Interviu cu Vladimir STIRBU, Director Departament Asigurare, CNPF
The double digit annual growth rates on the insurance market in the Republic of Moldova, much higher than the European average, make it more attractive for foreign investors. The market is now under a major process of becoming more mature, through various regulations and the introduction of the relevant European standards.
The realities and outlook of this market were described, in an exclusive interview for PRIMM Insurance & Pensions Magazine, by
Insurance Department Manager
The National Commission of Financial Market from the Republic of Moldova
XPRIMM: How was NCFM established and what were the measures taken for market regulation?
Vladimir STIRBU: The need for a better market regulation to boost its efficiency and attractiveness, as well as the approximation to the European Union standards are some of the basic reasons for setting up the NCFM. The commission was established with the support of the IMF and the World Bank and its main objectives are: providing financial stability on the domestic market, fostering a single regulation policy, the market's complex development, as well as efficient protection for investments and market operators.
The measures adopted by NCFM were mainly twofold, focused on regulatory and authorization issues, on the one hand, and on monitoring and control, on the other hand.
Thus, the normative acts were amended for a better harmonization with the Insurance Law and the Law on MTPL, regulatory measures for the motor market (new tariffs based on the Methodology approved by the Government, automated integrated system etc.), as well as regulation of activities in brokerage and protection of consumers' rights.
Monitoring the compliance of solvency and financial stability norms, creation and investment of reserves, companies' liquidity were also achieved by applying regulatory sanctions or, if necessary, withdrawal of licenses. As a result, three fines and two warnings were issued in 2008, and we had four cases of operation license withdrawal.
XPRIMM: What is new and different in the new insurance law?
V. S.: The new insurance law was drafted in line with the provisions of EU Directives and the principles of international insurance supervision standards. The Law amends the regulatory principles for insurance and is based on prudence, solvency and financial stability norms of the insurers.
Unlike the old normative act, the current Law has no provisions or attributions for the supervisory authority, as they are included in the NCFM Law.
Law no. 407 has a special chapter on regulating the insurance brokers' activity, setting liabilities and sanctions, and contains express stipulations about actions for consumers' protection.
XPRIMM: Is the number of insurance companies going to be lower as a result of the new requirements for share capital increase?
V. S.: Market consolidation is a primary objective for NCFM. The new provisions include the increase of the minimum share capital for the insurers up to EUR 920 thousands for non-life insurers, EUR 1.36 million for life insurers and EUR 1.82 million for reinsurers, by 2012. After the first year, four companies did not comply, and many companies increased their capital from own reserves, in a first stage, planning to subsequently attract foreign investments in case the profit is insufficient. I believe the number of players will go down, as the market is already quite concentrated, with five companies covering a 70% market share, and tends to consolidate.
XPRIMM: How does the new law encourage the presence of foreign investors on the market?
V. S.: The current law and the secondary normative acts set clear conditions for companies, which is an essential incentive for attracting investments.
Thus, the upper limit for liability on an insured risk cannot exceed 25% of the equity and technical reserves, namely major risks can only be undertaken by strong companies, including companies with foreign capital.
Monetary and FX policies in the Republic of Moldova offer the banking system a possibility to become stable, and the interest rates are more favorable than abroad, and this applies in a situation of macroeconomic stability and evaluation of FX risks.
The Republic of Moldova has a governmental strategy to attract investments and promote exports, with a series of legislative acts drafted with a focus on creating a favorable investment environment and boost entrepreneurship activities (for instance, the profit tax for entrepreneurial activities is zero percent).
XPRIMM: How would you describe the performance of the insurance market from the Republic of Moldova in 2006 - 2007?
V. S.: The period you mentioned represented a new stage for the insurance segment in the Republic of Moldova, as it underwent a process of becoming more mature, a process described by amendments in the legislative framework and institutional framework reform. Thus, two normative acts essential for the financial sector came into force, namely the Insurance Law and the Law on mandatory MTPL, the licensing procedure for insurance brokers was regulated and the National Insurance Guarantee Fund was established. The Actuaries Association was also set up, as well as a new entity in charge with the supervision of the non-banking financial market, the National Commission for Financial Markets (NCFM).
I think that these measures had a positive impact on the relevant market, as well as on attracting foreign investments; therefore, ten local companies currently have foreign participation from 11 states in their share capital. The participation share reaches approximately 27%, with countries like Austria, Great Britain, the Netherlands, Switzerland, Romania.
At the same time, the insurance penetration rate in the GDP is growing every year, reaching 1.6% in 2007 (1.27% in 2006). 2006-2007 was also a profitable time for the local relevant market, thus the companies' profit amounted to EUR 5.4 million, or 10% of the total gross written premium volume, 41% higher compared to 2006. The net assets also went up by 23% (EUR 34.7 million) and the insurance reserves by 26% (EUR 32.5 million).
The number of licensed insurance companies was 29 in 2007, the total number of operating companies being 33. In 2007, they wrote gross premiums EUR 43.5 million worth, up by 29% compared to the previous year.
Overall, I think the market performed well, with a regulatory framework in the making and growing quantitative and qualitative indexes, backed by the emergence of major players on the market.
XPRIMM: What were, in your opinion, the incentives for market growth?
V. S.: The insurance market development fits into and follows the social and economic development of the Republic of Moldova. Thus, the upward trend of the insurance segment is triggered by higher sales for certain basic insurance products, especially on the motor segment, which remains the market's growth engine. This segment sums up 60% of the total underwriting volume and 70% of the total paid claims. Thus, boosting the leasing services resulted in Motor Hull insurance higher by 54%, while Green Card insurance increased by 27%. At the same time, MTPL insurance increased by only 11%, accompanied by a lower coverage of approximately 50%. Property insurance classes for individuals undergo a slow development, although they sustained a 37% increase, while life insurance grew by 55% compared to 2006 (due to the only operator specialized on this insurance class - GRAWE Life Insurance).
The market's development depends greatly on the players' ability to promote new customized and competitive products, as well as on the entry of new players with a wide experience in this business.
XPRIMM: What are the main market trends?
V.S.: The market's growth and consolidation trends are more than obvious, as demonstrated by the double digit annual growth rates and by the higher weight of insurance products in the GDP. We are also witnessing a re-launch of life insurance (growing by 45% in the first semester, compared to 2007) and an increase in the share of property insurance in the portfolio of the relevant companies. Insurance brokers also start to gain an ever more important role, with 12 brokerage companies already licensed.
Overall, we see companies shifting focus from quantitative to qualitative indicators, as well as a stronger presence of this sector in the media (media companies, specialized publications, web pages etc.)
XPRIMM: How would you assess the insurance market's profitability in the Republic of Moldova?
V. S.: As previously mentioned, the companies' profit amounted to EUR 5.4 million in 2007, up by 41% compared to 2006. However, the problem is that profitability is largely due to the tariff and not to the investment activity. The calculation methodology for the MTPL premium, as approved by the Government, limits the profitability margin in MTPL insurance, but the motor class remains the market's pillar. Considering that this impacts greatly on the increase of the claim rate and the decrease of profitability, insurers must quickly apply solutions to lower the claim rate and diversify the portfolio.
XPRIMM: What are the forecasts for 2008? Can you estimate a value for written premiums at the end of 2008?
V. S.: For 2008, we estimate a volume of gross written premiums of EUR 66.9 million, up by 30% compared to 2007, and a GDP penetration rate of 1.6%, the latter to reach a value of 2.5% within 3 to 5 years.
XPRIMM: How would you rate the activity of the Romanian companies - IBP DELTA Insurance and GRAWE - on the market from the Republic of Moldova?
V. S.: These companies proved to be dynamic and professional players on the market, with remarkable results year after year. The takeover of CARAT by GRAWE ranked the latter third among the relevant local companies, with an 8.7% market share. I think the success of this company is mainly due to its policies of promoting the products and the fact that it established the operation conditions for the sales network, compared to insurance brokers.
At the same time, IPB DELTA Insurance demonstrates good dynamics, based on a modern management, introduces competitive products and has a strong promotion, while extending its sales network.
XPRIMM: In your opinion, are there any synergies between the insurance markets from Romania and the Republic of Moldova?
V. S.: The Romanian market had a similar evolution to the one followed by the market in the Republic of Moldova. We can take a close look at the development of the Romanian market to avoid some situations that impeded the growth process ten years ago, and Romania's affiliation to the European community can bring us the opportunity to approximate the best practices to the realities in our country.
PRIMM Insurance & Pensions Magazine