The non life sector growth is 20%, the life sector - 15%, for 2008 , says Ralitsa Againe, Deputy Chair of the Financial Supervision Commission
Q: Ms Againe, what is the financial performance of the sector for 2008?
A: The preliminary data show that the gross premium income in 2008 is BGN1,802,004 thousand, compared to BGN1,505,070 thousand in 2007. The annual growth is 19.7%. The non-life sector has
underwritten contracts for BGN1,531,362 thousand, the annual growth is 20.6%. The life sector's gross premium income is BGN270,642 thousand, accounting for 14.9% annual growth.
I can say that the past year was relatively successful for the insurance sector, given the overall situation. There are separate cases where losses from investments have had a negative effect
on some companies, but the market is in very sound financial condition. The preliminary assessments show that the non-life companies' profit for 2008 is BGN2.5 million, and the life companies -
BGN6.6 million
I would like to pay particular attention that as a result of the order of the Financial Supervision Commission (FSC) on the methods of allocating technical provisions for Motor Third Party
Liability Insurance, for a second consecutive year the provisions in the non-life insurance sector have marked a significant increase and this is a very serious and important guarantee for the
financial stability of all companies. Therefore we have no concerns about the financial stability of the companies.
Q: Are there any reasons for worry among clients of life insurance companies who have invested their money in long-term savings insurance products?
A: Our industry, because of
its conservative policies concerning the investment of funds, has not incurred substantial losses by far...
Q: ... EUR 30-40 million losses on the background of our tiny market do sound serious...
A: Such losses are not recorded in the life insurance in Bulgaria last year. I do not
say that there have been no losses, but we haven’t seen such dramatic ones leading to shocks, as it has happened in many other European countries.
Q: Assuming hypothetically that a Bulgaria-registered insurance company goes bankrupt, how are the interests of its clients protected?
A: The customers of life insurance
companies enjoy very high protection, as there is a guarantee fund, which will pay out 70% of the benefits to every insured, but not more than BGN 8000.
In the field of non-life insurance, the guarantee fund shall provide the same security, but in the full size of the compensation, for MTPL and Accident Insurance for the seats in Public
Transport.
For other types of non-life insurance it is not provided for such security and they expose consumers to a relatively higher risk, but I would like to emphasize that during the crisis we are very
seriously monitoring the level of provisions of the companies, their capital adequacy and solvency. Usually FSC undertakes steps long before a serious problem occurs. As soon as we notice that
somewhere there is a need for additional capital, we immediately signal the shareholders thereof and they contribute additional resources.
It is very often that we are blamed for acting too quickly and asking shareholders to cash in additional resources. However, we firmly believe this is a necessary measure at times of crisis,
otherwise, at a later stage it may be that shareholders have no financial means to contribute or the problem turns out to be so profound that it is too late to apply any remedies. Therefore, we
impose supervisory measures as soon as we notice any indicators of need for additional funds.
Q: In Bulgaria, most insurers are owned by large insurance groups. If the parent company undergoes serious financial problems, how would this affect its units in Bulgaria?
A: Their units in Bulgaria are independent legal entities, they have own capital, own provisions, certain individual assets to cover these provisions, etc. At present, all of them are in good
financial standing, whereas their individual assets significantly exceed the required solvency margin.
If the parent company goes bankrupt, they will be sold, the new shareholder must be approved by the FSC, i.e. there is the necessary prerequisite and guarantee to select the appropriate top-class
shareholder who can support them financially in the future as it is a fundamental requirement by law.
Q: What if there are problems with a branch of a foreign insurer selling policies in our country?
А: As for branches, the case is different. The branches are part of the foreign parent company. We do not exercise financial supervision over them and have no information about their
financial standing. In the event of insolvency their clients could not be protected by the Bulgarian supervision. Moreover, MTPL and life insurance contracts signed in branches of foreign companies
are not protected by the guarantee fund, i.e. their customers will not receive anything from the guarantee fund, and they should know that.
Q: So, to date, the opinion of the FSC is that all companies are in relatively good financial health and there is no risk to clients, right?
A: Exactly.
Q: Are there any negative trends – the crisis is increasingly felt in many sectors of our economy?
A: There is a serious slowdown of growth in both non-life and life
insurance. In the segment of life insurance the delay is more sensitive. There is growth, but it is considerably slower compared to 2008 – now it is measured by one-digit numbers.
The factors driving growth over the last few years will now affect the preservation of premium income at the existing levels. I mean credits involving signature of insurance policies. Given the
delay in crediting, the effect is that no new insurances will be concluded. The same is with motor insurance, where in recent years the growth has been driven by the intense import of cars. Now
these imports slow down. But, on the other hand, there are more cars and homes in the country now and the owners will renew their insurance policies.
Q: Are new insurance products offered?
A: In recent years, a substantial growth in financial insurance has been observed – loans, guarantees, various financial losses. Now it is likely that these insurances will continue to be on
demand. We have particularly focused our attention on companies that sign such insurance policies, because in a period of financial crisis they imply high risk.
Q: Are there any negative indications in their audits?
A: No, not by far. Generally, the ratio of benefits paid out vs. total insurance amount has not grown so significantly. We have been following results on a monthly basis, which does not allow for
drastic deterioration of a company’s financial health, so that customers are unpleasantly surprised and we can not react.
Q: So, we should not expect any surprises in 2009, should we?
A: We strongly hope to be able to live safely through this plague that infected the USA and many European countries.
