the Claimant groundless and its claims are subject to dismissal.



According to para 1 of Article 13 of the Civil Code of the Russian Federation (hereinafter CC of RF) any non-regulatory act, inconsistent with the law or any other act of law, and violating civil rights and interests of a legal entity safeguarded by law, may be rendered invalid by the Court.



In the joint Resolution of the Plenary Session of the Supreme Court of the Russian Federation and the Plenary Session of the Court of Arbitration of the Russian Federation of 01/07/1996 # 6/8 «On issues of application of part one of the Civil Code of the Russian Federation», paragraph 1 reads as follows: «if the Court has determined that the disputed deed is inconsistent with law or any other act of law and restricts civil rights and interests of a citizen or a legal entity, it may render such a decision invalid».



Hence, to invalidate the Decisions and Prescriptions of MAP of the Russian Federation two express conditions should be met, namely, inconsistency of the disputed deeds with the law and the fact of violation of the claimant's rights.



It is incumbent upon the Claimant to present proof of the alleged violation of his rights, which follows from part 1 of Article 4, part 1 of Article 65, part 1 of Article 198 and part 2 of Article 201 of the Arbitration Proceeding Code (hereinafter APC).



According to FAS of the Russian Federation, the Decision and the Prescription of MAP of the Russian Federation were issued in full compliance with the laws of the Russian Federation and other regulatory legislative documents and do not constitute violation of the rights and interests of PLC «Rosgosstrakh», and, therefore, there are no grounds for the Court to render the said deeds of MAP of the Russian Federation invalid.



1. The Decision and the Prescription of MAP of the Russian Federation were issued based on valid grounds, within the terms of reference of MAP of the Russian Federation and are consistent with the rules of law of substance and procedure.



The grounds for the examination of the said case by MAP of the Russian Federation and for issuance of the disputed deeds were provided by the following circumstances.



1.1. Pursuant to Article 11 of the Law of the RSFSR of 22/03/1991 # 948-1 «On competition and restriction of monopoly activities on product markets» (hereinafter the Law on competition on product markets), the Decree of the President of the Russian Federation of 22/09/1998 # 1142 and the Resolution of the Government of the Russian Federation of 12/07/1999 # 793 at the time of initiation and examination of the case # 2 06/27-04 and issuance of the deeds disputed by PLC «Rosgosstrakh», MAP of the Russian Federation was a Federal executive authority, responsible for the implementation of the Government policies in support of the development of product markets and competition, for the Federal supervision to ensure compliance with antimonopoly legislation, as well as prevention and restraining of monopoly activities, unfair competition and other practices restricting competition.



According to Articles 16 and 17 of the Federal Law of 23/06/1999 # 117-F3 «On protection of competition on the market of financial services» (hereinafter Law on Competition), Federal supervision over acquisition of assets and shares of financial organizations is required in cases of one or more transactions performed by a legal entity or a physical person (group of persons) to acquire over 20% of shares of a financial organization. If the size of the equity of the said financial organization, whose assets or shares are acquired, exceeds the size established by the Government of the Russian Federation for the above transactions, a prior approval of the Federal antimonopoly authority is required.



Pursuant to the above requirements of the antimonopoly legislation LLC «Rosgosstrakh-Accord» filed a request to MAP of the Russian Federation (# 730 of 25/09/2003) (Appendix 3) seeking to obtain its approval of a proposed acquisition of 76.9% of shares of the equity of LLC «Shareholding Insurance Company «Socinvest», and in the course of examination of the said request, indications of violation under Article 6 of the Law on Competition were discovered.



In pursuance of Article 30 of the Law on Competition and the Rules of examination of cases of violations of antimonopoly legislation and other regulatory documents on protection of competition on the market of financial services (hereinafter the Rules), as approved by the executive order of MAP of the Russian Federation of 15/09/2000 # 707, MAP of the Russian Federation determined 09/02/2004 to initiate the case # 2 06/27-04 on violation of antimonopoly legislation (order of 04/02/2004 3 38a «On establishing a Panel for examination of the case on violation of antimonopoly legislation of the Russian Federation and appointment of the Chairperson of the Panel» (Determination of 09/02/2004 to initiate the case # 2 06/27-04 on violation of antimonopoly legislation - Appendices 4 and 5).



The case # 2 06/27-04 was examined in compliance with the rules of the Law on Competition and the Rules, and upon completion of the examination MAP of the Russian Federation issued its Decision, according to which PLC «Rosgosstrakh» and at LLC «Rosgosstrakh-Accord», LLC «K.F. Stelt», LLC «Mega-Intellect» and LLC «Nordtradegroup» were found in violation of Article 6 of the Law on Competition.



In accordance with Article 23 of the Law on Competition and the Rules MAP of the Russian Federation is entitled to issue binding prescriptions to financial organizations to terminate violations of antimonopoly legislation and other regulatory documents on protection of competition on the market of financial services and/or to take corrective action to eliminate consequences thereof, and to restore the prior status of the market.



Pursuant to the Decision MAP of the Russian Federation issued its Prescription to terminate the violation of antimonopoly legislation.



Thus, the Decision and the Prescription were issued within the terms of reference of MAP of the Russian Federation and in strict compliance with the rules of law of procedure contained in the Law on Competition and the Rules.



1.2. The Panel of the MAP of the Russian Federation for examination of cases of violation of antimonopoly legislation (hereinafter the Panel), having reviewed the documents provided, the arguments and defenses of the parties determined the following:



1.2.1. The insurance company PLC «Rosgosstrakh» operates on the financial market of the Republic of Bashkortostan together with the insurance company LLC «Rosgosstrakh-Accord» and PLC «Accord». It follows from the diagram that the shareholder of LLC «Rosgosstrakh-Accord» with an 81.22% share in the equity is LLC «Holding Company «Rosgosstrakh» (Appendix 6).



The only shareholder of LLC «Holding Company «Rosgosstrakh» is LLC «RGS-Invest» (Appendix 7), incorporated by PLC «Rosgosstrakh» (Appendix 7). LLC «Rosgosstrakh-Accord» is the owner of 100% equity share of PLC «Insurance Company «Accord» (Appendix 8).



According to Article 3 of the Law on competition, 'group of persons' is defined as a group of legal entities and/or physical persons, recognized by a group of persons in accordance with the laws of the Russian Federation. The legal definition of the concept «group of persons» is given in paragraph 14 of Article 4 of the Law on competition on product markets.



The above rule of law defines a 'group of persons' as a group of legal entities and/or physical persons, with respect to which the following condition should be met: a person or some persons collectively have the right to directly or indirectly control more than 50 percent of the total number of voting shares, or constituting contributions to the authorized or share capital of one legal entity. However 'indirect control of voting shares of a legal entity' is interpreted as a possibility of actual control through third parties with respect to which the former person has the above right or authority.



Hence it can be concluded that PLC «Rosgosstrakh», LLC «RGS-Invest», LLC «Holding Company «Rosgosstrakh», LLC «Rosgosstrakh-Accord» and PLC «Accord» constitute one group of persons (hereinafter Group «Rosgosstrakh»).



1.2.2. The following insurance companies operate on the financial market of the Republic of Bashkortostan: LLC «Shareholding Insurance Company «Socinvest» , PLC «Insurance Company «Accord-Garant», PLC «Insurance Company «Vostok». The above-mentioned companies are not part of the Group «Rosgosstrakh».



LLC «Mega-Intellect», incorporated by physical persons, V. Nacerius and E. Berlovskaya, owns a 93,16% share of LLC «Shareholding Insurance Company «Socinvest» (Appendices 9 and 24);



LLC «K.F. Stelt», incorporated by R. Pykhtin and P. Grishin, owns a 16% share of PLC «Accord-Garant» and a 46.25% share of PLC «Vostok» (Appendix 10);



LLC «Nordtradegroup», incorporated by F. Barchukov, owns a 64.08% of share of PLC «Accord-Garant» (Appendix 11)



At the meeting of the Board of Directors of the Shareholding Insurance Company «Socinvest» 5 Feb. 2003 (minutes # 9 of 05/02/2003 - Appendix 12) it was announced that the shareholder «Mega-Intellect» had proposed to nominate the following physical persons to the Board of Directors of the Shareholding Insurance Company «Socinvest»: Yu. Shpizel, S. Odintsov and A. Sokolov.



At the meeting of the Supervisory Board of the Insurance Company PLC «Accord-Garant» 5 Feb. 2003 (minutes # 14 of 05/02/2003 - Appendix 13) it was announced that the shareholder «Nordtradegroup» had proposed to nominate the following physical persons to the Board of Directors of the Insurance Company «Accord-Garant»: Yu. Shpizel, S. Odintsov and A. Sokolov.



At the meeting of the Board of Directors of the Insurance Company PLC «Vostok» 5 Feb. 2003 (minutes # 9 of 05/02/2003 -Appendix 14) it was announced that the shareholders of the Insurance Company «Vostok», i.e. the «Urals Siberian Bank» and «K.F. Stelt» had proposed their nominations to the Board of Directors of the Insurance Company «Vostok». The «Urals Siberian Bank» nominated M. Zakirov, and «K.F. Stelt» nominated S. Gaimanov, Yu. Shpizel, S. Odintsov and A. Sokolov.



The General Meeting of Shareholders of the Shareholding Insurance Company LLC «Socinvest» 4 April 2003 (minutes # 1 of 04/04/2003 - Appendix 15) considered election of the Board of Directors. The vote on behalf of the shareholder «Mega-Intellect» (93.16%) was cast by its authorized representative Yu. Shpizel (power of attorney of 25/03/2003 - Appendix 16). As a result of the voting the following persons were elected to the Board of Directors: Yu. Shpizel, S. Odintsov and A. Sokolov.



The General Meeting of Shareholders of the Insurance Company PLC «Accord-Garant» 4 April 2003 (minutes # 1 of 04/04/2003 - Appendix 17) considered election of the Board of Directors. The votes on behalf of the shareholders «Mega-Intellect» (15.77%), «K.F. Stelt» (16%) and «Nordtradegroup» (64.08%) were cast by their authorized representative Yu. Shpizel (three powers of attorney of 25/03/2003 - Appendices 18, 19, 20). As a result of the voting the following persons were elected to the Board of Directors: Yu. Shpizel, S. Odintsov and A. Sokolov.



The General Meeting of Shareholders of the Insurance Company PLC «Vostok» 28 April 2003 (minutes # 1 of 28/04/2003 - Appendix 21) considered election of the Board of Directors. The meeting was attended by the shareholders of the Insurance Company «Vostok», i.e. the Insurance Company «Accord» (3.85%) and «K.F. Stelt» (46.25%). The vote for the Insurance Company «Accord» was cast by the Managing Director of «Accord» S. Gaimanov, acting pursuant to the Articles of the Insurance Company «Accord». The vote for the shareholder «K.F. Stelt» was cast by its authorized representative Yu. Shpizel (power of attorney of 25/03/2003 - Appendix 22). The representative of the «Urals Siberian Bank» was not present at the General Meeting of Shareholders.



PLC «Rosgosstrakh-Accord» and the Insurance Company LLC «Accord» are part of the Group «Rosgosstrakh», therefore Yu. Shpizel in his capacity of Managing Director of LLC «Rosgosstrakh-Accord» on the basis of the resolution of the General Meeting of Shareholders of LLC «Rosgosstrakh-Accord» (minutes # 3 of 18/02/2003 of the General Meeting of Shareholders of LLC «Rosgosstrakh-Accord» - Appendix 23) and S. Gaimanov in his capacity of Managing Director of the Insurance Company «Accord» (Appendices 25, 26), at the time of the General Meeting of Shareholders of the Insurance Company «Vostok», were also members of the said group of persons (see para 17 of Article 4 of the Law on competition on product markets). Thus, Yu. Shpizel and S. Gaimanov, being members of the Group «Rosgosstrakh» owned voting shares totaling 50.1% of the corporate equity of the Insurance Company PLC «Vostok». As a result of the voting the following persons were elected to the Board of Directors: Yu. Shpizel, S. Odintsov and A. Sokolov.



At the time of the General Meetings of Shareholders the physical persons elected to the Boards of Directors of the said insurance companies, performed their work duties at PLC «Rosgosstrakh» and at LLC «Rosgosstrakh-Accord», which were part of the Group «Rosgosstrakh», and specifically:



A. Sokolov was Deputy Manager of the Department of Regional Development of PLC «Rosgosstrakh» (minutes of the meeting of the Boards of Directors of the Insurance Companies of 05/02/2003 - Appendices 12, 13, 14);



S. Odintsov was Senior Expert of the Department of Corporate Governance of PLC «Rosgosstrakh» (minutes of the meetings of the Boards of Directors of the insurance companies of 05/02/2003 - Appendices 12, 13, 14).



As follows from the excerpt from the order of PLC «Rosgosstrakh» of 28/02/2003 # 47-ls S. Odintsov was dismissed from PLC «Rosgosstrakh» and transferred to LLC «Holding Company «Rosgosstrakh». However the above excerpt was not duly certified and may not serve as acceptable proof according to APC. It is also necessary to indicate that the excerpt provided corroborates the fact that S. Odintsov was dismissed and transferred to LLC «Holding Company «Rosgosstrakh» which is part of the Group «Rosgosstrakh»;



Yu. Shpizel is the Managing Director of LLC «Rosgosstrakh-Accord» (Appendices 12, 13, 14, 23)



As a result of the election of the above physical persons to the boards of directors of the Shareholding Insurance Company LLC «Socinvest», Insurance Company PLC «Accord-Garant» and Insurance Company PLC «Vostok», over 50% of the membership seats of the boards of directors of the insurance companies were filled with physical persons who performed their work duties at PLC «Rosgosstrakh» and LLC «Rosgosstrakh-Accord», which were part of the Group «Rosgosstrakh».



According to para 20 of Article 4 of the Law on Competition on Product Markets, a 'group of persons' is defined as a group of legal entities and/or physical persons performing their work duties at legal entities which are part of one group of persons, exceeding 50% of the membership of the collective management body and/or of the board of directors (supervisory board) or any other collective management body of another legal entity.



In accordance with part I of Articles 64 and 65 of the Federal Law of 26/12/95 # 208-F3 «On Joint-Stock Companies» and the Articles of the insurance companies «Socinvest», «Vostok» and «Accord-Garant» the terms of reference of the boards of directors (supervisory boards) are defined as including the following matters: determination of top priority business development objectives of the company, increase of the corporate equity, appointment and early termination of the office of the Managing Director of the company, deciding on establishment and termination of subsidiaries, etc.



Thus, as a result of concerted actions performed by PLC «Rosgosstrakh», LLC «Rosgosstrakh-Accord», «K.F. Stelt», «Nordtradegroup», «Mega-Intellect» PLC «Rosgosstrakh» and LLC «Rosgosstrakh-Accord» were enabled to determine the conditions for the business activities of the insurance companies «Socinvest», «Accord-Garant», «Vostok», and the above organizations became members of the Group «Rosgosstrakh».



1.3. Following the examination of the documents relating to the activities of the insurance companies «Socinvest», «Accord-Garant», «Vostok» in the time frame April-September 2003 (in the period following the said general meetings of shareholders up to the time when indications of the violation were identified), the Panel of MAP of the Russian Federation established that pursuant to resolutions of the boards of directors subsidiaries of the insurance companies were liquidated in the communities of the Republic of Bashkortostan, where the above subsidiaries of the insurance companies were in competition with LLC «Rosgosstrakh-Accord», a subsidiary of PLC «Rosgosstrakh», which led to the division of the territory of the insurance market in the Republic of Bashkortostan.



Pursuant to the minutes of the meeting of the Board of Directors of the Shareholding Insurance Company «Socinvest» (Appendix 27), represented by Yu. Shpizel, S. Odintsov and A. Sokolov, which took place 31/07/2003, it was decided to liquidate 9 subsidiaries of «Socinvest» on the grounds of poor business performance. The executive order of the management of «Socinvest» of 28/08/2003 # 39 (Appendix 28) imposes on the managing directors of the subsidiaries subject to liquidation the responsibility to transfer their current business files to the appropriate subsidiaries of «Rosgosstrakh-Accord».



Pursuant to the minutes of the meeting of the Supervisory Board of the Insurance Company PLC «Accord-Garant», represented by Yu. Shpizel, S. Odintsov and A. Sokolov, which took place 31/07/2003, it was decided to liquidate 4 subsidiaries of «Accord-Garant» on the grounds of poor business performance. The executive order of the management of «Accord-Garant» of 28/08/2003 # 29 (Appendix 29) imposes on the managing directors of the subsidiaries subject to liquidation the responsibility to transfer their current business files to the appropriate subsidiaries of «Rosgosstrakh-Accord».



Pursuant to the minutes of the meeting of the Board of Directors of the Insurance Company PLC «Vostok» (Appendix 30), represented by Yu. Shpizel, S. Odintsov and A. Sokolov, which took place 03/06/2003, it was decided to liquidate 10 subsidiaries of «Vostok» on the grounds of poor business performance. And it is noteworthy that 30/06/2003 »Vostok» and «Rosgosstrakh-Accord» signed an agreement # 1-12-025-03 (Appendix 31), under which the responsibilities for performance under the written business of «Vostok» were transferred to «Rosgosstrakh-Accord».



The Insurance Company «Rosgosstrakh-Accord» has subsidiaries in the same locations of the Republic of Bashkortostan, where the subsidiaries of «Socinvest», «Accord-Garant» and «Vostok» were liquidated (»List of subsidiaries of the Limited Liability Company «Rosgosstrakh-Accord», approved by the General Meeting of Shareholders by its resolution of 30/06/2003 - Appendix 32).



In the city Ufa LLC «Rosgosstrakh-Accord» has 11 subsidiaries. However, 6 subsidiaries of the insurance companies LLC «Shareholding Insurance Company «Socinvest» , PLC «Insurance Company «Accord-Garant», PLC «Insurance Company «Vostok» were closed down.



In Sterlitamak LLC «Rosgosstrakh-Accord» has 3 subsidiaries. 3 subsidiaries of LLC «Shareholding Insurance Company «Socinvest» , PLC «Insurance Company «Accord-Garant», PLC «Insurance Company «Vostok» were closed down.



In Salavat LLC «Rosgosstrakh-Accord» has one subsidiary. 3 subsidiaries of LLC «Shareholding Insurance Company «Socinvest» , PLC «Insurance Company «Accord-Garant», PLC «Insurance Company «Vostok» were liquidated.



In Neftekamsk LLC «Rosgosstrakh-Accord» has one subsidiary. 2 subsidiaries of LLC «Shareholding Insurance Company «Socinvest» and PLC «Insurance Company «Vostok» were closed down.



In Tuymazy LLC «Rosgosstrakh-Accord» has one subsidiary. One subsidiary of the Insurance Company PLC «Vostok» was liquidated.



In Sibai LLC «Rosgosstrakh-Accord» has one subsidiary. One subsidiary of the Insurance Company PLC «Vostok» was closed down.



In Meleuz LLC «Rosgosstrakh-Accord» has one subsidiary. One subsidiary of the Insurance Company PLC «Vostok» was closed down.



In Kumertau LLC «Rosgosstrakh-Accord» has one subsidiary. One subsidiary of the Insurance Company PLC «Vostok» was liquidated.



In Beloretsk LLC «Rosgosstrakh-Accord» has one subsidiary. One subsidiary of the Insurance Company PLC «Vostok» was closed down.



In Belebei LLC «Rosgosstrakh-Accord» has one subsidiary. One subsidiary of LLC «Shareholding Insurance Company «Socinvest» was liquidated.



In the village Ermekeevo LLC «Rosgosstrakh -Accord» has one subsidiary. One subsidiary of LLC «Shareholding Insurance Company «Socinvest» was liquidated.



In Oktyabrskiy LLC «Rosgosstrakh -Accord» has 2 subsidiaries. One subsidiary of LLC «Shareholding Insurance Company «Socinvest» was liquidated.



In Ishimbai LLC «Rosgosstrakh -Accord» has one subsidiary. One subsidiary of LLC «Shareholding Insurance Company «Socinvest» was liquidated.





1.4. Based on the analysis of the gross written premium revenue at the insurance companies «Socinvest», «Accord-Garant» and «Vostok» broken down into types of insurance in the period 2000-2003, in the course of examination of the case # 2 06/27-04, MAP of the Russian Federation identified a trend toward reduction of premium proceeds in the wake of the concerted actions undertaken by the Group «Rosgosstrakh» and «K.F. Stelt», «Nordtradegroup», «Mega-Intellect» .



As compared with the performance data for 2002 and incremental for three quarters of 2003 a trend was identified toward a substantial reduction of the gross written premium on the following insurance types:



LLC «Shareholding Insurance Company «Socinvest»:

personal insurance: from RUR 4,700,000 down to RUR 200,000;

property insurance: from RUR 23,100,000 down to RUR 9,300,000;

liability insurance: from RUR 20,800,000 down to RUR 9,200,000.



PLC «Insurance Company «Accord-Garant»:



life insurance: from RUR 187,600,000 down to RUR 84,800;

personal insurance: from 3,700,000 down to RUR 40,000;

property insurance: from RUR 37,700,000 down to RUR 4,500,000;

liability insurance: from RUR 12,600,000 down to RUR1,000,000.



PLC «Insurance Company «Vostok»:



life insurance: from RUR 10,800,000 down to RUR 400,000;

personal insurance: from 45,400,000 down to RUR 2,400;

property insurance: from RUR 127,600,000 down to RUR 3,800,000;

liability insurance: from RUR 2,900,000 down to RUR 0.



The analysis of the pattern of gross written premium revenue for three quarters of 2003 shows a significant reduction of business on the market of insurance services in the Republic of Bashkortostan for the insurance companies PLC «Accord-Garant» - by 50%, and for PLC «Vostok» - 15 times down.



At the same time the revenue in gross written premium of the subsidiaries of PLC «Rosgosstrakh» during the same period demonstrates a more visible presence of these companies on the insurance market of the Republic of Bashkortostan: LLC «Rosgosstrakh-Accord» - more than double; PLC «Accord» - triple; and on life insurance LLC «Rosgosstrakh-Accord» more than tripled its gross written premium.



PLC «Insurance Company «Accord»:



personal insurance: from 27,200,000 up to RUR 40,700;

property insurance: from RUR 19,900,000 up to RUR 82,400,000;

liability insurance: from RUR 5,800,000 up to RUR 100,000



LLC «Rosgosstrakh-Accord»:



life insurance: from RUR 30,700,000 up to RUR 101,500;

personal insurance: from 20,000,000 up to RUR 26,200,000;

property insurance: from RUR 114,900,000 up to RUR 146,200,000;

liability insurance: from RUR 13,000,000 down to RUR 16,800,000.



1.5. The analysis of the competition on the market of insurance services of the Republic of Bashkortostan, based on the market concentration (CR3) and the Herfindale-Hirschman Index (HHI), performed by MAP of the Russian Federation as part of the examination of the case # 2 06/27-04 showed that the concerted actions of the insurance companies PLC «Rosgosstrakh», LLC «Rosgosstrakh-Accord» and the legal entities «K.F. Stelt», «Nordtradegroup» and «Mega-Intellect» had resulted in restriction of the competition on the insurance market of the Republic of Bashkortostan.



The market concentration indicators describe the degree of non-uniformity of distribution of insurance services among the insurance organizations, as well as their potential impact of the general conditions of provision of services on specific insurance markets. The market concentration factor CR3 is calculated as a total of market shares of the three biggest insurance companies providing services for a specific type of insurance. HHI is calculated as a total of squares of the shares of all the insurers providing their services on a specific insurance market, and describes the level of monopolization of the market. The factor takes into account both the number of insurers, providing services on a specific market, and the difference in their market positions.



Prior to the concerted actions under consideration the insurance market overall across the region and the aggregate market of voluntary insurance, according to para 2.6.4 of the Guidelines for procedures of analysis and evaluation of competition on the market of financial services, as approved by MAP of the Russian Federation (executive order of 31/03/2003 # 86), was characterized as moderately concentrated (CR3 < 70%, HHI < 1,800).



As a result of the above concerted actions the level of concentration, the overall market of insurance services in the Republic of Bashkortostan has migrated from moderately concentrated to highly concentrated, which is evidenced by the increased values of the market concentration factor (CR3) from 60.6% up to 74.4%, and that of HHI - from 1.470 up to 2, 452. In addition, a significant increase in HHI is registered on the market of property insurance: by 194 units (from 2.101 to 2,295), as well as on the market of liability insurance: by 549 units (from 3,175 to 3,724) and on the market of life insurance: by 2,740 units (from 2,786 to 5,526).




1.6. Based on the above the Panel of the MAP of the Russian Federation established the following findings:



PLC «Rosgosstrakh», LLC «Rosgosstrakh-Accord», «K.F. Stelt», «Nordtradegroup» and «Mega-Intellect» were engaged in concerted actions which resulted in the election to the boards of directors (supervisory boards) of the insurance companies «Socinvest», «Accord-Garant» and «Vostok» (non-members of the Group «Rosgosstrakh») of persons - members of the Group «Rosgosstrakh», which enabled the Group «Rosgosstrakh» to determine the conditions for business activities of the insurance companies «Socinvest», «Accord-Garant» and «Vostok».



As a result of the said concerted actions PLC «Rosgosstrakh», LLC «Rosgosstrakh-Accord», «»K.F. Stelt», «Nordtradegroup» and «Mega-Intellect» subsidiaries of the insurance companies «Socinvest», «Accord-Garant» and «Vostok» were liquidated, gross written premium diminished, the territory of the insurance market in the Republic of Bashkortostan was divided by insurance services provided, and other insurance companies are currently being removed from the market of insurance services.



The concerted actions of PLC «Rosgosstrakh», LLC «Rosgosstrakh-Accord», «K.F. Stelt», «Nordtradegroup» and «Mega-Intellect» have led to a restriction of the competition on the market of insurance services in the Republic of Bashkortostan, which fact is demonstrated by the market concentration indicators, i.e. CR3 and HHI. The said concerted actions have resulted in modification of the level of concentration of the market of insurance services in general across the region which is migrating from moderate to high.



Thus the Panel of the MAP of the Russian Federation has established that PLC «Rosgosstrakh», LLC «Rosgosstrakh-Accord» (members of one group), as well as «K.F. Stelt», «Nordtradegroup» and «Mega-Intellect», undertook concerted actions which resulted in restricted competition on the market of insurance services in the Republic of Bashkortostan, including aiming at division of the territory of the market of insurance services, as well as by types of services provided on the market of insurance services and removing other insurance companies from the market.



Article 6 of the Law on Competition on Product Markets prohibits and invalidates in due process, in whole or in part, any agreements or any concerted actions undertaken by financial organizations between themselves and/or with other legal entities, if such agreements or concerted actions result, or may result, in restricted competition on the market of financial services, including if such agreements or concerted actions are directly or indirectly intended to achieve:



- division of the territory of the market of financial services, by types of services provided on the market of financial services, or by customers of financial services on the market of financial services;

- restricted access to the market of financial services or removal of other financial organizations from the market.



Considering the above circumstances, the concerted actions of PLC «Rosgosstrakh», LLC «Rosgosstrakh-Accord», «K.F. Stelt», «Nordtradegroup» and «Mega-Intellect» were qualified by the Panel of the MAP of the Russian Federation as required by Article 6 of the Law on Competition, as restricting competition on the insurance market of the Republic of Bashkortostan, as intended to divide the territory of the market of insurance services in the Republic of Bashkortostan, to divide the market by types of insurance services provided, as well as to remove other insurance organizations from the market.



Based on the findings in the examination of the case # 2 06/27-04 the Panel of MAP of the Russian Federation adopted its Decision which finds PLC «Rosgosstrakh», LLC «Rosgosstrakh-Accord», «K.F. Stelt», «Nordtradegroup» and «Mega-Intellect» in violation of Article 6 of the Law on Competition and issued the Prescription to terminate the above violation and take corrective action to eliminate the consequences of the said violation of the antimonopoly legislation.



Thus, the above Decision and Prescription of MAP of the Russian Federation were based on valid grounds, within the terms of reference of MAP of the Russian Federation and in strict compliance with the requirements of the rules of law of substance and procedure, whereas the arguments of the Claimant, as given in item 1 and sub-paragraphs 1-3 of para 2 of their Claim are at variance with fact.

Legal and well-grounded non-regulatory deeds of MAP of the Russian Federation can not violate rights and legitimate interests of persons in respect of which/whom they are issued.




2. Sub-para 4 of para 2 of the Claim of PLC «Rosgosstrakh» alleges that the order of LLC «Rosgosstrakh-Accord» of 31/07/2003 # 263-01/06, which according to para 2 of the Prescription of MAP of the Russian Federation must be reversed, was not enacted by LLC «Rosgosstrakh-Accord».



This statement of the Claimant is not true, because a duly certified copy of the said order was provided by LLC «Rosgosstrakh-Accord» for the meeting of the Panel of the MAP of the Russian Federation and is contained in the records of the case (Appendix 35).



References of the Claimant to errors, allegedly contained in the Prescription of MAP of the Russian Federation are not supported by the records of the case or by the text of the Prescription per se. According to para 2 of the Prescription of MAP of the Russian Federation the parties at fault are required to take corrective action and eliminate the consequences of the violation of Article 6 of the Law on Competition by taking the following steps:



- reverse the resolutions of the boards of directors of LLC «Socinvest», PLC «Accord-Garant» and PLC «Vostok» to liquidate their subsidiaries (including the resolution of the Board of Directors of LLC «Socinvest» of 31/07/2003, the resolution of the Board of Directors of PLC «Accord-Garant» of 31/07/2003, the resolution of the Board of Directors of PLC «Vostok» of 03/06/2003);



- the order of LLC «Rosgosstrakh-Accord» of 02/06/2003 # 170/18 «On approval of the budget and Articles of project «Reorganization of the network of subsidiaries» (Appendix 36);



- the order of LLC «Rosgosstrakh-Accord» of 31/07/2003 # 263-01/06 «On enactment of the Procedures of performance under agreements of the Group «Accord» companies (»Socinvest», «Accord-Garant» and «Vostok»);



- restore the network of subsidiaries of the insurance organizations of «Socinvest», «Accord-Garant» and «Vostok» provided availability of demand for insurance services of the said insurance companies and possibility of break-even provision of such services by «Socinvest», «Accord-Garant» and «Vostok».



MAP of the Russian Federation thereby prescribes the parties at fault to cancel some of their local ordinances designed to restrict competition on the market of insurance services in the Republic of Bashkortostan and restore the network of subsidiaries of the above insurance companies. Hence, the arguments contained in para 4 of the Claim are contrary to fact.

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