Speaker:

Nikolay AGAFONOV

Denis GORULEVInsurance Dept. Associate Professor

Scientific Supervisor:

STATE REGULATION OF INSURANCE MARKET IN THE

EU AND RUSSIA AND«SOLVENCY II»

04/21/23

Own funds – basic guarantee of the insurer’s solvency

€

EEC First Directive / «SOLVENCY I»

where:• AM – available margin• RM – required margin• min EC – minimal equity capital (in Europe – min own funds)

Finance Ministry Order Nr. 90n

EEC Directives 1973 and 2002

Norm: AM>=1,3*max(RM; min EC)

RM = КRe*max(16% ins. premiums; 23% ins. payments)

23% payments

16% premiums

From «Solvency I» to «Solvency II»

• insufficiently takes into account the portfolio structure• insufficiently takes into account the risks of the company

Lacks of «Solvency I»:

Working out and implementation of «Solvency II»

1973 2002 2005 2009 2010 2012

Directive 73/239/EE

C

«Solvency I»«Solvency II»

comes in force

QIS5 – the last test of «Solvency

II»

«Solvency II» Directive

QIS1 – the 1st test of «Solvency

II»

«SOLVENCY II»: 3 PILLARS

Solvency II

Quantitative Requirements

•Technical reserves•Capital

Qualtitative Requirements

•Risk Management•Corporate Governance•More rights of the supervisor

Transparency

•Public Disclosure•More reports for the supervisor

Minimum Capital Requirement (MCR)

Noncompliance => License withdrawn

LICENSE

Solvency Capital Requirement (SCR)

• Solvency with the 99,5% probability during 1 year

• One insolvency in 200 years• Measures potential losses because of the risks

Solvency Capital Requirement (SCR)

Own funds are less than SCR => The supervisor takes measures

Solvency Capital Requirement (SCR)

PILLAR 1: QUANTITATIVE REQUIREMENTS

«SOLVENCY II» test of one of the largest St.-Petersburg

insurers

?Insurance premiums:2008 – 186 Mio EUR2009 – 47 Mio EUR1st January 2009:Own funds = 41,5 Mio EURMCR = 20,25 Mio EURSCR=43,5 Mio EUR

Own funds vs. ObligationsSolvency II:minimum own funds:

Min equity capital is increased in 4 times: ?

Largest revenue –98 Bln. €

Largest revenue – 1,5 Bln. €

2,2 Mio. € for non-life3,2 Mio. € for life insurance and reinsurance

Non-life: 0,75 Mio. € => 3 Mio € Life: 1,5 Mio. € => 6 Mio € Reinsurance: 3 Mio. € => 12 Mio €

PILLAR2: QUALITATIVE REQUIREMENTSFraudulent bankruptcies of MTPL insurers

Agent commissions 50% and more

Underdeveloped insurance legislation

No real penalties for fraudulent bankruptcies

Inevitable bankruptcy

Inevitable fraudulent bankruptcy: rest of money is stolen by management and shareholders

Till 2010: no instruments of fraudulent bankruptcies prevention

Creation of new MTPL insurers for fraudulents bankruptcies

PILLAR2: QUALITATIVE REQUIREMENTS

• Bankruptcies of MTPL insurers

• Agents commissions – 50% and more

• Own funds don’t work as a solvency guarantee

• Till 2010 Federal Insurance Supervision Service had very limited rights

• No real penalties for insurance legislation violations

PILLAR3: TRANSPARENCY

• Balance sheet and profit-loss report are not enough for full analysis

• Formally public reports of insurance companies in fact are unavailable for public

• The information about management and major shareholders is not published

KEY TARGET – GROWTH OF RUSSIAN INSURANCE MARKET STABILITY AND

EFFICIENCY!

Thank you for your attention!