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Aspects of the implementation of insurance rules and ensuring insurance
supervision after enlargement
Marcin Kawiński
The Insurance Ombudsman Office Poland
Seminar on Financial Services (INT MARKT 20590 )
Sofia, 14-16 September 2005
The Insurance Ombudsman Office
• Founded to protect the interests of the weakest market participants - insurance consumers, vis-a-vis Insurance Companies equipped with much greater resources and qualified staff
• The Insurance Ombudsman takes part in the meetings of The Insurance and Pension Funds Supervisory Commission
The Insurance Ombudsman’s statutory tasks
The Insurance Ombudsman was founded:• to represent and protect consumer interests of the
insured and beneficiaries under insurance contracts; • to advise the supervisory body of any irregularities
found in the operation of insurers, pension funds and vocational pension plans;
• to initiate and engage in educational and information activities in the scope of insurance, pension funds and vocational pension plans.
The process of implementation
• How exact? – Implementation translation– Implementation variation
• How fast?– Where is the market?– Waiting for the market– Directives for market not market for directives
Legislation – common problems in the new Member States
• Full participation in the ‘green card’ system for third party liability insurance
• Further transposition/fine-tuning needed– prudential standard not aligned to acquis and
international standards
– minimum solvency and guarantee fund
– administrative and legal restrictions the freedom to provide the right of establishment and service
– out-of-court redress schemes
There is always something to implement.
Road to accession
Act of 28 July 1990 on Insurance Activity• Basic act for a new insurance market• Simulation plan; minimal guarantee fund, solvency margin and own funds. • Generally consistent with present EU directives
1990
Road to accessionAmendment of Act of 28 July 1990 on Insurance Activity• More precise and higher criteria for new insurance company. • Implementation of security norms (one risk < 25% of the fund)• Foundation of supervisory office• Regulation of insurance intermediaries• Foundation of The Insurance Guarantee Fund• New bankruptcy regulation• Foundation of Insurance Ombudsman• Foundation of actuary
1990 1995
Road to accessionAmendment of Act of 28 July 1990 on Insurance Activity• Regulations for branch of foreign insurance company
o Obligation o Principle of mutuality
• New definitions some of security norms
1990 1995 1998
Road to accessionAmendment of Act of 28 July 1990 on Insurance Activity• Regulations on trade of insurance company shares• Regulations for branch of foreign insurance company• Modification of investment limits for an insurance fund
1990 1995 1998 2000
Missing elements
• full freedom of cross-border services
• single license
• supplementary supervision of insurance undertakings in insurance group
• insurance intermediares
• third party liability insurance
Road to accession• Act of 22 May 2003 on Insurance Activity (Official Journal No 124, Item 1151, as amended)
• Act of 22 May 2003 on Compulsory Insurance, Insurance Guarantee Fund and Polish Motor Insurance Bureau (Official Journal No 124, Item 1152, as amended)
• Act of 22 May 2003 on Insurance Mediation (Official Journal No 124, Item 1154, as amended)
• Act of 22 May 2003 on Insurance and Pension Supervision and The Ombudsman for the Insureds (Official Journal No 124, Item 1153, as amended)
1990 1995 1998 2000 2003
Act on insurance activity
Main issues:• performing the profession of actuary• change in the list of assets covering the technical provisions • change of the value of the guarantee capital and the amounts when calculating the solvency margin• strengthen position of the insurance supervision• supplementary supervision of insurance undertakings in insurance group
Act on insurance activity
- reorganisation and liquidation of the insurance companies
- organisation and functioning of the economic insurance self-government
- community co-insurance- freedom to provide services, right of
establishment and single license
Solvency
Solvency – ability of an insurer to meet its obligation (liabilities) under all contracts at any time.– circumstances the appropriateness of the assets
to cover– time horizon– acceptable degree of probability of becoming
insolvent (International Association of Insurance Supervisors)
Polish regulation concerning insolvency
• Indicators
• Mechanisms
• Institutions
Polish regulation concerning insolvency – indicators
• Own funds - not lower than solvency margin
• Guarantee fund - one-third of the solvency margin, but not less than minimum amount of guarantee fund dor each class of insurance and for reinsurance business
• Solvency margin – based on reserves or premiums
Polish regulation concerning insolvency - mechanisms
• own funds > solvency margin
• solvency margin > own funds > guarantee fund
• guarantee fund > own funds
Polish regulation concerning insolvency – institutions
• Insurance and Pension Funds Supervisory Commission
• The Insurance Guarantee Fund
Supervisory authority – common problems in the new Member States
• (administrative) capacity is insufficient• additional staff recruitment• staff qualification improvement• dependency in political and budgetary terms• operational dependence (the lack of power to issue its
own regulations)• cross border co-operation between supervisory
authorities• low quality of the monitoring• mergers of supervisory authorities
Insurance and Pension Funds Supervisory Commission
The body performing the supervision is the Insurance and Pension Funds Supervisory Commission. This is a body of central State administration. The Commission was established on 1st April 2002 on the basis on the Act of 1 March 2002 on changes in organisation and carrying out the duties of central State administration /.../. (Law Gazette No. 25/2002, pos. 253). The Commission was created due to merger of PUNU and UNFE.
Insurance and Pension Funds Supervision Commission
Under Insurance and Pension Funds Supervision shall be the activity of:
• insurance undertakings;
• insurance mediation,
• pension funds;
• occupational pension programs.
Insurance and Pension Funds Supervision Commission
• commission gives authority for permitting, withdrawal of permitting, acquisition of shares and operating supervision (articles 6, 35, 36, 92, 101, 107, 119, 239 of Act on insurance activity)
• commission may grant and receive from Banking Supervision Commission, the Polish Securities Commision and Exchange Commission and other financial supervisors information’s required by such bodies to perform their statutory duties in the field of supervision (article 16 Act on insurance supervision and Insurance Ombudsman)
Insurance and Pension Funds Supervision Commission
• commision may enter into agreements of co-operation and exchange of information in the field of insurance supervision with insurance supervision bodies (article 17 of Act on insurance supervision and Insurance Ombudsman)
• commission may submit a request to the competent body of the insurance company for the removal of members of board (directors of branch) and suspend members of the board of the insurance company pending consideration of the request for their removal (article 212 of Act on insurance activity)
Insurance and Pension Funds Supervision Commission
• commission may request that management of an insurance company convene an extraordinary general meeting and include particular matters on the agenda of the next general meeting and delegate a representative to participate in the general meeting (article 211 of Act on insurance activity)
• commission may convene meeting of the board or supervision board of insurance company and include particular matter on the agenda (article 212 of Act on insurance activity)
Insurance and Pension Funds Supervision Commission
• commision may request from insurance company explanations and information on the company and its financial standing (article 207 of Act on insurance activity)
• commission may inspect the activities and financial position of an insurance company and entities which carry on insurance actions on behalf and in the name of insurance company, within the scope in which they are carried out (article 208 of Act on insurance activity)
Insurance and Pension Funds Supervision Commission
• commission may pass recommendations for an insurance company to ensure compliance of business of an insurance company with rules of the law, sets and the operating plan to ensure permanent capability of the insurance company to carry out its obligations and to prevent or eliminate faults in activities of the insurance company which may violate interest of the insured (article 209 of Act on insurance activity)
The Insurance Guarantee Fund
The Fund settles claims in the event of bankruptcy of an insurance company, dismission of the application for the adjudication of bankruptcy of an insurance company when the assets of the debtor cannot cover even the costs of the proceedings in bankruptcy and ordering the obligatory liquidation of an insurance company when the claims cannot be covered by the assets covering the technical and insurance reserves.
The Insurance Guarantee Fund
Compensations and benefits due under compulsory third party liability insurance of holders of motor vehicles, third party liability insurance of farmers and insurance of farm buildings are paid in the amount of 100%
The Insurance Guarantee Fund
Compensations and benefits due under life insurance and other insurance which are compulsory under the provisions of the internal law or international agreements ratified by the Republic of Poland - in the amount of 50% of liability, not more however than equivalent of 30 000,00 EUR.
The Insurance Guarantee Fund
The Insurance Guarantee Fund is allowed (under art. 99 of the Act) to grant a repayable financial aid to the insurance company which takes over the portfolio of compulsory insurance contracts (i.e. TPL insurance of holders of motor vehicles and TPL insurance of farmers) if the own financial means of that company, at least amounting to solvency margin and assets covering the technical and insurance reserves do not guarantee in full the solvency of this company. The aid is a kind of repayable jean and the Fund may acquire the receivables of the insurance company taking avail of such financial aid, up to the amount of the granted aid.
Expanses of the Fund (in PLN)
Expanses of the Fund 31.09.2003 31.09.2004 Dynamics in %
Claims by way of basic activity 52,7% 53,1% 112,52Claims by way of bankruptcy 13,2% 9,0% 76,18Operational costs 8,9% 6,9% 86,8Administrative costs 24,9% 30,8% 138,21Others operational costs 0,2% 0,2% 77,13Others financial costs 0,0% 0,0% 7,16TOTAL 100% 100% 111,75
Problems?
No insolvency no cry
Polish case
Polish market overview – life insurance
• Premium
• Concentration
• Products
Polish market overview – premium
Dynamics (in %)
2003 2004 2004/2003Total gross written premiums per an inhabitant (in EUR)
147 160 108,24
Life 66 74 110,69
Non-life 81 86 106,24
Value (in EUR)
Total gross written premiums share in GDP (in %)
3,04 3,13 102,87
Life 1,37 1,44 105,20
Non-life 1,67 1,69 100,96
2003 2004Change
(in % pts)
PZU Życie S.A. 45,917 43,019 -2,899
Commercial Union Polska - TUnŻ S.A. 15,095 13,806 -1,289
PAPTUnŻiR Amplico-Life S.A. 9,380 8,143 -1,236
TUnŻ ING Nationale-Nederlanden Polska S.A. 8,124 7,131 -0,992
Nationwide TUnŻ S.A. 1,723 5,035 3,312
TU Allianz Życie Polska S.A. 2,597 2,678 0,081
TUnŻ WARTA VITA S.A. 4,323 2,382 -1,941
Credit Suisse Life & Pensions TUnŻ S.A. 1,387 2,180 0,793
TUnŻ Cardif Polska S.A. 1,396 2,172 0,776
Nordea Polska TUnŻ S.A. 0,399 2,091 1,692
TUnŻ EUROPA S.A. 1,518 1,736 0,218
Generali Życie TU S.A.*) 0,940 1,373 0,433
Gerling Polska TUnŻ S.A. 0,665 1,314 0,650
Pramerica Życie TUiR S.A. 1,739 1,276 -0,463
Skandia Życie S.A. 0,902 1,115 0,213
STUnŻ Ergo Hestia S.A. 0,992 0,994 0,002
TUnŻ Compensa S.A. 0,603 0,680 0,078
CitiInsurance Polska TUnŻ S.A. 0,383 0,667 0,284
TUnŻ Polisa-Życie S.A. 0,522 0,438 -0,084
FinLife S.A. 0,250 0,422 0,172
Royal Polska TUnŻ S.A. 0,318 0,398 0,080
UNIQA TUnŻ S.A. 0,056 0,362 0,306
Sampo TUnŻ S.A. 0,227 0,192 -0,034
BENEFIA TUnŻ S.A. 0,125 0,108 -0,017
TUW Rejent Life 0,084 0,075 -0,009
Universum-Życie TU S.A. 0,096 0,061 -0,035
TUnŻ INTER-ŻYCIE Polska S.A. 0,049 0,053 0,004
TUnŻ SKOK S.A. 0,026 0,033 0,007
SIGNAL IDUNA Życie Polska TU S.A. 0,013 0,026 0,013
ASPECTA ŻYCIE TU S.A. 0,019 0,020 0,000
WTUŻiR Concordia Capital S.A. 0,015 0,019 0,003
MACIF Życie TUW - 0,000 x
KU Filar-Życie S.A.połącz.z UNIQA TUnŻ S.A. 0,036 - x
Generali Życie TU S.A. przed połączeniem z Zurich TUnŻ S.A.0,077 - x
Garda Life S.A. w likwidacji 0,001 - x
Wüstenrot Życie TU S.A. w likwidacji 0,004 - x
SpecificationShare in life branch premiums (in
Insurance companies
Polish market overview – products
Marriage insurance, birth insurance
1,2%
Life insurance linked to capital investment fund
31,8%
Life insurance48,8%
Annuity insurance0,2%
Accident and sickness insurance if supplemental to
the insurance referred to in classes 1-4
18,0%
Polish market overview – products
0
1 000 000
2 000 000
3 000 000
4 000 000
5 000 000
6 000 000
7 000 000
Life insurance Marriage insurance, birthinsurance
Life insurance linked tocapital investment fund
Annuity insurance Accident and sicknessinsurance if supplementalto the insurance referred
to in classes 1-4
Gross w ritten premiums
Gross claims paid
Polish market overview – insurance agents
Specification 31.12.2004Registered agents
Exclusive agents* 28 765
of which: life insurance companies 14 080
non-life insurance companies 14 685
Multiagents** 13 428
*Insurance agents perf orming activ ities on behalf of one insurance company .
**Insurance agents perf orming activ ities on behalf of more than one insurance company .
Potential problems
• Macroeconomic situation
• New products
Macroeconomic situation
• Capital market
• Technical rate
Capital market - structure of assets covering technical provisions [%]
insurance where the investment
risk is not borne by policyholders
insurance where the investment risk is borne by policyholders
The State Treasury securities 73,50 80,99 57,53
Bank deposits 5,11 6,47 2,21
Debtors from reinsurers, ceding undertakings, policyholders, insurance intermediaries and budget
0,31 0,46 0,00
Participation units and investment certificates 8,81 1,20 25,03
Other fixed-income debt securities 2,45 2,29 2,79
Shares admitted into public trading on regular market 7,94 6,18 11,69
Other assets 1,88 2,42 0,75
Total 100,00 100,00 100,00
Specification
Life insurance
Total life
of which:
Capital market - structure of assets covering technical provisions [%]
The State Treasury securities 73,50 67,56 71,29
Bank deposits 5,11 4,39 4,84
Debtors from reinsurers, ceding undertakings, policyholders, insurance intermediaries and budget
0,31 4,05 1,70
Participation units and investment certificates 8,81 3,76 6,93
Other fixed-income debt securities 2,45 1,22 1,99
Shares admitted into public trading on regular market 7,94 6,69 7,47
Other assets 1,88 12,33 5,77
Total 100,00 100,00 100,00
Non-life insurance
Total Life
insuranceSpecification
Capital market - structure of insurance companies' investments by
place and maturity dates
Specification Life Non-life Total
Domestic investments 97,35 97,31 97,39
Foreign investments - EU countries 2,45 2,37 2,56
Foreign investments - nonEU countries 0,20 0,32 0,05
Liquid investments 85,88 92,07 78,76
Other investments 14,12 7,93 21,24
by place
by maturity dates
New products
• Old data
• No data
Insolvency before and after the accesion
• Cases
• Causes
• Effects
• Conclusions
Old regulation – What went wrong?
• Dumping
• Illegal investment
• Risky business
Real problems
• Market situation
• Main products
• Others
Polish market overview – non-life insurance
• Premium
• Concetration
• Products
• Profits
casco liability Total casco liability Total
PZU S.A. 60,735 56,130 58,306 35,924 37,071 72,995
TUiR WARTA S.A. 11,338 9,560 10,400 28,966 27,273 56,239
HDI SAMOPOMOC TU S.A. 1,320 8,207 4,953 10,876 75,495 86,370
STU Ergo Hestia S.A. 6,999 2,809 4,789 32,383 14,511 46,894
TU Allianz Polska S.A. 6,126 2,792 4,367 31,069 15,813 46,882
UNIQA TU S.A. 2,161 3,207 2,713 27,567 45,690 73,257
TU Compensa S.A. 2,275 3,035 2,676 30,513 45,457 75,970
Tryg Polska TU S.A. 1,901 3,327 2,653 24,642 48,153 72,795
PTU S.A. 1,864 2,936 2,429 30,597 53,811 84,409
Generali TU S.A. 0,585 2,861 1,786 8,717 47,641 56,358
BENEFIA TU Majątkowych S.A. 1,529 0,607 1,043 58,571 25,984 84,556
TUiR CIGNA STU S.A. 1,010 0,973 0,990 16,363 17,598 33,961
Link4 TU S.A. 0,495 0,996 0,759 29,335 65,866 95,201
TU Filar S.A. 0,625 0,674 0,651 13,187 15,876 29,063
TUW TUW 0,168 0,562 0,376 10,960 40,883 51,843
MTU Moje Towarzystwo Ubezpieczeń S.A. 0,124 0,456 0,299 18,031 73,805 91,836
TUW Concordia Wielkopolska 0,170 0,248 0,211 16,469 26,929 43,397
TUW Florian 0,247 0,134 0,187 52,685 31,847 84,532
TUwRiGŻ Agropolisa S.A. 0,032 0,297 0,172 6,123 62,563 68,687
TUW TUZ 0,082 0,050 0,065 36,935 25,216 62,151
Pocztowe TUW 0,103 0,024 0,062 26,155 6,930 33,085
Gerling Polska TU S.A. 0,032 0,036 0,034 1,492 1,880 3,372
TU INTER Polska S.A. 0,058 0,007 0,031 7,851 0,991 8,841
AIG Polska TU S.A. 0,019 0,035 0,027 0,679 1,355 2,033
TU EUROPA S.A. 0,000 0,037 0,020 0,002 3,048 3,050
SIGNAL IDUNA Polska TU S.A. 0,001 0,000 0,001 0,218 0,068 0,286
Commercial Union Polska-TU Ogólnych S.A. 0,000 0,000 0,000 0,004 0,001 0,005
Credit Suisse Life & Pensions TU S.A. 0,000 - 0,000 0,006 - 0,006
TUiR Partner S.A. 0,000 0,000 0,000 3,493 24,746 28,239
Total 100,00 100,00 100,00 29,730 33,197 62,926
Share in premiums of insurance
Insurance companies
SpecificationStructure by insurance companies
2003 2004Change (in % pts)
PZU S.A. 53,088 50,263 -2,825TUiR WARTA S.A. 12,834 11,637 -1,197STU Ergo Hestia S.A. 6,896 6,426 -0,470TU Allianz Polska S.A. 5,109 5,862 0,754HDI SAMOPOMOC TU S.A. 2,793 3,609 0,816UNIQA TU S.A. 2,420 2,330 -0,090Tryg Polska TU S.A. 2,234 2,293 0,059TU Compensa S.A. 1,506 2,217 0,711Generali TU S.A. 0,596 1,994 1,398TUiR CIGNA STU S.A. 1,592 1,835 0,243PTU S.A. 1,559 1,811 0,252PTR S.A. 1,574 1,647 0,073TU Filar S.A. 1,548 1,409 -0,138AIG Polska TU S.A. 0,726 0,851 0,124BENEFIA TU Majątkowych S.A. 0,711 0,776 0,065Gerling Polska TU S.A. 0,723 0,632 -0,092Commercial Union Polska-TU Ogólnych S.A.0,528 0,542 0,014Link4 TU S.A. 0,327 0,502 0,175TUW TUW 0,390 0,456 0,066TU EUROPA S.A. 0,308 0,406 0,098TU Euler Hermes S.A. 0,001 0,348 0,348TUW Concordia Wielkopolska 0,271 0,306 0,035TUW SKOK 0,242 0,251 0,009TU INTER Polska S.A. 0,279 0,219 -0,060MTU Moje Towarzystwo Ubezpieczeń S.A. 0,025 0,205 0,180KUKE S.A. 0,264 0,202 -0,062SIGNAL IDUNA Polska TU S.A. 0,009 0,162 0,154TUwRiGŻ Agropolisa S.A. 0,638 0,158 -0,481TUW Florian 0,038 0,139 0,102TUW CUPRUM 0,135 0,135 0,001Pocztowe TUW 0,119 0,117 -0,001Credit Suisse Life & Pensions TU S.A. 0,082 0,117 0,035TUW TUZ 0,014 0,066 0,052D.A.S. TU Ochrony Prawnej S.A. 0,035 0,039 0,004TU PZM S.A. 0,035 0,038 0,003TUiR Partner S.A. -0,002 0,000 0,002IF TU S.A. w likwidacji 0,000 - xZurich TU S.A. 0,355 - xTotal 100,00 100,00 x
Specification
Share in life branch
Insurance companies
Polish market overview – non-life insurance
2003 2004Change
(in % pts)The three biggest insurance companies 72,818 68,325 -4,492
The five biggest insurance companies 80,719 77,796 -2,923
The ten biggest insurance companies 90,098 88,465 -1,632
SpecificationShare in life branch premiums (in
Polish market overview – non-life insurance
01
000
000
2 00
0 00
03
000
000
4 00
0 00
05
000
000
6 00
0 00
0
Accident
insurance
Sickness
insurance
Casco
insurance
of land
vehicles
Casco
insurance
of railway
rolling
stock
Casco
insurance
of aircraft
Insurance
of vessels
in sea and
inland
navigation
Goods-in-
transit
insurance
Insurance
against fire
and natural
forces
Insurance
against
other
damage or
loss
property
Motor
vehicle
liability
Aircraft
liability
Liability for
ships in
sea and
inland
navigation
General
liability
Credit
insurance
Suretyship Insurance
of various
financial
risks
Insurance
of legal
protection
Insurance
of
assistance
and
benefits for
travelers
Gross w ritten premiums
Gross claims paid
Comparison – old vs. new situation
• Inexperience• Lack of early warning
system• Lack of power - slow
path
• Experience• Lack of early warning
system• Centralised power –
quick path
Would new ragulation had helped?
Others problems
• Cross-border insurance
• Mother vs. doughter companies
• Globalisation
