Following months of deteriorating relations between Allianz’s German executives and their Russian counterparts at the People’s National Insurance Co. of Russia (Rosno), the German insurer is set to sell its 45 percent operating stake in Rosno.

Insurance-industry sources in Moscow told The Russia Journal that they know that Allianz had some time ago rejected an offer by Sistema, the Russian co-shareholder in Rosno, to acquire additional shares from Sistema. The sources also said they knew Allianz managers were increasingly unhappy working at Rosno.

But the decision to sell out of Rosno altogether has been a surprise, the sources added. One source said he understood that mid-level Allianz executives believe the company’s board has acted too hastily, as they believe the growth potential of the Russian insurance market is worth patience at this stage.

Allianz acquired 45.27 percent of the shares in Rosno from Moscow-based conglomerate Sistema on June 27, 2001. The price of the deal was estimated at the time to be between $25 million and $30 million. It was the first major acquisition by a foreign insurer of a leading domestic insurer.

Sistema has continued to control 47 percent of Rosno’s shares, with the remaining 6.88 percent in the hands of company managers. According to the terms of the deal, there was also an exchange of share-sale options between Allianz and Sistema. It is unclear whether Sistema has the legal right to reject Allianz’s shares and allow them to be sold to another buyer.

Allianz is reported in the Russian press to have made the share sale decision last week. But officials aren’t talkative. Vladimir Kleymenov, adviser to the general director of Rosno, told The Russia Journal that "the company is not in a position to comment on the actions of its shareholders." A spokesman for Sistema said his company "won’t comment on the information regarding the supposed decision of Allianz to sell shares in Rosno." He did concede that there have been recent negotiations between Allianz and Sistema.

Yevgeny Reshetin, an insurance analyst at the Expert RA agency, said that "if Allianz has decided to sell its stake in Rosno, that is quite understandable, given Allianz’s losses last year. The situation for Allianz has significantly changed since the time when the Rosno shares were acquired, and Allianz cannot now afford to make the substantial investment into Rosno that was expected when the partnership between Sistema and Allianz was agreed upon."

He added that "Allianz has helped Rosno a lot, in terms of IT, marketing technologies and developing insurance products. But it has not invested much, in the classical sense of the term."

If the resale of Allianz’s shares to Sistema takes place, industry sources expect Sistema will look for another investor to pump money into Rosno. One source told The Russia Journal that Sistema has already begun its search. Although there has been interest in Russia from the British insurer Aviva, foreign insurance companies have made no new commitments of cash in the Russian insurance sector for some time now, and none is expected in the foreseeable future.

Aviva, AIG and other foreign insurance executives were aboard a two-day cruise down the Volga River this month, along with most leading Russian insurance executives. Aviva’s board of directors appears to have dug in its heels against investing in the Russian industry for the time being.

Last year, Rosno reports that it collected 10.7 billion rubles (about $350 million) in premiums, giving it fourth place on the Russian insurance ladder by size of revenue. After-tax profits were 396.3 million rubles ($13.5 million), up by 58 percent from the year before.